As the hotly debated issue of executive pay continues to fall under the microscope, this week the focus will turn on Tesco and Morrisons.
The supermarket giants hold their respective AGMs in the coming days – and both are braced for potential revolts over the remuneration packages granted to their chief executives.
First it is the turn of Morrisons and its boss David Potts, who has had his long-term share award boosted from 240% of his salary to 300%.
The Institutional Shareholder Services (ISS), whose judgements can influence around a quarter of a company’s shareholder base, has voiced concerns that Potts’ bonus package has been increased despite the fact the grocer’s performance targets have been reduced.
On Friday, Morrisons’ big four rival Tesco will come under the spotlight, with Pensions & Investment Research Consultants (Pirc) advising shareholders in Britain’s biggest retailer to oppose its remuneration report.
Pirc made the recommendation after boss Dave Lewis was paid £142,000 to relocate from London to the Hertfordshire area, closer to Tesco’s Welwyn Garden City headquarters.
Although MPs are beginning to clamp down on executive pay – the Business Select Committee declared in April that long-term incentive plans should be outlawed – should investors in Tesco and Morrisons really be concerned?
Surely, both of these complaints are nothing more than storms in the proverbial teacups.
“Lewis and Potts have both spearheaded dramatic turnarounds in fortunes at their respective businesses and have made improvements to long-term shareholder value”
Lewis and Potts have both spearheaded dramatic turnarounds in fortunes at their respective businesses and have made improvements to long-term shareholder value by focusing, among other things, on price, quality and availability.
Tesco’s operating profit surged 29.9% to £1.28bn in the year to February 25, while statutory pre-tax profit came in at £145m – an immense improvement on the £6.4bn loss of two years previously.
And Morrisons has turned the corner perhaps quicker than anyone in the City would have predicted, registering its first full year of profit and like-for-like sales growth since 2012 in the year to January 29.
Despite an accounting scandal, a turbulent grocery market and disposals of numerous non-core businesses, Tesco’s share price has held relatively stable, dropping only marginally from the 191.55p when Lewis was parachuted in during September 2014 to 185.25p at the start of this week.
The story has been even more positive at Morrisons, the share price of which has risen from around 205p when Potts arrived in Bradford to 244.4p.
But the bigger picture is how that value for shareholders could increase further in the coming years.
More to come
Lewis has got Tesco firmly back on the front foot, targeting a £3.7bn merger with Booker and laying the foundations to build group margins back to between 3.5% and 4% by 2020.
“While neither retailer’s job is done, Tesco and Morrisons are both moving in the right direction thanks, in no small part, to their chief executives”
Likewise at Morrisons, Potts is eyeing further capital-light methods of growth, such as petrol forecourt convenience stores, the resurrection of the Safeway brand to wholesale to independent retailers and the introduction of more “popular and useful services” in its biggest supermarkets.
While neither retailer’s job is done, Tesco and Morrisons are both moving in the right direction thanks, in no small part, to their chief executives.
Although, like many retail bosses, they have been extremely well compensated for their efforts, the likelihood is that investors will come to the same conclusion.
In the cases of Messrs Lewis and Potts, they have been worth every penny.