A new approach based on CEO to worker pay gap caps could ensure execs are committed to providing a public good, as opposed to being driven solely by financial incentives.
Paddy Goffey is a researcher at the High Pay Centre
Few examples better illustrate the UK’s broken corporate model than 30,000 homes across Kent and Sussex being left without water for days. A similar incident before Christmas saw 24,000 residents of Tunbridge Wells lack access to drinking water for two weeks. This is a clear failure on the part of South East Water, made even more astounding by the announcement that the board of the firm have offered the Chief Executive, David Hinton, a payout regardless of performance if he remains in position until 2030.
Hinton’s proposed compensation package includes a £400,000 bonus payout that is not subject to any performance-related conditions, requiring only that he remains in post until 2030. Astonishingly, this comes at a moment when the Environment Secretary has called for the regulator to review the firm’s operating licence, while Ofwat are also conducting an investigation into the failure to provide a water supply. On top of the bonus, the board have proposed a 30% increase on his base salary to £400,000, as well as a one-off £50,000 ‘cash allowance’ award.
The firm has blamed the shortages on extreme weather conditions rather than its own management failures. This is a flimsy defence: Ofwat warned the firm of the need to address the risk of shortages in the areas affected on at least four occasions, going back as far as 2013. These excuses come from a management team whose CEO has snubbed attending crisis meetings with local residents at the same time as awarding himself ‘eight out of ten’ in his response to the shortages. As the regulator have clarified, blaming weather conditions is an unacceptable excuse. Like any other utility provider, the company should be building resilient systems that can cope with changing conditions.
In an affront to those affected by the shortages, South-East Water are clearly rewarding substandard performance and a poor quality of service provision while also making concerted efforts to remove accountability for this. The only real question that rolls off the tongue is: why? In just about any other sane workplace, presiding over such a mess would understandably cost you your job, not double your pay.
This begs the question, who is this corporate model really working for?
It isn’t the employees of South-East Water who are responsible for the lack of long-term investment in the firm, yet they’re the ones now facing the consequences in the form of precarious job security. Nor is it the residents of Kent who have been forced to visit bottled water stations to gain access to water. And it certainly isn’t the environment; untreated sewage discharge into rivers and seas increased by 105% between 2023 and 2024, while data shows that water firms discharged untreated sewage into these waterways 399,864 times in 2022, equating to 1091 times each day.
South-East Water’s spending priorities make it obvious who this model benefits. Between 2020 and 2022 the firm spent £232m on distributing dividends and paying interest on its debts, surpassing the £180m spent on upgrading necessary infrastructure in the same period. This gets to the heart of the structural imbalance in the UK’s broken corporate model: large companies are all too happy to prioritise short-term financial gain for a select group of individuals at the expense of long-term investment that protects jobs, the environment and a good standard of service. This isn’t just isolated to water; data on the FTSE 100 highlights how returns to shareholders have consistently grown faster than wage increases for ordinary workers, while in roughly a quarter of cases these shareholder returns have exceeded total firm profit.
However, linking performance to pay won’t necessarily fix this either. One study of the FTSE-All Share index found that CEOs routinely just hit bonus thresholds, rather than just miss them. A cynic might conclude that the targets are all too easy to achieve, a conclusion the study suggested was likely. It also implies that CEOs are aware of not vastly exceeding such targets for fear of more stringent conditions in the future.
Given these flaws, simply adapting bonus formulas is unlikely to ensure the necessary realignment in corporate priorities. To truly ensure remuneration structures drive responsible business practice, CEO to worker pay gaps should be capped in companies that fail to provide a reasonable standard of public service. Research demonstrates how bonus culture can actually weaken a genuine commitment to public service, strengthening financial motivations for doing a job at the expense of intrinsic motivations like a belief in the importance of the work.
A new approach based on CEO to worker pay gap caps could ensure execs are committed to providing a public good, as opposed to being driven solely by financial incentives. This would help contribute to enhanced outcomes for customers and wider society, while ensuring the environment is adequately protected. Despite the fact England and Wales are the only countries in the world with a fully privatised water system, the Government have ruled out nationalisation. Instead, a series of changes have been announced that campaigners argue enable the regulator to ‘soften’ fines to prevent companies collapsing. If true, this represents little better than tinkering round the edges and stops well short of the radical overhaul the water industry needs.
In the absence of a move to a model of public ownership, pay caps could go a long way to restoring public confidence that those in charge of providing this critical public utility are motivated by a public service ethos, as opposed to their own enrichment.
Left Foot Forward doesn't have the backing of big business or billionaires. We rely on the kind and generous support of ordinary people like you.
You can support hard-hitting journalism that holds the right to account, provides a forum for debate among progressives, and covers the stories the rest of the media ignore. Donate today.