Utility Week

10 | 22ND - 28TH FEBRUARY 2019 | UTILITY WEEK A UtilityWeek c ampaign High time for change? N on-party think-tank and lobby group the High Pay Centre, established to monitor pay at the top of the income distribution and set out a roadmap towards better business and economic success, says its 2018 analysis reveals, in conjunction with the CIPD, the extent of wealth inequality within the UK. Their report, RemCo reform, Governing Successful Organisations That Bene t Everyone, claims to "identify the shortcomings of the remuneration committees (Rem- Cos) charged with setting executive pay" and calls for them to be signi‰ cantly reformed. In particular, it highlights: • the myth of "super talent" as a factor that continues to drive excessive pay with one remuneration com- mittee chair commenting: "It's nuts… and nuts has become the benchmark"; • how there needs to be much greater diversity among those responsible for setting CEO pay, both in terms of their ethnicity and gender, and also their professional backgrounds and expertise; • how current pay mechanisms contribute to the prob- lem of high pay. As a response, the CIPD and High Pay Centre say they are "recommending replacing long-term incentive plans (LTIPs) as the default model for executive remuneration, with a less complex system based on a basic salary and a much smaller restricted share award". This, they believe, would "simplify the process of set- ting executive pay and ensure that pay is more closely aligned to executive performance". The CIPD and High Pay Centre are also calling for RemCos to ensure CEO pay is "aligned more appropri- ately to rewards across the wider workforce and that their contribution is measured on both ‰ nancial and non-‰ nancial measures of performance", including measures such as employee wellbeing and investment in workforce training and development. Executive pay has 'skyrocketed' Further to a recent column published in Utility Week, Labour MP Luke Pollard calls on water companies to "stop lining pockets and invest pro ts". "England is the only country in the world to have fully privatised its water and sewerage systems. In the 30 years since the 1989 Water Act, we are concerned too much has been paid in dividends to shareholders while household bills have increased – hitting lower income households. The lack of accountability in the water industry means time and time again worst practice is rewarded. In 2016/17, six companies missed their leakage targets, with Thames Water's data showing 677 million litres are being lost to leakages every single day – more than Cape Town uses daily. This isn't just money down the drain, it's carbon spent on puri‰ cation, transport and distribution wasted when we can ill-až ord wasteful carbon practices. Despite this poor track record, executive pay has sky- rocketed with England's top nine water and sewerage companies earning a combined £23 million in 2017. The highest paid exec took home £2.45 million – 16 times the prime minister's salary. Six companies even have ož - shore ‰ nance structures in the Cayman Islands. Instead of lining their own pockets, water companies need to be investing their pro‰ ts to provide a resilient service. We have had plenty of sound bites from both the secretary of state and Ofwat, but where is the action?" Luke Pollard is MP for the Plymouth, Sutton and Devonport constituency. Analysis Networks next? While not the ‰ rst target of renationalisation, energy networks know they are in any Labour government's sights. And the heat is already on. Late last year Ofgem said it would "drive a hard bargain", announcing proposals to reduce customer bills by about £45 a year from 2021. Welcoming the potential move, consumer groups said networks had "had it too good for too long". Earlier that year, the pressure was cranked up when energy secretary Greg Clark urged Ofgem to impose a "much tougher regime" on distribution network oper- ators' (DNOs) prices. Speaking in the House of Commons, he agreed with backbench MP John Penrose's that "Ofgem has been far too so¨ on these ‰ rms for ages, allowing them to get fat and lazy at customers' expense", and said that the energy regulator should be a "great deal tougher" with the DNOs in the future. The Energy Networks Association said at the time the proposals would jeopardise investment for the switch to a greener and smarter energy system. £5,000 12,000 10,000 8,000 FSTE 100 index at 31 Dec FSTE t100 CEO pay (000s) 6,000 4,000 2,000 0 £4,500 £4,000 £3,500 £3,000 Salary Deferred bonus £2,500 £2,000 £1,500 £1,000 £500 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 £0 Pension Options expected value of awards Other benefits LTP expected value of awards Cash bonus FTSE 100 FTSE 100 CEO PAY AND COMPANY VALUE Source: High Pay Centre and CIPD "Ofgem has been far too soft on these fi rms for ages, allowing them to get fat and lazy at customers' expense." JOHN PENROSE MP Despite the fact that pay has exploded while performance has remained fl at, it is largely growth in performance-related elements of pay packages that has delivered the increase in total pay.

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