Tesco chief executive Sir Terry Leahy has agreed to shorten his contract following concerns raised by shareholders, it emerged today.

The move to a one-year rolling deal comes after the supermarket group faced criticism at its annual meeting for keeping directors on two-year deals.

Shareholders have lobbied against such contracts because they fear they could lead to excessive pay-offs and encourage "reward for failure".

While Sir Terry has been successful in keeping Tesco ahead of its rivals, the group confirmed today that he will be moving to a one-year rolling contract - a move that has taken place at many other UK companies in the last year.

ITV boss Charles Allen, who is also chairman of Tesco's remuneration committee, outlined the change in a letter to major shareholders this week. Four other board members are also moving to shorter contracts.

A Tesco spokesman said: "This gets us into line with best practice."

The company will now be hoping its next annual general meeting on June 18 passes off more peacefully after last year's event saw as many as 40% of shareholders fail to back the company's remuneration report.

One investor told the board that the arrangements were "an obscenity and out of touch with current thinking".

Tesco said at the time that it put new board members on one-year contracts but it was too late to do anything about directors already on two-year deals.

The company's then chairman John Gardiner pledged to look again at the issue, while Sir Terry indicated last year that he was happy to switch to a new deal.

Wednesday April 07, 2004