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Most WASCs’ performance unworthy of customer-funded bonus payments

by Karma Loveday

Ofwat is to claw back £1.5m of bonuses paid to executives at Thames Water (£770,000), Yorkshire Water (£616,000) and Welsh Water (£163,000) under the first full year of its new powers, to prevent customers paying for performance related pay (PRP) where performance falls short of regulatory expectations.


In all, for 2023-24, the regulator said £6.8m of bonus payments (73% of the overall total of £9.3m) fell short of expectations, but for £5.2m, shareholders had voluntarily footed the bill so no adjustments were necessary. 


Of the water and sewerage companies (WASCs), only Northumbrian Water’s bonus payment (to the CEO) was fully justified, Ofwat said – though this was shareholder funded at any rate. Among the others, the CEOs at Wessex and Anglian, together with all executives at South West Water, did not take up PRP payments anyway. 


All water-only company bonus payments were also justified by performance; all of these were customer funded. 


The clawbacks from Thames, Welsh and Yorkshire will be made through the cost reconciliation mechanism. Ofwat said given the timing, these will be made as part of its 'blind year' process next year rather than as part of the final determination for PR24.


Regulatory expectations require:

  • Short and long term PRP to demonstrate a substantial link to stretching delivery for customers and the environment.

  • Targets underpinning bonus payment decision to be stretching.

  • Overall performance to be taken into account, and poor performance not to be rewarded.  


The clawback mechanism applies to all executive directors who are members of the regulated company board. 


The Water (Special Measures) Bill will boost Ofwat’s current powers. Rather than preventing company directors' bonuses being funded by customers, it would allow Ofwat to prohibit performance-related pay entirely in certain circumstances.

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