It had been expected that the executive pay report was going to be approved by a small margin
More than two thirds of () shareholders voted down the grocery giant’s pay report at its annual meeting on Friday.
Some 67.3% of votes were made against the directors’ remuneration report, versus 32.7% in favour.
READ: Tesco retail profits to be in line with last year despite lockdown sales spike
The £6.4mln pay packet of outgoing chief executive Dave Lewis had been the point of contention, though it had been expected that his salary was going to be approved by a small margin.
Proxy advisors ISS and Glass Lewis advised investors to vote against the bumper pay packet, which was something of a leaving present for Lewis before he steps down on September 30, after six years in the role.
The revolt was sparked after Tesco removed online grocer Ocado from the list of peers against which it measures director pay, which had the effect of increasing Lewis’s bonus to £2.4mln from £800,000.
The remuneration committee argued Ocado had become more of a technology company rather than a direct grocery competitor, however, this justification split shareholder opinion.
The vote is advisory, meaning that Lewis will still receive the payout, although a defeat marks an embarrassing failure for Tesco.
“While the board is pleased that all other resolutions were carried with very large majorities, we are disappointed that the advisory vote on the directors’ remuneration report was not passed,” the company said in a statement alongside the AGM results.
The supermarket group suggested it had been told by “a number of our larger shareholders” that “the majority agree” that the overall outcome of pay “is proportionate given the outstanding turnaround delivered by management” – though Tesco’s share price is little changed since Lewis started in September 2014.
Tesco said it “recognise” the concerns about the change to the pay comparator group and said it “will continue to engage with shareholders to fully understand their concerns and will consider the full range of feedback” for next year’s AGM.
The dispute over pay also comes amid wider scrutiny of executive salary packages as the UK economy heads for a recession due to the effects of the pandemic and unemployment rises.
Earlier in the day, Tesco gave a trading update for 13 weeks to 30 May where Lewis warned that retail profits for the year to next February will only be in line with past year despite much high sales seen during lockdowns.
The FTSE 100 giant has calculated that it will face £840mln of extra charges this year from safety and payroll adjustments during the pandemic, offsetting the £532mln of UK business rates relief and additional grocery sales.
Read More: Tesco PLC shareholders reject director pay report over CEO Dave Lewis’s fat