Southern Water’s CEO received a £183,000 bonus while the company proposed the highest customer bill increase among English water providers and faced regulatory criticism for a substandard business plan.
Southern Water requested Ofwat, the water regulator, to approve a 73% increase in household bills over the next five years before inflation. However, Ofwat proposed a 44% increase, stating that the company could provide services to its 4.2 million customers in southeast England at a lower cost. Ofwat also demanded Southern revise its inadequate business plan, citing failure to meet minimum standards.
In its annual report, Southern Water disclosed that CEO Lawrence Gosden was awarded a £183,000 bonus for the year ending March 31, raising his total annual pay to £764,000. CFO Stuart Ledger received a £128,000 bonus, bringing his total pay to £610,000. No bonuses were awarded to executives in the previous year.
The high executive pay and bonuses in England’s privatised water industry have sparked widespread outrage. The sector has been criticized for significant sewage pollution in rivers and seas due to decades of under-investment in essential infrastructure. Southern Water has faced protests against sewage pollution at beaches in Margate, Whitstable, and Brighton.
The UK’s new Labour government plans to legislate against bonuses for executives at underperforming water companies.
Southern Water stated that 75% of the available bonus was not awarded to Gosden due to unmet criteria but highlighted significant improvements in treated water quality, reduced pollution, and fewer customer complaints. The company assured that partial bonuses would be funded by shareholders, not from customer bills.
Tim Short, a former Credit Suisse First Boston investment banker and water financing expert, criticized this claim, arguing that money leaving the company for executive bonuses reduces funds available for other purposes.
Southern Water is majority-owned by Australian investment bank Macquarie, the former owner of Thames Water, which is currently struggling with debt and potential temporary renationalization.
According to the Consumer Council for Water, Ofwat’s proposed increase for Southern would raise average household bills from approximately £451 to £722 per year by 2030, after accounting for annual inflation of 2%. The regulator will issue a final ruling on water company price increases by year-end.
Southern Water reported a swing from a £202 million profit to a £210.9 million loss for the year ending March 2024 due to higher energy, labor, and financing costs. The company faces a £54 million fine if it fails to resubmit an improved business plan by Christmas and is on Ofwat’s financial health watch list along with Thames Water and South East Water. Southern’s credit rating was downgraded last July, preventing dividend payments under Ofwat’s rules.
In its annual report, Southern stated it remains at risk of further credit rating downgrades due to poor operational performance and rising inflation. Macquarie and other shareholders injected £375 million of equity into Southern Water last financial year, with the company investing £828 million in the water and sewage network.
Other water companies have also paid out bonuses. Thames Water awarded CEO Chris Weston a £195,000 bonus, totalling £437,000 for his three months in the role. Severn Trent CEO Liv Garfield received a £584,000 bonus, bringing her total annual pay to £3.2 million.
Macquarie stated that its equity funding has enabled Southern Water to significantly increase capital investment in its network and improve operational performance during the current regulatory period.
