Diageo CEO’s pay drops to $4.31m

Good news and bad news for Diageo’s chief executive Ivan Menezes is revealed in the company’s annual report published today.

Ivan Menezes, chief executive of Diageo.

The pay head of the world’s largest premium alcohol company rose by 1.5% to $1.54m (£1.2m) in the financial year to the end of June while his short-term performance bonus rose from $1.96m in 2016 to $2.1m.

However, he failed to hit certain long-term targets and so missed out on parts of his performance-related remuneration. This meant his total pay dropped roughly 35% to $4.31m for the year. Menezes is paid in dollars because he is employed on a US contract.

As part of Diageo’s 2014 long-term incentive plan, Menezes was awarded shares which were due to pay out this year if certain performance criteria were met. That reward scheme was formulated just as the global market, especially in North America, Diageo’s biggest selling region and largest profits generator, turned sticky.

The long-term bonus plan was linked to factors such as the compound annual growth in earnings per share with different levels of reward depending on how much the target was beaten by.

But the difficult market conditions precluded that and so the annual report says: “Accordingly, the 2014 long-term incentive plan award has not met the threshold under the performance condition and the options under the award will lapse.”

The announcement comes at a time when the government has criticised the level of boardroom pay, demanding that companies demonstrate that pay rises are linked to tangible performance.

Menezes has spent the past three years reorganising Diageo and implementing a cost savings programme that created a performance well ahead of market expectations in the latest results.

At the end of last month, Diageo announced a major £1.5bn share buyback and raised its expectations for how much it will improve margins, from 100 basis points for the three years to June 2019 to 175bps. The shares have shot up accordingly and Menezes looks better placed to meeting bonus targets in the future.

Click here to download Diageo’s annual report.