NAPF urges Morrisons shareholders to revolt

RREV, the voting arm of the National Association of Pension Funds, urged investors not to back the retailer's remuneration report at its annual meeting on 26 May. It said two-year contracts risked rewarding executives for failure if they lose their jobs - something that is quite likely given that Morrisons is poised to appoint a new chief executive to replace Bob Stott.

David Paterson, head of research at RREV, said: "Two-year contracts are something investors disapprove of as a matter of principle. Clearly there is potential for large payments if people move on."

Morrisons extended the contracts for all its top executives after offering the luxury to its new finance director, Richard Pennycook, to compensate him for relocating his family up to Yorkshire. The contracts are fixed until July 2007, when they will revert to the standard 12 months.

"We are not wholly convinced that the application of similar termination terms to the existing executive directors is appropriate and that an alternative approach could not have been used to meet the company's objectives, without the risk of a reward for failure," RREV's report said.

RREV did concede that compared with this time last year, when Morrisons still had only one independent director, the supermarket group had made huge progress. That is why it is advising shareholders to abstain from approving the company's remuneration report, rather than vote against it. "Morrisons' transparency has moved on materially since last year," Mr Paterson said. "We accept that two-year contracts were an essential part of stabilising the company, and find them acceptable as a temporary measure."

Morrisons fell into its first annual loss last year after the challenge of integrating its £3bn acquisition Safeway. It is thought to be close to appointing Mr Stott's successor.