Tesco administrators saw their pay improved last year after online hypermarket Ocado was removed from a calculator used to set bonuses.
Dave Lewis, Tesco’s chief executive, would have missed out on free shares worth more than £2m if Ocado stayed on a list used to compare rivals’ success.
Ocado’s sharp share price rise meant Tesco would have underachieved in a benchmark comparing performance.
Tesco said Ocado was no longer relevant as it was a technology business.
According to Tesco’s latest yearly report, Mr. Lewis would have missed out on an extra 979,113 shares if Ocado had not been excluded. Finance director Alan Stewart will receive shares worth more than £1m because of the change. They cannot sell the shares for two years.
The accounts show that Mr. Lewis, due to leave in September, was paid a total of £6.42m in 2019, an increase of £1.6m on the year before.
Companies use a variation of procedures to regulate bonuses, including comparing the share price performance of competitors.
By removing the Ocado comparison, Tesco shares outstripped the three-year total return index by 3.3%, rather than underperforming by 4.2% if the online rival was included.
In the annual report, the payment committee explained: “As Ocado has seen a noteworthy shift away from being a retail-focused business towards a technology-focused business during the concert period, the committee decided to remove Ocado from the standard from 16 May 2018. This was the date on which a clear pattern developed of Ocado chasing a technology strategy.”
That date is the day before Ocado announced a major deal to supply its technology to US supermarket group Kroger. The deal sparked the start of a long rally in Ocado’s share price that impelled the company into the FTSE 100.
As we completed our five-year reversal journey, distributed valuable increases in efficiency and cash generated, and built a better business for our customers, contemporaries, dealers and shareholders.
The decision comes after Britain’s biggest retailer faced criticism for going ahead with a huge dividend payment to stockholders at the same time as receiving a business rates holiday from the government lockdown support scheme.
Supermarket rivals Morrison’s and Sainsbury’s have been among masses of businesses to hold back payments.
A Tesco speaker said: “Our policy is to reward all generations responsibly, fairly and competitively against the relevant market pay standard for their role.