Tesco Revamps Bonus Scheme For Top Managers

Tesco (Xetra: 852647 - news) is sounding out leading shareholders about a new long-term reward scheme ‎for thousands of senior staff even as it prepares to announce the biggest annual loss in its history.

Sky News has learnt that the UK's biggest retailer has been holding discussions with City institutions about the details of a revised long-term incentive plan following several years of lacklustre performance.

Tesco's new leadership team is keen to incentivise senior managers who participate in its bonus and LTIP schemes.

The company has paid modest or no performance-based bonuses since 2011, and is expected to disclose next week that the trend will be repeated for 2014.

One shareholder briefed on Tesco's proposals said the company wanted to adopt an LTIP scheme for 2015 based on total shareholder returns, with a more nuanced framework implemented in subsequent years.

‎In recent years, Tesco has failed to hit profit and capital return targets which would have triggered payouts to managers.

Investors are said to be broadly supportive of the plans, more details of which are expected to be set out in its annual report next month.

Dave Lewis, Tesco's new chief executive, said in January that he would establish a "turnaround-based bonus for all colleagues" following a £263m commercial trading scandal.

Analysts are forecasting that next week's results will see a statutory loss of around £2.5bn because of property-related impairment charges which could amount to as much as £4bn.

A series of profit warnings last year - which cost Mr Lewis's predecessor, Philip Clarke, his job - led to Tesco stating that trading profit for the year ending in February would not exceed £1.4bn.

The trading ‎issues prompted Mr Lewis to announce an overhaul of the way it deals with suppliers.

The Serious Fraud Office has launched a formal criminal investigation, which sources say is likely to take about a year to conclude, while the Groceries Code Adjudicator and the Financial Reporting Council are undertaking separate inquiries.

Tesco suspended nine executives over the affair, most of whom have left the company, some after being reinstated to their roles.

Mr Lewis will be supported in his turnaround efforts by John Allan, the company's new chairman, who was appointed in February, and Matt Davies, the former Halfords chief executive, who will lead the UK business.

They will have to navigate what analysts say is the toughest environment for big food retailers for many years, although recent market share data suggests that Mr Lewis's efforts are starting to have an effect.

In January, he outlined proposals to relocate Tesco's head office, close dozens of stores and terminate its defined benefit pension scheme in an effort to save costs.

He also plans to sell a stake in Dunnhumby, its customer loyalty arm, and has introduced a long-term price-cutting initiative across hundreds of core grocery items.

In total, a cull of head office staff will involve thousands of job cuts.

The debate over Tesco's decline was reignited earlier this year when Sir Terry Leahy, the former chief executive, blamed Mr Clarke for "a failure of leadership".

Analysts pointed out that some of Tesco's least successful initiatives in recent years, including its expansion into the US and China, had taken place during Sir Terry's tenure.

Tesco declined to comment on Wednesday.