Supermarket to pursue former chief executive’s £1.2m pay-off if misconduct proven
Tesco has introduced new provisions to claw back bonuses from senior staff members, following controversy over awards given to previous management.
The supermarket chain said that ‘clawback provisions’ would be introduced for chief executive Dave Lewis and finance director Alan Stewart “in the event that results are materially misstated or the participant has contributed to serious reputational damage of the company.”
Lewis received a total of £4.13m for his first six months in the job and is due to receive £6.5m in cash this year as well as a share bonus if he meets performance targets.
Under the new provisions, Tesco said it would take back annual cash bonuses up to three years after payment, and long-term share bonuses would remain subject to claw back up to five years after.
The former chief executive Philip Clarke and finance director Laurie McIlwee stepped down in 2014 after years of declining trade and profit warnings. They received payouts of more than £2m between them, and faced further backlash from the public when a £263 million black hole in Tesco profits was uncovered in August 2014.
After initially trying to withhold payment, Tesco said it was contractually committed to pay the termination fees unless it was able to establish a case of gross misconduct.
“If new information arises which would change this assessment, we have explicitly reserved the company’s rights to pursue recovery of these payments,” the annual report read.
“Should it be determined in the future that there was gross misconduct [while under Clarke’s and McIlwee’s directorship] the company will seek recovery of the termination payment,” it added.
Tesco defended its multi-million “golden-hello” for Lewis, as the cost of attracting him away from Unilever. It was made up of a £525,000 cash payment to replace the bonus he would have received, benefits of £97,000, a pension of £143,000 and £3.3m in incentives.
Since joining in September, Stewart has earned £2.3m including a £413,000 basic salary payment.
Half of both directors’ annual bonuses for 2015 will be based on sales performance, with 30 per cent based on profit, and 20 per cent on individual targets.
Last year Lewis missed out on a bonus after Tesco posted a record £6.38bn loss.
Tesco added that the new rules would “ensure the company is able to take back awards,” if the same situation were to occur again.
Deanna Oppenheimer, the chair of Tesco’s remuneration committee said the pay strategy would continue to be reviewed in shareholder meetings this year.