Tesco has been forced to pay more than £2 million to its former chief executive and finance director who left just before the discovery of a £263 million black hole in its profits.
Former chief executive Phil Clarke, who was ousted, will receive £1.22 million and former finance director Laurie McIlwee, who resigned, gets £971,000 under what Tesco called “liquidated damages contractually” due to the two men.
Both were leading the company when the commercial practices that led to the scandal were occurring.
Tesco issued a series of profit warnings under Clarke and its share price tumbled to a 14 year low. He was ousted in October and replaced by Dave Lewis, a high-flying executive from consumer goods giant Unilever.
Previously, the supermarket giant said in October’s half-year results that it was suspending those payments “given the investigation into the issues regarding the accounting for commercial income.”
That referred to the millions of pounds which Tesco had demanded from many of its suppliers as rebates for displaying their products prominently on its shelves. This led to a £263 million overstatement of profits and an investigation by the Serious Fraud Office.
But announcing the humiliating blow today, Tesco said: “The company is contractually committed to make the relevant payment to each former director unless it can legally establish a case of gross misconduct against him.
“The company has taken legal advice and has concluded that it does not have the basis for continuing to withhold the payments. Accordingly, the board considers that defending costly claims for the payments would not be in the company’s best interests.”
It was not immediately clear if either of the former directors has taken legal action against Tesco and neither was available for comment.
Tesco said that if new information came to light it would “pursue recovery of the payments and damages”.
The company suspended eight executives below board level in connection with the over-stated profits but at least one of these is reported to have returned to work recently. The scandal is being investigated by the Financial Conduct Authority and the accounting standards body.
Tesco’s climbdown comes as it is close to announcing a new chairman to succeed Sir Richard Broadbent with Dixons Carphone deputy chairman John Allan reportedly the favourite.Reuse content