Bosses at five water companies would have been stripped of their bonus payments last year, under new rules proposed by the environment secretary.
Chief executives and executive board members at Anglian, Southern, South West, Thames and Wessex would have had 2023 bonus payments blocked for inadequate environmental performance, based on the Environment Agency’s latest report.
Steve Barclay said a consultation will launch later this year to determine what a ban on bonuses could look like. He said Ofwat will amend company licences to reflect the changes, which would take effect from 2024/25.
The threat of banning bonuses for bosses at water companies was first raised last year alongside other reactionary warnings such as levying unlimited fines at companies that commit serious environmental offences.
The environment secretary said a ban would apply to all executive board members to address performance from next year, however the proposed criteria should be followed for 2023/24 on a voluntary basis.
Decisions about executive pay and bonuses are made by each company’s remuneration committee on the board.
The latest proposal by Barclay mooted that payments to executive teams could be blocked by Ofwat if a company committed a category 1 or 2 pollution incident, as set by the Environment Agency.
In the Agency’s most recent classifications of water company performance for 2022, there were 44 incidents that could, under the new proposals, trigger a bonus ban.
Of those, 11 related to assets owned by Anglian and 17 related to Thames’ assets.
Thames was responsible for three category 1 pollution incidents, which are awarded for the most serious breaches. Meanwhile, Southern recorded two category 1 incidents and Wessex was responsible for one.
Last year, several chief executives opted to reject the bonuses awarded to them on the grounds that customer satisfaction while environmental performance left a lot to be desired.
Of those companies that could have had bonuses blocked under new rules, several waived payments last year. Thames’ and South West’s chief executives did not accept their bonuses, while Wessex and Southern set out how payments were performance-linked.
A South West Water spokesperson said: “Susan Davy was the first to forego her bonus last year.
“Instead, the money was invested into our unique WaterShare scheme which goes directly to our customers, giving them the choice to own shares in Pennon and a say in the running of our business or to take a credit on their bill.
“We have always done the right thing and will continue to do so, especially when it comes to rewarding for performance”.
Anglian said it fully supports alignment between financial rewards and the company’s environmental performance.
A spokesperson said: “The remuneration of all our senior directors is directly linked to company performance. Last year, we did not meet all the targets we committed to, particularly around certain environmental objectives, so all senior management bonuses were significantly reduced. This included CEO bonus, which was reduced by 65% and was not funded by Anglian Water customers.”
A Wessex’ spokesperson added: “Wessex Water executive bonuses are made up of various elements reflecting company performance. As a consequence of last year’s environmental results, no director received this part of the bonus.
“We are a leading performer in all other areas of our business and are determined to restore our environmental performance.”
Water UK said its members agree with the move to tightly link bonuses to performance.
A water spokesperson added: “To improve performance companies have proposed £96 billion of investment, over the next five years, to ensure the security of our water supply in the future and cut spills from storm overflows as quickly as possible.”