Thames Water will not pay external shareholders dividends for the next two years and its chief executive will not receive a bonus until at least 2020 as the company plans to “prioritise investment” to improve services.
Steve Robertson, who became CEO of Thames Water in September 2016, will have two years with zero-bonus and his 2020 bonus will be linked to meeting customer commitments instead of financial performance.
Half of Robertson’s maximum £3.75 million bonus will be based on Thames Water’s leakage performance, which the company has come under criticism for previously.
After an investigation by Ofwat, which found Thames Water’s board did not have “sufficient oversight and control” of leakage performance, the water company agreed to return a total of £120 million to customers last month.
Ian Marchant, chairman of Thames Water told Utility Week the remaining 50 per cent of Robertson’s bonus will be based on factors including environmental solutions, customer service, asset health and the general price review process for PR19.
He said: “We’re saying to Steve put your money where your mouth is and deliver on what matters. The vast majority of his bonus will be dependent on hitting the original leakage target for 2020, which is really important for customers”.
Robertson added: “We’re not doing this for nice headlines about no bonuses. We want customers to know it’s coming from the right place. Me not taking a bonus is about doing the right thing to deliver for customers.
“The real headline is we are investing for customers. A number of things have been happening at Thames Water over the last 12 months. We have seen a significant change in our investor base with pension funds taking a long-term view looking 20, 30, 40 years ahead. That’s exactly how we need to look forward.”
He confirmed no external dividends will be paid this year or for the rest of the AMP to provide a strong platform for the board to look at where it needs to take the business.
Robertson said he will be judged on targets for leakage and customer service as well as quality business plans.
“The focus is about putting the foundations in place for the long-term success of the business,” he said.
Brandon Rennet, chief financial officer at Thames Water described the board’s decision not to pay dividends as a “tangible commitment”.
Thames Water said the decision was driven in part by Ofwat’s reform agenda but “more so” by the company’s intention to have a “clear and good” relationship with customers.
Robertson added: “It’s not for ‘boss’ pleasing, whether that be Ofwat or the government. We want to create a relationship with our customers which is based on trust, transparency and openness”.
In a statement from Thames Water, Marchant said: “It is only right that senior management get paid for performance. There will be no annual CEO bonus this year or next while we get leakage back on target with any future long-term variable pay tied to meeting challenging customer commitments.”
Speaking to Utility Week, he added: “I think Steve will be amazed if he meets the maximum bonus in 2020. I will be delighted if he does as it proves the business is back on track.”
A spokesperson from Ofwat, said: “We’ve been clear that senior executives’ performance-related pay should be related to how well they deliver for customers. We want to see all water companies step up and do this.”
Thames Water’s annual report and accounts for the year ended 31 March 2018 showed underlying operating profit of £517 million, down from £605.4 million the previous year.
Underlying profit before tax, excluding the sale of its non-household business to Castle Water, was £34.6 million down from £38.1 million.
Thames Water said it has invested around £13 billion in its network and other assets over the last 13 years.