Tesco executives saw their pay boosted last year after online supermarket Ocado was removed from a calculator used to set bonuses.
Dave Lewis, Tesco’s chief executive, would have missed out on free shares worth about £1.6m if Ocado stayed on a list used to compare rivals’ success.
Ocado’s sharp share price rise meant Tesco would have underperformed in a benchmark comparing performance.
Tesco said Ocado was no longer relevant as it was a technology business.
According to Tesco’s latest annual report, Mr Lewis would have missed out on an extra 979,113 shares if Ocado had not been excluded. Finance director Alan Stewart could have lost out by about £900,000 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 variety of measures to determine bonuses, including comparing the share price performance of competitors.
By removing the Ocado comparison, Tesco shares outperformed 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 remuneration committee explained: “As Ocado has seen a significant shift away from being a retail-focused business towards a technology-focused business during the performance period, the committee decided to remove Ocado from the benchmark from 16 May 2018. This was the date on which a clear pattern emerged of Ocado pursuing 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 propelled the company into the FTSE 100.
The decision comes after Britain’s biggest retailer faced criticism for going ahead with a huge dividend payment to shareholders at the same time as receiving a business rates holiday from the government lockdown support scheme.
Supermarket rivals Morrisons and Sainsbury’s have been among dozens of businesses to hold back dividends.
A Tesco spokesperson said: “Our policy is to reward all colleagues responsibly, fairly and competitively against the relevant market pay benchmark for their role.
“The variable element of remuneration has paid out in line with the strong performance of the business last year, as we completed our five-year turnaround journey, delivered significant increases in profitability and cash generation, and built a better business for our customers, colleagues, suppliers and shareholders.”