Regulator blocks three water companies from using customer funds for bonuses

The regulator has prohibited three water companies from utilizing customer funds to cover bonuses totaling £1.6 million. In contrast to other companies that voluntarily financed executive bonuses with shareholder capital, Thames Water, Yorkshire Water, and Dwr Cymru Welsh Water received a rebuke from the regulator Ofwat for employing customer money. Ofwat stated that “undeserved” bonuses ought to be paid by the companies’ owners and lenders. David Black, Ofwat’s chief executive, commented that water companies “need to do more to rebuild public trust.” He explained that preventing customers from “paying for undeserved bonuses” aimed “to sharpen executive mindsets” and encourage companies to enhance their performance and accountability cultures. Ofwat indicated that any bonuses disbursed using customer funds would be subtracted from subsequent customer invoices. The regulatory body itself has frequently faced criticism, with Environment Secretary Steve Reed having previously asserted his belief that the issues across the sector stemmed from “regulation and governance.” The government has established the Independent Water Commission, led by former deputy Bank of England governor Sir Jon Cunliffe, with the mandate to address sector issues, potentially resulting in the abolition of Ofwat. This review is scheduled to present its findings in June of the following year. During an interview with the BBC’s Today programme, when asked about public trust in Ofwat, Mr. Black stated that Ofwat had altered its approach to industry regulation. He affirmed, “We have stepped in to protect customers’ interests, we will continue to do so. The announcement today in terms of blocking chief executive bonuses from being recovered from customers is part of that.” Ofwat’s recently acquired powers prohibit the funding of bonuses from customer bills should a company be determined to have failed to meet environmental or performance benchmarks. Chris Weston, the chief executive of Thames Water, appointed in January with the aim of improving the financial situation of the heavily indebted company, received a bonus of £195,000 for his initial three months, bringing his total remuneration for that timeframe to £437,000. While it remains uncertain if this bonus has actually been disbursed, current regulatory guidelines stipulate that it cannot be paid by the operating company and must instead be covered by the company’s owners. Thames Water chose not to comment, whereas a Dwr Cymru spokesperson stated the company would “take the necessary action as outlined in Ofwat’s report.” The company acknowledged that its performance was “not as good” as anticipated, but maintained that its bonuses were indicative of “other elements of good performance including strong customer service and financial performance.” Yorkshire Water indicated it would consider the regulator’s observations and recognized the “strength of feeling” concerning executive compensation. The company reported that over the summer, it had decreased a 61.2% bonus to 42.2% for two of its executives, following an independent remuneration committee review that considered “the company’s environmental performance not being where we wanted it to be.” Other companies, such as the heavily indebted Southern Water, have previously announced that shareholders, not customers, would cover executive bonuses. However, Thames Water faces the issue of effectively lacking shareholders. Earlier this year, Thames Water’s owners declined to proceed with a pledged capital infusion for the struggling company, subsequent to Ofwat signaling its unwillingness to approve requests for bill increases of 44% above inflation across the forthcoming five-year period. Ofwat, in an initial ruling, stated it would permit bill increases of 21% above inflation, a proposal rejected by the shareholders. Consequently, they withdrew, placing the company effectively under the management of its creditors. On Thursday, the environment secretary declared it “disgraceful” that half of water companies had distributed “unjustifiable and unmerited” bonuses. Reed stated, “That is why this government is introducing urgent legislation to ban the payment of unfair bonuses to polluting water bosses so payouts of this kind can never happen again.” Copyright 2024 BBC. All rights reserved. The BBC bears no responsibility for the content of external websites. Information regarding our policy on external linking is available.