Shareholders grill Tesco board over directors' contracts

Supermarket giant Tesco faced tough questions from shareholders today at the same time as it unveiled further strong sales growth.

The retailer, which held its annual meeting in central London, came under fire for having directors on two-year rolling contracts, which lobby groups say can lead to excessive payoffs and encourage “reward for failure”.

The directors were also quizzed on what Tesco is doing to help British farmers, some of whom stood up in the meeting and said their produce was regularly rejected by supermarkets.

Despite the angry remarks, the company gave investors an upbeat assessment of trading.

Tesco said that in the 12 weeks to May 17, total UK sales rose 12.3% with the key like-for-like figure ahead by 5.8% on a year earlier.

That compares with like-for-like growth of 4.1% across the last financial year when underlying profits also surged 14.7% to €1.98bn.

Group sales in the first quarter increased 15.1% year on year with the core UK performance complemented by increasing non-food sales, a strong performance overseas and the success of other services.

Chief executive Terry Leahy said: “Last year we reported excellent UK sales figures, increased our non-food market share to 5% and delivered our international targets.

“Tesco is Britain’s best value supermarket and we are now well into our second billion of price cuts.

“Since 1996, this is like giving an average family with children £8.50 (€12) of their weekly shopping bill.”

He added that the on-line arm of the company, Tesco.com, had a sales increase of 26%, with profits of £12m (€17m) in the year.

The National Association of Pension Funds (NAPS), has urged members at today’s meeting to abstain from voting on the re-election of three executives, including deputy chairman David Reid.

It wants contracts of one year or less in order to avoid directors of UK companies leaving with excessive payoffs.

Pension Investment Research Consultants (PIRC) which urged shareholders to vote against pay deals at GlaxoSmithKline last month, is also concerned about the contracts given to Tesco directors.

Tesco said it was now committed to putting new board appointments on one year contracts but said it was obliged to honour these two year deals which have been negotiated previously.

In the past year, the chief executive received a 15% pay boost, taking his salary and benefits to £2.8m (€3.96m), while Mr Reid’s salary and benefits amounted to £2.6m (€3.4m).

Responding to one shareholder’s comments that the two year rolling contracts were “an obscenity and out of touch with current thinking”, Tesco chairman John Gardiner said: “Each year the remuneration committee has discussed service contracts so it is a subject with which we are very familiar.

“We have received a great many communications from our shareholders on this subject in recent weeks and we will be looking at them very carefully. We are clearly in a minority with two year contracts at present.

“It is not a subject that is new to us. We have been moving and we will move further.”