The Co-operative Group, Britain's largest mutual, is in renewed turmoil after its chief executive walked out, branding the organisation as "ungovernable" and raising questions about the future of the 170-year-old supermarket, funeral homes and pharmacy business.

Euan Sutherland, who joined only 10 months ago, did not turn up to work on Monday after the Observer published details of his £6.6m pay deal for 2013 and 2014. The report prompted him to launch a blistering attack on "an individual or individuals" attempting to undermine him in a posting on the group's Facebook page. That protest in turn provoked an angry response from Co-op staff and members.

Although the 45-year-old former head of B&Q had told the group's 90,000 staff – who are braced for at least 5,000 job cuts – that he was determined to see though "the vital transformation of our business", he had a sudden change of heart.

On Monday he fired off a resignation email to the Co-op's chair, Ursula Lidbetter, telling her the Manchester-based group was "ungovernable".

As he quit he attacked the group's "professional and commercial governance" and pledged not to take £3m of controversial retention payments.

However, he will still have been paid £2m for 2013, including £1m for buying him out of incentive deals at his previous employer. He is likely to be handed some or all of his £1.5m salary for 2014. Other members of his executive team are still expected to be handed retention deals of at least £8m.

Sutherland's departure exposed the rift between those keen to reform the group, which is on course to report £2bn of losses through its banking operation, which nearly went bust last year, and those who are reluctant to embrace the changes he thought necessary to restore the fortunes of the ailing business. The Co-op is also attempting to recover from a string of reputational hits, including allegations of drug taking by the former chairman of its bank, Paul Flowers, a methodist minister.

Amid fears for the future of the debt-laden group, which has 4,500 outlets across Britain, it was left to the finance director, Richard Pennycook (best known for transforming the supermarket Morrisons) to temporarily step up to the role of acting chief executive. He pledged to "plot a steady course" over the coming months.

Lidbetter, who was herself parachuted into the top job during last year's crisis, had convened a late-night conference call of the board after failing to persuade Sutherland to change his mind. She said his departure should now be "a catalyst for the real and necessary change which the group must go through".

At the hastily convened board meeting, which ended at close to midnight, a number of management changes were agreed to alter the boardroom, which is currently occupied by 20 members of the Co-operative moment and one newly appointed independent member, Lord Myners, the Labour peer and former chairman of Guardian Media Group.

Myners is said to have fought hard to persuade the board to embrace his ideas to create two separate boards – one modelled on a standard plc with an independent chair, executive directors and part-time non-executives, and another made up of members of the Co-operative movement.

It is not clear if the existing Co-op board was unanimous in their support for Myners' plan, but it must yet be ratified by the traditional regional boards. It was not clear if the regional members were prepared to adopt the changes as some were said to have been rankled by Myners' plans, during a meeting in Manchester two weeks ago.

Jim Lee, former secretary of the Scottish Co-operative party and an influential member of the Co-op movement, said: "I'm pleased that Euan Sutherland has gone. I know that there has to be change but I think he imagined we would agree to a traditional business model being imposed on the Co-op. That was never going to happen."

Another source close to the group said it would be "disingenuous to say there aren't people already uncomfortable with the changes" which would reduce the influence of "democrats", who trace their roots back to the Rochdale pioneers of 1844. "What we have here is a clash of cultures between plc people and the Co-op people. Euan is a plc animal and he is used to responses on a timescale and of a type that the Co-op isn't used to. We have tried this in the past, to bring people in from outside at a senior level, and it has never worked. Because they have not grown through the culture they try to make the beast dance in a way that the beast doesn't want to dance," the source said.

Andre Spicer, professor of organisational behaviour at Cass Business School, said the argument about Sutherland's pay illustrated the clash of cultures. "By tendering his resignation, Sutherland was laying down the gauntlet to those who were questioning his more managerial approach.

"While Sutherland's resignation is likely to make some members of the co-operative movement happy it will further undermine the group's reputation. This means stakeholders are going to get even more jittery. It will also make finding a new candidate for the job difficult. A faltering Co-op is bad news for the UK economy as a whole. It is a significant player in many sectors such as retail, funeral care and banking."

Sutherland's parting shot was to call on the group to reduce its £1.2bn debt and drive through efficiencies. He also called for fundamental governance reform and a revitalised membership.

He had been leading a "have your say" public campaign which asked if £1m of donations to the Co-operative party and its 32 MPs aligned to the Labour party should continue.

Gareth Thomas, the MP who chairs the Co-op Party NEC, said it was right Sutherland had quit if he could not be a successful boss of the group.

"The Co-operative is going through a tough and turbulent time and what is now important is that a chief executive is recruited who has a vision for coupling the best of the Co-op's past with a clear vision for the future," Thomas said.

The future plans of Sutherland – who had adopted a high public profile as he attempted to steer through change – were not immediately clear. He was expected to spend Wednesday at a retail conference to discuss the subject of leadership. On Tuesday evening he cancelled.

In your face

As details of his £6.6m pay packet emerged, Euan Sutherland went on Facebook to express his anger about his pay being made public:

"I'm very sorry to have to report that we have had yet another leak to the media ... It appears that, once again, the leak has come from our group boardroom. We seem to have an individual, or individuals, determined to undermine me personally, my team and the rest of the group board."

Among the replies:

"Good to see that even with the company going down the pan, you can still get your bonus."

"Have we totally lost the plot? I think so."

"Hi Euan, can you please justify why bonuses are paid when the bank is making a loss?"

"It's worse than it seems ... these are retention bonuses, so Euan can perform woefully, but as long as he stays put he will get it. Unbelievable"

"After 40 years I'm looking for another bank - the only thing keeping me there at the moment is concern for the employees lower down the tree."

"A real CEO would have deferred any increase until the mess is sorted."

"No man is worth all this money. We are not corporate, we are a cooperative, if he wanted this sort of money he should have gone elsewhere."

"If you really believed that in the current climate you could get away with this sort of remuneration without some form of public comment then clearly you are not in the right job."

"I have had a Co-op bank account for 40 years. This is the end of it. I'll have no more to do with the Co-op."

"I can't believe what I have read … I have worked for the Co-op for nearly 25 years. l have bored people to death extolling its ethics only to find out it didn't have any and everyone at the top is simply out for what [they] can get."