Diageo : Directors' remuneration report 2023

DIRECTORS' REMUNERATION REPORT

Annual statement by the Chairman of the Remuneration Committee

On behalf of the Committee, I engaged with our largest shareholders and their representatives on the new policy and considered the feedback received, which was positive. We also reviewed market practice trends in the FTSE 30 (excluding financial services) and our global consumer goods peer group. Further, and in line with our remuneration principles, the Committee considered the remuneration arrangements for the workforce globally when reviewing the policy for Executive Directors.

We value the views we have received from our shareholders and the strong support we have had in recent years. Maintaining both the dialogue and the support continue to be important to the Committee.

CEO transition

On 28 March 2023, we announced that Sir Ivan Menezes would retire on 30 June 2023 and Debra Crew would be appointed as the next CEO from the start of fiscal 24. Following the announcement on 7 June 2023 that Sir Ivan had sadly passed away, Debra Crew was appointed to the Board as CEO and Executive Director on 8 June 2023, having taken over as interim CEO on 5 June due to Sir Ivan's deteriorating health.

We set the salary for Debra Crew at $1,750,000, slightly below Sir Ivan's salary. The Committee determined that this salary level reflects Debra's significant relevant experience, which includes a prior CEO position in the United States and four years with Diageo, including time on the Diageo Board as a Non-Executive Director. The Committee considered both the FTSE 30 pay practices, as well as those of our global peer group when determining the appropriate level of pay for our Chief Executive.

The remuneration arrangements for Sir Ivan were approved within the terms of the Directors' remuneration policy and application of the plan rules on death in service. Further details, including exercises of discretion by the Committee, can be found on page 150.

Annual incentive

For the annual incentive, outcomes under the Net Sales (NSV) and Operating Profit (OP) measures were at and just under target respectively and Operating Cash Conversion (OCC) performance fell short of the minimum threshold required. Further detail is provided on page 140. Following a holistic review of business performance in the year, the Committee concluded that the outcome was fair and did not require any adjustment. Our annual incentive also includes Individual Business Objectives (IBOs) and the outcomes are described on page 140.

Once IBO outcomes are included, overall annual incentive payouts for fiscal 23 were 37% of maximum for Sir Ivan Menezes, 35% of maximum for Debra Crew and 36% of maximum for Lavanya Chandrashekar.

Long-term incentives

Strong financial performance over the three-year period, particularly in respect of growth in organic net sales and profit before exceptional items and tax (PBET), free cash flow (FCF) and share price growth of 26% resulted in a vesting outcome of 99% of maximum for the 2020 performance share awards for the prior CEO, the CEO and the CFO

Dear Shareholder

I am pleased to present the Directors' remuneration report for the year ended 30 June 2023, which contains:

• The updated Directors' remuneration policy, which shareholders are being asked to approve at the Annual General Meeting (AGM) on 28 September 2023; and
• The annual remuneration report, describing how the current Directors' remuneration policy has been implemented during 2023 and how the policy will be implemented in 2024.

Proposed Directors' Remuneration Policy

The Committee has reviewed the current Directors' remuneration policy and determined that it continues to support the company's strategy and will do so for the next three years. The Committee is therefore asking shareholders to approve our current policy, largely unchanged except for a governance enhancement to the post- cessation shareholding requirement, which further improves shareholder alignment. Executive Directors will now be required to hold 100% of their in-service shareholding level (500% of salary for the CEO and 400% of salary for the CFO) for two years post-exit. We have also improved the level of disclosure of our malus and clawback policy.

As well as submitting an updated Directors' remuneration policy for approval at the AGM in September 2023, shareholders are also being asked to approve the rules of the new Diageo Long-Term Incentive Plan (LTIP), as it is close to its 10-year expiry. No significant changes are being proposed to the rules.

During the year, the Committee reviewed the current Directors' remuneration policy. In doing so, it sought to ensure continued alignment with the delivery of business strategy, our ongoing ability to recruit and retain high-quality, international talent and to meet the expectations of our shareholders and the governance community. Consideration was given to the global nature of the business, which includes a large presence in North America and, therefore, the need to compete for talent in a global pool. Attracting and retaining key talent in an increasingly competitive talent pool is critical for our business and, at all levels, Diageo's talent strategy involves a global approach to internal talent mobility. Remuneration is an important aspect of being able to meet our talent objectives.

In this year's report

Remuneration at a glance	129
Pay for performance at a glance	130
Remuneration Committee governance	131
Directors' remuneration policy	132
Annual report on remuneration	139

Looking back on 2023

Single figure of remuneration table	139
Annual incentive payouts for 2023	140
Long-term incentives vesting in 2023	141
Pensions and benefits in 2023	143
Long-term incentives awarded in 2023	144
Outstanding share plan interests	145
Shareholding requirement and share interests	147
CEO total remuneration and TSR performance	148
Wider workforce remuneration and CEO pay ratio	149
Change in pay for Directors and wider workforce	150
Non-Executive Director pay	151

Looking ahead to 2024

Salary increases for the year ahead	152
Annual incentive design for the year ahead	152
Long-term incentives for the year ahead	152

Business performance and employees

As mentioned elsewhere in the Annual Report, Diageo delivered a strong set of 2023 results during a period of economic volatility and continued inflationary pressures. Both organic net sales and organic operating profit growth were within our medium-term guidance and follow two consecutive years of double-digit growth and are reflected in lower annual incentive outcomes this year relative to the prior two years. Over the year, we gained or held market share in markets that total 70% of our net sales value, delivered further expansion of organic operating margin through productivity savings and return on invested capital was 16.3%.

Colleagues across the business have continued to show resilience, agility and commitment during this period of sustained uncertainty. Diageo continues to focus on being market competitive and pro-active in the ways it supports the wellbeing of employees. Employee engagement has remained high again this year at 84%, two point higher than in 2022. Early in fiscal 23, Diageo made a one-time payment of £1,000 gross (capped at 15% of local equivalent annual salary) to all employees below Executive Committee level to recognise their commitment through challenging times. In addition, ongoing monitoring of the cost-of-living in all our geographies has resulted in off-cycle salary increases in countries experiencing the highest inflation. Other measures, such as financial education and progressive benefit policies have been implemented and more detail can be found on page 148.

Incentive 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 wider business performance. It assesses market share gains, financial returns 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, in particular the company's TSR performance relative to our peer group.

and 78% of maximum for the 2020 share options granted to the prior CEO and the CEO. The 2020 performance share awards were the first Diageo awards which included an Environmental, Social and Governance (ESG) component and the outcomes against these measures show solid progress towards Diageo's 'Society 2030: Spirit of Progress' ambition over this first three-year period.

Prior to confirming the vesting of DLTIP awards, the Committee considered whether there was a compelling case to change the formulaic outcome by reviewing overall business performance and the targets set for these awards. For the 2020 DLTIP awards, the Committee was especially cognisant of investor concerns around the potential for windfall gains given the timing of the grant during the Covid-19 pandemic. The Committee considered various factors, including the share price used to calculate the 2020 awards relative to the prior year's price, the stretch of the targets and the performance relative to peers (see page 142 for more detail). The Committee determined that the outcomes were appropriate and aligned to the assessment of Diageo's underlying business performance over the three-year period and made no adjustment to the vesting levels.

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 2023.

The year ahead and alignment of incentives with strategy

The Committee approved a base salary increase of 4% for the CFO, effective 1 October 2023, having reviewed market practice in the FTSE 30 and our global consumer goods peer group. This increase is below the 2023 salary increase budget for employees in the UK, which was 5%. There will be no increase for the CEO, whose next review will be in October 2024.

G O V E R N A N C E R E P O R T

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Diageo Annual Report 2023

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DIRECTORS' REMUNERATION REPORT c o n t i n u e d

The structure and performance measures for the annual and long- term incentives remain unchanged for 2024 as these continue to align with the company's strategic priorities. The annual incentive focuses 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) and IBOs add focus on individual strategic and financial objectives. The long-term incentive measures reflect key drivers of long-term growth by incorporating organic net sales, organic profit before exceptional items and tax (PBET), free cash flow (FCF), TSR and key ESG measures (greenhouse gas reduction, water efficiency, positive drinking and gender and ethnic diversity).

We were one of the first companies to include ESG measures in a long-term plan back in 2020, and consequently, as our practices evolve, we recognise that KPIs also need to evolve. The Committee believes in setting targets that incentivise the management team to make the right long-term decisions for all stakeholders and the environment. The water efficiency KPI under the 'Society 2030: Spirit of Progress' goals will, from fiscal 24, use an index approach, which links directly to the underlying water efficiency of the two production pillars of distillation and brewing & packaging. This approach reduces sensitivity to product mix compared to the current measure and the methodology used for each pillar is more consistent with what's used by our industry peers (see page 79 for more detail). The water efficiency component of the 2023 LTIP awards reflects the updated water efficiency index KPI.

As described on page 36 we are changing our functional currency from pounds sterling to US dollars from fiscal 24. The Free Cash Flow (FCF) targets for the 2023 DLTIP awards have therefore been set and disclosed in US dollars (see page 153) and the Free Cash Flow (FCF) targets for the in-flight awards have been translated into US dollars in accordance with the agreed methodology (see pages 144 and 146).

In summary

Diageo's resilient performance in another period of broad and sustained uncertainty 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.

I hope that you will vote in favour of the proposed Directors' remuneration policy and the Directors' remuneration report for fiscal 23 at the AGM on 28 September 2023.

Finally, and importantly, I would like to personally reiterate the sentiment which has been so well expressed elsewhere in this Annual Report about the sad and shocking loss of our CEO, Sir Ivan Menezes, just weeks before his planned retirement. It was a pleasure and an honour to work with Sir Ivan over the years and my thoughts continue to be with his family at this time.

Susan Kilsby

Non-Executive Director and Chair of the Remuneration Committee

Remuneration 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 international 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 global 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.

Delivery of business 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 forecasted performance. The Committee seeks to embed simplicity and transparency in the design and delivery of executive reward.

Creating sustainable, long-term performance

A significant proportion of remuneration is delivered in variable pay linked to business and individual performance, focussed 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'.

Winning best talent

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

Consideration of stakeholder interests

Executives are focussed on creating sustainable share price growth. The requirement to build significant personal shareholdings in Diageo, and to hold shares acquired from long-term incentive awards for two years post-vesting aligns executives and shareholders. Decisions on executive remuneration are made with consideration of the interests of the wider workforce and other stakeholders, as well as the external climate.

Remuneration at a glance

Salary

Allowances and

Annual incentive

Long-term

Shareholding

benefits

incentives

requirement

Purpose

•

Supports the attraction

•

Provision of market-

•

Incentivises delivery of

•

Rewards consistent long-term

•

Ensures alignment between

and retention of the

competitive and cost-

Diageo's financial and

performance in line with

the interests of Executive

best global talent with

effective benefits supports

strategic targets

Diageo's business strategy

Directors and shareholders

the capability to

attraction and retention of

•

Provides focus on key

•

Provides focus on delivering

deliver Diageo's

talent

financial metrics and the

superior long-term returns to

strategy

individual's contribution to

shareholders

the company's

performance

Key features of

•

Normally reviewed

•

Provision of competitive

•

Target opportunity is 100%

•

Annual grant of performance

•

Minimum shareholding

current policy &

annually on 1 October

benefits linked to local

of salary and maximum is

shares and share options

requirement within five years

proposed key

•

Salaries take account

•

market practice

•

200% of salary

•

CEO award up to 500% of

of appointment:

policy changes

of external market and

Maximum company

Performance measures,

salary

•

CEO 500% of salary

internal employee

pension contribution is 14%

weightings and stretching

•

CFO award up to 480% of

•

CFO 400% of salary

context

of salary, which is aligned

targets are set by the

salary

•

Post-employment

to the offering for the wider

Remuneration Committee

(% of salary for both CEO

shareholding requirement for

workforce in the United

•

Subject to malus and

and CFO described in

Executive Directors of 100%

Kingdom

clawback provisions

performance share

of in-employment

•

Executive Directors defer a

equivalents)

requirement in the first year

minimum of one-third of

•

Performance measures,

after leaving the company

earned bonus payment

weightings and stretching

and 50% in the second year

into Diageo shares held for

targets are set annually

after leaving the company

three years

•

Three-year performance

Proposed policy change:

•

Remainder paid out in

period plus two-year

Post-employment

cash after the end of the

retention period

shareholding requirement for

financial year

•

Subject to malus and

Executive Directors of 100%

clawback provisions

of in-employment

•

Number of awards granted is

requirement to be retained in

based on a six-month

full for two years after leaving

average share price to 30

the company

June preceding grant date

Planned for year

•

4% salary increase for

•

Allowances and benefits

•

Size of annual incentive

•

Performance measures are

•

No change to in-employment

ending 30 June

the CFO, below the

unchanged from prior

award opportunity is

net sales growth, relative

•

shareholding requirement

2024

annual salary budgets

year

unchanged from prior

TSR, cumulative free cash

Post-employment

for the wider workforce

•

Company pension

year. For fiscal 24,

flow, profit before

shareholding of 100% of in-

in the United Kingdom

contributions 14% of

measures are net sales

exceptional items and tax

year shareholding for two

•

New CEO

salary

growth, operating profit

and 'Society 2030: Spirit of

years after leaving the

appointment from 5

growth and operating cash

Progress' measures

company

June 2023. No salary

conversion, 80% in total

• Size of long-term incentive

increase in fiscal 24

weighted equally, with

award opportunity is

remaining 20% on

unchanged from prior year

individual objectives

Implementation

•

3% salary increase for

•

Allowances and benefits

•

Payout of 32.5% of

•

Vesting of 2020 performance

•

As at 30 June 2023, Ivan

in year ended 30

the CEO and CFO,

•

unchanged from prior year

maximum for the financial

shares at 98.7% of maximum

Menezes' shareholding was

June 2023

slightly below the

Company pension

elements of the plan

for Ivan Menezes, and 98.8%

2,728% of salary

annual salary budgets

contribution:

•

Total payout of 37.25% of

of maximum for Debra Crew

•

As at 30 June 2023, Debra

for the wider workforce

•

CEO 20% of salary until

maximum for the prior

and Lavanya Chandrashekar

Crew's shareholding was 1%

in the United Kingdom

1 January 2023, which

CEO, 35.38% for the CEO

•

Vesting of 2020 share options

of salary (she has until 8

and the United States

was then reduced to

and 36.0% for the CFO

at 77.5% of maximum for

June 2028 to meet her

Ivan Menezes and Debra

requirement)

14% of salary

Crew. Lavanya

•

As at 30 June 2023, Lavanya

•

CFO 14% of salary

Chandrashekar did not

Chandrashekar's

receive share options in 2020

shareholding was 47% of

salary (she has until 1 July

2026 to meet her

requirement)

Implementation

•

3% salary increase for

•

Allowances and benefits

•

Payout of 100% of

•

Vesting of 2019 performance

•

As at 30 June 2022, Ivan

in year ended 30

the CEO in line with

•

unchanged from prior year

maximum for the financial

shares at 59.3% of maximum

Menezes' shareholding was

June 2022

wider workforce in the

Company pension

elements of the plan

for Ivan Menezes and 59.8%

3,093% of salary

United Kingdom and

contribution:

•

Total payout of 93.75% of

of maximum for Lavanya

•

As at 30 June 2022, Lavanya

the United States in

•

CEO 20% of salary

maximum for the CEO and

Chandrashekar

Chandrashekar's

2021

•

CFO 14% of salary

90.0% of maximum for the

•

Vesting of 2019 share options

shareholding was 31% of

•

CFO appointed 1 July

CFO

at 61.5% of maximum for

salary (she has until 1 July

2021. No salary

Ivan Menezes. The CFO did

2026 to meet requirement)

increases post

not receive share options in

appointment in 2021

2019

G O V E R N A N C E R E P O R T

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Pay for performance at a glance

Remuneration Committee Governance

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.

Long-term incentives (for the period 1 July 2020 to 30 June 2023)

Organic growth in net sales

Cumulative free cash flow

CAGR

Threshold

Midpoint

Maximum

Threshold

Midpoint

Maximum

4.0%

6.0%

8.0%

£6,200m

£7,200m

£8,200m

•

•

Actual 14.5%

Actual £8,404m

Organic growth in profit before exceptional items and tax

Relative TSR ranking vs peer group

CAGR

Threshold

Midpoint

Maximum

Threshold

Midpoint

Maximum

4.5%

8.25%

12.0%

9th (median)

-

3rd (upper quintile)

•

•

Actual 16.5%

Actual 7th

ESG measure

Unit of measurement

Threshold

Midpoint

Maximum

Actual

Carbon reduction

Reduction in greenhouse gas emissions (cum%)

6.3%

10.3%

14.3%

14.7%

Water efficiency

Improvement in water efficiency (cum%)

5.8%

8.5%

11.2%

9.4%

Positive drinking

Number of people who confirmed changed attitudes on the dangers

of underage drinking following participation in a Diageo supported

education programme

0.75m

1.00m

1.25m

2.20m

Inclusion & diversity

% female leaders globally

41%

42%

43%

44%

% ethnically diverse leaders globally

38%

39%

40%

43%

Remuneration Committee

The Remuneration Committee consists of the following independent Non-Executive Directors: Susan Kilsby, Melissa Bethell, Valérie Chapoulaud-Floquet, Sir John Manzoni, Lady Mendelsohn, Alan Stewart, Ireena Vittal and Karen Blackett. Susan Kilsby is the Chair of the Remuneration Committee and also the Senior Independent Director. The Chairman of the Board and the Chief Executive are invited to attend Remuneration Committee meetings, except when their own remuneration is being discussed. The Chief Human Resources Officer and Global Performance and Reward Director are also invited by the Remuneration Committee to provide their views and advice. The Chief Financial Officer may also attend to provide performance context to the Committee during its discussions about target setting and incentive outcomes. The Remuneration Committee's terms of reference are available in the corporate governance section of the company's website and on request from the Company Secretary.

The Remuneration Committee is responsible for all executive remuneration decisions throughout the year, which includes setting financial targets for the annual and long-term incentive plans and the outcomes under these plans. During fiscal 23, the Remuneration Committee also reviewed the Directors' remuneration policy and consulted with Diageo's largest investors in preparation for seeking shareholder approval at the 2023 AGM, as well as the CEO transition arrangements and the death-in-service remuneration arrangements

Committee assesses performance holistically at the end of each period, taking into account underlying business performance and the internal and external context. The Committee may exercise discretion to ensure that payouts are appropriate; and

Alignment with culture - non-financial objectives may be incentivised under the individual business objective element of the annual incentive plan and 'Society 2030: Spirit of Progress' (ESG) priorities are incentivised under the long-term incentive plan, which reinforces the company's purpose and values. The design of remuneration and the measures used, reflect Diageo's culture.

External advisors

During the year ended 30 June 2023, the Remuneration Committee received advice on Directors' remuneration from both Deloitte and FIT. FIT was appointed as the Committee's new external advisor in October 2022.

The fees paid to Deloitte in fiscal 23 (until the end of their appointment) for advice provided to the Committee were £33,900. The fees paid to FIT in fiscal 23 since their date of appointment were £114,265. All fees were determined on a time and expenses basis.

The Committee is satisfied that FIT's (and previously Deloitte's) engagement partners, and the teams that provide remuneration advice to the Committee, have no connections with Diageo that may

G O V E R N A N

Annual incentive (for the period 1 July 2022 to 30 June 2023)

Net sales growth

Threshold	Target	Maximum
3.5%	6.5%	9.5%

•

Actual 6.5%

Operating cash conversion

Threshold	Target	Maximum
95%	100%	105%

•

Actual 93.3%

Operating profit growth
Threshold	Midpoint	Maximum
2.5%		7.5%		12.5%
			•
			Actual 7.0%
Diageo's share price growth over	Growth in dividend distribution
the period 30 June 2020 to 30 June	to shareholders in year ended to
2023							30 June 2023
26%						5%
2023						2023
		£33.79			80.00p
2020						2022
		£26.82				76.18p

following the sad passing of Sir Ivan Menezes. The Committee considered the remuneration policy and practices in the context of the principles of the Corporate Governance Code, as follows:

Clarity - the Committee engages regularly with executives, shareholders and their representative bodies in order to explain the approach to executive pay;

Simplicity - the purpose, structure and strategic alignment of each element of pay has been laid out in the remuneration policy;

Risk - there is an appropriate mix of fixed and variable pay, and financial and non-financial objectives, and there are robust measures in place to ensure alignment with long-term shareholder interests, including the DLTIP post-vesting retention period, shareholding requirement, bonus deferral into shares and malus and clawback provisions. The Committee also considers the impact on behaviour of

impair their independence. The Committee reviewed the potential for conflicts of interest and judged that there were appropriate safeguards against such conflicts. Deloitte provided and continues to provide unrelated services to the company in the areas of immigration and management consultancy. FIT does not provide Diageo with any other services. Deloitte and FIT are founder members of the Remuneration Consultants Group (RCG) which is responsible for developing and maintaining the Code of Conduct for Consultants to Remuneration Committees of UK listed companies. FIT attended Remuneration Committee meetings during the year following their appointment and the Committee is satisfied that the advice it has received has been objective and independent.

Statement of voting

The following table summarises the details of votes cast in respect of

C E R E P O R T

Historic reward outcomes under the annual and long-term incentive plans over the past five years are shown below. Vesting 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 2023 is shown against the vesting outcome for the 2020 long-term incentive awards vesting in 2023). 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.

both the measures and targets set;

Predictability - the pay opportunity under different performance scenarios is set out on page 136 of this report;

Proportionality - executives are incentivised to achieve stretching

the resolutions on the Directors' remuneration policy at the 2020 AGM and the Directors' remuneration report (excluding the policy) at the 2022 AGM.

5-year vesting outcomes of long-term incentives

Executive Director vesting outcome (% of maximum)

Annualised TSR %

100									30
80	89%				59.3%	61.5%	98.7%		24
60			29.3%	77.5%	18
40	73%	27.5%	12
20	6
		10%	10%
0									0
	2019	2020	2021	2022	2023

5-year history of annual incentive payouts

Payout (% of maximum)

Operating profit growth %

100					30
80	60%	100%	100%		24
60		18
40					12
20				32.5%	6
0	0%			0
	2019	2021	2022	2023	-20
	2020

targets over annual and three-year performance periods, and the

		For	Against	Total votes cast	Abstentions
Directors' remuneration policy(1)	Total number of votes	1,644,443,671	121,538,951	1,765,982,622	3,321,427
	Percentage of votes cast	93.12%	6.88%	100%	n/a
Directors' remuneration report (excluding	Total number of votes	1,612,245,424	88,630,650	1,700,876,074	28,285,201
the policy)(2)
Percentage of votes cast	94.79%	5.21%	100%	n/a

1. As shown on pages 89-94 of the 2020 Annual Report.
2. As shown on pages 106-112 and 119-131 of the 2022 Annual Report.

ò Performance shares	ò	Annual incentive payout (financial measures
ò Share options		excluding individual business objectives)
ò	Annualised total shareholder return over three-yearlong-term	ò Organic operating profit growth (% on prior year)
	incentive performance period

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DIRECTORS' REMUNERATION REPORT c o n t i n u e d

Directors' remuneration policy

This section of the report sets out the 2023 Directors' remuneration policy which will be put to a binding vote at the AGM on 28 September 2023 and, if approved, will apply with effect from 1 July 2023.

The current policy, which was approved by shareholders in September 2020, can be found on the company's website at https:// www.diageo.com/en/our-business/corporate-governance/remuneration-at-diageo.

The Remuneration Committee discussed the details of the policy over a series of meetings, taking into account the strategic priorities of the business and evolving market practice. An external perspective was provided by the Remuneration Committee's advisor and the Remuneration Committee Chair engaged with the company's 20 largest shareholders and their representatives regarding the policy proposals. As referenced in the Remuneration Committee Chair's letter,

the Committee believes the current policy continues to support the business strategy and therefore the new policy being put forward for shareholder approval remains largely the same. The key change from the current policy relates to the increase in post-cessation shareholding requirement which requires 100% of the in-service shareholding requirement (or, if lower, their actual shareholding on cessation) to be held for two years after leaving (from 100% in the first year and 50% in the second year under the current policy). We have improved disclosures by providing more detail on our malus and clawback policy, the shareholding requirements and the enforcement mechanism for the post-cessation shareholding requirements. Some minor editorial changes have also been made.

The Committee reserves the right to make minor changes to the policy, where required for regulatory, tax or administrative reasons.

Annual Incentive Plan (AIP)

Purpose and link to strategy

Incentivises delivery of Diageo's annual financial targets and the achievement of key individual objectives which are chosen to align with the business strategy and create a platform for sustainable longer-term performance. Compulsory deferral of a minimum of one-third of any annual incentive earned into shares for three years promotes longer-term alignment of Executive Directors' interests with shareholders' interests.

Operation

• Performance measures, weightings and targets are set by the Remuneration Committee. Appropriately stretching targets are set by reference to

the operating plan and historical and projected performance for the company and its peer group.

• The level of award is determined with reference to Diageo's overall financial and strategic performance and individual performance.

• A minimum of one-third of the actual earned bonus payment is normally deferred into a share award (pre-tax deferral) or owned shares (post-

tax deferral) under the Deferred Bonus Share Plan, to be held for a minimum period of three years, other than in exceptional circumstances. The

remainder of the bonus payment is paid out in cash after the end of the financial year.

• The Remuneration Committee has discretion to adjust the level of payment if it is not deemed to reflect appropriately the individual's

contribution or the overall business performance. Any discretionary adjustments will be detailed in the following year's annual report on

remuneration.

• The Remuneration Committee has discretion to apply malus or clawback to bonus as detailed in the 'Malus and Clawback' section below.

Base salary

Purpose and link to strategy

Supports the attraction and retention of the best global talent with the capability to deliver Diageo's strategy and performance goals.

Operation

• Normally reviewed annually or following a change in responsibilities with any increases usually taking effect from 1 October.
• The Remuneration Committee considers the following parameters when reviewing base salary levels:
• • Pay increases for other employees across the group.
  • Economic conditions and governance trends.
  • The individual's performance, skills and responsibilities.
  • Base salaries (and total remuneration) at companies of similar size and international scope to Diageo, with roles typically benchmarked against the FTSE 30 excluding financial services companies, or against similar comparator groups in other locations dependent on the Executive Director's home market as well as global consumer goods companies.

Opportunity

Salary increases will be made in the context of the broader employee pay environment, and will normally be in line with those made to other employees in the relevant markets in which Diageo operates, typically the United Kingdom and the United States, unless there is a change in role or responsibility or other exceptional circumstances.

Benefits

Purpose and link to strategy

Provides market-competitive and cost-effective benefits as part of remuneration packages designed to attract and retain the best global talent.

Operation

• The provision of benefits typically depends on the country of residence of the Executive Director and may include but is not limited to a company car or travel allowance, the provision of a contracted car service or equivalent, product allowance, life insurance, accidental death and disability insurance, medical and dental cover, tax support and tax return preparation costs.
• The Remuneration Committee has discretion to offer additional allowances, or benefits, to Executive Directors, if considered appropriate and reasonable. These may include, but are not limited to, relocation expenses, housing allowance and school fees where a Director is asked to relocate from his/her home location as part of their appointment. Where appropriate, for example in relation to relocation benefits, the company may also meet the tax costs associated with the benefit provision.

Opportunity

• The benefits package is set at a level which the Remuneration Committee considers:
• • provides an appropriate level of benefits depending on the role and individual circumstances;
  • is appropriate in the context of the benefits offered to the wider workforce in the relevant market; and
  • is in line with comparable roles in companies of a similar size and complexity in the relevant market.

Post-retirement provision

Purpose and link to strategy

Provides competitive post-retirement benefits which are part of remuneration packages designed to attract and retain the best global talent.

Operation

• Provision of market-competitive pension arrangements or a cash alternative based on a percentage of base salary.

Opportunity

• The maximum pension contribution, or cash alternative allowance, for Executive Directors is 14% of salary. The current CEO and CFO receive a pension contribution of 14% of salary, in line with the UK workforce.

• In the case of pre-tax deferral, notional dividends accrue on deferred bonus share awards, delivered as shares or cash at the discretion of the

Remuneration Committee at the end of the vesting period (on post-tax deferral into owned shares, actual dividends are payable).

Opportunity

For threshold performance, up to 50% of salary may be earned, with up to 100% of salary earned for on-target performance and a maximum of 200% of salary payable for outstanding performance. The maximum includes the deferred share element but excludes dividend equivalents payable in respect of deferred share awards.

Performance conditions

Annual incentive plan awards are normally based 70%-100% on financial measures which may include, but are not limited to, measures of sales, profit and cash, and 0%-30% on broader objectives based on strategic goals and/or individual contribution.

The Remuneration Committee has discretion to amend the performance measures in exceptional circumstances if it considers it appropriate to do so, e.g. in cases of accounting policy changes, merger and acquisition activities or disposals. Any such amendments would be fully disclosed and explained in the following year's annual report on remuneration.

Diageo Long-Term Incentive Plan (DLTIP)

Purpose and link to strategy

Provides a long-term incentive to achieve key performance measures which support the company's strategy, and to align interests with shareholders.

Operation

• An annual grant of performance shares and/or market-price share options which vest subject to a performance test and continued employment, normally over a period of three years.
• Measures and stretching targets are reviewed annually by the Remuneration Committee for each new award.
• The Remuneration Committee has the authority to exercise discretion to adjust the vesting outcome based on its assessment of the overall business performance over the performance period. This may include the consideration of factors such as holistic performance relative to peers, stakeholder outcomes and significant investment projects, for example.
• Following vesting, there is normally a further retention period of two years. Executive Directors are able to exercise an option or sell sufficient shares to cover any tax liability when an award vests, provided they retain the net shares arising for the two-year retention period.
• Notional dividends accrue on performance share awards to the extent that the performance conditions have been met, delivered as shares or cash at the discretion of the Remuneration Committee at the end of the vesting period.
• The Remuneration Committee has discretion to apply malus or clawback to bonus as detailed in the 'Malus and Clawback' section below.

Opportunity

• The maximum annual grants for the Chief Executive and Chief Financial Officer are 500% and 480% of salary in performance share equivalents respectively (where a market-price option is valued at one-third of a performance share). Included within that maximum, no more than 375% of salary will be awarded in face-value terms in options, with the balance awarded in performance shares, to any Executive Director in any year.
• Awards vest at 20% of maximum for threshold performance and 100% of maximum if the performance conditions are met in full. The vesting schedule related to the levels of performance between threshold and maximum, including whether or not this will include an interim stretch performance level, will be determined by the Remuneration Committee on an annual basis and disclosed in the relevant remuneration report for that year. There is a ranking profile for the vesting of the part of the award based on relative total shareholder return, starting at 20% of maximum for achieving the threshold.

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DIRECTORS' REMUNERATION REPORT c o n t i n u e d

Diageo Long-Term Incentive Plan (DLTIP) continued

Performance conditions

The vesting of awards is linked to a range of measures which may include, but are not limited to:

• a growth measure (e.g. net sales growth, operating profit growth);
• a measure of efficiency (e.g. operating margin, cumulative free cash flow, return on invested capital);
• a measure of Diageo's performance in relation to its peers (e.g. relative total shareholder return); and
• a measure relating to our 'Society 2030: Spirit of Progress' (environmental, social or governance) priorities.

Measures that apply to performance shares and market-price options may differ, as is the case for current awards. Weightings of these measures may also vary year on year.

The Remuneration Committee has discretion to amend the performance conditions in exceptional circumstances if it considers it appropriate to do so, e.g. in cases of accounting policy changes, merger and acquisition activities or disposals. Any such amendments would be fully disclosed and explained in the following year's annual report on remuneration.

Malus and Clawback

Under the AIP and DLTIP, the Remuneration Committee has discretion to apply malus and clawback in the circumstances specified in the applicable malus and clawback policy from time to time in place, for example:

• Material misstatement of results or an error resulting in overpayment.
• Risk failure resulting in material financial loss or any business area being the subject of a regulatory investigation or in breach of regulation.
• Employee misconduct/disciplinary action.
• Employee accountability for material reputational damage to the group which could have been avoided.
• In respect of the application of malus, deterioration in the financial situation of the Group which limits the ability to fund incentive awards.
• Any other matter which, in the reasonable opinion of the Remuneration Committee, is required to be considered to comply with prevailing legal and/or regulatory requirements.

The malus and clawback provisions may be invoked for one year following an AIP cash payment and two years following a DLTIP vesting. Where the Remuneration Committee determines that malus and/or clawback will apply, the Remuneration Committee has discretion to determine the basis of application and the means by which malus and/or clawback will be implemented.

The malus and clawback policy will be reviewed from time to time to ensure that the policy is compliant with any regulatory requirements, such as the NYSE listing rules.

All-employee share plans

Purpose and link to strategy

To encourage broader employee share ownership through locally approved plans.

Operation

• The company operates tax-efficientall-employee share acquisition plans in various jurisdictions.
• Executive Directors' eligibility may depend on their country of residence, tax status and employment company.

Opportunity

• Limits for all-employee share plans are set by the tax authorities. The company may choose to set its own lower limits.

Performance conditions

• Under the UK Share Incentive Plan, the annual award of Freeshares may be based on Diageo plc financial measures which may include, but are not limited to, measures of sales, profit and cash.

Shareholding requirement

Purpose and link to strategy

• Ensures alignment between the interests of Executive Directors and shareholders.

Operation

• The minimum in-employment shareholding requirement is 500% of base salary for the Chief Executive and 400% of base salary for any other Executive Directors.
• Executive Directors are normally expected to build up their in-employment shareholding within five years of their appointment to the Board.
• Shares that count towards these minimum shareholding requirements are shares beneficially held by the Executive Director and their connected persons, including Deferred Bonus Share Plan (DBSP) shares within the three-year deferral period, on a net (if post-tax deferral)/notional net (if pre-tax deferral) of tax basis.
• Executive Directors are restricted from selling more than 50% of shares which vest under the long-term incentive plan or deferred bonus share plan (excluding the sale of shares to cover tax on vesting and other exceptional circumstances to be specifically approved by the Chief Executive and/or Chairman), until the shareholding requirement is met.
• In order to provide further long-term alignment with shareholders, Executive Directors will normally be expected to maintain a Diageo shareholding of 100% of the in-employment shareholding requirement (or, if lower, their actual shareholding on cessation) for two years after leaving the company.
• The Executive Directors enter into a deed undertaking to comply with the requirement and committing to hold the required number of shares in a specified nominee account.

Chairman of the Board and Non-Executive Directors' fees

Purpose and link to strategy

• Supports the attraction and retention of world-class talent and reflects the value of the individual, their skills and experience.

Operation

• Fees for the Chairman and Non-Executive Directors are normally reviewed every year.
• A proportion of the Chairman's annual fee may be used for the monthly purchase of Diageo ordinary shares, which have to be retained until the Chairman retires from the company or ceases to be a Director.
• Fees are reviewed in light of market practice in the FTSE 30, excluding financial services companies, and anticipated workload, tasks and potential liabilities.
• The Chairman and Non-Executive Directors do not participate in any of the company's incentive plans nor do they receive pension contributions or benefits. Their travel and accommodation expenses in connection with attendance at Board meetings (and any tax thereon) are paid by the company.
• The Chairman and the Non-Executive Directors are eligible to receive a product allowance or cash equivalent at the same level as the Executive Directors.
• All Non-Executive Directors have letters of appointment. A summary of their terms and conditions of appointment is available at www.diageo.com. The Chairman of the Board, Javier Ferrán, was re-appointed on 6 October 2022 for a three-year term, terminable on three months' notice by either party or, if terminated by the company, by payment of three months' fees in lieu of notice.

Opportunity

• Fees for Non-Executive Directors are within the limits set by the shareholders from time to time, with an aggregate limit of £1,750,000, excluding the Chairman's fees.

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