Thames Water Agrees to Pause Executives’ Lavish Retention Payments Amid Backlash
Thames Water, the UK’s largest water company, has agreed to pause its executives’ lavish retention payments following a furious backlash from the Labour government. The decision comes after crisis talks were held over the weekend between the company, regulator Ofwat, the government, and its creditors.
According to a person close to Thames Water, the parties have agreed to “pause and reconsider the retention payments”. The move is seen as a victory for the government, which had expressed concerns that the payments would be a distraction from the major issues facing the company. Steve Reed, environment secretary, welcomed Thames Water’s decision, saying that handing out the money would have been “the wrong thing to do”.
The controversy surrounding the retention payments emerged last week when Thames Water chair Sir Adrian Montague told parliamentarians that the payouts could involve as much as half of annual salary for some of the company’s top executives. The company initially insisted that it would be able to sidestep attempts by ministers to stop the generous payouts. However, Defra officials said on Friday that they would “not stand idly by if Thames bosses try to plunder the company for personal gain”.
The issue at hand is whether the government has the powers to block the payments, which would be paid for out of a £3bn loan with a 9.75 per cent interest rate, plus fees. The loan was agreed earlier this year with Thames Water’s senior creditors, including US hedge funds Elliott Management and Silver Point. According to the Financial Times, Thames Water is struggling under the weight of its £20bn debt mountain and is in exclusive discussions with private equity firm KKR to take over the business.
The company, which serves about a quarter of the country’s population, has raised bills by at least a third this year. The payment of bonuses has become a lightning rod for public anger against water companies, including Thames. Feargal Sharkey, the pop star-turned-environmental campaigner, accused the government of “pantomime politics” in focusing on the bonus issue. “It’s the kind of policy that will grab headlines but achieve nothing and deliver even less,” he said.
In a statement, the Financial Times reported that Thames Water said it had never been the company’s intention to be at odds with the government’s ambition to reform the water industry. “Following recent discussions the Board has decided to pause the retention scheme and await forthcoming guidance from the regulator [ . . . ] to ensure our approach supports both our turnaround objectives and broader public expectations,” the company said.
The government has passed a Water Act that will give Ofwat greater powers to claw back bonuses in certain circumstances, for example where the company has failed in its financial or environmental performance. However, Thames Water argued that the retention bonuses did not fall under the government’s new legislation because they are not performance-related. The company had already admitted it would raise pay packages to compensate for the bonus restrictions. According to the Financial Times, Reed confirmed to a session of the environment select committee on Tuesday that the plans had been scrapped, saying “Just over the last few days we have seen a very unfortunate situation where Thames Water appeared to be attempting to circumvent that ban, calling their bonuses something different so they can continue to pay them”.
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