The Big Question: Were Tesco investors right to rebel over pay?

Steve Dresser, director, Grocery Insight

It’s hard to square the investors’ decision, especially considering that the dividend was paid despite pressure not given Covid-19 and that Tesco benefited from a business rates rebate totalling over £500m.

The dividend was paid to reflect the five-year journey of a turnaround which has been executed very well. Dave Lewis and the team have done everything that was asked of them, and more.

When he took the helm, Tesco was dire. Uncompetitive is being kind. Stores were a disaster and value only meant bottom tier of product. Ranges were a mess, the strategy was to press ahead with larger stores even though the market was going the other way – billions were wasted.

So with the turnaround completed and the dividend paid, why did the shareholders reject the executive payment structure?

The removal of Ocado as a competitor is key but strange. The removal occurred in 2018 for a start, not last week, and reflects Ocado’s growth coming from outside the UK.

Ocado doesn’t see its future as a pureplay food retailer, rather as a provider of logistics and technology services for picking food online.

Given that shift, it’s entirely appropriate that it is no longer a direct competitor to Tesco.

To reject the bonus payments for Dave Lewis and the leadership he has given through difficult times, culminating in Covid-19 when Tesco grew versus the discounters for the first time and led the marketplace in terms of brand awareness and equity, is perhaps the biggest sign of a turnaround successfully completed.

Lisa Byfield-Green, head of insight, Retail Week

First of all, let’s be clear that I have nothing but respect and admiration for the achievements of Dave Lewis. Since being parachuted into Tesco in 2014 from Unilever he took on the unenviable task of turning the supertanker around, setting clear goals and expectations that he delivered on.

However, there are a couple of issues with the award of a £6.4m bonus payout for Lewis. Firstly, the removal of Ocado from the benchmark list at the last minute to allow the bonus to be triggered was clumsy and bound to lead to some raised eyebrows. If Ocado as a technology company was to be removed this should have happened far earlier.

More importantly though, in contrast to Ocado which is investing heavily for future growth, much of Tesco’s success over the past six years has been derived from cost savings. Aside from Tesco’s successful acquisition of Booker, its turnaround has largely been characterised by disposals. Tesco sold off its grocery operations in South Korea and Turkey, its Giraffe restaurant chain, the Euphorium Bakery network, Dobbies garden centres, Tesco opticians, closed Tesco Direct and more recently divested of its international operations in Thailand, Malaysia and Poland, where it had continued to struggle against tough competition from the French giants and local discounters.

Tesco has also cut many hundreds of roles across its head office and store operations, in order to reduce costs. Some of these staff members may feel rightly indignant to see Lewis being rewarded for this.

And finally, we are in the midst of a pandemic. In the UK, there are currently 9 million workers furloughed, nearly 10,000 job cuts from businesses including John Lewis, Arcadia and Harrods were announced this week, and according to our Retail Week consumer research, 60% of consumers say they need to be ‘very careful’ how they spend money in the coming 12 months.

In this current environment, however much we feel that executives have performed in line with the targets set six years ago, it now seems like a highly inappropriate time and bad PR to be openly awarding such hefty cash bonuses.