DECEMBER 2012
AIP
Annual Incentive Plan The Annual Incentive Plan, or AIP, is designed to reward you for your personal performance against individual objectives and your contribution to the delivery of short-term business performance goals. The AIP is reviewed each year to ensure the plan remains an attractive incentive and is clearly aligned with the goals of our business and the interests of our shareholders.
How the plan works The AIP provides an annual cash incentive linked to the Annual Operating Plan (‘the plan’). Performance relative to the plan is measured through a variety of business performance measures and individual business outcomes (IBOs) which support the delivery of the plan. These business and individual performance measures directly link the achievement of short-term business goals with individual reward. Target bonus opportunity You will have a ‘target opportunity’ expressed as a set percentage of salary which is your ‘on-target’ bonus. Bonus payment cap The maximum bonus payable under the scheme is 3x your target opportunity. Business performance measures A ‘business multiple’ is calculated for each part of the business and reflects performance against key measures relative to the annual operating plan. These are: Net sales value (NSV) Operating profit (OP) Cash (split between year-end and average cash) Cost of goods sold per equivalent unit (COGS/Eu) – Global Supply only. Business performance measures make up to 80% (depending on market) of the overall AIP calculation and are weighted as follows:
Market/country/region multiples (excluding Western Europe) There are three options1 to flex the weighting of business performance measures to suit individual market strategy. Option 1 will be the typical default. NSV
OP
Cash
1
20
40
20
2
30
30
20
3
40
20
20
Option
1
Delivering on-target performance A business multiple of 1.0x will usually be payable for delivering target for the full year for each business performance measure. Performance above target The ‘interval’ determines the additional level of performance required above target to achieve a 2.0x or more payout on each business performance measure. The potential payout for each individual measure is uncapped, unless any one of the measures falls below 1.0x, in which case each individual measure will be capped at 3.0x.
Weighting determined by the regional president.
Western Europe There is one structure for the Western Europe multiple. NSV
OP
Cash
15
25
20
Minimum performance The ‘cliff’ is set at the minimum level of performance needed to achieve a bonus on each business performance measure. Performance below this level will result in a multiple of 0x for that measure. See graph below.
Global Functions – Diageo multiple There is one structure for the Diageo multiple. NSV
OP
Cash
30
30
20
Performance underpin If the minimum cliff level of performance for either NSV or OP is not achieved, then a zero payout will result for both performance measures. In these circumstances, the Incentive Review Committee (IRC) may determine that a payment should be made if a market performance review finds that there are genuine mitigating circumstances for the performance.
Global supply multiple There is one structure for the global supply multiple. The relevant market multiple will apply to in-market supply roles. Global Total Global Supply Diageo Supply COGS/ OP Cash Eu 30
30
20 Illustration of cliff and intervals for cash measure Maximum
Performance vs plan
2x Interval Interval Target
Cliff
0x Payout multiple
This guide is for information only. It should not be interpreted as the rules of AIP. In the event of any conflict between this guide and any other Plan documentation relating to the AIP, then the other Plan documentation will be the authoritative source of information. The Chief Executive has the final authority in relation to the operation and payout of the AIP, and his decision is final.
0.5x
1.0x
2.0x
3.0x
AIP
Annual Incentive Plan (Continued) Individual Business Outcomes (IBOs) The remaining 20% (40% for Western Europe) of the AIP payment is based on performance against IBOs. You will have three IBOs which are outcome focused and support the delivery of the business plan. Payout against this element is capped at 3.0x.
How performance outcomes are assessed at year-end Business results are determined and preliminary business multiples are calculated for each part of the business. After conducting a quality of earnings assessment, the IRC approves the year-end business multiples.
Line managers set IBOs in conjunction with their direct reports, with signoff by the ‘grandparent’ i.e. the line manager’s line manager.
Please be aware that any individual with “below expectations” as their P4G rating will have the business performance element of their AIP payment reduced. Your achievement against your IBOs is determined by your line manager and approved by your ‘grandparent’. Bonus payments are then made following the announcement of our annual results. All bonus payments are paid subject to the discretion of the Chief Executive.
How your bonus is calculated: Base salary Target opportunity
Governance – the Incentive Review Committee (IRC) The IRC includes a number of members of the Executive Committee and is accountable for governing the AIP for all L3, L2 and SL employees globally. 80%* business performance measures = business multiple
20%* IBO (x business multiple)
* The proportion of weighting for business performance measure and individual business outcomes may vary by market e.g. Western Europe 60% business performance/40% IBO.
Total AIP payment
DECEMBER 2012
FAQs
Frequently asked questions Annual Incentive Plan FAQs What happens if I leave the Company for reasons other than resignation? If you cease to be an employee due to retirement, ill health, injury, disability, redundancy, or the company or business for which you work is transferred out of the Diageo group, you will receive a pro-rated bonus payment reflecting the length of time that you were employed by the Company during the financial year and your performance against your IBOs up to your leaving date. What happens if I resign? If you resign from the Company and leave prior to the financial year end you will forfeit any AIP payment for that financial year. If you resign from the Company and leave after the completion of the financial year end but before the AIP payment date you will receive your bonus payment for the preceding financial year.
What happens if I move to a different role (at the same level) during the year? If you move roles during the year there may be a change to your business multiple and IBOs. You should ensure that the business multiple that applies to your new role and your new IBOs are confirmed to you prior to starting your new role. This will help you to engage in the achievement of the business and individual performance measures that are critical for success in your new role. Your bonus payment at year end will reflect the business performance outcomes for both your old and new business multiples on a pro-rata basis and your IBO performance across the full year. What do I do if I think my business multiple is not correct? Contact your line manager and/or HR Business Partner as soon as possible because it is not possible to change business multiples retrospectively at the end of the year.
What if I don’t understand what I can do to influence AIP outcomes? Speak to your line manager and/or HR Business Partner. Everyone should understand how their individual and team performance can impact business performance outcomes and AIP payments.