Introduction: Tesco to face fire over CEO’s £10m pay package
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Pay packets are in the spotlight today.
While Elon Musk celebrates Tesla shareholders voting to approve his multibillion dollar pay packet, UK supermarket chain Tesco will face criticism over its CEO’s wage deal today.
Tesco must justify Ken Murphy’s £10m pay package at its AGM later today, with responsible investment NGO ShareAction planning to questioning why Murphy’s pay should double when contracted workers at its supermarket are poorly paid.
Although Tesco’s store workers get the voluntary Real Living Wage (which is higher than the minimum wage), ShareAction say contracted staff – such as cleaners and security – don’t
Dan Howard, Head of Good Work at ShareAction, explains:
“In a world where Tesco are making a £2.3 billion profit a year, paying those who keep the stores safe and clean the real Living Wage shouldn’t have to be asked for – it should be automatic.
“Unfortunately, Tesco are dragging their feet on taking the right steps to pay its third-party contracted staff the living wage.
“Failing to recognise the financial hardship many of those who work for Tesco have faced during the cost-of-living crisis will damage Tesco’s reputation with both shareholders and customers.”
We learned last month that Murphy’s pay had swelled from below £5m to £10m, due to bonus payouts.
It means Murphy now earns more than 430 times the average pay at Tesco, up from a multiple of 197 in the previous year.
The payout was blasted by the Unite trade union in May; they called it “a slap in the face” to millions of struggling households who paid for it through higher food bills.
ShareAction is urging major supermarkets including Tesco to accredit as Living Wage employers, which would mean all staff including third-party contractors would be guaranteed the real Living Wage on an ongoing basis, and to set out a timeline for doing this.
Tesco will face questions over Murphy’s pay, and other aspects of the business, at its AGM which begins at 11.30am at its Welwyn Garden City campus.
The agenda
Key events
Shares in Tesco have jumped 1.7% this morning, to the top of the FTSE 100 leaderboard.
Traders seem pleased with its Q1 results this morning, in which the company reiterates its guidance for the full year. That includes making retail adjusted operating profit of at least £2.8bn this year, slightly higher than the £2.76bn in 2023/24.
Chris Beckett, head of equity research at Quilter Cheviot, says:
Tesco has reiterated its guidance for flat profits, but we see this as somewhat conservative. Management is doing well, while private equity owned supermarkets – Asda and Morrisons – struggle as priorities are very different.
Tesco has a good opportunity to take advantage of these trends especially as inflation continues to ease and disposable incomes recover.”
In the City, shares in UK housebuilder Crest Nicholson have jumped over 9% after it rebuffed a takeover approach from rival Bellway.
Crest told shareholders this morning that Bellway’s £650m all-share takeover offer “significantly undervalued” the group, and it had rejected it last month.
Bellway’s proposal implies a value of 253p per Crest share, or almost 19% above last night’s closing price of 213p.
This morning, Crest has jumped to 232p.
Last night, Bellway declared there is “compelling strategic and financial rationale” for combining the two businesses.
Crest Nicholson knocked back Bellway’s revised preliminary proposal to a possible all-share offer for the company. This second, unsolicited, attempt was deemed to “significantly undervalued Crest Nicholson and its future standalone prospects and was not in the best interests of… pic.twitter.com/bTNg4AS8Z9
— Emma Fildes (@emmafildes) June 14, 2024
The defence for Ken Murphy’s £10m pay packet is that he’s doing a good job running Tesco, and has earned the bonuses that helped to double his take-home pay.
Today’s Q1 results from Tesco could bolster that argument, given it is adding to its market share.
John Moore, senior investment manager at wealth manager RBC Brewin Dolphin, says:
“Tesco is a strong business that only appears to be getting stronger. This latest set of positive results should stand the supermarket giant in good stead to achieve its target of £70 billion in revenue this year and, importantly, this is helping the bottom line.
Market share is growing faster than competitors and it continues to hold the top – or bottom – spot on price. Simplification of the business is a major part of the success story, with the decision to sell Tesco Bank and reduce the share count through buybacks allowing for additional focus and investment in the core business – a stark contrast to other supermarkets such as Asda and Morrisons which are not in a position to do the same.”
Tesco CEO Ken Murphy has also told reporters that the supermarket chain expects a gentle improvement in consumer sentiment in Britain, and sees food inflation in the low single digits for the rest of the year
Murphy explained:
“Our sense is that there is a gentle improvement, ongoing improvement in customer sentiment.”
Murphy is also looking for ‘stability and consistency’ from any new UK government (here’s hoping, Ken!), and says he’s not “unduly worried” by the employment measures in the Labour Party’s manifesto,
Tesco: we’re growing faster than rivals
Getting back to Tesco, it has also reported a jump in sales this morning.
In its financial results for the first quarter of the financial year, Tesco says UK like-for-like sales rose by 4.6% in the three months to 26 May.
Tesco says it is growing its UK market share faster than all its “key competitors”, with food sales up 5% in the quarter.
CEO Ken Murphy (he of the controversial £10m pay packet) says:
“We’ve continued to build momentum in the business, with strong volume growth across the UK, Republic of Ireland and Central Europe supported by easing inflation.
We continue to be the cheapest full-line grocer and are the most competitive we’ve ever been, with our value, product quality and service driving better brand perception and customer satisfaction
Tulipshare: Tesla’s future cannot be predicated on ‘erratic’ Musk
Not all Tesla shareholders will share Musk’s jubilation, though.
Some, including Norway’s $1.6 trillion sovereign wealth fund and Californian pension fund CalPERS, had said they would vote against the pay deal.
And impact fund Tulipshare is disappointed that its proposal to tie CEO Elon Musk’s compensation to ESG performance was not accepted.
Antoine Argouges, CEO and founder of Tulipshare, says he is “deeply concerned” that Musk’s pay deal was reapproved.
“Once again, Tesla has chosen to bypass shareholder concerns at this year’s annual general meeting (AGM). Although Tulipshare did not secure majority shareholder support for our proposal to link CEO Elon Musk’s pay package to the company’s environmental, social, and governance (ESG) performance, we remain committed to our engagement with Tesla.
“As a shareholder, I am deeply concerned that Musk’s compensation package has been reinstated. I see this move as shortsighted and one that will have detrimental consequences for Tesla’s future. It is imperative for the longevity of the company that Musk’s compensation be tied not only to financial performance indicators but also to ESG metrics, as our resolution suggested. Tesla’s future cannot be predicated on Musk’s erratic behavior and decision-making alone; there must be safeguards put in place to ensure the company’s long term financial stability and sustainability efforts. Musk should not be rewarded for declining earnings. Tesla’s situation has changed from 2018 and the CEO’s compensation package must reflect that.
“Tesla’s poor handling of environmental, social, and governance issues has attracted notable criticism in recent years. In 2021, the National Labor Relations Board revealed that Tesla violated federal labor laws by terminating a union activist. Dozens of workers have also sued the company, alleging that Tesla enables a culture of racism and sexual harassment. Furthermore, Tesla has been battling allegations of child labor in its supply chains for years, as well as alleged improper hazardous waste handling, poor right to repair policies and its failure to develop a low-carbon strategy.
Legal experts are cautioning that it is not clear if the Delaware court that blocked the Musk pay deal will accept the re-vote and allow the company to restore the pay package.
Mathieu Shapiro, a managing partner at law firm Obermayer Rebmann Maxwell & Hippel, argued (via the BBC):
“The vote changes nothing.
It only offers Tesla opportunities to try to use the vote to obtain a better decision going forward.”
Elon Musk owes his shareholder victory, in part, to the army of small investors who own Tesla stock.
Many were vocal in their support for his huge pay deal – in which Musk earned 12 different tranches of stock options after hitting revenue and market targets, and growing the Tesla share price (it’s up 1,100% over the last five years).
One, Alexandra Merz, had told fellow investors:
Your votes will help to remedy a true injustice. And it’s just the beginning. Don’t mess with Tesla Retail Shareholders.
Thank you.
Thank you to each and every one who voted.
And to those who still can’t, you will be able next time. I will do everything in my power to help.Your votes will help to remedy a true injustice. And it’s just the beginning.
Don’t mess with Tesla Retail Shareholders ❣️ pic.twitter.com/T6la80aGhO
— Ale𝕏andra Merz (@TeslaBoomerMama) June 13, 2024
Merz also credited Tesla chair Robyn Denholm, who had warned that Musk might step back from the company if he lost the payout.
Musk: Vox Populi, Vox Dei
Elon Musk is in jubilant mood after winning a victory last night over his pay deal currently valued at around $46bn.
After shareholders reapproved the mega package, Musk posted a photo of a cake, on with “Vox Populi, Vox Dei”, and a heart, has been written.
Tesla’s CEO says he’s sending it to Delaware – where a judge had blocked the payout back in January, prompting Thursday’s fresh vote to approve it (again).
The voice of the people may well be the voice of God, but whether the Almighty would approve of a near-$50bn pay deal is quite another matter.
Musk hailed his shareholders last night, telling a crowd of investors at the Tesla factory in Austin, Texas:
“We have the most awesome shareholder base. Hot damn, I love you guys.”
Investors also approved a second resolution, to reincorporate the electric-vehicle maker in Texas.
Back in January, a Delaware judge ruled that Tesla’s board could not be considered independent from Musk’s influence and that the process of drawing up the pay package had been illegitimate.
Last night’s vote could serve as a rebuttal to the judge’s ruling that struck down the award – making it easier for Tesla’s board to argue that shareholders were properly informed about the payment package, and the board members’ ties to Musk, before casting their votes.
Introduction: Tesco to face fire over CEO’s £10m pay package
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
Pay packets are in the spotlight today.
While Elon Musk celebrates Tesla shareholders voting to approve his multibillion dollar pay packet, UK supermarket chain Tesco will face criticism over its CEO’s wage deal today.
Tesco must justify Ken Murphy’s £10m pay package at its AGM later today, with responsible investment NGO ShareAction planning to questioning why Murphy’s pay should double when contracted workers at its supermarket are poorly paid.
Although Tesco’s store workers get the voluntary Real Living Wage (which is higher than the minimum wage), ShareAction say contracted staff – such as cleaners and security – don’t
Dan Howard, Head of Good Work at ShareAction, explains:
“In a world where Tesco are making a £2.3 billion profit a year, paying those who keep the stores safe and clean the real Living Wage shouldn’t have to be asked for – it should be automatic.
“Unfortunately, Tesco are dragging their feet on taking the right steps to pay its third-party contracted staff the living wage.
“Failing to recognise the financial hardship many of those who work for Tesco have faced during the cost-of-living crisis will damage Tesco’s reputation with both shareholders and customers.”
We learned last month that Murphy’s pay had swelled from below £5m to £10m, due to bonus payouts.
It means Murphy now earns more than 430 times the average pay at Tesco, up from a multiple of 197 in the previous year.
The payout was blasted by the Unite trade union in May; they called it “a slap in the face” to millions of struggling households who paid for it through higher food bills.
ShareAction is urging major supermarkets including Tesco to accredit as Living Wage employers, which would mean all staff including third-party contractors would be guaranteed the real Living Wage on an ongoing basis, and to set out a timeline for doing this.
Tesco will face questions over Murphy’s pay, and other aspects of the business, at its AGM which begins at 11.30am at its Welwyn Garden City campus.
