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Southern Water’s boss has been awarded a £183,000 bonus even as the company proposed the biggest increase in customer bills of all English water providers and was criticised by regulators for a business plan that did not meet “minimum” standards.
Southern Water had asked regulator Ofwat to approve a 73 per cent rise in household bills over the five years to 2030 before inflation, but in proposals published last week, the regulator put forward a 44 per cent rise for Southern. It believes the company can deliver services to its 4.2mn customers in south-east England at “less cost than it requested”.
It also told the company to rewrite its “inadequate” business plan, saying it did not meet “minimum” standards.
In its annual report last week, Southern revealed it had awarded chief executive, Lawrence Gosden, a £183,000 bonus for the year to March 31, increasing his total pay for the year to £764,000. Stuart Ledger, chief financial officer, was given a £128,000 bonus, taking his total pay to £610,000. None of the executives were paid bonuses in the previous year.
High executive pay and bonuses in England’s privatised water industry have caused widespread anger. The industry is responsible for extensive sewage pollution in rivers and seas after decades of under-investment in vital infrastructure. Southern has faced anti-sewage protests at beaches including Margate, Whitstable and Brighton.
The UK’s new Labour government is planning legislation to ban bonuses for executives at poorly performing water companies.
Southern said that 75 per cent of the available bonus was not awarded to Gosden because not all criteria were met. However, it added the company had made “significant advances in treated water quality, a reduction in overall pollution numbers, and falling customer complaints”.
It told the Financial Times that “partial bonuses would be paid by shareholders rather than from customers’ bills”.
Tim Short, a former Credit Suisse First Boston investment banker and water financing expert, said: “It doesn’t really make sense to say that bonuses are paid by shareholders rather than customers because regardless of the source of funds, money leaving the company for the pockets of executives is no longer available for other purposes.”
Southern is majority owned by Australian investment bank Macquarie, the former owner of Thames Water, a water provider that is now struggling with its debt load and the threat of temporary renationalisation.
According to the Consumer Council for Water, Ofwat’s proposed increase for Southern would raise average household bills from about £451 per household per year to £722 by 2030, after annual inflation of 2 per cent is included. The regulator will make a final ruling on how much the water companies can put up their prices by the end of the year.
Southern swung from a £202mn profit to a £210.9mn loss in the year to the end of March 2024, as a result of higher energy, labour and financing costs. It is liable for a £54mn fine if it fails to resubmit an improved business plan by Christmas. It is also on Ofwat’s financial health watch list, along with Thames Water and South East Water.
Southern’s credit rating was downgraded in July last year, meaning it is not allowed to pay dividends under Ofwat’s rules.
The company said in its annual report that it continued “to be at risk of a credit rating downgrade as a result of our poor operational performance and rapidly rising inflation”.
The report also showed that Macquarie and other shareholders injected £375mn of equity in the company in the most recent financial year and that Southern invested £828mn in the water and sewage network over the same period.
Other water companies have also paid out bonuses. Thames Water awarded chief executive Chris Weston, who started in the role in January, a £195,000 bonus and total pay of £437,00 for the three months to the end of March. Severn Trent chief executive Liv Garfield received a £584,000 bonus and total pay of £3.2mn in the year to the end of March.
Macquarie said its “equity funding has enabled Southern Water to significantly increase capital investment in its network and improve its operational performance during this regulatory period”.
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