The National Association of Pension Funds urged shareholders yesterday to block the remuneration report of J Sainsbury after the supermarket giant said a controversial £2.4m payout to its former chairman, Sir Peter Davis, would be included in the vote at next week's annual general meeting.
The move is the latest blow for Sainsbury's, which is in danger of losing the vote on directors' pay, as the NAPF joins another powerful shareholder - the Association of British Insurers - in recommending a vote against its remuneration report.
There could also be a protest vote on two directors standing for re-election to the remuneration committee. They are Lord Levene and Jamie Dundas.
The NAPF took the unusual step of changing its recommendation on the remuneration report last night after it became alarmed that the company had backed down on an earlier pledge to exclude Sir Peter's payout from the shareholder vote next Monday.
Sir Peter was dramatically ousted from Sainsbury's on Wednesday evening last week after the company bowed to criticism by City institutions at the £2.4m he was entitled to from share option awards. Sir Peter has presided over a particularly poor period in the history of the high street grocer, in which it has lost market share to rivals and seen its share price plunge.
Sainsbury's moved quickly to try to bring shareholders back on side. The NAPF said yesterday that it had a meeting on Thursday morning at which Keith Butler-Wheelhouse, the chairman of Sainsbury's remuneration committee, said Sir Peter's windfall would not be included in the report that shareholders are due to vote on.
However, it is understood that Sainsbury's subsequently took legal advice and decided it could not exclude the payment, which Sir Peter is entitled to under his contract.
Sainsbury's confirmed that it had intended to change the remuneration report, but added: "We have decided against it".
City sources said whether the money was included in next week's vote or not would not affect a possible legal case between the supermarket chain and its former chairman, and Sainsbury's could still fight to reduce the sum that is eventually handed over to Sir Peter.
One source said Sainsbury's had offered the concession because it wanted to avoid another showdown with shareholders. The company also had to reverse its decision to appoint Sir Ian Prosser as the person to replace Sir Peter because the City opposed the move.