Too much cream sinks fat cat

2004

Sainsbury’s chairman Sir Peter Davis has been forced out of his job following a row with institutional shareholders over his controversial £2.4m bonus.

In May Sainsbury’s provoked widespread astonishment by awarding Davis the bonus - representing 86 per cent of his maximum payout under his ‘performance-related’ incentive scheme - despite his presiding over an 8.5 per cent drop in the company’s annual profits.

Then in May, the company reported a 2.9 per cent fall in profits and falling sales.

Davis became Sainsbury's chairman three months ago after spending four years as group chief executive. The appointment - which was contrary to corporate governance guidelines – was unpopular with many investors from the start.

It was pressure from these same institutional investors that forced Davis to resign at an emergency board meeting on Wednesday.

Investors had warned the company that it faced shareholder revolt against directors' pay unless he was removed.

The move marks a new milestone in investor muscle as the major institutions revolt against so-called ‘rewards for failure’ enjoyed by the executives of poorly-performing companies.

It has been widely reported that over the past few weeks, Lord Levene, a Sainsbury’s non-executive director, has been trying to broker a deal with disgruntled investors whereby Davis would give back ten per cent of the disputed bonus.

But investors rejected the offer, which would still have seen Davis given a further 1.5 million in shares in the spring of 2005.

They gave the Sainsbury's 48 hours to axe the bonus scheme or face a hugely embarrassing vote against the remuneration report at the annual general meeting next month.

It is unclear how much of his bonus pot Davis will keep as a result of his resignation. But under the terms of his deal, he was entitled to keep half of the £1.5 million due to him is 2005 even if he got sacked.