Philip Clarke, the CEO of Tesco, must be rather annoyed. He found out this week that he will not be receiving a bonus – because of the firm’s slide in profits – but two directors on their way out are getting ‘liquidated damages’ totalling £3m. Richard Brasher, former head of Tesco in the UK, pocketed £1.3m to leave, and Tim Mason, who headed up the doomed Fresh & Easy chain in the US, walked away with £1.7m.
So why has Clarke missed out on his bonus? Well, Stuart Chambers, who runs Tesco’s remuneration committee, said the firm’s financial performance was ‘short of where I wanted it to be’, meaning that there were no cash bonuses or share awards for anyone in the executive team. It means poor old Clarke will walk away with a piffling £1.1m salary and £57,000 in benefits. Oh, the scandal!
It’s true Tesco has not being doing as well as it might, recently. In April, it revealed that its profits had fallen for the first time in 20 years: pre-tax profits for the full year were down a massive 51% from £4bn to £1.96bn. So what caused the damage?
First there was the £1.2bn impairment charge for exiting the US business (more on that in a mo), then there is an £804m property writedown (which City analysts were not expecting, by the way) relating to building and development projects in the UK that it has decided not to pursue any further. The company’s tweaked property strategy now means that around 100 sites that it bought in the last decade to do up will no longer get their makeover.
It’s safe to say Tesco’s American venture – Fresh & Easy – has been a disaster. Unfortunately for former CEO Sir Terry Leahy it marks a considerable portion of his legacy at the firm, he stands to lose up to £10m worth of performance-related shares as a result.
Still, Clarke has a plan for turning around the chain’s fortunes. He wants to make Tesco's stores more friendly and welcoming, and is spending freely to do so. He's also introducing in-store Harris & Hoole Coffee shops and Giraffe restaurants. So maybe he can look forward to a bonus next year...