Spirits giant Diageo sees off investor ‘rebellion’ over pay

Ivan Menezes pay package came in for some investor criticism

At the group’s annual shareholder meeting in London, some private shareholders expressed surprise at “lavish” bonuses awarded to chief executive Ivan Menezes and finance director Deirdre Mahlan, but a revolt by institutional investors failed to materialise.

With the proxies counted last night, and the full results due out today, 97 per cent voted in favour of the directors’ remuneration report and policy at Scotland’s biggest distiller.

It came as Lord Davies, chairman of the group’s remuneration committee, defended the firm’s pay policy, which saw Menezes pocket some £7.7 million in pay and bonuses, significantly higher than his base salary of £933,000. Mahlan, who has a £706,000 salary, was also in line for a total £3.7m package.

On the eve of the AGM, a leading shareholder corporate governance group, Pirc, had slammed the awards as excessive. But Davies told a largely good-natured AGM: “We have had overwhelming support [for the remuneration policy and report] from our shareholders. We are competitive. We are not overpaying. We did not pay big bonuses because the performance was not there.”

Meanwhile, Diageo chairman Dr Franz Humer said Menezes and Mahlan had “achieved a bonus which is 8 per cent of the potential bonus they could have achieved if the performance had been outstanding”.

Last July the group unveiled a fall in annual profits to £2.7 billion from £3bn as its premium spirits exports were hit by a Chinese government crackdown on mandarin “extravagance”, including gift-giving, volatility in other emerging markets, and the strength of sterliing. Diageo’s share price is also down 10 per cent on the year.

One shareholder said that the company, whose product line-up also includes Smirnoff vodka and Guinness stout, “has a reputation for quite lavish remuneration”.

Another said Menezes had to up his game or might face the fate of Phil Clarke, the recently ousted boss of supermarket giant Tesco.

“Menezes has been paid £7m. Unless the company improves he has no chance to stay here as Diageo’s chief executive,” he said.

The Diageo boss also told shareholders as voting continued in yesterday’s Scottish independence referendum that it was a decision for the Scottish people, but that the group was “absolutely prepared for both outcomes”.

He said Diageo would “fiercely protect” a thriving Scotch whisky industry on issues such as no more taxation and regulation and a stable currency.

“We will fight that corner for you very hard,” he said. Menezes also said he did not expect a sharp rebound in China in 2015, but that growth should resume there in 2016.

He said he was unworried about the Chinese government crackdown in the medium term, admitting it was causing “pricing instability” in the short term, but that Diageo in China wanted “to build a true consumer franchise, not an institutional franchise”.

Diageo’s shares nudged up 6.5p to close at 1,819p.