David Black has written to water company chairs expressing “deep concern” that boards have failed to sufficiently link executive pay decision with performance.
Ofwat’s chief executive highlighted the heightened need for transparency of remuneration and bonuses at a time when the performance of the sector as a whole continues to be called into question.
Black wrote to boards about remuneration committee decisions for 2021-22 aligning with Ofwat’s requirements and expectations set out at PR19 for board leadership.
“We want to be clear that we expect companies to much better account for overall performance in making decisions on performance-related elements of executive pay,” Black wrote and underlined the expectations on remuneration committees.
“Companies need to develop policies and implement them in a way that truly demonstrates trust and accountability. We would also expect remuneration committees to take account of any identified shortcomings and outstanding processes in exercising their judgement on executive remuneration in the round.”
The regulator previously told companies that bonuses and executive pay should reflect how well performance for customers and the environment has been during the year.
Black asked committee chairs to explain how decisions for 2022-23 will reflect decision-making. “It needs to be clear that these concerns are recognised and what is going to change as a result,” he said.
For the next price review from 2024, Ofwat is considering disallowing poorly performing companies from recovering funds from billpayers for performance-related pay, if they cannot demonstrate that overall performance was considered.