Sir Peter Davis forced out of Sainsbury's

Shareholder revolt over £2.4m bonus forces out chairman. Fears of trading alert by supermarket giant

Sir Peter Davis was last night dramatically forced to step down as chairman of J Sainsbury, the struggling supermarket group, after being threatened with a "massive" shareholder revolt over the size of his bonus at the group's forthcoming annual meeting.

Sir Peter Davis was last night dramatically forced to step down as chairman of J Sainsbury, the struggling supermarket group, after being threatened with a "massive" shareholder revolt over the size of his bonus at the group's forthcoming annual meeting.

Sir Peter, who has infuriated leading shareholders by refusing to waive a £2.4m bonus comprised of shares in the company, will agree to step down from the group today.

His effective ousting will increase fears in the City that the group, which recently recruited Justin King as its new chief executive from Marks & Spencer, might be about to warn shareholders about current trading.

Mr King has been in his post for a few weeks and already there have been signs that he wants to seize full control of the company and contemplate radical action in an effort to resurrect its fortunes.

Some fear this might begin with a more cautious assessment of the group's trading prospects than has been given by the Davis-led board.

J Sainsbury has been losing market share to its rivals; its shares have underperformed its rivals as a result and its relations with its leading institutional shareholders are at or near an all-time low.

Sir Peter's own credibility took a hefty knock in February when he led an attempt to bring in Sir Ian Prosser as his replacement, an attempt that failed miserably after shareholders objected to the move.

In May, Sainsbury's reported a 2.9 per cent fall in profits and disappointing sales. The company, which lost topping billing among supermarkets to Tesco in 1995, was pushed into third place last year by Asda. Since January, its shares have fallen from a 12 month high of 314.25p to 284.75p last night.

Sir Peter's latest, and ultimately fatal crisis has concerned the group's executive pay scheme which resulted in Sir Peter being awarded a £2.4m bonus after a year that could hardly have been described as a successful one.

Sainsbury was given just 48 hours to axe the pay scheme or face a revolt of significant proportions at its annual meeting next month.

Lord Levene of Portsoken, the company's senior independent director, had been trying to broker a deal with leading investor groups including the Association of British Insurers and the National Association of Pension Funds, but an initial offer, believed to involve Sir Peter giving up 10 per cent of his bonus, was viewed as being derisory and almost insulting.

Investors argued that the performance targets were not demanding enough and were alarmed that Sir Peter was poised to collect 86 per cent of the shares he was entitled to despite falling sales and profits.

Sir Peter has enjoyed considerable backing in the past from the founding Sainsbury family, who hold 35 per cent of the shares, but they are believed to have cooled in their support for him, especially after the débâcle over Sir Ian Prosser.

It was unclear last night who would become chairman of the group but it is believed that a replacement has been found.

Advisers to the group will be desperately hoping that this time, the new chairman, whoever he or she might be, will be acceptable to the company's increasingly anxious shareholders.

Executives who have faced the wrath of investors

Jean-Pierre Garnier

A majority of shareholders at GlaxoSmithKline voted in May against a "golden parachute" payment for chief executive Jean-Pierre Garnier. The drug giant had earlier bowed to shareholder pressure and scrapped two-year rolling contracts.

Jonathan Bloomer

Prudential was criticised by investors in May for awarding directors pay rises - including a 10 per cent increase to chief executive Jonathan Bloomer - despite a fall in profits and the first cut in the company's dividend since 1914.

Sir Martin Sorrell

In April shareholders in the global advertising giant WPP approved a controversial multi-million pound bonus scheme for its top executives, with up to £44m going to chief executive Sir Martin Sorrell. Sir Martin defended the deal as "not a bonus but an investment scheme."