If ever there was a moment when a company might want to switch water supplier, it would be when a record of poor service and supply disruption is compounded by news that, despite all their failures to deliver for customers, the bosses are being given hefty bonuses.
This is not just true of the water industry, of course, although it has been a prominent issue recently amid increasing reports of failure, especially when it comes to sewage dumping in rivers.
On the one hand, it creates a visceral sense of unfairness that some should be rewarded for failure. Worse still, it feeds into a common suspicion that many executives across a range of sectors are on the gravy train, awarding themselves big paydays while doing little or nothing to keep Britain’s infrastructure up to scratch.
When it comes to domestic customers, they have no option but to suck it up and fume at rising water bills while the water bosses enjoy bulging bank balances. For commercial water users, however, there is the option to do something about it.
New Law Bans Bonuses For Worst Offenders
In the circumstances, legislating to ban bonuses for executives at water companies found to have committed serious rule breaches was an obvious piece of legislation to pass and the government has now done so, fulfilling a pledge in last year’s Labour manifesto.
The category 1 breaches of rules committed by Thames Water, Yorkshire Water, Anglian Water, Wessex Water, United Utilities and Southern Water mean that there will be no extra paydays for their bosses.
Such news may be particularly timely, given that last month saw Ofwat handing out a record £122.7 million in fines to Thames Water.
The cash-strapped firm, which has been among those dishing out bonuses despite its recent financial struggles, has been hit with a £104.5 million penalty for wastewater pollution and a £18.2 million fine for dividend payment rule breaches.
Some may suggest that the fact that one of these penalties relates to financial rather than operational matters adds weight to the importance of curbing payouts to failing firms.
Welcoming the news, environment secretary Steve Reed said: “The era of profiting from failure is over. The Government is cleaning up our rivers, lakes and seas for good.”
Flaws In The Legislation?
No doubt commercial and domestic water customers alike will hope this is the case. But, will it? One possible problem is that, just as legislation to cap bankers’ bonuses after the 2007-09 financial crisis saw general remuneration increased instead, so water firms may just increase the basic salaries of their executives.
Another issue may be that failure has become so deeply rooted at some firms that all the fines and bans on bonuses will still not succeed in getting the water firms to get their act in order.
This may sound cynical, but many are deeply concerned that firms may not take the hint no matter how often they are fined. Thames may be a case in point after multiple penalties, but another may be that of Northumbrian Water.
Ofwat recently penalised this firm with a smaller penalty of £15.7 million following a series of local pollution incidents. Like the latest Thames fine, the cost is to be borne entirely by the water firm and its shareholders, not customers. It includes an acknowledgement of fault and also investment of the stated sum in a series of remedial measures.
Described as an enforcement package agreed with the firm, it is designed to address sewage spills with steps like sensors on the Tyne sewage network to detect pressure on capacity, as well as measures to prevent spills at specific overflows. A particular area of concern is the stretch of coastline at Whitburn in County Durham.
A Lack Of Faith
However, environmental activists in the north east are far from convinced that the measures imposed will make a difference.
Speaking to the BBC, University of Durham biogeochemist Prof Darren Grocke said the estimated million tonnes of sewage spilled in the area will have a significant impact on the coastal and marine environment, adding that it was a “testament to the perseverance and resilience of campaigners” that Northumbrian Water ended up making its deal with Ofwat.
However, he lamented, he had “little faith” that Northumbrian Water would deliver on its side of the agreement and expressed concern that the Environment Agency would have the strength to enforce the measure.
Such concerns may be echoed across the country. In an ideal world, water firms that let their customers and the general public down will get their act in order lest their bosses are the ones hit hardest in the pocket. But it remains to be seen if this is how things will turn out, or whether business customers will have to vote with their feet.
