Ofwat preempts performance related pay decisions in light of pollution scrutiny

Ofwat last week issued a blunt reminder to water companies of its performance related pay expectations, given heightened public interest in sewage pollution and links with executive pay.

Ofwat chief executive, David Black, wrote to remuneration committee and board chairs ahead of incentive pay decisions for 2021/22 and targets for 2022/23 being issued. His letter included reminders of:

• PR19 policy, including that performance for customers and on the environment should be taken into account in awards;

• best practice as set out by the Financial Reporting Council, in the UK Corporate Governance Code and its Guidance on Board Effectiveness, relating to the use of discretion and judgement by remuneration committees, as well as the need to ensure that pay outcomes should not reward poor performance;

• the requirement in companies' licences to meet the objectives of Ofwat’s board leadership, transparency and governance principles, including ensuring that the board's approach engenders trust in the company and ensures accountability to stakeholders for its actions; and

• advice that decisions should be backed up by robust and clear explanations that are accessible to the public.