Utility Week

UTILITY WEEK | 22ND - 28TH FEBRUARY 2019 | 7 Labour's limit Announcing the Labour party's vision for the future at its conference towards the end of last year, shadow chancellor John McDonnell con rmed that under a Labour government the water industry would be the rst to be renationalised in the interests of "unprecedented openness and transpar- ency" around how companies would be managed. Networks, meanwhile, were le• bracing themselves as being not too far behind. A key plank of the party's strategy was revealed as greater worker representation on boards to empower employees and limit excessive salaries. Among a suite of pro- posals unveiled was that senior executive and director posts be re-advertised on "dra- matically reduced salaries" and capped by a 20:1 pay ratio policy. This could see the earnings of a chief executive of a government-owned compa- nies set at no more than 20 times that of its lowest paid worker, in a bid to ensure what Labour described as "fairness within our economy". The e… ect on top pay would be dra- matic. Even it you do the sums based on the average wage, rather than the lowest, this mean a CEO could be paid no more than £552,000, which is 20 times the UK average of £27,600. Other highly lucra- tive parts of pay packages, such as share options and personal bonuses, could also be scrapped, with any rewards distributed among all those within the company. It's a message that seems to chime well with voters. A survey by the Independent news service, conducted around the same time, suggested Labour's proposals would be supported by most of the public, at 57 per cent. But while half a million pounds may sound a small fortune to lower income earners, would such a sum attract the high achievers needed to lead our vital water and energy rms? How would utilities be able to compete for the top executives of other companies? According to joint research by the CIPD and High Pay Centre, the average FTSE-100 chief executive is on a median pay packet of £3.9 million, and famously this year was paid as much by Friday 4 January as those on average pay would receive for the entirežyear? The ndings saw the media dub the date "Fat Cat Friday". It was also an 11 per cent increase on the £3.5 million salary reported for 2017. The increase, said the report's authors, meant that FTSE-100 chief executives, working an average 12-hour day, now needed only do 29 hours' work in 2019 to match the average worker's annual salary – two hours less than inž2018. Meanwhile the jury is out on whether employee representation would keep sala- ries down. Research conducted in 2011 on behalf of the EU Confederation of Trade Unions reportedly found that the practice of workers sitting on boards of rms in those member states with legal provisions for the measure had no clear impact on eco- nomic perfor- mance – with pro tabil- ity in fact dropping because wages increased. nomic perfor- mance – with A regulator's view G oing through the current price review process with Ofwat, water company bosses have long been aware of the regu- lator's clear intent to see companies make more informa- tion about execu- tive rewards publicly available. Its stated aim is to ensure the deci- sions companies make on executive pay ref- erence "exceptional delivery for customers". Speaking on BBC Radio 4's Today pro- gramme last year. Ofwat chief executive Rachel Fletcher said she had been "beating a drum" to make water companies understand that they must show they are working in the public interest and shed much more light on where the public's money was going. Responding to a study by the University of Greenwich that found water companies over the past decade had paid out as much in dividends as they made in pro ts – about £18 billion, she pointed to how there had already been improvements in the way com- panies were operating their businesses. But Fletcher added: "It's really important that people around the board table of these companies are going in and making deci- sions with the interests of the public front and centre." Reforms from Ofwat last July supported the theme, calling for a greater sharing of bene ts with consumers, which could see the most highly geared water companies forced to share up to £230 million with cus- tomers over the period 2020-25, and deci- sions boards reached on debt, dividends and executive pay "aligned more closely with their customers' interests". As part of the same package, Ofwat called for boards to boost transparency around dividends and executive pay, "both matters which have a signi cant bearing on cus- tomer trust". Each water company, the regulator said, must now "show clearly how it is linking performance-related executive pay to stretch- ing performance for customers. "In a similar vein, companies will need to explain clearly how decisions on dividends are made and how they relate to the delivery of companies' obligations." Ofwat chief executive Rachel Fletcher

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