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Ofwat rules out customers paying £195,000 Thames Water boss bonus Water firms stopped from using customer money for bonuses
(about 13 hours later)
A £195,000 bonus awarded to the boss of Thames Water should not be paid for by customers, regulator Ofwat is expected to say on Thursday. Nine water firms have been prevented from using customer money to pay for bonuses under new regulatory powers.
The BBC understands the regulator will say that any bonuses paid should be borne by owners and lenders to the company rather than paid by customers. The watchdog Ofwat said that any "undeserved" bonuses were now being borne by owners and lenders to the company rather than paid by customers.
Thames Water chief executive Chris Weston previously warned that the company only has enough cash to survive till next May but many think it will run out of money by Christmas. Three firms - Thames Water, Yorkshire Water and Dwr Cymru Welsh Water - were directly blocked from using customer money to pay bonuses collectively worth £1.6m.
The announcement will come as part of an Ofwat update into executive pay and financial resilience across the sector. The remaining six firms voluntarily decided to use shareholder money to fund boss bonuses.
Ofwat has new powers to prevent bonuses being funded from customer bills if the company is judged to have missed environmental or performance targets. David Black, chief executive of Ofwat, said that water firms "need to do more to rebuild public trust."
Weston, a former British Gas executive, was hired in January this year to try and turn around the fortunes of a company drowning in debts of £18bn. He said that by stopping customers from "paying for undeserved bonuses", it was looking "to sharpen executive mindsets" and to push firms to improve their cultures of performance and accountability.
Over the summer it emerged that he had been awarded a bonus of £195,000 for his first three months at the company, taking his total pay for the period to £437,000. Ofwat's new powers prevent bonuses being funded from customer bills if the company is judged to have missed environmental or performance targets.
It's not clear whether the bonus has in fact been paid out, but the regulator will insist that it is not paid by the operating company, and must be borne by the company owners. Thames Water declined to comment. Thames Water chief executive Chris Weston, who was hired in January to try and turn around the fortunes of a company drowning in debts, was awarded a bonus of £195,000 for his first three months at the company, taking his total pay for the period to £437,000.
In expectation of this approach other companies – including debt laden Southern Water - have already said shareholders rather than customers would pay bonuses to executives. It's not clear whether the bonus has in fact been paid out, but the regulator's rules now mean it cannot paid by the operating company, and must be borne by the company owners.
Thames Water declined to comment.
Other companies – including debt-laden Southern Water - have already said shareholders rather than customers would pay bonuses to executives.
But the problem for Thames is that it effectively has no shareholders.But the problem for Thames is that it effectively has no shareholders.
Earlier this year, Thames Water owners refused to follow through with a promised cash injection for the troubled company after Ofwat indicated it was not prepared to accept requests for bill rises of 44% above inflation over the next five years.Earlier this year, Thames Water owners refused to follow through with a promised cash injection for the troubled company after Ofwat indicated it was not prepared to accept requests for bill rises of 44% above inflation over the next five years.
In a preliminary decision, Ofwat said it would allow bill rises of 21% above inflation, which the shareholders did not accept.In a preliminary decision, Ofwat said it would allow bill rises of 21% above inflation, which the shareholders did not accept.
They walked away, effectively leaving the company under the control of its lenders.They walked away, effectively leaving the company under the control of its lenders.
The majority of those lenders to Thames have offered to throw it a financial lifeline loan of up to £3bn at high interest rates to tide it over till next year in the hope that Ofwat will agree to bill rises as high as 50% to encourage new investors to inject over £3 billion needed to get its debt levels stabilised. Environment secretary Steve Reed said it was "disgraceful" that half of water firms have given out "unjustifiable" and "unmerited" bonuses.
The lenders are currently finalising proposals for a restructuring of the company which would involve them taking a discount on the money they are owed, bringing in new operational expertise, and exploring the possibility of a break up and or public listing of the company. He said the introduction of "urgent legislation" was so that such bonus culture can "never happen again".
Yesterday, environment secretary Steve Reed, who was appearing before MPs, once again ruled out the nationalisation of Thames. Reed had previously said he believed the problems in the sector as a whole were ones of “regulation and governance” and he recently commissioned Sir John Cunliffe, former deputy governor of the bank of England, to conduct an independent review of the sector.
In the past he has said it would cost taxpayers billions of pounds and take years.
Reed said he believed the problems in the sector as a whole were ones of “regulation and governance” and he recently commissioned Sir John Cunliffe, former deputy governor of the bank of England, to conduct an independent review of the sector.
That review is not due to report back until June of next year. The final determination of how much water companies can charge their customers for the next five years is expected on 19 December.That review is not due to report back until June of next year. The final determination of how much water companies can charge their customers for the next five years is expected on 19 December.