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Thames Water has agreed to pause executives’ lavish retention payments that were agreed as part of a £3bn emergency loan after a furious backlash from the Labour government.
Crisis talks with regulator Ofwat, the government, the utility, and its creditors held over the weekend agreed to “pause and reconsider the retention payments”, said one person close to Thames Water. “All the parties recognise that the payments are a distraction from the major issues at hand.”
Steve Reed, environment secretary, welcomed Thames Water’s decision to withdraw the controversial payments, saying that handing the money out would have been “the wrong thing to do”.
The decision by the UK’s largest water company comes just days after a war of words between the Department for Environment, Food and Rural Affairs and Thames Water’s management over whether the utility would be able to press ahead with the payouts.
The company, which serves about a quarter of the country’s population, is struggling under the weight of its £20bn debt mountain and is in exclusive discussions with the private equity firm KKR to take over the business as it attempts to avoid temporary renationalisation. The utility came perilously close to running out of money before it agreed the £3bn loan this year with its senior creditors, including US hedge funds Elliott Management and Silver Point.
Details of the company’s 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 beleaguered utility’s top executives.
The company initially insisted that it would be able to sidestep attempts by ministers to stop the generous payouts. Defra officials in turn said on Friday that they would “not stand idly by if Thames bosses try to plunder the company for personal gain”.
Reed confirmed to a session of the environment select committee on Tuesday that the plans had been scrapped.
“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,” he said. “I am very happy indeed that Thames have now dropped those proposals.”
At issue has been whether the government has the powers to block the payments, which would be paid for out of the £3bn loan, which comes with a 9.75 per cent interest rate, plus fees.
Defra 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.
But Thames Water argued last week 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.
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.
The payment of bonuses has become a lightning rod for public anger against water companies including Thames, which has raised bills by at least a third this year.
“It has never been the Thames Water board’s intention to be at odds with the government’s ambition to reform the water industry,” the company said in a statement. “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.”
