Nestlé Overhauls Executive Pay to Prioritize Volume Growth

Nestlé overhauls its bonus scheme, linking pay to Real Internal Growth (RIG) and introducing a six-tier rating system with higher rewards and penalties for performance.

In a significant shift for its internal operations, Nestlé is tightening its approach to performance management. The global food and beverage giant has unveiled a revised bonus scheme designed to more sharply reward top performers and penalize underachievement. This move places a new emphasis on volume-based sales growth as a critical metric for executive compensation.

A More Granular Performance Scale

Effective February 25, Nestlé implemented a restructured incentive program. The new framework expands the performance rating system from three tiers to six distinct levels. Employees classified as delivering "exemplary" work can now receive up to 150% of their target bonus, a substantial increase from the previous cap of 130%. Conversely, those rated "unsatisfactory" will see their payout slashed to a range of 0% to 50% of the target amount.

Company leadership states the overhaul aims to streamline performance evaluations, development planning, and feedback mechanisms. The underlying message, however, is unambiguous: performance measurement will be more precise, and the financial consequences of that performance will be more pronounced.

Volume Growth Becomes the Key Metric

At the heart of this compensation reform is a strengthened link between bonuses and Real Internal Growth (RIG), Nestlé's measure of volumetric sales growth. CEO Philipp Navratil, during the company's recent earnings presentation, confirmed the introduction of a minimum RIG threshold that will act as a "gatekeeper" for bonus eligibility. Furthermore, variable pay for functional leaders will now be tied to the overall performance of the entire corporation, aligning all management teams behind unified strategic goals.

This focus is directly linked to recent results. Nestlé's RIG for 2025 stood at 0.8%, a figure the new executive team has explicitly targeted for improvement.

Strategic Shifts Amidst Operational Challenges

The announcement of the bonus changes follows closely on the heels of Nestlé's full-year results, released on February 19. For 2025, the company reported 3.5% organic growth (comprising 0.8% RIG and a 2.8% pricing effect), an underlying trading operating profit (UTOP) margin of 16.1%, free cash flow of CHF 9.2 billion, and a proposed dividend of CHF 3.10 per share. Growth momentum picked up in the final quarter, with organic growth reaching 4.0%.

Looking ahead to 2026, Nestlé provided guidance for 3% to 4% organic growth, an improved UTOP margin, and free cash flow exceeding CHF 9 billion. This outlook already factors in an estimated negative impact of approximately 20 basis points related to a recent infant formula product recall.

Concurrently, Nestlé is sharpening its strategic portfolio focus on Coffee, Petcare, Nutrition, and Food & Snacks. Its Nutrition and Nestlé Health Science units are being merged, and board member Anna Mohl will depart on February 28, 2026. The company is also in negotiations to sell its remaining ice cream operations to Froneri and has initiated a formal sales process for its water business, targeting deconsolidation by 2027. Navratil's efficiency drive continues, with plans to eliminate up to 16,000 positions. The "Fuel for Growth" efficiency program delivered savings of CHF 1.1 billion in 2025.

Market reaction has been measured. Nestlé shares recently closed at €90.43, down 0.51% on the day, but have gained 14.25% over the past 30-day period.

With Anna Mohl's upcoming departure, the organizational restructuring is poised to enter a new phase. Operationally, the most immediate headwind remains the estimated CHF 200 million impact in the first quarter from returns and inventory shortages connected to the product recall.