Contain your excitement at news that bosses of a few water companies won’t be taking their bonuses this year. In all three cases – South West Water, Thames Water and Yorkshire Water – acceptance of any bonus at all would rightly have provoked general outrage. These firms were at, or near to, the bottom of the league table in the Environment Agency’s last set of annual environmental performance ratings.
At the most sludgy end, South West joined Southern in scoring the lowest possible one star out of four, which the chair of the EA – a body that itself has hardly excelled during three decades of under-regulation – translated into plain English: it meant the companies’ environmental performance “was terrible across the board”. Thames and Yorkshire were two of four companies getting two stars, which indicated a need for “significant improvement”, so still deeply in cruddy territory.
It is conceivable, of course, that the trio have upped their game and undergone a transformation since the EA published its ratings for 2021 last July. But, even if they have (don’t hold your breath until this July), the timing doesn’t work bonus-wise for the 2022-23 financial year. Improvement has to be seen to have happened – and then to be achieved regularly to remove weather-related vagaries.
Given the star ratings, many may wonder if Sarah Bentley at Thames, Susan Davy at Pennon (owner of South West) and Nicola Shaw at Yorkshire are volunteering to forego bonuses they wouldn’t have received anyway. The answer – strange as it sounds – is that, actually, they are probably surrendering a few hundred thousand pounds or so each.
In common with the set-up across the entire UK quoted-company scene, the formula for awarding bonuses tends to include so many metrics that it is hard for a chief executive to be awarded zilch. Aside from financial targets, the service-related metrics themselves contain a dashboard of dials. There’s always something to achieve.
Bentley’s incentives, for example, include reducing complaints from customers – an area where the numbers at Thames have markedly improved recently. And Davy’s bonus last year included ticks for hitting leakage targets, reducing emissions and maintaining a “great place to work” accreditation. That was despite South West’s “wastewater pollution incidents, per 10,000km sewer” running at more than three times the target level and the water quality being deemed miles away from the required standard.
The mini bonus surrender, then, can be seen as an acknowledgment that handing out prizes for financial performance or minor operational triumphs is unacceptable if you’re still failing on core environmental measures. Quite right too: the customers don’t care if South West is a nice place to work; they are overwhelmingly bothered about water quality and sewage dumping.
Bentley and Davy were first out of the blocks in recognising the bleedin’ obvious. Counterparts at the sector’s other laggards now know what’s expected – and shouldn’t hang about. But the other conclusion here is that relying on executives’ sense of embarrassment when public anger is red-hot is a terrible way to structure a performance-related remuneration scheme.
Thames has semi-grasped the point by promising to review its pay structure with the aim of giving “a greater weighting to customer service and environmental performance than financial results”. It – and others – should go further. Utilities with public service obligations aren’t like regular companies, so here’s a simpler pay principle to concentrate minds: no bonuses for financial success until the environmental scores are consistently on the right path.
