Water firms stopped from using customer money for bonuses
Nine water companies have been banned from using customer funds to pay bonuses under new regulatory powers.
Regulator Ofwat said any “undeserved” bonuses would now be borne by company owners and lenders, rather than being paid by customers.
Three companies – Thames Water, Yorkshire Water and Dwr Cymru Wales Water – were directly banned from using customer funds to pay bonuses totaling £1.6m.
The remaining six companies voluntarily decided to use shareholders’ money to pay their bosses’ bonuses.
Ofwat chief executive David Black said the water company “needs to do more to rebuild public trust”.
By preventing customers from “paying undeserved bonuses,” he said, the company hopes to “elevate executive thinking” and drive a company to improve its performance and accountability culture.
Ofwat’s new powers will ban bonus payments from customer bills if companies are judged to have failed to meet environmental or performance targets.
Thames Water chief executive Chris Weston, who was hired in January to try to turn around a debt-troubled company, received a £195,000 bonus in his first three months at the company, making him Total wages during this period amounted to £437,000.
It is unclear whether the bonus was actually paid out, but regulator rules now mean it cannot be paid by the operating company and must instead be borne by the company’s owners.
Thames Water declined to comment.
Other companies – including debt-laden Southern Water – have said shareholders rather than customers will pay bonuses to executives.
But the problem with Thames is that it actually has no shareholders.
Earlier this year, Thames Water’s owners refused to honor a pledge to inject cash into the troubled company after Ofwat said it was not prepared to accept demands for water tariffs to rise by more than 44% over the next five years.
Ofwat said in its preliminary decision that bills would be allowed to rise by 21% above inflation, but shareholders did not accept this.
They walked away, effectively leaving the company under the lender’s control.
Environment Secretary Steve Reid said it was “shameful” that half of water companies were handing out “unreasonable” and “undeserved” bonuses.
He said the “emergency legislation” was being introduced so this bonus culture “never happens again”.
Reid has previously said he believes the problem across the industry is “regulation and governance” and he recently commissioned an independent review of the industry from Sir John Cunliffe, the former deputy governor of the Bank of England.
The review will not report until next June. The fees the water company will charge customers over the next five years are expected to be finalized on December 19.
