Wednesday, June 23, 2010

Tesco Fresh & Easy Neighborhood Market CEO Tim Mason Gets Big Stock Award Featuring a Singular Twist

News & Analysis

Tesco plc director and Fresh & Easy Neighborhood Market USA CEO Tim Mason (pictured above) has been granted rights to 292,085 ordinary shares of United Kingdom-based Tesco plc stock under Tesco's executive incentive plan, for which no payment by the reciepient is required. It's essentially a stock grant.

The shares were awarded to Fresh & Easy CEO Mason yesterday as part of Tesco's 2009/10 fiscal year annual defered bonus for the company's top executives, who are also members of its board of directors.

The number of shares awarded to Mr. Mason was calculated using an average Tesco plc market price of 388.05 pence, according to Tesco plc's investor relations department.

In addition to Tim Mason's stock share grant of 292, 085 shares, Tesco plc CEO Terry Leahy received a bonus award of 459,644 shares.

The following other Tesco executives-directors received the stock awards yesterday:

>Commercial and Marketing Director Richard W Brasher, 196,696 shares
>International and IT Director, Incoming CEO, Philip A Clarke, 196,696 shares
>Chief of Retailing Services and Group Strategy Director Andrew T Higginson, 196,696 shares
>Retail and Logistics Director David T Potts, 196,696 shares
>Group Finance Director Laurie McIlwee, 147,522 shares
>Corporate and Legal Affairs Director Lucy Neville-Rolfe, 147,522 shares

In an interesting development, all of the directors except for Fresh & Easy Neighborhood Market CEO Tim Mason, received their share awards in the form of nil cost options (share options that can be exercised without payment of a subscription price; essentially a regular stock option). In contrast, Mason's 292,085 shares is in the form of an unfunded promise to deliver shares, which means, among other things, he can't exercise the options at any time, like the others can if they choose to.

For Tim Mason this basically means that unlike the other directors, who's shares will be increased to reflect the dividends that would have accrued on vested shares had they been reinvested in shares in the period between the stock grant and its exercise (the nil cost option), and can be exercised if desired, his award is what's called grant and vesting (an unfunded promise to deliver shares), which means the award will vest but Mason won't be able to exercise any of the 292,085 shares before May 22, 2013.

We suspect, among other considerations, the special handling of Tesco plc director and Fresh & Easy Neighborhood Market CEO Tim Mason's stock award might have something to do, but not exclusively by any means, with Tesco's being under attack by the CtW Investment Group, which invests money from labor union pension funds in various corporations, including Tesco plc. The group is arguing that Mason received excessive compensation for fiscal year 2009/10. [Read our June 4, 2010 story on his compensation package here: June 4, 2010 - Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009]

On June 17, 2010, CtW investment Group and the Change to Win coalition of labor unions, many of which have pension fund monies invested in Tesco, sent this letter to Tesco plc shareholders regarding Tim Mason's pay package. In the letter they urge Tesco shareholders to vote no on proxy Item #2, the Directors' Remuneration Report, at Tesco’s upcoming July 2 annual shareholder meeting in London, UK.

The group also distributed this press release about the letter and campaign to media outlets far and wide on June 17. The release has generated considerable press on the issue, focusing on Mason's 2009/10 pay package and the group's attempt to get Tesco plc shareholders to vote against it at the July 2, 2010 shareholders meeting.

Perhaps Tesco believes that granting Tim Mason's stock award on the unfunded promise basis, which means he can't exercise any of the shares until May 22, 2013, will help blunt some of this criticism, leading to a majority vote of Tesco shareholders in favor of the Directors' Remuneration Report at the July 2 shareholder meeting. Or perhaps, among other considerations, it's just good politics, considering Fresh & Easy's $253 million loss for fiscal year 2009/10? If shareholders were to vote the report down it would mean Tesco couldn't go forward with the pay packages, including the stock awards listed above, for the corporation's directors.

The objective reality is the probability of Ctw Investment Group and the labor union group getting a majority investor vote against the Directors Remuneration report is highly unlikely for a number of reasons, chief among those reasons being that the majority of Tesco investors with voting rights are the big, institutional investors. For example, U.S. billionaire Warren Buffett, who owns 3% (about $1.3 -to- $1.4 billion in value) of Tesco plc through his Berkshire Hathaway holding company and investment firm, won't likely vote against the report.

These big investors will likely vote for the package for two key reasons. First, Tesco plc had record profits in its 2009/10 fiscal year. Therefore the investors aren't going to let Tim Mason's pay package get in the way of affirming the report. Second, these institutional investors don't want to veto the report because doing so would lead to a drop in Tesco's stock share price, meaning their investments would drop in value.

Adding to this, voting against the report would likely lead to uncertainty in the market vis-a-vis Tesco plc, potentially leading to further reductions in the retailer's share price. This is the last thing these big, institutional investors want to happen.

The investor-types at CtW Investment Group are aware of this probability, as are the heads of the labor unions. Or they should be. Ctw has authored resolutions at previous Tesco annual meetings that were rejected by these same big, institutional investors, who've got the votes.

However, the unions see a secondary benefit to the "vote against the report" campaign, which is to increase the pressure on Tesco via investors and the public (via the media) in its efforts to organize and unionize Fresh & Easy Neighborhood Market's store-level employees, which the United Food & Commercial Workers (UFCW) union has been trying to do since the first Tesco-owned Fresh & Easy grocery stores opened in late 2007.

Tesco's annual shareholder meeting is just 10 days away. Therefore we'll see the results of this issue come to a head very soon, at least in terms of the shareholder vote - but certainly not in terms of the ongoing campaign to unionize Fresh & Easy workers.

Fresh & Easy Buzz Linkage: Related Stories:

June 4, 2010 - Every Little (Bit) Helps: Tesco Fresh & Easy Neighborhood Market CEO Mason Paid $6.188 Million For 2009

June 21, 2010: The Missing Link in Tesco's Purchase of Fresh & Easy Neighborhood Market Meat Supplier '2 Sisters Food Group'

June 20, 2010: NLRB Judge Rules Against Key Fresh & Easy Neighborhood Market Supplier '2 Sisters Food Group' in Labor Relations Violations Case

June 20, 2010: NLRB Judge Rules Against Fresh & Easy Neighborhood Market in Spring Valley CA Store Labor Law Violation Case

March 4, 2010 - Aministrative Law Judge Finds Tesco's Fresh & Easy Violated Labor Relations Act in Ex-Store Employee, UFCW Union Complaint

August 5, 2008: UNI Global Union Launches Tesco-Specific Alliance; Calls For Tesco Executives to Meet With UFCW Union Officials Over Fresh & Easy Neighborhood Market

June 26, 2008: Tesco 2008 AGM: Barack Obama Sends Second Letter to Tesco CEO Requesting the Company Meet With U.S. UFCW Union Leaders About Fresh & Easy

June 26, 2008: Tesco 2008 AGM: Charges of Tesco's Exploiting Workers at Indian Factory Heat Up On the Eve of Corporate Annual General Meeting

June 22, 2008: Vocal Cast of Critics and Advocacy Groups to Attend Tesco's Annual General Meeting On Friday, June 27

June 4, 2008: News and Analysis: UFCW Union Takes its Tesco Union Organizing Campaign Across the Pond to the United Kingdom Beginning Today

February 11, 2008: Supermarket Union President Asks Britain's Prince Andrew to Arrange A 'Sit-Down' With Tesco Fresh & Easy Neighborhood Market Senior Executives

Some additional links here.

[Photo credit: Fresh & Easy Neighborhood Market]

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