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    DGE   GB0002374006

DIAGEO PLC

(DGE)
  Report
Delayed London Stock Exchange  -  11:35 2022-09-23 am EDT
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Diageo : Directors' remuneration report 2022

08/04/2022 | 08:09am EDT

irectors remuneration report

Annual statement y the hairman of the emuneration ommittee

t has een another year of ro ust performance for iageo

ith the organisation continuing to sho resilience and creativity in an ongoing volatile environment

n this year s report

Remuneration at a glance

109

Pay for performance at a glance

110

Remuneration Committee governance

111

Directors' remuneration policy

113

Annual report on remuneration

119

oo ing ac on

Single figure of remuneration table

119

Annual incentive payouts for 2022

120

Long-term incentives vesting in 2022

121

Pension and benefits in 2022

122

Long-term incentives awarded in 2022

123

Outstanding share plan interests

124

Shareholding requirement

125

CEO total remuneration and TSR performance

126

CEO pay ratio

126

Annual change in pay for Directors and employees

128

Non-Executive Director pay

129

oo ing ahead to

3

Salary increases for the year ahead

130

Annual incentive design for the year ahead

130

Long-term incentives for the year ahead

130

ear Shareholder

am pleased to present the irectors remuneration report for the year

ended 3 une

hich contains:

The current Directors' remuneration policy, which was approved at the AGM on 28 September 2020; and

The annual remuneration report, describing how the policy has been put into practice during 2022, and how the policy will be implemented in 2023.

usiness performance

As mentioned elsewhere in the Annual Report, Diageo has delivered a strong set of financial results for 2022. Organic net sales grew at double-digit rates and, in an environment of high-cost inflation, the company implemented strategic price increases across all regions while continuing to grow volume and market share. Operating margin expanded and cash generation continues to be robust, with £2.8 billion of free cash flow delivered in the year and an increase in return on invested capital to 16.8%.

The organisation has continued to show resilience, skill, creativity, focus and determination during what has remained an uncertain time. Employee engagement has remained very high, the company has continued to invest for long-term growth in its brands and portfolio and has maintained focus on delivering the key sustainability milestones underpinning Society 2030: Spirit of Progress'. Again this year, Diageo has not participated in any furloughing schemes or initiated any widespread lay-offs as a result of ongoing impacts of the Covid-19 pandemic. The company has continued to provide support to its employees, customers and the communities in which it operates.

oo ing ac at decisions made during the year

ncentive outcomes

In determining annual and long-term incentive outcomes, the Remuneration Committee reviews not only the financial outcomes against targets set, but also considers Diageo's holistic performance. It assesses market share gains, financial performance relative to our Alcoholic Beverages and TSR peer groups, progress made towards our Society 2030: Spirit of Progress' goals and employee engagement, among other factors. It also considers the experience of shareholders over the applicable performance period, including the company's TSR performance relative to our peer group.

Following this review, the Remuneration Committee concluded that the financial measure outcomes for both the annual and long-term incentives were fair reflections of overall business performance in testing market conditions during the relevant performance periods. Consequently, the Committee did not exercise discretion to alter the incentive outcomes.

In setting the 2022 annual incentive, the Committee returned to annual targets, having set two half-yearly targets for the previous year, which reflected the significant uncertainty and volatility facing the business at that time. The company's performance in 2022 resulted in maximum achievement for all three financial measures despite the very stretching nature of performance required to achieve the maximum payouts - which reflected higher growth percentages than pre-Covid-19 pandemic levels for net sales and operating profit. The Individual Business Objective (IBO) outcomes for the CEO and CFO reflect an assessment of the achievement of critical business and ESG related milestones. Further detail is set out on page 120.

106 Diageo Annual Report 2022

Overall annual incentive payouts were 93.75% of maximum for Ivan Menezes and 90.0% of maximum for Lavanya Chandrashekar, with one-third being deferred into Diageo shares for three years.

The 2019 long-term incentive plan targets were set in the summer of 2019 before the Covid-19 pandemic and therefore reflect the company's growth plan at that time. Following an assessment of performance against the targets, the vesting outcome for the 2019 performance share awards, which will vest in September 2022, is 59.3% of maximum for the CEO and 59.8% of maximum for the CFO. Share options for the CEO will vest at 61.5% of maximum.

The Committee believes that the incentive plans continue to drive the desired behaviours to support the company's values and strategy and that the Directors' remuneration policy has operated as intended in 2022.

oo ing for ard to the year ahead

The Committee approved base salary increases of 3% for Ivan Menezes and Lavanya Chandrashekar, effective 1 October 2022. These increases reflect strong performance and are below the 2022 salary increase budgets for the UK and US for the wider employee population and are consistent with external market salary increases for executive directors in the current environment.

As previously communicated, Ivan Menezes' pension contribution will reduce from 20% to 14% of salary effective 1 January 2023, ensuring full alignment of executive director pension contributions with the UK workforce. The CFO's pension contribution has been 14% since joining the Board on 1 July 2021.

The structure and performance measures for the annual and long-term incentives remain unchanged for 2023 as these continue to align with the company's strategy.

Alignment of incentives ith strategy glo al mar et competitiveness

Our ambition is to be one of the best performing, most trusted and respected consumer companies in the world. Our strategic priorities to drive the company forward are unchanged: sustain quality growth, embed everyday efficiency, invest smartly, promote positive drinking, champion inclusion and diversity and pioneer grain-to-glass sustainability.

The performance measures in the incentive plans align with the strategy and the key performance indicators on pages 32-34. The financial measures for the annual incentive focus on net sales growth, operating profit (both of which represent critical measures of growth for Diageo) and operating cash conversion (which recognises the criticality of strong cash performance and cash containment, particularly in the current challenging market conditions). The IBO component adds focus on key individual strategic and financial objectives.

emuneration principles

The approach to setting executive remuneration continues to be guided by the remuneration principles set out below. The Committee considers these principles carefully when making decisions on executive remuneration in order to strike the right balance between risk and reward, cost and sustainability, and competitiveness and fairness.

The company has a strategy to grow and leverage its leaders globally given the international nature of the business. We also need to have the right tools in place to source talent globally and the increasingly restrictive corporate governance environment in the United Kingdom presents some challenges when considered against the significantly higher pay norms in the United States and other parts of the world, particularly given the increasing international mobility of the senior talent pool.

Long-term value creation for shareholders and pay for performance remains at the heart of our remuneration policy and practices. Attracting and nurturing a vibrant mix of talent with a range of backgrounds, skills and capabilities enables Diageo to grow and thrive, and ultimately to deliver our Performance Ambition. Remuneration remains a key part of attracting and retaining the best people to lead our business, balanced against the need to ensure our packages are appropriate and fair in the business and wider employee context, delivering market- competitive pay in return for high performance against the company's strategic objectives.

elivery of usiness strategy

Short and long-term incentive plans reward the delivery of our business strategy and Performance Ambition. Performance measures are reviewed regularly and stretching targets are set relative to the company's growth plans and peer group performance. The Committee seeks to embed simplicity and transparency in the design and delivery of executive reward.

reating sustaina le long term performance

A significant proportion of remuneration is delivered in variable pay linked to business and individual performance, focused on consistent and responsible drivers of long-term growth. Performance against targets is assessed in the context of underlying business performance and the quality of earnings'.

inning est talent

aving market-competitive total remuneration with an appropriate balance of reward and upside opportunity allows us to attract and retain the best talent from all over the world, which is critical to our continued business success.

onsideration of sta eholder interests

Executives are focused on creating sustainable share price growth. The requirement to build significant personal shareholdings in Diageo, and to hold long- term incentive awards for two years post-vesting encourages executives to think and act like owners. Decisions on executive remuneration are made with consideration of the interests of the wider workforce and other stakeholders, as well as taking account of the external climate.

GOVERNANCE

Diageo Annual Report 2022

107

Directors' remuneration report continued

The measures under the long-term incentive plans continue to reflect the company's strategic priorities and key drivers of long-term growth by incorporating organic net sales, organic profit before exceptional items and tax, free cash flow, TSR and key Environmental, Social and Governance (ESG) measures (greenhouse gas reduction, water efficiency, positive drinking and gender and ethnic diversity).

Global pay competitiveness is another key remuneration principle for the company. Attracting and retaining key talent is critical for our business and remuneration is an important aspect of being able to meet our talent objectives. As we operate in a global talent market, the Committee takes into account global pay practices, including the US market, when reviewing executive pay. Global pay competitiveness has been considered by the Committee in the context of a number of changes in the Executive Committee during the year.

n summary

Diageo's strong performance in ongoing challenging market conditions is reflected in the incentive outcomes and the decisions the Committee has made, which it considers are in line with the company's philosophy of delivering market competitive pay in return for high performance against the company's strategic objectives.

The Committee is interested in the views of shareholders and their representative bodies and values their ongoing engagement on remuneration matters. As our Directors' remuneration policy is due for renewal at the 2023 AGM, I look forward to engaging with shareholders and institutional advisors in the coming year.

I hope that you will join the Board in approving the advisory resolution on the Directors' remuneration report at the AGM on 6 October 2022.

Susan Kils y

Non-Executive Director and Chair of the Remuneration Committee

108 Diageo Annual Report 2022

emuneration at a glance

Salary

Allo ances and enefits

Annual incentive

ong term incentives

Shareholding requirement

Purpose and

- Supports the attraction and

- Provision of market-competitive

- Incentivises delivery of

- Rewards consistent long-term

- Ensures alignment between the

link to strategy

retention of the best global

and cost-effective benefits

Diageo's financial and

performance in line with

interests of Executive Directors

talent with the capability to

supports attraction and

strategic targets

Diageo's business strategy

and shareholders

deliver Diageo's strategy

retention of talent

- Provides focus on key financial

- Provides focus on delivering

metrics and the individual's

superior long-term returns to

contribution to the company's

shareholders

performance

Key features

- Normally reviewed annually on

- Provision of competitive

- Target opportunity is 100% of

- Annual grant of performance

- Minimum shareholding

1 October

benefits linked to local market

salary and maximum is 200%

shares and share options

requirement within five years of

- Salaries take account of

practice

of salary

- CEO award up to 500% of

appointment:

external market and internal

- Maximum company pension

- Performance measures,

salary

- CEO 500% of salary

employee context

contribution is 14% of salary

weightings and stretching

- CFO award up to 480% of

- CFO 400% of salary

for new Executive Director

targets are set by the

salary

- Post-employment shareholding

appointments, which is aligned

Remuneration Committee

(% of salary for both CEO and

requirement for Executive

to the offering for the wider

- Subject to malus and clawback

CFO described in performance

Directors of 100% of in-

workforce in the United

provisions

share equivalents)

employment requirement in

Kingdom

- Executive Directors defer one-

- Performance measures,

the first year after leaving the

third of earned bonus

weightings and stretching

company and 50% in the

payment into Diageo shares

targets are set annually

second year after leaving the

held for three years, which first

- Three-year performance period

company

took effect on the bonus for

plus two-year retention period

the year ended 30 June 2021

- Subject to malus and clawback

- Remainder paid out in cash

provisions

after the end of the financial

- Grant price based on six-

year

month average to 30 June

preceding grant date

Planned for

- 3% salary increase for the CEO

- Allowances and benefits

- Targets will be set for the full

- Performance measures on net

- No change to shareholding

year ending 30

and CFO, slightly below the

unchanged from prior year

year

sales growth, relative TSR,

requirement

June 2023

annual salary budgets for the

- Company pension contribution:

- For the year ending 30 June

cumulative free cash flow,

wider workforce in the United

- CEO 20% of salary until

2023, measures on net sales

profit before exceptional items

Kingdom and the United

1 January 2023, at which point

growth, operating profit

and tax and ESG

States

the CEO's pension contribution

growth and operating cash

- Size of long-term incentive

will reduce to 14% of salary

conversion, 80% in total

award opportunity is

- CFO 14% of salary

weighted equally, with

unchanged from prior year

remaining 20% on individual

objectives

Implementation

- 3% salary increase for the CEO

- Allowances and benefits

- Full year targets resumed

- esting of 2019 performance

- As at 30 June 2022, CEO

in year ended

in line with wider workforce in

unchanged from prior year

for year ended 30 June

shares at 59.3% of maximum

shareholding of 3,093% of

30 June 2022

the United Kingdom and the

- Company pension contribution:

2022.

for Ivan Menezes and 59.8%

salary

United States in 2021

- CEO 20% of salary

- Payout of 100% of maximum

of maximum for Lavanya

- As at 30 June 2022, CFO

- CFO appointed 1 July 2021

- CFO 14% of salary

for the financial elements of

Chandrashekar

(Lavanya Chandrashekar)

No salary increases post

the plan

- esting of 2019 share options

shareholding of 31% of salary

appointment in 2021

- Total payout of 93.75% of

at 61.5% of maximum for Ivan

(has until 1 July 2026 to meet

maximum for the CEO and

Menezes. The CFO was not in

requirement)

90.0% of maximum for the

her current role in 2019 and

CFO

does not hold a share option

award for that year

Implementation

- No salary increase for

- Allowances and benefits

- Targets set over two half-year

- esting of 2018 performance

- CEO shareholding 2,735% of

in year ended

Executive Directors or

unchanged from prior year

periods

shares at 29.3% of maximum

salary

30 June 2021

Executive Committee

- Company pension contribution:

- Payout of 100% of maximum

- esting of 2018 share options

- CFO (Kathryn Mikells)

members. Exceptional salary

- CEO 20% of salary

for the financial element of the

at 10% of maximum

shareholding 868% of salary

increases only (e.g. on

- CFO 20% of salary

plan

promotion) for the wider

- Total payout of 93.75% of

workforce

maximum for the CEO and

91.3% of maximum for the

CFO

roportionality and management of ris

The structure of Diageo's executive remuneration package ensures that executives have a vested interest in delivering performance over the short and long-term. There is a three-year deferral of one-third of the annual incentive payout into shares, a two-year retention period on any vested awards under the long-term incentive plan and a post-employment shareholding requirement that applies for two years after leaving the company. The performance, retention and clawback periods for each element of remuneration are outlined below.

2022

2023

2024

2025

2026

2027

GOVERNANCE

Diageo Annual Report 2022

109

ay for performance at a glance

The charts below show performance outcomes against targets for the long-term and annual incentive plans. Targets under both incentive plans are set with reference to Diageo's strategic plan and the historical and forecasted performance of Diageo and its peers.

ong term incentives (for the period 1 uly

1

to 3

une

)

Organic growth in net sales

Cumulative free cash flow

CAGR

Threshold

Midpoint

Maximum

Threshold

Midpoint

Maximum

3.75%

4.875%

6.0%

£8,600m

£9,100m

£9,600m

Actual 8.9%

Actual £8,271m

Organic growth in profit before exceptional items and tax

Relative TSR ranking vs peer group

CAGR

Threshold

Midpoint

Maximum

Threshold

Midpoint

Maximum

4.5%

7.5%

10.5%

9th (median)

-

3rd (upper quintile)

Actual 8.8%

Actual 8th

Annual incentive (for the period 1 uly

1 to 3

une

)

Net sales growth

Operating profit growth

Threshold

Target

Maximum

Threshold

Target

Maximum

5.2%

8.2%

11.2%

8%

14%

20%

Actual 21.4%

Actual 26.3%

Diageo's share price growth over the period 30 June 2019 to 30 June 2022

Growth in dividend distribution to shareholders in year ended to 30 June 2022

2022

£3,351

2022

76.18p

2019

£3,384

2021

72.55p

istoric reward outcomes under the annual and long-term incentive plans over the past five years are shown below. esting outcomes under the long-term incentive plan are shown against annualised total shareholder return for the three-year period ended in the year of vesting (i.e. annualised TSR for the three years ended 30 June 2022 is shown against the vesting outcome for the 2019 long-term incentive awards vesting in 2022). Outcomes against annual incentive financial measures are shown against organic operating profit growth for each respective financial year, as disclosed in prior-year annual reports.

5-year vesting outcomes of long-term incentives

5-year history of annual incentive payouts

Executive Director vesting outcome (% of maximum)

Annualised TSR %

Payout (% of maximum)

Operating profit growth %

100

70%

60%

89%

73%

27.5%

29.3%

59.3%

61.5%

30

100

75%

60%

100%

100%

30

6

80

24

80

24

60

18

60

18

40

12

40

12

20

10%

10%

6

20

0%

0

0

0

0

2018

2019

2020

2021

2022

2018

2019

2021

2022

-20

Performance shares

2020

Share options

Annualised total shareholder return over three-yearlong-term incentive performance period

Annual incentive payout (financial measures excluding individual business objectives)

Organic operating profit growth (% on prior year)

110 Diageo Annual Report 2022

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

Diageo plc published this content on 04 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 August 2022 12:07:42 UTC.


© Publicnow 2022
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Sales 2023 17 105 M 18 700 M 18 700 M
Net income 2023 3 854 M 4 213 M 4 213 M
Net Debt 2023 14 565 M 15 924 M 15 924 M
P/E ratio 2023 22,4x
Yield 2023 2,19%
Capitalization 85 854 M 93 861 M 93 861 M
EV / Sales 2023 5,87x
EV / Sales 2024 5,55x
Nbr of Employees 28 558
Free-Float 91,0%
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Mean consensus OUTPERFORM
Number of Analysts 24
Last Close Price 3 771,00 GBX
Average target price 4 273,32 GBX
Spread / Average Target 13,3%
EPS Revisions
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Ivan M. Menezes Chief Executive Officer & Executive Director
Lavanya Chandrashekar Chief Financial Officer & Executive Director
Javier Ferrán Larraz Chairman
Alan James Harris Stewart Independent Non-Executive Director
Nicola S. Mendelsohn Independent Non-Executive Director
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