A former Post Office chairman told the Government the company risked a “management implosion” and “extremely damaging” political consequences if chief executive Nick Read did not receive a greater financial reward.

Tim Parker wrote to then-business secretary Kwasi Kwarteng in December 2021 to say there was an “urgent need to retain” Mr Read in order to “mitigate the political, reputational and financial risk” were he to resign.

Mr Parker recommended the Government committed to making three “discretionary payments” to Mr Read of around £75,000 to £100,000 during the period between March 2022 and August 2023.

Mr Kwarteng rejected the proposals the following month because the chief executive’s “existing remuneration package (is) amongst the highest in the public sector, which is currently subject to a sector-wide pay freeze”.

The then-Conservative MP said Mr Read could have received anywhere between £249,000 to £373,500 on top of his annual salary of £415,000 without further financial reward “provided that on-target performance metrics are met”.

The letters have recently surfaced following a Freedom of Information request by subpostmasters supporter and campaigner Eleanor Shaikh.

In his request to Mr Kwarteng, Mr Parker said the chief executive had received approaches “for other CEO (chief executive) roles” meaning “urgent reconsideration” was needed for his “reward and retention arrangements”.

Mr Parker wrote: “I believe the matter has now escalated and that we need to take clear and meaningful action, without delay, in order to mitigate the political, reputational and financial risk that will ensue if Nick resigns.

“The lack of positive response to his requests for financial recognition for his personal leadership contribution, has led Nick to feel significantly undervalued by the board and shareholder given the range of challenges.”

Mr Parker said the challenges for Mr Read included “managing the press”, attending select committees and preparation for the Horizon IT inquiry.

The then-chairman also said “rebuilding trust with postmasters on an ongoing basis in a challenging Covid-19 environment” was also an issue Mr Read faced.

His letter continued: “From my conversations with Nick, I know that he is deeply committed to creating a successful Post Office but feels that his goodwill is being abused and his ability to succeed is being undermined.

“Continued refusal to deliver any financial recognition for his level of contribution and personal investment is driving him to seriously consider his future with Post Office.

“Once a concrete offer is forthcoming … it will be too late to salvage the situation with significant reputational risk to the Post Office, the board, and the government. We need to act now.”

Mr Parker said if a greater financial reward was not offered to Mr Read, the Post Office was at risk of losing “key people” and if he were to resign, there was “no viable internal candidate”.

Concluding his letter, Mr Parker said: “Without Nick, a leaderless Post Office, with its government shareholder, will struggle to have credibility that it has changed and will continue to change.

“I would not be confident that the inquiry will be handled well, and it is no exaggeration to say that we risk a management implosion at the Post Office with the loss of the few good people we have.”

In response to Mr Parker’s letter, Mr Kwarteng said the chief executive had “accrued a significant level of incentive payments” during his tenure.

Mr Kwarteng wrote: “Whilst Nick is highly valued as a strong and competent CEO who is making significant improvements to the company, the current climate makes it difficult to make exceptional additional payments to him now.

“I have noted the point you raised in our discussion about Nick feeling that he has not being appropriately recognised for the tangible contribution that he has made to date, and in particular his observation that he had only been paid out £32,000 to date in his incentive payments since his appointment.

“I note, however, that Nick has accrued a significant level of incentive payments over this time period and over the next 12 months, provided that on-target performance metrics are met, Nick could receive anywhere between £249,000 to £373,500 on top of his annual salary of £415,000.

“This places his existing remuneration package amongst the highest in the public sector, which is currently subject to a sector-wide pay freeze.

“Therefore, in the first instance, my position will be there will be no additional payment agreed.”

A spokesman for the Post Office said: “The Post Office generates revenue of close to £1 billion per year with around 50,000 people working at our 11,500 branches operated by our directly employed teams, independent postmasters and our strategic retail partners.

“We are a commercial organisation that competes with a host of other companies across multiple sectors for services, customers and executive talent too.

“Post Office offers a number of different remuneration incentives to its executives including base salary, short-term and long-term incentive plans.

“The company’s executive directors do not set their own remuneration, it has to be agreed with the Government.”