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Annual incentive planThe annual incentive plan is designed to incentivise year on year delivery ofshort term performance goals that are determined by pre-set stretching targets and measures agreed bythe remuneration committee with reference to the annual operating plan. The remuneration committeedetermines the level of performance achieved based on Diageo’s overall financial performance at thefinancial year end. The business results for the year ended 30 June 2010 are described in the Businessreview.The targets for the year ended 30 June 2010 were a combination of measures including net sales,profit before exceptional items and tax and free cash flow. These measures focus on key drivers ofDiageo’s growth strategy while supporting sustainability and the underlying financial health of thecompany. For the first time, the executive directors were also measured against a set of individualbusiness objectives (IBO) that were relevant to their specific area of accountability. These weredetermined with reference to a set of collective business priorities that support the long term growthand sustainability of the business. Profit and sales targets were exceeded and free cash flow targetswere significantly exceeded. The committee evaluated the performance of the chief executive and chieffinancial officer against their specific IBOs and concluded that the objectives were exceeded. Theoverall level of performance achieved resulted in an annual incentive plan award equating to 171% of107
Directors’ remuneration report (continued)base salary for the chief executive and 173% for the chief financial officer. The actual awards receivedby the executive directors are shown in this report in the table ‘Directors’ remuneration for the yearended 30 June 2010’.Long term incentive plans (LTIPS)Current long term incentives are a combination of share optionsunder the SESOP and performance share awards under the PSP and are designed to incentiviseexecutive directors and senior managers to strive for long term sustainable performance. These awardsare made on an annual basis with the level of award considered each year in light of individual andbusiness performance. Awards made under both sets of plans are subject to performance conditionsnormally measured over a three-year period. The regular review of the performance measures and thevesting schedule used in each plan are designed to ensure that the LTIPs continue to support thebusiness objectives and are in line with current best practice. All of Diageo’s share plans operate withinthe Association of British Insurers’ dilution guidelines for share-based remuneration.Senior executive share option plan 2008 (SESOP 2008)Options granted under the SESOP 2008 aresubject to a performance condition based on compound annual growth in adjusted EPS over athree-year period, with growth targets set by the company’s remuneration committee for each grant.