Tesco on Friday became the latest company to feel investors’ ire over pay, suffering a big protest vote over changes to its share option scheme.
Of the votes recorded on the scheme at the annual meeting of Britain’s biggest retailer, 41 per cent were against it. That was the biggest protest against a share plan put forward by a FTSE 100 company this year and, according to some, the largest for a dozen years or more.
The revolt follows a series of escalating protests by shareholders over executive remuneration this year.
This week, 40 per cent of investors in Home Retail did not approve the group’s remuneration report in a protest at planned changes to a bonus scheme.
Investors are increasingly strident about pay following criticism that they had been soft on boards and had sanctioned the excessive bonuses blamed for the banking crisis. Voting advisers have highlighted investor concerns about pay at other businesses, including Marks and Spencer and BT, the telecoms company.
Manifest, a proxy voting agency, said the vote against Tesco’s option scheme was the biggest protest against such share schemes since it started monitoring voting in 1996.
The issue was not discussed at Tesco’s Glasgow annual meeting but Riskmetrics, the investor advisor service, had advised shareholders to oppose the changes, which extend to three years the one-year period in which leaving or retiring executives can exercise share options. The Association of British Insurers issued an amber top, signalling a potential breach of guidelines.
Lucy Neville-Rolfe, Tesco’s corporate and legal affairs director, said the company had done the right thing. The motion had been backed by 55 per cent of votes recorded, with 4 per cent withholding their votes.
She said: “We have shareholders [with options] right down to store managers in Tesco. Because of the volatility of the markets, if they are retiring or retiring for ill-health reasons – or even if there is redundancy – it means they lose out in the current market because they only have one year to exercise the options.”
Alan Brett, head of research at Manifest, said: “It is a clear signal of discontent from shareholders on the structure of long-term incentives. Shareholders are not happy to see the interests of executives diverge from their own.”
Mr Brett said that on previous occasions where Manifest had seen a lot of dissent over a share plan, it was usually followed by a high level of dissent on the remuneration report in the following year.
He said: “Tesco’s will have to engage with the investor community and seek to address their concerns about these arrangements to avoid the remuneration report being voted down next year.”
One shareholder said the management at Tesco remained well regarded. He and other investors were surprised by the backlash but said it was more a reflection of a change of mood among investors. A second said: “Shareholders don’t want to let anything through that could be used to set a precedent.”
However, Tesco won the support of 89 per cent of shareholders’ votes in rejecting a call by the Unite trade union for the retailer to improve conditions for agency workers – many of them migrants – at its UK and Irish meat suppliers.
Jack Dromey, deputy general secretary of Unite, said: “Others are moving. You are the biggest but you are the slowest. As market leader, you should lead and not lag.”
But David Reid, Tesco chairman, said: “We do not own or control these companies. Your desire to recruit in the meat industry is a matter for you.”
