Sainsbury withdrew its support yesterday for a controversial £2.4m pay-out to its former chairman, Sir Peter Davis, after revealing that it was based on falsely upbeat assessments of how well the company had been doing.
In a detailed statement to the stock exchange, the supermarket chain, which has angered shareholders over the proposed payment, revealed that its new chief executive, Justin King, effectively blocked the plan to hand over the performance-related award to Sir Peter by telling a board meeting last week that the true state of the company was more dire than had previously been thought.
"Based on this new information", Sainsbury said, it could "no longer support its original recommendation on the proposed share award". The move was widely interpreted as a last-ditch attempt by the high street grocer to prevent an embarrassing revolt at its annual general meeting on Monday by shareholders who are appalled that Sir Peter - who was ousted last Wednesday evening - is in line for such a generous bonus.
While Sainsbury has been under pressure to renounce the pay-out, the statement has left the directors on the remuneration committee looking completely undermined.
The team, headed by Keith Butler-Wheelhouse, agreed the original plan with Sir Peter last year. Mr Butler-Wheelhouse, who is also chief executive of Smiths Group, is understood to have been at Sainsbury yesterday afternoon in meetings with other directors.
City sources said his position looked weak and that he will be under pressure to step down in the near future. So troubled is Mr Butler-Wheelhouse by the recent turn of events that he has reportedly hired his own public relations advisers to defend his reputation. A public dressing down could also be in line for Lord Levene and Jamie Dundas, members of the remuneration committee standing for re-election at the AGM.
Sainsbury also named the remuneration consultancy firm, Towers Perrin, as having been responsible for advising the remuneration committee on the original deal. The firm confirmed yesterday that Sainsbury was a client. But it is understood that Towers Perrin was only consulted on the remuneration scheme once it had been formulated by the company.
The influential National Association of Pension Funds expressed outrage earlier this week that the company had gone back on a pledge it made last week not to include Sir Peter's pay in the directors' remuneration report. The retailer responded by making clear it would have liked to exclude the award, but had concluded that it was not able to do so.
"The board has sought legal advice regarding the remuneration report resolution. The board considered putting an amended resolution to the meeting, which would have excluded matters relating to Sir Peter Davis, but this was rejected on advice from the company's lawyers," Sainsbury said.
Even though the pay-out will technically be included in the vote, the company said it would still fight Sir Peter over the sum, which has not yet been handed over to him. Sainsbury said: "The board will continue to recommend the remuneration report to shareholders at the annual general meeting, but the board will not implement these recommendations in relation to Sir Peter Davis."
Such was the negative nature of Mr King's assessment of the true state of Sainsbury's affairs, that the company is planning to try to withhold the entire £2.4m from Sir Peter. Mr King's update to the board was followed by a profit warning, which prompted analysts to slash profits forecasts to £400m this year, down from £700m last year.
The Association of British Insurers said that it was still "resolutely against" the remuneration policy. The NAPF said it was also still urging shareholders to vote against the remuneration report.Reuse content