PART TWO – A QUESTION OF TRUST
(From The Financial Times)
Thames Water is allowing senior executives to retain bonuses awarded last year, even though an accounting restatement meant they missed a cash flow target.
Chris Weston, chief executive of the beleaguered utility, provoked outrage when he took a £197,000 bonus last year for just three months’ work after joining in January 2024. Thames Water argued that the award was justified because targets for the year had been met.
However, in its annual report last week, Thames acknowledged that it had been forced to restate its accounts, meaning that it would have undershot an operating cash flow target needed for the full bonus to pay out.
The remuneration committee decided that if the new accounting treatment had been applied beforehand, then the target would have been set lower and concluded: “After full deliberation, the committee decided that no adjustment was required.”
The decision not to claw back last year’s bonuses comes amid growing concerns over the amount of cash leaking out of Thames Water. The utility is struggling under the weight of its £20bn debt and is trying to avoid falling into the government’s special administration regime.
The company is being propped up with an expensive £3bn loan from creditors, which include US funds Apollo Global Management and Silver Point Capital. The senior creditors have also put forward a plan to take over the business after KKR walked away from a rescue bid last month.
The bondholders are stuck in a stand-off with the government and regulator Ofwat over fines for pollution and other failures that threaten to make the company uninvestable.However, cash is draining from the business, which is funded by the bills of 16mn customers. Scores of consultancies and advisory bodies are also receiving millions of pounds in fees.
At the same time, 21 senior managers — excluding Weston — were paid £2.46mn in April as part of another controversial “retention package” agreed as part of the emergency £3bn loan.
The managers, whose names have not been disclosed, are due to receive the same sum again in December, and a further £10.8mn collectively next June — even though MPs on the environmental select committee demanded all awards be clawed back and withdrawn.
The retention payments are in addition to usual bonus and long-term incentive plan payments for some managers, the latter of which were paid this month. Thames declined to reveal the amount paid.
Water executives’ pay has become a lightning rod for anger against water utilities with the Labour government stripping bonuses from 10 bosses, including Weston, at six companies under new laws introduced this year.
Weston — who has not taken a bonus this year but is on a total pay package of £1.35mn — will be entitled to a performance-related incentive plan equivalent to a maximum of 240 per cent of salary next year, though the company said it does “not expect” to award it.