Nestlé Overhauls Executive Pay to Sharpen Performance Focus

Nestlé reforms its bonus system, widening pay gaps and linking rewards to Real Internal Growth (RIG). The move is part of a broader restructuring after a 17% profit drop in 2025.

In a decisive move to drive growth, Nestlé has implemented a sweeping reform of its bonus system, significantly widening the gap between rewards for top and underperforming employees. The changes, part of a broader restructuring under CEO Philipp Navratil, directly tie compensation to measurable business metrics.

Performance Pay Gets a Major Reset

The food and beverage giant rolled out a revised performance measurement framework on February 25. A key shift is the expansion from three to six distinct rating tiers for its approximately 271,000 employees. This restructuring creates a much steeper reward curve.

High achievers receiving the top "exemplary" rating can now earn up to 150% of their bonus target, a substantial increase from the previous cap of 130%. Conversely, the consequences for poor performance are more severe. Employees rated "unsatisfactory" will receive zero to a maximum of 50% of their target bonus. Historically, the lower threshold often stood at around 80%, even for meeting only minimum expectations.

The "RIG Gatekeeper" and a Unified Corporate Focus

A cornerstone of the new policy is the introduction of a Real Internal Growth (RIG) hurdle—a measure of volume-based sales growth. Presenting the annual results, CEO Navratil described it as a "RIG gatekeeper," establishing a minimum RIG level that must be achieved before any bonus payments are triggered.

Furthermore, a larger portion of management bonuses is now linked to the company's overall performance. This aims to foster alignment across teams through a shared set of objectives. A primary goal is to elevate RIG from its 2025 level of 0.8%.

Restructuring Amid Mixed Financial Results

The compensation overhaul is one element of a wider transformation Navratil has been spearheading since taking the helm in September 2025. This strategy includes the planned elimination of 16,000 positions, a sharper focus on four core business areas, and several portfolio actions. These involve the pending sale of Nestlé's remaining ice cream operations to Froneri, the formal divestment process for its water business (including brands like Henniez and Perrier), and some vitamin brands.

The push for change follows a challenging 2025, where net profit fell 17% to CHF 9.0 billion. Operational performance showed some resilience, however, with organic sales growth reaching 4% in the fourth quarter, surpassing market expectations of 3.55%. The company also reported an underlying trading operating profit (UTOP) margin of 16.1% and generated CHF 9.2 billion in free cash flow.

The company faced an additional headwind in January 2026 with a global precautionary recall of infant formula. Nestlé estimates this will negatively impact its organic growth forecast by 20 basis points and has recognized CHF 1.7 billion in restructuring costs, largely related to the recall incident.

Despite these challenges, Nestlé's shares have recently found support. The stock closed at €92.25 on Friday, trading approximately 2.77% below its 52-week high.

Looking ahead, Nestlé is targeting organic sales growth of 3% to 4% for 2026, alongside an improvement in its underlying operating margin (2025: 16.1%). The conglomerate also anticipates generating free cash flow exceeding CHF 9 billion.