Tesco to pay ousted boss Phil Clarke £1.22m – despite profits hole

Tesco suffered a humiliating blow yesterday as it was forced to pay more than £2m to its former chief executive and finance director, who left before the discovery of a £263m black hole in its profits.

Former chief executive Phil Clarke, ousted in October last year, will receive £1.22m and former finance director Laurie McIlwee, who resigned, is to get £971,000 under what Tesco called “liquidated damages” contractually due to the two men.

Both were leading the company when the commercial practices which led to the scandal were occurring. Tesco issued a series of profit warnings under Mr Clarke and its share price tumbled to a 14-year low. He was replaced by Dave Lewis, an 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 £263m overstatement of profits and an investigation by the Serious Fraud Office.

But Tesco said yesterday: “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.”

It was not clear if either of the former directors has taken legal action against Tesco and neither was available for comment last night.

Glenn Hayes, a partner at the law firm Irwin Mitchell, said: “Tesco was caught between a rock and a hard place as it faced potentially massive claims by these former directors for breach of contract in the High Court and the SFO’s ongoing investigations.”

Tesco said that if new information came to light it would “pursue recovery of the payments and damages”.

The company suspended nine executives below board level in connection with the overstated profits.

Two have returned to work and four left the company. The scandal is also 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 John Allan, the Dixons Carphone deputy chairman, said to be the favoured candidate.

Tesco’s former chief executive, Sir Terry Leahy, said last month that there had been a failure of leadership under Mr Clarke. “People tried very hard to do the right thing; it clearly has not worked,” he told BBC’s Panorama.