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Tesco's Philip Clarke May Not Get Away With His £10m Pay-Off

Why Tesco's Former Chief May Not Get Away With His £10m Pay-Off...
Asa Bennett
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(FILES) In this file picture taken on March 5, 2012 people carry shopping bags through the carpark of a Tesco Extra supermarket in Birkenhead, north-west England. Britain's biggest retailer, supermarket Tesco, looked on course to withdraw from its struggling US business Fresh & Easy as chief executive Philip Clarke on December 5, 2012 said its presence would likely end. AFP PHOTO / PAUL ELLIS (Photo credit should read PAUL ELLIS/AFP/Getty Images)
PAUL ELLIS via Getty Images

Tesco's former chief executive Philip Clarke may be forced to give back some of his estimated £10m pay-off as the supermarket tries to recover from its £250 million accounting scandal.

Britain's biggest supermarket is set to claim on Thursday that executives came under pressure during Clarke's time as chief executive to hit targets, with a small group of employees indulging in "inappropriate behaviour" by deliberately misleading auditors and accountants in order to boost financial results.

The supermarket was left reeling by the revelation after having to admit that its half-year profit was overstated by £250 million, with eight senior employees already suspended as inquiries are under way to find out what went wrong.

Clarke was forced to resign after the supermarket suffered its worst financial results in 40 years, with the retailer in such a parlous state of affairs that Dave Lewis took over from him a month earlier than planned

Clarke is estimated to be getting a leaving package worth up to £10 million, being paid his £1.17 million-a-year salary for a six month "transition" period and a further year's worth of salary on departure.

But some suggest that Tesco could try to claw back some of Clarke's pay-off. One big City investor told the Independent: “It’s inconceivable that Clarke’s pay-off will not be discussed with the board. It will depend on the terms of any contracts drawn up between him and the company but we’re certainly expecting this to be looked at.”

Last week, legendary investor Warren Buffet sold part of its Tesco shares, after admitting that he made a "huge mistake" in buying them.

Story continues below...

Six Reasons Tesco's Dominance May Be Finished
Tesco can't shrug off its poor performance(01 of06)
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Clarke blamed the dip in sales on cutting prices, moving away from vouchers and the disruption from refurbishing a large number of stores.However, Bernstein Research's Bruno Monteyne estimates that if you took out such costs, their like-for-like sales would still have dipped by 2%.
Tesco is trying too hard to appeal to everyone (02 of06)
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Discount retailers like Asda specialise in offering good deals, while fancy supermarkets like Waitrose are without equal at providing luxury. So Tesco is trying to be a mix of everything, other customers are lured away by more specialised rivals.
Others are doing what Tesco is trying, but better(03 of06)
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Tesco "has been increasing prices way too fast over the last few years to keep up earnings growth," Monteyne points out.As a result, compared to discount retailers like Asda, Tesco is at least 4% more expensive for shoppers.
1 million fewer customers are visiting a week(04 of06)
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The proof that Tesco is having some issues comes in the footfall, as the chain seems to have lost more than 1 million customer visits a week, worth £25 million in sales.
Tesco has never done this badly (05 of06)
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Clarke, who has worked for 40 years at Tesco, admitted: “I have never seen a quarter’s like-for-like sales like this before, that I can remember."Monteyne told Radio 5 Live the results were "the worst in their history."
Even Tesco's boss isn't confident (06 of06)
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“I see every day the improvements that are coming in the business, but I’m not making any promises about sales improving in the next few quarters," Clarke warned today. Meanwhile, other analysts like Julie Palmer at Begbies Traynor think Clarke "doesn't seem to have a clear turnaround strategy". He'll have to work hard to prove them wrong.

Meanwhile, the Financial Conduct Authority watchdog launched its own investigation over Tesco's profit guidance, while the supermarket is carrying out an internal investigation led by the law firm Freshfields and the accountancy firm Deloitte.

MPs have also signalled that they may be keen to grill executives over the supermarket's "stratospheric" error in its profit guidance.

Adrian Bailey, chairman of Parliament's Business, Innovation and Skills Committee, told BBC Radio 5 Live it was "unbelievable" that a company of Tesco's size could get into such a mess.

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