LONDON BRIEFING:Shareholders are planning to vote against Tesco's remuneration report, citing 'excessive' salaries and incentives, writes FIONA WALSH

IT’S NOT just failing companies that attract investor anger over the rewards handed out in the boardroom. Tesco, one of Britain’s biggest and most successful businesses, is facing a shareholder revolt over its top-level pay and performance packages.

In what will be chief executive Sir Terry Leahy’s last annual meeting after 14 years at the helm of the retailer, the showdown is scheduled for a week on Friday.

A number of shareholder lobby groups have signalled their intention to vote against the company’s remuneration report, citing “excessive” salaries and incentives. Tim Mason, head of the grocer’s under-performing US chain, Fresh & Easy, is expected to come in for particular criticism.

Wider concerns have been raised over termination payoff terms at the group and the independence of its remuneration committee.

A shareholder revolt may not be quite the send-off Leahy would have liked but it certainly won’t come as a surprise.

The annual protests over pay have become something of a tradition at Tesco in recent years and it’s not hard to see why – its board is one of the highest paid in the FTSE 100.

The eight-person executive team last year shared £24 million in pay and bonuses between them, including £5.2 million for the chief executive and £4.3 million for the head of the US operation.

That £24 million does not include profits made from the exercise of share options.

Pensions Investment Research Consultants (PIRC), the corporate governance firm, has long regarded the group’s board as too richly rewarded and wants to see more stretching share incentive and bonus targets.

The other shareholder groups lining up to register their protests on July 2nd include the US firm CtW Investment Group, RiskMetrics and Manifest, which provide advice to pension funds.

In a strongly worded open letter to Tesco shareholders, CtW details its case against the board and urges investors to take decisive action in voting down the pay report.

It calls into question the independence of the remuneration committee, which it says has failed to link boardroom pay with performance and appears to have “shifted the goalposts” on performance targets.

CtW accepts that, globally, Tesco has done well. Its experience in America has been undeniably poor, however, and Fresh & Easy is still some way off meeting the break-even position initially envisaged for late 2009.

The lobby group argues that “no reasonable analysis” of Fresh Easy’s performance could justify the pay package awarded to Mason, who is being promoted to deputy chief executive once Leahy retires, in the light of the US chain’s £165 million loss last year.

Tesco has responded to the looming showdown by expressing its disappointment, saying it will continue to talk to shareholders in the run-up to the meeting. It also points out that it has won the support of another influential shareholder group, the Association of British Insurers (ABI).

Last year the group managed to see off complaints over changes to its share option scheme, which allows leaving or retiring executives as long as three years to exercise their options, rather than one year.

However, it suffered one of the biggest protest votes seen in the City, with holders of more than 40 per cent of its shares either abstaining or rejecting the plan.

Tesco has an army of loyal investors, who are more than happy with its undoubtedly impressive profits growth and its unbroken 26-year record of dividend rises. With the support of the ABI and other institutions, it is more than likely to get its remuneration report passed once again despite the protests.

That, however, should not be taken as a victory by Leahy and his fellow directors. The recurrent complaints over boardroom pay packages at Tesco do not reflect well on a company that is the country’s biggest private-sector employer or on one of the longest-serving FTSE 100 chief executives, a man who has regularly been voted Britain’s “most-admired businessman”.

Leahy has faced all manner of protests in his time on the Tesco board, from environmentalists and unions demanding better treatment for sweatshop workers to a call from celebrity chef Hugh Fearnley-Whittingstall for better living conditions for chickens.

Those will no doubt continue under new chief executive Phil Clarke when he takes over next March, but, if he’s minded to draw a line under the Leahy era, the new boss could just do something to end the annual pay protest.

When the company talks to its shareholders about its pay policies, it could also start to listen. Investors have legitimate concerns over boardroom largesse, even for a company that has done as well as Tesco.

Of course there should be rewards for success, but those rewards must have their limit. Even the best-performing companies need to show some restraint.

Fiona Walsh writes for the Guardian newspaper in London