The water regulator Ofwat has unveiled plans for a crackdown on excessive bonuses for bosses of suppliers that pump pollution into rivers or provide a poor service to customers.
In new plans published today Ofwat said when “the regulator’s expectations have not been met” companies will be barred from passing on the cost of boardroom bonuses through the bills they charge.
The move follows an outcry over the level of executive pay in the industry at a time of heightened public concern about their impact on the environment.
The annual bonuses paid to water company executives surged by 20% in 2021, despite most firms failing to meet sewage pollution targets.
The average bonus was £100,000 for a period when foul water was pumped for 2.7m hours into England’s rivers and seas.
Analysis by the Liberal Democrats – which is calling for a ban on bonuses for water bosses – showed the average pay for executives at 10 firms across England and Wales jumped to £1.1 million in 2021-22, up by £193,000 on average. Thames Water’s boss Sarah Bentley was awarded a £496,000 bonus last year.
Ofwat chief executrived David Black, said: “In too many cases, bonuses paid do not reflect the reality of company performance. Customer trust is damaged when executive bonuses are not aligned to water company performance for customers and the environment.
“We said that if companies did not address this we would take action, and that is exactly what we are doing. Alongside our new rules on dividend payments, this is part of our ongoing work to make companies more accountable for their actions.”
Emma Clancy, chief executive of the Consumer Council for Water, said: “Customers will want to see this making a clear difference.
“Our research shows that people want to see evidence bonuses have been earned by companies delivering on commitments to their customers and the environment.
“People also want far greater transparency on pay. We want chief executives to explain to their customers – who are not able to switch supplier – why their salaries are justified.”
The move on dividend comes after Ofwat announced new licence conditions prohibiting water companies from paying dividends to investors if their financial resilience is at risk. Those new powers will also allow the regulator to take enforcement action against water companies that do not link dividend payments to performance.
A consultation on the new bonus rules closes on 1 May 2023.
