Tesco Chiefs Face Bonus Drought Unless They Reverse Profit DropGabi Thesing
Tesco Plc senior managers will only receive an annual bonus if they manage to reverse the U.K. grocer’s declining profit, according to today’s annual report.
Chief Executive Officer Philip Clarke and his management team missed out on a bonus and other long-term incentives last year as profit at Britain’s largest supermarket company fell for the first time in two decades, the document shows.
“Our financial performance fell short of where we wanted it to be,” Stuart Chambers, chairman of Tesco’s remuneration committee, said in the report. In future and in accordance with new guidelines, bonuses will only be paid if profit has grown.
Clarke plans to dump the U.S. Fresh & Easy chain and is retreating from international markets and reducing Tesco’s domestic store expansion as the Cheshunt, England-based company struggles to maintain its dominant share at home. The grocer last year invested 1 billion pounds ($1.5 billion) revamping stores and training staff as it seek to win customers back from discounters such as Aldi and more upscale chains like Waitrose.
To reflect Tesco’s “fundamentally different approach to space going forward,” the company said in the report it will base future pay awards on trading profit rather than so-called underlying profit as the former doesn’t include property gains.
Tesco said last month it will scrap 100 major store developments, marking the end of a space race that defined the country’s largest retailer for the past two decades. Instead, the retailer will focus on expanding its online and convenience-stores as it seeks to address market share losses.
Today’s report also shows that the company paid former Fresh & Easy CEO Tim Mason 1.6 million pounds in “liquidated damages” after he was ousted last year. Mason, who established the U.S. business in 2007, had worked at Tesco for 30 years.
Under the new remuneration plan, annual bonuses will be “less heavily weighted towards short-term profits, but linked to a more balanced scorecard of financial, strategic and operational measures,” according to the report.
Still, if maximum targets are met, Clarke can earn as much as 7 million pounds, with his base salary making up 16 percent of the package, the annual bonus 40 percent and the performance share plan 44 percent. Under similar metrics, Chief Financial Officer Laurie McIlwee can earn a maximum of 4.6 million pounds.
Clarke’s base salary this year will be 1.12 million pounds, while McIlwee will earn basic pay of 869,040 pounds.