// Tesco chairman John Allan defends £6.4m pay out for outgoing chief Dave Lewis after adding £1.6m bonus
// He said he expected the move would spark an investor revolt at Tesco’s AGM this month
// If it kept Ocado on list of competitors used to assess performance, Lewis’ bonus would be reduced from £2.4m to £800K
The chairman of Tesco has defended a controversial decision remove Ocado from the list of rivals in order to hike the bonus payout for outgoing chief executive Dave Lewis.
Speaking to The Telegraph, John Allan said it was “right and fair” that Tesco added £1.6 million to Lewis’ long-term bonus – bringing it to a total of £2.4 million – after the board decreed that Ocado was no longer a “direct competitor”.
The hike means Lewis’ overall pay will now be £6.4 million for the year ending March, marking the highest annual pay packet for an executive at the grocery giant since the departure of Sir Terry Leahy in 2011.
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Lewis’ total pay increased by more than a third last year due to a leap in annual and long-term bonus payouts.
His basic salary alone is 355 times that of the lowest-paid average employee.
Of its total pay package, Lewis is set to receive a £2.4 million annual cash bonus, and another £2.4 million long-term share bonus on top of a £1.6 million in basic salary and benefits.
However, if Tesco had kept Ocado on a list of competitors used to assess its performance, it would have underperformed by 4.2 per cent – therefore reducing Lewis’ annual bonus from £2.4 million down to £800,000.
The grocery giant’s board compares its performance and total shareholder returns with a group of comparable competitors over a three-year period to calculate long-term rewards.
With Ocado not on the list of competitors, Tesco appears to have outperformed them by 3.3 per cent.
Allan conceded that he knew the move to increase Lewis’ annual bonus up to would spark an investor revolt at Tesco’s AGM on June 26.
“Sometimes businesses have to do what they believe is right, even if it won’t be immediately popular,” he told The Telegraph.
“We should be driven by a desire to be right and fair to all of our stakeholders, and that includes management.”
Shareholder advisory groups Glass Lewis and ISS have already urged a vote against the Big 4 retailer’s remuneration report.
Glass Lewis previously argued that food delivery remained a core part of Ocado’s business and was its main source of revenue in 2018 and 2019.
Tesco was also recently forced to defend a decision to pay a £635 million dividend to shareholders while accepting a similar-sized tax break from the government’s emergency coronavirus support package.