Tesco investors revolt against board pay plans

Tesco suffered the biggest blue-chip shareholder rebellion this year after nearly 40 per cent of investors voted against its remuneration report at its annual general meeting yesterday.

Some lobby groups directed particular anger at the £4.3m total pay awarded to Tim Mason, the head of the supermarket's loss-making US business, Fresh & Easy, for the financial year to the end of February.

However, Tesco succeeded in getting the resolution on its remuneration report passed, with 62.3 per cent of the votes in favour. The critical threshold was 50 per cent, with 37 per cent of votes were cast against its pay policy.

A spokesman for Tesco said: "Obviously, some shareholders have expressed their concern and we will be, as you would expect, engaging with them going forward." The revolt by Tesco investors is the largest this year at a FTSE 100 company – bigger than the 32 per cent of votes cast against the remuneration report of the mining group Xstrata, and 16 per cent against that of the consumer goods company Reckitt Benckiser.

It is the sixth-biggest protest vote over pay in the past decade and puts down a marker for Marks & Spencer's annual meeting later this month. The M&S chief executive, Marc Bolland, could earn up to £14.8m this year.

While the mood at the Tesco AGM was combative when directors were answering questions about its US operations, the chief executive Sir Terry Leahy, who is retiring in March, was given a standing ovation.

Furthermore, all of Tesco's board directors, including Mr Mason, were re-elected and received more than 90 per cent of the votes cast. Several lobbyists expressed concern about the Tesco board's pay in the run-up to yesterday's vote, including the corporate governance company PIRC, the pension-fund adviser Risk Metrics, and CtW Investment Group, a US firm which works with pension funds that have stakes in Tesco.

Michael Garland, the director of value strategies at CtW Investment Group, said: "The extraordinary opposition vote reflects investor outrage over the excessive pay awarded to Tim Mason, Tesco's second-highest paid executive, despite the dismal performance of the US Fresh & Easy business he oversees." Mr Mason, who joined Tesco in 1982 and helped to create the company's slogan "every little helps", will become deputy chief executive in March when Sir Terry retires.

Fresh & Easy made a £165m loss last year, although Tesco said losses had peaked. The chain, which now has more than 150 stores, was launched in November 2007 but has been badly hit by the deep recession in California, Nevada and Arizona.

Tesco said in June that sales at Fresh & Easy rose by 37.8 per cent in the 13 weeks to 30 May. However, it was up against soft comparable sales for the same period last year.

David Reid, the Tesco chairman, said: "In almost every country, you incur losses in the first three years – this is not unusual."

Tesco also responded robustly to criticism from the floor from a person claiming to act for US shareholders about why it did not engage with unions across the Atlantic. Sir Terry said: "Your union [in the US] has opposed us from day one and has gone on opposing us, and that is not the basis for a partnership. And we have a good business with motivated staff who don't want to be part of your union."

Tesco, which operates in 14 countries, including the UK, delivered record underlying pre-tax profits of £3.4bn for the year to 27 February.