Thames Water paid out bonuses using £3bn emergency loan, documents reveal
The struggling water supplier paid bonuses totalling £2.46m to 21 managers on 30 April.
The managers are due to receive the same amount again in December, and a further £10.8m collectively next June, the chair of Thames Water, Sir Adrian Montague, said in a letter to environment select committee.
The company paused its management retention payments plan (MRP) in May after the Guardian revealed Montague wrongly told MPs that creditors had 'insisted' on the payments. The environment secretary, Steve Reed, had been asked to claw back the payments.
However, Montague said the board did not intend to recover the money, and suggested the two further tranches of bonuses could still be paid.
In a letter to the committee's chair, Alistair Carmichael, sent in June and published on Wednesday, Montague wrote: 'The MRP was and remains paused. The board has not taken further decisions on the MRP at this stage.'
Montague added that there had been no attempt from Ofwat, the water regulator for England and Wales, or from the Department for Environment, Food and Rural Affairs (Defra) to recoup the funds that had already been paid.
Ministers had hoped to block bonuses paid from the loan under new legislation, but the rules limit the payouts, which can be stopped to those at the very top of the company, such as the chief executive, chief financial officer and chair.
The total planned payments are on average far more than double the salaries of the unnamed recipients, according to a table included in documents released by the committee. For instance, four people with salaries of up to £400,000 are due to receive up to £1.13m each – nearly three years' extra pay –as long as they stay at the business for the next year.
Minutes from a Thames board meeting, which was convened to discuss the bonuses, suggested the retention payments were designed to avoid the new legislation, which bans performance-related bonuses for water bosses.
They read: 'The [remuneration] committee requested to reconfirm whether the MRP was consistent with the Water (Special Measures) Act and related Ofwat consultation and it was confirmed that the MRP was a retention payment rather than a bonus, and had no performance-related element. As such, it was not restricted by the Water (Special Measures) Act.'
However, payments to the company's finance chief, Steve Buck, who was in line for a retention bonus to be paid in June, could potentially be blocked, Reed indicated in a letter to the committee, also published on Wednesday.
Reed said: 'I expect Ofwat to assess whether Thames Water has breached the performance related executive (chief executives and chief financial officers) pay prohibition rule with any of these payments and, if so, to take appropriate action.'
The committee said it had recalled Montague and the chief executive of Thames Water, Chris Weston, for a hearing on 15 July.
The bonuses came out of a controversial £3bn loan, which was meant to stabilise the company's finances. The creditor loan, which was challenged in court by rival bondholders, has an interest rate of 9.75%, plus fees. It was given by hedge funds, banks and other big investment firms already owned about £11.5bn, including Aberdeen, M&G, Elliott Management and Invesco.
Thee same creditors are now the lead contenders to take over formal ownership of Thames in return for another £5.3bn in equity investment and debt. They were forced to step in to avoid Thames Water collapsing into temporary nationalisation after the US private equity firm KKR pulled out of a rescue deal.
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During a meeting with the environment committee in May, Montague told MPs that senior managers were in line for substantial retention bonuses because they were Thames's 'most precious resource'.
But the disclosure provoked fury as the company had said its finances were 'hair raising' and that it had come 'very close to running out of money entirely' last year.
Thames is in a desperate race to raise funds and persuade the water regulator to let it off hundreds of millions of pounds of fines or risk being renationalised.
Ofwat was also not made aware of the bonuses until they had already been paid, its chief executive, David Black, told the environment committee in letters published on Wednesday.
Black said he was 'disappointed at the lack of transparency' shown by the company, and added: 'At a time when remuneration in the water sector is under significant public scrutiny, we expect water companies to be proactive and transparent.'
He suggested the bonus ban could be broadened beyond the current criteria, allowing payments to other members of the management team to be blocked. Black said the ban was to be reviewed in 2027 but the date could be brought forward.
Thames, which serves 16 million customers in London and south-east England, this week warned households it would announce a hosepipe ban unless the water shortage changed significantly.
The company and Defrahave been contacted for comment.
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