Executive pay fell sharply at Tesco last year as the supermarket declined to pay an annual bonus to its leadership team, which failed to hit profit targets.
Former CEO Dave Lewis, who stepped down on 30 September, had received an annual bonus of £2.3m in in the 2019/20 financial year as part of a £6.3m pay packet criticised by shareholder groups at the time.
However, last year neither Lewis, recently departed CFO Alan Stewart nor new CEO Ken Murphy received any annual bonus payout.
That, as well as reductions in the long-term share-based incentive scheme, saw Lewis’ pay packet drop almost 75% back to £1.6m (also reflecting his departure part-way through the year), while Stewart’s pay more than halved from £3.6m to £1.4m.
Murphy received his fixed pay of £629k since joining on 1 October and a £363k award for income foreited under a non-compete clause at previous employer Walgreens Boots Alliance.
Tesco said that despite the strong sales performance during its 2020/21 financial year, UK retail Covid-19 costs of £892m and Tesco Bank bad debt charges had resulted in the group not achieving minimum profit levels to underpin the executive annual bonus.
Tesco announced last month that pre-tax profits slid to £825m for the 12 months to February, compared with £1bn in the previous year, while Tesco Bank reported a £175m operating loss after a £295m impairment.
Additionally, the results meant earnings measures under the long-term share scheme also fell below threshold, while the free cashflow measure has also been affected.
This had resulted in a 2018 PSP (performance share plan) payout of 23.1% of maximum, meaning Lewis’ PSP awards fell from £2.3m in 2019/20 to £683k last year and Stewart’s from £1.3m to £433k.
The Tesco remuneration report stated: “The committee acknowledges that the level of vesting did not reflect the company’s strong performance or the exemplary leadership response during an unprecedented time.
“However, after much debate, the committee agreed not to apply any discretion to the formulaic outcomes of either the 2020/21 annual bonus or the 2018 PSP for executive directors.”
The pay awards to Tesco’s exec team last year were criticised by, among others, governance advisor Glass Lewis over the decision to remove Ocado from comparative companies, which inflated bonus payments.
2021 will be the first year that Ken Murphy is granted a PSP award since his appointment was announced in October 2019.
The remuneration committee has decided to increase this award given “the economic environment and shape of the business has changed significantly” since his hire. The leadership team should be “appropriately incentivised to deliver growth” following the sale of its Asia business, it said.
Therefore, the maximum PSP award will be increased from 275% to 300% of salary for his first award in 2021.
Incoming CFO Imran Nawaz’s award level will be enhanced to 275% of salary.