Ofwat interim CEO David Black has written to the remuneration committees of water companies to reiterate the regulator’s expectations on their approach to performance related executive pay for 2021-2022.
These include expectations that:
- performance for customers, including performance on the environment, should be taken into account
- decisions made are backed up by robust and clear explanations that are accessible to the public
Black says in the letter:
“We were clear as part of the 2019 price review that performance related executive pay should demonstrate a substantial link to stretching performance delivery for customers which includes environmental commitments and obligations.”
“Given the current concern about environmental performance we urge remuneration committees to give particular consideration to the clarity of reasoning for any awards made in this area.”
Referring to “the current high level of scrutiny and concern around water company performance amongst stakeholders” the letter warns that the water companies' performance in some areas, “most notably on the environment”, risks eroding trust and confidence in the sector.
The Ofwat CEO points out that as part of the 2019 price review, the regulator had also made clear that performance related executive pay should “demonstrate a substantial link” to stretching performance delivery for customers, including environmental commitments and obligations.
“We therefore expect companies to ensure that these outcomes are reflected in performance related pay for executive directors, including recognition of poor performance and any non-compliance with regulatory and statutory obligations,” the letter says and that Ofwat would expect to see “clear evidence that this is happening as a matter of course.”
Ofwat regards it as essential that companies provide robust and clear explanations of performance related executive pay, and how this links to performance for customers.
The letter concludes by urging remuneration committees to give particular consideration to the clarity of reasoning for any awards made in this area, given the current concern about environmental performance, including the current investigations into compliance with environmental permits.
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