Dieter Helm slams water sector pay

Multi-million pound chief executive salaries in the water sector are ‘patently absurd’ and ‘symbolic of greed’.

That’s according to an essay on water privatisation by economist Sir Dieter Helm.

In the essay Helm slams the performance of water companies, given high salaries are defended by the sector as being needed to compete with FTSE100 companies for world-class managers.

He adds that water companies treat the public “with disdain” when they say that executive bonuses and remuneration are a matter for shareholders.

Helm says; “the performance of many of the new privatised managers has been poor, and in some cases, dire – though of course with some notable exception.”

He said salaries of £3 million might be accepted by the public for a major international company facing ‘domestic and global competition’, but in the water sector such salaries are “symbolic of greed rather than the pursuit of the public good.”

He adds that it is not credible to claim that the sector has gained “very rare international superstars” who will bring about a step-change in customer service.

“Quite the contrary, we have ridiculously high pay for the top CEOs and too often poor general performance.

“It is patently absurd to claim that the CEOs of monopoly water companies, with regulators having a statutory duty to ensure that the companies can finance their functions, should be benchmarked against the leading CEOs of FTSE100 companies.”

Helm points to some sector CEOs voluntarily deciding not to take their full bonuses recently as the first time some responsibility has been taken.

But he adds that the removal the bonus element of their remuneration makes their pay only “slightly less ridiculous”.

Given that businesses such as Thames Water have been discharging raw sewage, and failing to report their actions, bonuses should be out of the question anyway.

Such performance might lead to an instant resignation in other sectors.

While unacceptably high salaries are a symptom of the privatisation of the water sector, renationalisation is not the answer, claims Helm.

Instead, companies must build public trust by paying reasonable salaries, have simple corporate structures, transparent third-party reporting and executive accountability of failures.

Rather than with FTSE100 companies, the water sector should be looking to benchmark against comparable businesses such as Scottish Water, Network Rail and the Highways Agency.

In the paper, titled ‘Time to pull the plug on the water privatisation model’, the Department for Farming and Rural Affairs’ (Defra) latest plan to implement integrated catchment plans also comes under fire by the Oxford University lecturer.

Helm says Defra’s “Plan for Water: our integrated plan for delivering clean and plentiful water” has vague and ill-defined objectives, with policies that are not up to the tasks.

He adds that none of the 16 organisations listed as being involved are actually in charge of delivering the integrated catchment approach that Defra “claims to be pursuing”.

Many of the plans’ new announcements and funding are reiterated old promises, such as legislating to remove the plastic in wet wipes and advancing already agreed spending.

Its promise to increase the maximum fines that water companies will face also comes with “lots of discretion”.

Most of the new money promised by the plan relies on fines for failures to fund a water restoration fund.

Helm also pours cold water on the government’s claim that it will “unleash” private finance, as the implications for customer bills in needing to pay back this finance and accompanying interest is ignored.

“Why would anyone think that simply shouting out the mantra “integrated catchment plans” and repeating it louder and louder is going to deliver the outcome of integrated catchment plans, with the same regulators, officials and the voluntary stakeholder approach,” says Helm

“Neither Labour nor Conservative plans yet add up to a decisive shift.

“The sheer scale of public anger is a once-in-a-30-year opportunity to put it right, reform properly and create a new model that lasts. This is what is not only needed, but practical.”