Eight Tesco directors each receive £1m-plus

Tesco's chief executive, Sir Terry Leahy, saw his pay soar to £2.5m last year, the latest in a series of high-profile bumper boardroom pay packages. He was one of eight directors at the supermarket group whose pay topped £1m.

The bonanza was due to large payouts from the group's short-term and long-term incentive programmes. Sir Terry, 46, was paid a basic salary of £842,000, which together with £1.6m of incentive payments, took his total remuneration to £2.5m. This compared with £1.6m last year.

Total boardroom pay at Tesco rose to £13m, compared with £8.8m in the previous year due to the incentive schemes.

Other directors who broke through the million-a-year barrier included Tim Mason, the marketing director (£1.37m), Andrew Higginson, the finance director (£1.3m) and Philip Clarke, the logistics and IT director (£1.1m). David Reid, the deputy chairman, remained the second-highest paid member of the Tesco board with £1.99m.

Tesco defended the payments, saying they were only paid "if challenging targets are met". The company added that the incentive schemes paid out in shares, not cash, and were only triggered because earnings per share growth had exceeded an 11 per cent target. The directors must hold the shares for two to four years.

Tesco added that 100,000 staff had shared incentive bonuses of more than £200m in the year, during which pre-tax profits rose to a record £1.2bn and earnings per share rose by 14 per cent.

Tesco enjoyed a good year with profits boosted by strong sales of non-food ranges such as DVDs, videos and electrical appliances. It has also maintained a strong market share lead over its main rival J Sainsbury. However, the last financial year was a disappointing one for Tesco in terms of its share price. The shares drifted from a high of 268p last June to 228p in December. They have only risen back to the 260p mark in the past few weeks.

Union leaders appeared unruffled by the pay packages. Shopworkers union, Usdaw, pointed out that £200m had gone to staff and that Tesco shop floor workers were in the "upper quartile" of earners in the sector and have greater job security because of the company's success.

These factors should help Tesco avoid the high-profile pay disputes that have affected several other major companies recently. Prudential had to back down last week on plans to introduce a new bonus scheme because a number of the group's biggest shareholders were unhappy about it.

In November DFS, the furniture retailer, was forced to abandon plans for a new share option scheme a day before its annual meeting after 55 per cent of shareholders voted by proxy against it.

Last year Marconi was savaged over its attempt to rebase its executive share options to take account of the group's imploding share price.

Others companies that have run into shareholder pressure on pay in the past 12 months include Reuters and Cable & Wireless, who both battled ahead with new pay schemes despite 30 per cent of shareholders voting against them. Even Lord Browne of BP recently found his £6.8m pay packet questioned from the floor of the group's annual meeting by Alastair Ross Goobey, the former head of the mighty Hermes Pension fund.