The Government has confirmed that paying bonuses in the form of retention payments to senior executives are not an an option for Thames Water, following comments by water company Chair Sir Adrian Montague when he appeared before the House of Commons Select Committee for Environment Food and Rural Affairs (EFRA) last week.

Sir Adrian, together with CEO Chris Weston and Chief Financial Officer Steve Buck, faced an intensive two hour session of detailed questioning with a particular focus on Thames Water’s financial situation as part of the Committee's current inquiry into the water sector.

Asked by Tim Roca MP whether the deal agreed with the company’s creditors for a £3 billion emergency loan included any financial retention incentives for executives at Thames, Sir Adrian Montague replied:

“The deal required us to put in place a retention plan for a limited number of senior executives.”

Defra Minister Steve Reed was quizzed about the issue in more detail when he appeared before the EFRA Committee yesterday as part of its ongoing inquiry into the work of the Department.

Saying that he had agreed with water company chiefs shortly after the election that money earmarked for investment would be ring-fenced so it could never again be diverted for payment of bonuses and dividends, he told the Committee:

“Any company that does that again in future will refund that money to customers through a discount on their bills. Customers are right to be furious at the rate of bonuses that chief execs were paying themselves for overseeing often catstrophic levels of failure. The regulator now has the power to ban the payment of unfair and undeserved bonuses.

“Indeed, just over the last few days we’ve seen a very unfortunate situation where Thames Water appeared to be trying to circumvent that ban by calling their bonuses something different so they continued to pay them. I’m very happy indeed that Thames have now dropped those proposals."

Helena Dollimore MP commented that the public were “rightly furious” to hear from Thames’ the assertion that they might still take their bonuses in the coming year or “retention payments” as they wanted to call them.”

“You’re confirming to the Committee today that’s off the table they won’t be doing that?”, she asked.

Steve Reed replied:

“They won’t be doing that. I was very clear in public the government would take action necessary to prevent them trying to circumvent the ban – they have now withdrawn their proposal to make those payments.”

Helena Dollimore continued:

“One of the things Sir Adrian said when he was trying to justify the retention payments – or bonuses by any other description – was that the creditors of Thames Water had said it was a condition of the loan that they had to allocate money for the top leadership to get retention payments.”

Since then, she explained that the Committee had seen documents filed in the High Court that suggested Sir Adrian had “misled in his wording”.

Sir Adrian Montague -" in the heat of the moment I may have misspoken"

Subsequent to his appearance before the Committee, Sir Adrian wrote to the Committee Chair saying:

“Following the session we have been approached by The Guardian who we understand intend to write a story suggesting that we misled the committee in relation to the Company’s management retention plan.

“I appreciate that in the heat of the moment I may have misspoken when I stated that the creditors insisted on the management retention plan. I wanted to confirm that the concept of a management retention plan arose from our discussions related to our liquidity extension transaction, and is funded through the super senior funding. It was agreed that a retention plan was important to retain the people best placed to deliver the improved outcomes our stakeholders rightly expect during this current period of uncertainty and this was reflected in the term sheet we agreed with our creditors.”

Special administration regime - government is closely monitoring the situation

Referring to the letter, Helena Dollimore said:

“This is very serious behaviour from the bosses of Thames Water at our Committee.”

Steve Reed agreed, saying that the Committee had its own authorities and powers and would deal with that in the way that it feels is appropriate.

Asked how confident he was that Thames Water would avoid special administration, he went on to say that that Thames is a private company and “it is for them to sort out their own finances.” Pointing out that the company is currrently in conversations with their creditors about new sources of equity and the status of those creditors’ debt, he continued:

“It’s for them to manage those conversations. Government is closely monitoring the situation but they need to be given the space to get on with that with the regulatory environment as it exists.”