Remuneration at Diageo

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 from around the world with a range of backgrounds, skills and capabilities – in good times and even more so in challenging times – 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.

Remuneration principles

Remuneration at Diageo is guided by the following principles, in order to strike the right balance between risk and reward, cost and sustainability, and competitiveness and fairness.

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

2. 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’.

3. Winning best talent

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.

4. Consideration of stakeholder interests

Executives are focussed on creating sustainable share price growth. The requirement to build significant personal shareholdings in Diageo and 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.

Remuneration policy

The policy for the remuneration of the company’s Directors was approved by shareholders at the AGM on 28 September 2023, in accordance with section 439A of the Companies Act 2006.

Base salary
  • Base salary supports the attraction and retention of the best global talent with the capability to deliver Diageo’s strategy and performance goals.

    • Base salaries are 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.
    • 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 relevant markets in which Diageo operates, typically the UK and the US, unless there is a change in role or responsibility or other exceptional circumstances.
Benefits and post-retirement provisions

Benefits and post-retirement provisions are a core part of a market-competitive and cost-effective remuneration package.

  • The provision of benefits 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.
  • 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.
  • Provision of market-competitive pension arrangements or a cash alternative based on a percentage of base salary.
  • 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.
The Annual Incentive Plan (AIP)

The Annual Incentive Plan (AIP) 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.

  • 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 will normally be deferred into shares 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 will be paid out in cash after the end of the financial year.
  • The 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.
  • 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.
  • 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. 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.
Diageo Long-Term Incentive Plan (DLTIP)

Diageo Long-Term Incentive Plan (DLTIP) provides a long-term incentive to achieve key performance measures which support the company's strategy, and to align interests with shareholders.

  • 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 underlying 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 Committee has discretion to reduce the number of shares which vest (subject to HMRC rules regarding approved share options), for example in the event of a material performance failure, or a material restatement of the financial statements.
  • 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 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 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.
  • 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 ESG (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 & 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

All-employee share plans encourage broader employee share ownership through locally approved plans.

  • Limits for all-employee share plans are set by the tax authorities. The company may choose to set its own lower limits.
  • The company operates tax-efficient all-employee share acquisition plans in various jurisdictions.
  • Executive Directors’ eligibility may depend on their country of residence, tax status and employment company.
  • Under the UK Share Incentive Plan, the annual award of Freeshares is based on Diageo plc financial measures which may include, but are not limited to, measures of sales, profit and cash.
The shareholding requirement policy

The shareholding requirement policy ensures alignment between the interests of Executive Directors and shareholders.

  • 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.
  • Executive Directors will be 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.
Remuneration for the Chairman of the Board and Non-Executive Directors

Remuneration for the Chairman of the Board and Non-Executive Directors supports the attraction, motivation and retention of world-class talent and reflects the value of the individual, their skills and experience, and performance.

  • Fees for the Chairman and Non-Executive Directors are normally reviewed every year.
  • A proportion of the Chairman’s annual fee is 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 the 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 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.
  • 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.