Bonuses have been banned for senior executives at six water companies, as new measures in the Water (Special Measures) Act come into force today (Friday, 6 June).
Under new rules, companies are not permitted to pay bonuses to water bosses that oversee poor environmental and customer outcomes. This delivers on a key manifesto commitment and has been backdated to apply to any bonuses relating to the financial year from April last year.
Defra has announced the ban on bonuses will apply to senior executives at Thames Water, Yorkshire Water, Anglian Water, Wessex Water, United Utilities, and Southern Water, with immediate effect.
Water companies have awarded over £112 million in bonuses and incentives over the last decade. Last year alone, £7.6 million in bonuses were paid to water bosses in England.
Environment Secretary Steve Reed said:
“Water company bosses, like anyone else, should only get bonuses if they’ve performed well, certainly not if they’ve failed to tackle water pollution.
“Undeserved bonuses will now be banned as part of the Government’s plan to clean up our rivers, lakes and seas for good.
“Promise made, promise delivered.”
Defra said today’s ban holds water bosses to account and ensures they can no longer cash in while their companies pollute rivers, neglect customers, or mismanage finances.
Strengthened enforcement is just one part of the government’s strategy to reform the water sector, which also includes working with the companies and their investors to make the water industry one of growth and opportunity, attracting investment and ensuring its stable financial footing for years to come.
The government says it is determined to reform the sector in a way that continues to attract high quality, long-term investors to rebuild our water infrastructure. Following the publication of the Independent Water Commission’s interim report, Ministers will look at proposals carefully, and outline further action in due course.
While it is for water companies to set their own remuneration, new standards published by Ofwat that come into force today mean bonuses will not be permitted be handed out in specific cases when a water company:
- Fails to meet core environmental standards and presides over serious pollution offences
- Fails to meet basic financial resilience standards (e.g. meet minimum credit rating requirements)
- Fails to meet core consumer standards (e.g. failure to operate and maintain sewage networks)
- Is convicted of a criminal offence (e.g. criminal convictions for serious environmental failings including illegal spills)
Under new rules published by Ofwat today, any company failing to meet key standards will automatically lose the right to award bonuses. If a company pays a bonus while banned, Ofwat has the powers under the Water (Special Measures) Act to direct the company to claw back the money. Any company that does not comply with Ofwat’s directions will face enforcement action.
Commenting on today’s ban, Helen Campbell, Senior Director for Sector Performance at Ofwat, said:
“Water company bosses have a clear duty to safeguard our precious natural environment.
“That’s why we welcome these new powers from government – they strengthen our ability to hold water companies accountable to their customers by stopping their most senior directors from taking bonuses when there have been serious environmental or other failings.
“Company bonuses continue to cause real concerns and understandably damage trust, so this new power significantly increases the pressure on water company executives to become better custodians of our rivers and seas.
“We will use this new rule to drive lasting change in the culture and behaviour of leadership in water companies. This is essential to delivering our vision of a secure and sustainable water sector that acts in the best interests of customers, communities, and the environment.”
Mike Keil, Chief Executive of the Consumer Council for Water, said:
“More customers than ever before are questioning whether they get a fair deal from their water company, so we strongly support the banning of undeserved bonuses for executives.”
“At a time when customers are facing unprecedented bill increases, people want strong reassurances that every pound of their money is being well spent by water companies.”
