Tesco suffered a bruising protest at the hands of its investors yesterday when more than 40 per cent of those voting at its annual meeting opposed a controversial plan to modify its share option scheme.

At an otherwise uneventful annual meeting in Glasgow, 41.03 per cent of shareholder votes were cast against Tesco’s plan to extend the exercise period for share options from one to three years for existing and retiring executives. A further 1.74 per cent of investors abstained, taking to 42.77 per cent those who refused to endorse the plan.

It is one of the biggest protest votes in this season’s annual meetings, at which investors have expressed irritation over inflation-busting pay awards and diluted performance targets in British boardrooms.

RiskMetrics, the voting advisory service, had urged shareholders to oppose the changes, which would give directors 36 months to wait for an improvement in Tesco’s share price before cashing in.

Those opposed to the plan argue that it risks diluting performance targets for company bosses.

Tesco shares were unchanged yesterday at 350½p. The shares have risen 3 per cent in the past 12 months but have outperformed the FTSE all-share index by 32 per cent over the same period.

Tesco, whose chief executive is Sir Terry Leahy, was not questioned on its share options plan, but it did face a special resolution from the Unite union over the treatment of meat workers at its suppliers.

Lucy Neville-Rolfe, Tesco’s corporate and legal affairs director, defended the scheme changes. “We have shareholders with options right down to store manager in Tesco,” she said. “Because of the volatility of the markets, if they are retiring, or retiring for ill-health reasons — or even if there is redundancy — it means that they lose out in the current market because they only have one year to exercise the options.”

With the backing of 57.23 per cent of investors, Tesco can press ahead with the changes. However, it will have been bloodied by the hostile response from its stock market owners. Tesco does not have a history of falling foul of its investors on issues of corporate governance.

Tesco brushed off the Unite resolution, which was endorsed only by 11.21 per cent of the votes cast. But Unite claimed the vote as a victory, nevertheless, because a further 6.96 per cent of voters abstained. It was the first time that a trade union had used a special resolution to champion workers’ rights at an annual meeting.

A spokesman for the Association of British Insurers, the lobby group, said: “Shareholders have made clear their views. This is something the company needs to be mindful of and highlights the care that remuneration committees have to exercise.”

The resolution to approve Tesco’s remuneration report was passed comfortably. Sir Terry received £5.1 million last year in salary, cash bonus and deferred share awards after the company increased its pre-tax profits by 5.5 per cent to £2.95 billion.

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