UK Government In Water Industry Bonus Culture Crackdown

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As the global water crisis deepens all around us, it is perhaps unsurprising that the significant bonuses being paid out to water company chief executives each year is now hitting the headlines with increasing regularity.


In the UK, we’re facing challenges such as pollution, water leaks, ageing infrastructure, rising bills and illegal sewage discharges, but despite all this recent Labour Party analysis has found that since the last general election nine water chief executives were paid £10 million in bonuses.


And over the last four years, £14 million in incentives and £603,580 in benefits was paid out.


What is further exacerbating the issue is that water companies are insisting there is insufficient money to pay for much-needed infrastructure upgrades and, as such, they plan to increase customer bills over the next six years to pay for the work.


Now, however, it seems that the government is starting to crack down on bonus culture within the water industry, with bosses set to be banned from receiving these rewards if the company in question has committed serious criminal breaches.


Industry watchdog Ofwat is due to progress with a consultation defining the criteria for such a ban, potentially including a successful prosecution for a Category 1 or 2 pollution incident. This could be, for example, causing significant pollution at a bathing site or conservation area, or where serious management failings have been identified.


Subject to consultation, this ban could be introduced this year, applicable to all executive board members and chief executives. The measures would be implemented by changing the conditions of water company licences.


Steve Barclay, environment secretary, said: “No one should profit from illegal behaviour and it’s time that water company bosses took responsibility for that.


“Tougher action is needed to address poor performance by water companies, which is why I am pleased Ofwat is going further today on bonus payments. In cases where companies have committed criminal breaches there is no justification whatsoever for paying out bonuses. It needs to stop now.”


This comes off the back of Ofwat’s new plans to tighten measures on executive bonus payments where they haven’t been sufficiently earned through performance for both customers and the environment.


Announced in March last year, the plans will see Ofwat carry out regular reviews of all bonus payments for executive directors. Where its expectations have not been met, customers won’t have to pick up the bill.


Water companies will still be responsible for setting their own performance-related pay, but they will need to demonstrate greater accountability. Factors that will be taken into account when deciding on pay awards will include delivery for customers, environmental performance, compliance and overall financial health.


New licence conditions were also recently announced, stopping water firms from paying dividends out to investors if the company’s financial resilience is at risk.