THE continuing battle between institutional investors and company directors has claimed a high-profile scalp with the announcement Sir Peter Davis is to step down.

An official statement suggested the Sainsbury's chairman jumped, but industry insiders were in little doubt that he was pushed.

Sir Peter has been in conflict with City institutions since he accepted a bumper bonus equivalent to £2.4m-worth of stocks in the same year the company struggled and the share price was on the slide.

Despite a profits fall of 2.9 per cent to £675m in the year to March 27, Sir Peter has rejected calls for him to repay the money or make a gesture by donating it to charity.

Sainsbury's yesterday said it had not been possible to reach agreement in talks with him over potential changes to his share award.

"It was mutually decided that this matter would be referred to legal representatives of both parties as part of his termination arrangements," the company said in a statement confirming Sir Peter's departure.

The relationship between investors and business leaders has grown increasingly fractious during the past 18 months.

Shareholders were held responsible for Sir Michael Green failing in his bid to lead the newly formed ITV plc - which he was instrumental in creating through the merger of Carlton and Granada.

Investors have also flexed their muscles over a perceived increase in "fat-cattery".

Last May, Glaxo made corporate history when shareholders, angry at a lucrative golden parachute deal for Jean-Pierre Garnier, voted down the company's remuneration report. A string of companies, including Barclays and Tesco, also faced shareholder revolts last year.

Sainsbury's has appointed former group finance director of Lloyds TSB Philip Hampton as Sir Peter's replacement. The 50-year-old will take up the post on July 19.

The retailer said the financial skills of Mr Hampton and the proven retailing skills of chief executive Justin King would represent a powerful combination to take the group forward.

Sainsbury's said Mr Hampton would be paid £395,000 a year. Mr Hampton is also a non-executive director of Belgian telecoms group Belgacom and of cement maker RMC.

Sainsbury's thanked Sir Peter for all his hard work on behalf of the company.

Sainsbury's has lost ground during the past 12 months to rivals such as Asda and Tesco in the face of stiff price competition, and its restructuring drive has also had an impact.

The supermarket has responded by appointing Mr King, who joined the company as chief executive from Marks & Spencer about three months ago.

It said last month that Mr King would receive nearly 500,000 free shares exercisable from 2007, as well as being in line for a further 184,700 shares, worth more than £500,000, if he meets performance targets .

Sainsbury's said moves to revive its fortunes would leave pre-tax profits in 2004/2005 significantly below market forecasts, with the majority of the impact expected in the first half.