Ofwat clampdown on water exec bonus pay: Brits will NOT foot bill if performance targets missed
Ofwat has said customers will not have to fund executive bonuses if water suppliers fail to meet customer and environmental performance targets.
The water regulator made the announcement in its latest plans to tighten up the industry, saying it will regularly review all executive director bonus payments.
It confirmed where the regulator’s expectations have not been met, customers will no longer pick up the bill.
In new proposed guidance published today, Ofwat expects water company remuneration committees to take full account of performance for customers and the environment when deciding whether to award bonuses to senior executives.
This means company policies and decisions on bonus payments will need to align to the expectations set out in the published guidance.
It argues this new recovery mechanism will apply new regulatory scrutiny to board room and remuneration committee decision-making.
However, Ofwat stopped short of preventing water companies from setting performance related pay, instead asking them to demonstrate greater accountability before approving of bonuses.
Ofwat’s review of company decisions on bonuses will be based on environmental performance, delivery for customers, overall financial health, and compliance issues.
The proposals are the latest step in Ofwat’s programme of work to link board-level financial decision making to company performance.
Earlier this month, Ofwat announced new licence conditions prohibiting water companies from paying dividends to investors if their financial resilience is at risk. Those new powers will also allow the regulator to take enforcement action against water companies that do not link dividend payments to performance.
Chief executive David Black said: “In too many cases, bonuses paid do not reflect the reality of company performance. Customer trust is damaged when executive bonuses are not aligned to water company performance for customers and the environment.
“We said that if companies did not address this we would take action, and that is exactly what we are doing. Alongside our new rules on dividend payments, this is part of our ongoing work to make companies more accountable for their actions.”
Ofwat is consulting on the new mechanism in proposed guidance to companies.
The consultation closes at the start of May 2023.