Tesco PLC (LON:TSCO) is facing a shareholder revolt over the pay packet of its outgoing chief executive, Dave Lewis, when investors gather for the supermarket giant’s annual general meeting next week.

According to Sky News, Lewis’s £6.4mln wage package is facing opposition from a large number of investors, with a majority vote against the payment fast becoming a possible outcome. Despite this, the salary is expected to be approved by a small margin.

READ: Tesco to face large book loss from Poland retreat

The bumper pay packet is something of a leaving present for Lewis, who is scheduled to step down on September 30 and be replaced by Ken Murphy, who Tesco poached from Walgreens Boots Alliance (NASDAQ:WBA).

Proxy advisors Institutional Shareholder Services and Glass Lewis have apparently advised shareholders to vote against the remuneration report.

The vote is advisory, meaning that even if the revolt succeeds Lewis could still receive the payout, although a defeat would still mark an embarrassing failure for Tesco.

The dispute over pay also comes amid wider scrutiny of executive salary packages as the UK economy heads for a recession due to the effects of the pandemic and unemployment rises.

A revolt also became more likely after Tesco removed online grocer Ocado Group PLC (LON:OCDO) from a list of peers that it measures itself against, which had the effect of increasing Lewis’s bonus to £2.4mln from £800,000.

The supermarket said Ocado had become more of a technology company rather than a direct grocery competitor, however, this justification split shareholder opinion.

Strong performance expected in first quarter

While Tesco is facing a pay revolt, analysts at Shore Capital are more optimistic about the grocer’s outlook ahead of an update on its first quarter that is due next Friday.

The broker said they expected the company’s UK & Ireland grocery business will have “performed strongly” as pandemic lockdown measures boosted demands for its products, despite what analysts said would be a “drag” from its catering and non-food segments.

Following the company’s decision to sell most of its Polish business as well as its operations in Asia, ShoreCap’s analysts said incoming CEO Ken Murphy will take over “a much more focused and simplified business”.

While the broker said the Polish sale seemed to be management not wanting to “throw good money after bad” due to the “sub-optimal” market, the Asia sale was “a wholly different matter” through which the firm will lose “a stream of potentially rising operating earnings”. However, on the flipside, ShoreCap said in return the company will receive proceeds to “structurally reduce its pension responsibilities, a major component of total indebtedness, so leading to notable annual ongoing free cash flow benefit”.

“Tesco is a functionally effective business in its remaining markets. The Coronavirus crisis has probably provided a notable shift to Retail from [clothing brand] F&B, which boosts trolley and proximity shopping, where Tesco’s broad format estate excels”, the broker said.

“The prospects for grocery in all of Tesco’s markets look brighter now than was the case at the commencement of [the 2021 financial year]”, they concluded.

Shares in Tesco were 0.5% higher at 227.5p in mid-afternoon trading on Friday.