South West Water proprietor’s boss ought to lose all bonuses after Devon parasite outbreak | Nils Pratley

Here’s a rarity: a chief govt turning down an annual bonus two years in a row out of solidarity with the struggling clients. However when the corporate is Pennon Group, proprietor of South West Water, the operation at present knee-deep in a diarrhoea and vomiting outbreak in Devon attributable to polluted water, Susan Davy had little actual alternative. She can not count on applause for main “from the entrance” and “dwelling our values”, as she described her resolution to show down £237,000 in money.

In reality, the query is why she nonetheless thought it applicable to gather £298,000 below her separate long-term share-based scheme. That award sent her overall pay up from £543,000 to £860,000, a determine that will trigger abdomen ache throughout the south-west, not simply within the coastal city of Brixham, the place the parasite cryptosporidium was discovered within the system.

A 12 months in the past, she noticed the short- and long-term schemes as a job lot and waived each. If something, the case for surrendering each components of variable pay ought to have been extra compelling this time as a result of an outbreak of sickness is dangerous even by the requirements of the fashionable water {industry}. There was no rationalization of the completely different logic within the annual report.

A deeper query is why the bonus difficulty even arose within the first place. Why wasn’t it mechanically lowered to zero in present circumstances? The reply lies with the standard suspect – the actual fact the usual “balanced scorecard” of targets for an govt consists of so many components that it’s laborious to overlook all of them. In Davy’s case, the components spat out a ratio of 46.5% of most, which the remuneration committee minimize to 38.5% after making use of its “discretion framework in respect of South West Water’s surroundings and air pollution efficiency”.

Come on although, outsiders will nonetheless be baffled as to why the committee’s discretion could possibly be so minor (and so exact). Even ignoring the parasite outbreak, South West Water remains to be falling considerably brief on the Surroundings Company’s most necessary annual measure: the corporate received two stars, when 4 is the goal, below the most recent industry-wide environmental efficiency evaluation.

Neither is it the case that Pennon’s shareholders are having a greater time. Sure, they received a £127m dividend even because the Devon outbreak was in full swing, however the share worth has roughly halved throughout Davy’s 4 years as chief govt. Not for the primary time, one should ask what’s the level of those “balanced scorecards” in the event that they produce unbalanced outcomes that miss the broader image.

In a month’s time, Ofwat, the sector’s financial regulator, will unveil its first view of the English and Welsh water suppliers’ enterprise plans for the following 5 years, together with the company-by-company will increase in payments to fund higher funding. Invoice rises are inevitable and South West Water is searching for 30%-ish, which can be on the decrease finish of the {industry}’s vary however will nonetheless come as a shock to many purchasers. Davy ought to have learn the room: if it was proper to show down short- and long-term awards final 12 months, it was proper to take action once more. Half measures don’t minimize it.