The Ofwat board is “deeply concerned” that water company boards have not responded sufficiently to its calls for performance related executive pay to demonstrably be linked to delivery for customers.
In a new letter to the chairs of remuneration committees and board chairs, Ofwat chief executive David Black said the regulator was following up on specific issues arising from 2021-22 remuneration committee decisions. He reminded them of the intense scrutiny the sector is under relating to water restrictions, leakage and sewage pollution and the erosion of trust “when levels of performance are not seen to relate to the awards being received by executives, which customers are ultimately paying for”.
Ofwat set a deadline of 6 January for water company boards to set out clearly how they account for overall performance in making decision on performance related pay, including through the development and implementation of policies that will engender trust.
Black said: “While not every company is starting from the same position, in anticipation of decisions to come for the 2022-23 performance year and for the rest of this price control period, we would like your response on how you account for overall performance for customers and the environment in decisions on performance related elements of executive pay, and an explanation as to how you intend to develop your approach both to policy and decision-making to ensure the above points are appropriately into account. It needs to be clear that these concerns are recognised and what is going to change as a result.
“We also remind you that we are considering other mechanisms to reinforce our expectations in this area, including disallowing the recovery of performance related pay from customers as part of reconciliation at PR24 where companies are unable to demonstrate their decisions have reflected our expectations, including by reference to overall performance.”
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