Targets on responsible drinking and sustainability are no longer being used to determine long-term rewards for Diageo’s management, with bonuses mostly tied to financial metrics.
In its annual report, Diageo remuneration committee chair Susan Kilsby said ESG measures “will no longer be included as separately weighted elements within the long-term incentive plan”.
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Under Diageo’s long-term incentive plan, rewards are usually vested after a three-year period.
Relative total shareholder return will also be removed from the long-term bonuses scheme under the revised remuneration policy, which is effective from Diageo’s 2027 financial year.
Both elements will stay “embedded within our reward framework”, Kilsby said.
The Tanqueray gin distiller introduced ESG metrics into its long-term incentive plan in 2020.
Those performance conditions, which support the group’s ‘Spirit of Progress’ ESG programme, were focused on water efficiency, carbon reduction, “positive drinking” and inclusion and diversity.
They previously made up 20% of the total long-term bonuses for senior executives.
Kilsby said Diageo is reducing the quantity of performance measures under its long-term rewards plan “from eight to three”. Those measures are earnings per share, cumulative cash flow and adjusted return on invested capital.
Under the group’s annual incentive plan, management will receive rewards on their delivery of net sales growth, operating profit growth and “individual business objectives”.
In the report, Kilsby said since introducing the ESG targets into its long-term incentive plan “Spirit of Progress priorities and targets have become firmly
embedded in how we operate and make decisions as a business”.
She added: “Our commitment to Spirit of Progress is unchanged. The board will continue to set targets, closely monitor performance, and report against all areas of ESG in our annual report and other ESG disclosures.”
Kilsby also said the remuneration committee continues “to take this ESG performance into account as part of its holistic assessment of overall business performance before determining vesting outcomes”.
Diageo will also continue to include “appropriate” ESG measures for individual business objectives as part of annual incentives “for relevant leaders”, who are linked to the Spirit of Progress ESG plan.
Earlier in the report, Sir John Manzoni, the chair of the Guinness stout owner, also reflected on the removal of the ESG performance metrics. “While Spirit of Progress is no longer part of the long-term incentive plan, the accelerated work undertaken in recent years has embedded its priorities more deeply within the business and will continue to be a focus for the board.
“Together, this work reflects our continued commitment to using Diageo’s scale and influence responsibly, while supporting the long-term resilience of the business and the communities in which we operate.”
