Tesco will spend more than £1.8m on its new chief executive Dave Lewis but up to £9.6m on departing boss Philip Clarke as the supermarket puts its faith in the industry outsider to turn its sales around.
Clarke’s shock departure and his replacement with Unilever’s president of personal care, who will start in October, comes as the supermarket chain warned that sales and trading profit in the first half of the year would be “somewhat below expectations”.
The company, squeezed by fierce competition from cheaper rivals Aldi and Lidl, last month blamed efforts to win back shoppers by slashing prices for its worst quarterly performance in decades.
Tesco’s chairman Sir Richard Broadbent said while Clarke “has done a huge amount” to re-position Tesco, he agreed with the board that it was “the appropriate moment to hand over to a new leader with fresh perspectives and a new profile”.
Investors and analysts yesterday backed Tesco’s gamble on Lewis, who has no top-level experience at a supermarket but who has worked with the group as one of its biggest suppliers and is widely hailed as a turnaround expert. One of Tesco’s biggest shareholders said Lewis and Alan Stewart, who will join Tesco as finance chief from rival Marks & Spencer, will give shareholders “the change they have been pushing for”.
“Given the challenges that Tesco faces, my hope is that both are given a reasonable period to turn things around,” said Paras Anand, head of European equities at Fidelity.
Analysts said the appointment of a non-retailer could herald a major strategy re-think at the grocery giant, which could include bigger price cuts to win back customers. “A material change in UK trading strategy cannot be dismissed, which is likely to have considerable implications for the rest of the British sector,” said Shore Capital’s Clive Black.
Shares in Tesco rose 1.3 per cent after the announcement yesterday, but rivals Sainsbury’s and Morrisons both fell, their share prices closing down two per cent and 2.4 per cent respectively.
According to Manifest, Philip Clarke’s total package could amount to around £7m when including his basic salary of £1.1m, deferred bonus payments, share options and long-term investment plan (LTIP), based on its current share price.
The organisation added that while Clarke took no cash bonus last year, he could also be paid a pro rated bonus of £2.6m for the rest of his time at Tesco.
Lewis will be paid a basic salary of £1.25m, plus £525,000 in lieu of his cash bonus from Unilever.
Following the profit warning, Jefferies analysts predicted an even greater decline of four per cent in UK like-for-like sales in the second quarter, and think retail margins will have fallen to 3.85 per cent.