The payment is likely to be scrutinised by shareholders at the annual meeting on 19 May.
Asked to justify how it could pay compensation to someone who resigned, Guinness said: 'He resigned by mutal agreement.
'Mr Davis resigned when it became apparent his management style and approach to the top job in United Distillers did not meet the requirement of the board.'
There were two ways to settle with Mr Davis, said Guinness. 'One way was a one-off lump sum.
'The second was an agreement between the company and Crispin Davis to pay him a monthly amount, which was also the best way to retain him as an employee.'
Mr Davis will remain on staff until next year to finish any outstanding work. Compensation comprises two years' salary worth pounds 560,000 plus pension, car and private health benefits. Mr Davis was on a three- year rolling contract.
The agreement includes a non- competitive clause.
Guinness refused to say exactly why Mr Davis's management style was no longer acceptable but industry observers have said that his marketing approach, notably the reduction in the strength of Gordon's Gin from 40 to 37.5 per cent, was to blame.
Guinness said: 'He was managing director of UD when that decision was taken by the executive board.
'And we would like to point out that the market share of Gordon's Gin is still 48 per cent.'
Guinness is understood to be close to replacing Mr Davis, and an announcement may be made at the annual meeting.
His pay-off was disclosed in the annual report and accounts, which were released yesterday and also showed that Tony Greener, chairman and chief executive, was on a fixed two-year basic salary of pounds 600,000.
With bonuses, Mr Greener received a total of pounds 646,000 in 1993, against the pounds 777,000 paid to Sir Anthony Tennant, former chairman and chief executive, in his last year in office.
Last year's annual meeting barraged the board with questions about pension arrangements for Sir Anthony. They were said to amount to pounds 500,000 a year.
Guinness defused that row by saying it had been contractually agreed when he joined after 34 years' service with Grand Metropolitan.
Grand Met paid an unspecified amount into the Guinness pension fund.
The share price was 482p, up 4p.