The grocery giant said it could not afford to fight costly legal claims for the remuneration.
Clarke announced his resignation from Tesco on July 21 2014 after it issued its second profit warning that year. He left in October. Tesco announced McIlwee’s resignation on April 4, 2014, 12 days before it posted annual results revealing a 6% drop in operating profit and a 1.4% decline in like-for-like sales.
Withhold payments
The retailer said it intended to withhold the usual payments to the two men after it announced in interim results issued on October 23 2014 that it had overstated expected half-year profits by £263M.
In a statement issued by Tesco today, it said: “At the time of the company’s last interim results, it was noted that the payments were suspended given the investigation into the issues regarding the accounting for commercial income.”
However, it said it had agreed to pay the liquidated damages contractually due to Clarke and McIlwee under their separation agreements as former directors.
‘Contractually committed’
“The company is contractually committed to make the relevant payment to each former director unless it can legally establish a case of gross misconduct against him,” said Tesco.
“The company has taken legal advice and has concluded that it does not have the basis for continuing to withhold the payments. Accordingly, the board considers that defending costly claims for the payments would not be in the company’s best interests.”
In the wake of its profit overstatement an investigation by accountancy firm Deloitte ensued, leading to the launch of an investigation by the Serious Fraud Office (SFO).
Tesco said if new information came to light that would change its decision as a result of the SFO’s continued probe, it would pursue recovery of the payments.