Tesco to face shareholders in Welsh capital

A Shopper carries bags as she leaves a Tesco store near Manchester, northern England April 18, 2012.

LONDON (Reuters) - Tesco (TSCO.L), the world's No. 3 retailer, will seek to avoid becoming the latest victim of the so-called shareholder spring when it faces investors at its annual meeting amid criticism over executive pay and the performance of its U.S. arm.

Bosses could also face shareholder pressure at Friday's meeting in Cardiff over their strategy to revive the grocer's core business, which accounts for about one in 10 pounds spent in British shops and about 70 percent of annual trading profit.

Once one of the most consistent British companies in terms of earnings growth, Tesco stunned investors in January with its first profit warning in over 20 years, saying it needed to invest heavily to stem a steady decline in its home market.

Pensions Investment Research Consultants (Pirc), the pension fund consultant, has said investors should vote against the store group's pay report. Though PIRC welcomed several changes to Tesco's pay policy last year, it said there was still the potential for "wholly excessive" payments.

Tesco will be hoping last month's move by chief executive Phil Clarke not to take his 372,000 pounds bonus, will have defused any potential rebellion. But he still earned a package of 1.16 million pounds in 2011/12.

Clarke's decision came amidst a round of high profile shareholder revolts over executive pay at companies like Barclays (BARC.L), Inmarsat (ISA.L), Prudential (PRU.L) and WPP (WPP.L), in a phenomenon dubbed the "shareholder spring".

Investor resistance to big pay rises at underperforming companies has led Aviva (AV.L) boss Andrew Moss and Sly Bailey, head of newspaper group Trinity Mirror (TNI.L), to quit.

Last year, Tesco won over shareholders with a simpler and longer-term focused executive pay scheme following years of disputes over how it rewarded management. In 2010, over 40 percent of shareholders either opposed or abstained in a vote over management pay.

Meanwhile the Change to Win Investment Group, which advises U.S. trade union-sponsored pension funds, has submitted proposed amendments to Tesco's report and accounts ahead of the AGM urging a reassessment of its strategy towards its loss-making Fresh & Easy business in the United States.

It wants Tesco to establish a committee of non-executive directors to review Fresh & Easy's future.

Change to Win's proposals have been ignored by Tesco which regards them as union-motivated. Fresh & Easy does not recognise trade unions.

Earlier this year, Clarke rejected shareholder calls to pull the plug on Fresh & Easy. In April, he said he did not expect the chain to break even until its 2013/14 year, compared with the end of 2012/13 previously.

Earlier this month, Tesco reported underlying sales growth at Fresh & Easy slowed to 3.6 percent in the latest quarter from 12.3 percent in the previous quarter.

It also reported a fall in underlying quarterly sales in Britain and said tough trading conditions showed no sign of improving.

Shares in Tesco, which lags French group Carrefour (CARR.PA) and U.S. industry leader Wal-Mart (WMT.N) in annual sales, have lost nearly a quarter of their value over the past year.

They closed on Thursday at 312 pence, valuing the business at about 24.9 billion pounds.

(Reporting by James Davey)