Thames Water has decided to “pause” its scheme to pay out big bonuses to senior executives linked with securing its £3bn rescue loan.
The decision comes after Downing Street said bosses at the troubled firm “rewarding themselves for failure is clearly not acceptable”.
The company’s “retention scheme” was set to amount to 50% of senior bosses’ pay packets, which could have led to them getting £1m on top of their annual salaries and regular bonuses.
Thames had been accused by the environment secretary of “trying to circumvent” forthcoming rules to ban water companies from paying bonuses.
Steve Reed told MPs on Tuesday the company had been “calling their bonuses something different so they continue to pay them”.
Downing Street added ministers were “clear that, after presiding over years of mismanagement, Thames Water should not be handing itself bonuses”.
Reed and officials at the Department for Environment, Food and Rural Affairs (Defra) held talks with Thames bosses ahead of the company’s decision.
A spokesperson for Thames its board had “decided to pause the retention scheme” and await guidance from the regulator Ofwat, who could be granted new rules to prevent any water firms from handing out any bonuses.
Thames said it would wait for the regulator’s steer to ensure the company’s “approach supports both our turnaround objectives and broader public expectations”.
“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 spokesperson added.
Thames has faced heavy criticism over its performance in recent years following a series of sewage discharges and leaks.
Since the dire state of the company’s finances first emerged about 18 months ago, the government has been on standby to put Thames into special administration.
The company secured an emergency £3bn loan in March to stave off collapse and is now looking to reduce its huge £20bn debt pile by requiring lenders to accept a discount in what they are owed.
The supplier serves about a quarter of the UK’s population, mostly across London and parts of southern England, and employs 8,000 people. It is expected to run out of cash completely by mid-April.
Regardless of what happens to the company in the future, water supplies and waste services to households will continue as normal.
Reed said he was “very happy” that Thames had dropped its retention scheme.
“It was the wrong thing to do. It offends against their own customers’ sense of fair play,” he added.
Thames previously said its “retention payments” were not performance-related bonuses covered by the new rules.
It said none of these retention payments would be funded by customers.
Earlier on Tuesday, Thames chairman Sir Adrian Montague clarified comments he had made about bonuses to a committee of MPs last week.
He said he might have “misspoken” when he stated lenders had “insisted” upon the “retention incentives” when questioned on the troubled water firm’s turnaround.
“We live in a competitive marketplace and we have to provide the right sort of packages to these people otherwise the head hunters come knocking,” he said at the time.
Anna MacDonald from Aubrey Capital Management said it appeared that Thames was “trying to limit a further PR disaster”.
The argument that bonuses were needed in order to retain top executives was not convincing, she told the BBC’s Today Programme.
“[Major investor] KKR is a big private equity firm, it will be allocating employees to different companies they are managing, so I am not sure that rings true. Maybe it is just how they structure their pay packages,” she said.
Last November, Ofwat blocked three water firms – including Thames, Yorkshire Water and Dwr Cymru Welsh Water – from using customer money to fund a total of £1.6m in bosses’ bonuses.
Defra said in a statement: “For too long, customers’ money has been spent on unjustified payouts, rather than investing in vital improvements to the water system. This government has been clear that the era of profiting from failure is over.”
