Shareholders question pay-off for Tesco boss Philip Clarke

Tesco facing potential row over package for outgoing chief executive

Tesco is facing a potential row with shareholders over a pay-off of up to £10m for outgoing chief executive Philip Clarke.

Some leading shareholders are concerned that Mr Clarke will be paid his full £1.15m salary for another six months and then receive 12 months’ salary and benefits worth £1.2m on his departure in January. This would mean he receives 18 months pay in total after his exit was announced, compared to the City standards of 12 months.

Shareholders are understood to have questioned Tesco over the pay-off. One major investor said: “People get paid for delivery, not for not delivering.”

Sarah Wilson, chief executive at shareholder advisory group Manifest, said: “This is generally frowned upon. Investors expect to see any termination payments capped at 12 months. Is this some sort of settlement? It is unusual. People will jump to conclusions in the absence of an explanation

Mr Clarke is also entitled to a series of share awards, but many of these are underwater and the remaining £2.7m will remain subject to performance targets

Shares in Tesco dropped by 4pc to 277.35p on Tuesday due to growing concerns that one of the biggest dividend payments in the City could be under threat following the ousting of Mr Clarke. The fall in the share price comes a day after Tesco announced that it will replace Mr Clarke as chief executive with Dave Lewis from Unilever. At the same time, it warned sales and profits are “somewhat below expectations”.

Investors have reacted with shock to the switch. David Herro, chief investment officer of Harris Associate, said: “We didn’t have a good year priced in, we had a bad year priced in. There are [now] more unknowns but we are just going to patiently wait and see and add and trim to the portfolio.”

Pradeep Pratti, analyst at Citigroup, said Tesco’s dividend was likely to come “under pressure”, while James Anstead, analyst at Barclays, added: “We were always sceptical that Philip Clarke would cut the dividend as CEO – a new team might take the opportunity to rebase.”

On Mr Clarke's pay, Tesco said: 'Philip Clarke will continue in a full time capacity and will be employed on his existing terms for a period of six months. During this time he will continue in his role as CEO before supporting the transition after the arrival of Dave Lewis."