Ofwat has today confirmed new plans that will ensure customers no longer fund executive bonus payments where they have not been sufficiently justified.
This final guidance follows the draft proposal announcement on 30 March 2023 and a consultation on Ofwat’s plans which, received more than 25,000 responses from the general public and which supported further action on executive pay. This was the largest response to a consultation the regulator has received.
David Black, Ofwat CEO said:
“Customer trust is damaged when executive bonuses are not aligned to water company performance. We are pleased that a number of companies and Chief Executives have already responded to our concerns with respect to last year. Going forward we will review all executive directors’ bonus payments and where our expectations have not been met, we will use this tool to secure protection for customers in the future.”
This is the latest in a series of measures Ofwat has put in place to ensure that water companies are accountable for their actions. The regulator has recently announced new powers that will enable it to stop the payment of dividends if this would risk the company’s financial resilience, and take enforcement action against water companies that don’t link dividend payments to performance. Ofwat is also currently consulting on a new licence condition that will ensure companies better reflect customer expectations, drive higher standards of customer service and support the full diversity of customer needs.
By incentivising companies to strengthen their financial health, Ofwat will also improve the attractiveness of investing in water and wastewater companies. This, in turn, helps ensure the sector can continue to focus on the investment and performance improvements needed to protect customers and the health of our environment.
· In line with the new guidance, published today, Ofwat expects water company remuneration committees to take full account of performance for customers and the environment, and performance overall, when deciding whether to award bonuses to senior executives.
· Ofwat will regularly review all executive director bonus payments and where companies have not met our expectations, we will step in to ensure that customers do not pick up the bill for executive pay. Company policies and decisions on bonus payments will need to align to the expectations set out in the published guidance.
· Water companies will remain responsible for setting performance related pay but in their role as a monopoly provider of essential public services, they need to demonstrate greater accountability. This recovery mechanism will apply new regulatory scrutiny to Board room and remuneration committee decision-making.
· Ofwat will report later in the year on our assessment for 2022-23, and calculate adjustments, where appropriate, in relation to decisions made for the 2023-24 financial year onwards.