Ofwat, like the sector it regulates, is in hot water. Its call to act on bonuses sounds rather tepid

Ofwat, the water regulator, has noticed that the industry it oversees in England and Wales has been in the news recently.

Nils Pratley www.theguardian.com 

So it has been. Discharges of raw sewage into rivers and coastal waters are a scandal happening in plain sight, and each set of data feels more shocking than the last. A highly critical report from MPs on the environmental audit committee in January made a strong case that Ofwat itself, plus the Environment Agency, should be more assertive.

And here comes a regulatory response of a sort to the “current high level of scrutiny” of the sector: a letter from David Black, Ofwat’s interim chief executive, to the chairs of remuneration committees of the water firms suggesting, in a roundabout way, that bosses’ bonuses should be cut if the pollution record is poor.

The letter is the first of its kind and acts on one of the MPs’ suggestions, but one cannot call it strongly worded. Performance-related pay should show “a substantial link” to delivery for customers, including on “environmental commitments and obligations”, wrote Black, which is hardly laying down the law. There was a reminder to boards that they are allowed to recognise shortfalls “whatever the initial framework for [pay] incentives”, which is just a statement of something the directors should know already: bonuses are always discretionary.

One could say, generously, that Ofwat is merely at the preliminary stage of issuing a high-level warning and that tougher tactics could follow. The problem with that interpretation, though, is that Black didn’t specify what penalties would be imposed if his appeal for good behaviour on pay and bonuses is ignored, which must be a possibility.

In recent press interviews, he has hinted at fines or changes to licence conditions, but the letter itself only said Ofwat would be “assessing your company’s approach” and did not describe possible sanctions.

Maybe the pay-setters will come cleanly, as it were. But Ofwat, which is under scrutiny as much as the companies, would help itself if it laid out specific examples of unacceptable pay practices. Curbing boardroom bonuses for polluters is a good idea. But the policy requires the regulator to be stronger than it currently sounds.

Water bosses’ pay and bonuses in 2020-21 from www.thetimes.co.uk 

• Susan Davy, chief executive of Pennon, the parent company of South West Water, was paid £1.7 million, including £1.2 million in bonuses

• Steve Mogford, the chief executive of United Utilities, was paid £2.9 million, including £2 million in bonuses.

• Liv Garfield, the chief executive of Severn Trent Water, was paid £2.8 million, including £1.9 million in bonuses

• Sarah Bentley, the chief executive of Thames Water, was paid £1.2 million, including a £273,000 bonus.

• Ian McAulay, the chief executive of Southern Water, was paid £1 million, including £550,000 in bonuses.

One thought on “Ofwat, like the sector it regulates, is in hot water. Its call to act on bonuses sounds rather tepid

  1. I am currently in dispute with a Water Company and Ofwat have told me explicitly that they do not regulate Water Companies over customer service – they (wrongly) believe that this is handled by CCWater and Alternative Dispute Resolution etc. – however these organisations have also told me explicitly that they are only mediators and have no regulatory powers whatsoever.

    The net result is that I have it in writing that there is literally zero regulation of water companies over Customer Service and billing – and that water companies are therefore entirely free to treat their customers unfairly.

    Like

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