The water industry watchdog has warned United Utilities and other suppliers not to raise directors’ salaries to swerve a sweeping bonus ban.
Ofwat said it would be ‘watching closely’ after barring United and five other firms – Thames Water, Wessex Water, Anglian Water, Southern Water and Yorkshire Water – from making performance-related payouts this year because of their poor pollution records and other failings.
The ban, announced last month, follows public outrage over the huge volumes of raw sewage being dumped into rivers, lakes and seas as a result of years of chronic underinvestment in pipes, sewers and reservoirs.
Since they were privatised debt-free in 1989, the utilities, which are monopolies with no competition, have paid out £85 billion in dividends and are now drowning in £60 billion of debt, while household bills have almost doubled in real terms.
Customers face hikes of up to 53 per cent before inflation over the next five years to pay for infrastructure repairs.
Meanwhile, water bosses awarded themselves more than £112 million in bonuses and incentive payments in the past decade.
Punishment: The ban, announced last month, follows public outrage over the huge volumes of raw sewage being dumped into rivers, lakes and seas
United was surprised by Ofwat’s bonus ban – which is backdated to April 2024 – even though it was responsible for more sewage spills last year than any other water firm.
It had already awarded chief executive Louise Beardmore and finance boss Phil Aspin annual bonuses of £417,000 and £269,000 respectively before the regulator’s bombshell last month.
The company, which has 7 million customers in north-west England, has confirmed it will abide by Ofwat’s ruling.
But it has refused to rule out raising directors’ base salaries this year to compensate them, saying no decision had been made, despite the company being almost four months into its financial year. Beardmore’s most recent salary was £716,000 while Aspin’s was £462,000.
We will be closely watching companies’ behaviour on executive remuneration in response to the changes, including on base pay
United, which on Friday holds its annual meeting, where it is proposing only minor changes to its pay policy, is the only public company under the bonus ban and so faces stricter rules around its disclosure of executive pay.
Another, Thames Water, faces a dressing down from MPs on the Environment, Food and Rural Affairs committee this week after revealing that 21 managers are in line for bonuses of up to £17.5 million from an emergency loan.
A £3 billion cash injection was meant to keep the debt-laden water supplier to London and the Thames Valley afloat or face being renationalised.
Ofwat was not made aware of the bonuses until after the first tranche of £2.5 million had been paid, but it is powerless to claw them back because they do not apply to board-level directors.
Ofwat’s chief executive, David Black, said he was ‘disappointed at the lack of transparency’ shown by Thames Water, adding: ‘At a time when remuneration in the water sector is under significant public scrutiny, we expect water companies to be proactive and transparent.’
Ofwat is also unable to stop forgone bonuses being replaced by increased salaries, as was routine in the banking sector when bonus pots were capped after the financial crisis.
Ofwat has been criticised for not clamping down on boardroom excess while water firms ran up debts and showered investors with dividends. Last night, it said ‘it would be very damaging to public trust in the sector’ if the response to the bonus ban was ‘to greatly inflate base salaries’.
‘We will be closely watching companies’ behaviour on executive remuneration in response to the changes, including on base pay,’ it said. ‘This will inform any changes we may consider necessary when we review the rule in 2027, or earlier if required.’
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