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The boss of Southern Water has received a £183,000 bonus even as the company proposed the biggest rise in customer bills of any English water supplier and was criticised by regulators for a business plan that failed to 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 proposed a 44 per cent increase for Southern. The company can provide services to its 4.2 million customers in the south-east of England at “a lower cost than requested”.
It also ordered the company to rewrite its “inadequate” business plan, saying it did not meet “minimum” standards.
In its annual report last week, From the south revealed that it had given chief executive Lawrence Gosden a £183,000 bonus for the year ended March 31, taking his total pay for the year to £764,000. Stuart Ledger, chief financial officer, received a £128,000 bonus, taking his total pay to £610,000. None of the executives received bonuses in the previous year.
High executive salaries and bonuses in England’s privatised water industry have caused general angerThe industry is responsible for widespread sewage pollution in rivers and seas following decades of underinvestment in vital infrastructure. Southern has faced protests against sewage on beaches including Margate, Whitstable and Brighton.
The UK’s new Labour government is planning legislation to ban bonuses to executives at underperforming water companies.
Southern said 75 per cent of the available bonus was not awarded to Gosden because not all criteria were met. However, it added that the company had made “significant progress in treated water quality, a reduction in overall contamination figures and a decrease in customer complaints”.
As reported to the Financial Times, “partial bonuses would be paid by shareholders rather than coming from customer bills.”
Tim Short, a former investment banker at Credit Suisse First Boston and an expert on water finance, said: “It really doesn’t make sense to say that the bonuses are paid by shareholders rather than customers because, regardless of the source of the funds, the money that leaves the company and goes into 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 supplier now struggling with its debt load and the threat of temporary renationalisation.
According to the Consumer Water Council, Ofwat’s proposed increase for Southern would push average household bills from about £451 per household per year to £722 by 2030, once annual inflation of 2 per cent is included. The regulator will make a final decision on how much water companies can raise their prices before the end of the year.
Southern swung from a profit of £202m to a loss of £210.9m in the year to the end of March 2024, as a result of higher energy, labour and financing costs. It is subject to a £54m fine if it fails to resubmit an improved business plan before Christmas. It is also on Ofwat’s list financial health watch listtogether with Thames Water and South East Water.
From the south The credit rating was downgraded in July last year, meaning it is not allowed to pay dividends under Ofwat rules.
The company said in its annual report that it continues to “risk a credit rating downgrade as a result of our poor operating performance and rapidly rising inflation.”
The report also showed that Macquarie and other shareholders injected £375 million of capital into the company in the most recent financial year and that Southern invested £828 million in the water and sewerage network during the same period.
Other water companies have also paid bonuses. Thames Water gave chief executive Chris Weston, who started in the role in January, a £195,000 bonus and a total salary of £437,000 for the three months to the end of March. Severn Trent chief executive Liv Garfield received a £584,000 bonus and a total salary of £3.2m 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.”