Remuneration committee members

  • Sara Weller (chair)
  • Dr Catherine Bell
  • Mark Clare
84 Sara Weller

Sara Weller
Chair of the remuneration committee

Quick facts

  • The Code requires that 'the board should establish a remuneration committee of at least three independent non-executive directors'
  • The role of the committee is to set remuneration terms for all executive directors, other senior executives and the Chairman
  • By invitation of the committee, meetings are also attended by the Chairman, the CEO, the company secretary, the business services director, the head of reward and the external advisor to the committee

Quick links

Terms of reference –

Directors' remuneration policy –

Dear shareholder,

I am pleased to introduce the directors' remuneration report for the year ended 31 March 2015, which includes my statement, an abridged version of the directors' remuneration policy which took effect from the date of our 2014 AGM, and the annual report on remuneration for the year ended 31 March 2015.

A successful five-year regulatory period from 2010–15 has been reflected both in total shareholder return (TSR) of around 115 per cent and in executive pay outcomes. Over this period the company has delivered its regulatory outperformance targets alongside significant progress in operational performance and a step change in customer service (reducing customer complaints by approximately 75 per cent and being the most improved water and wastewater company as measured under Ofwat's three-year service incentive mechanism (SIM) assessment from 2011/12 to 2013/14). At the same time, customers have benefited from below inflation growth in average household bills.

As we enter a new regulatory period, the committee is committed to continuing to align executive pay with the company's strategy of delivering value by providing the best service to customers, at the lowest sustainable cost and in a responsible manner. We seek to achieve this by strongly linking pay with performance, at both an individual and company level, and by encouraging a significant investment in company shares. We also recognise that a long-term focus is essential to creating value and therefore require executives to defer a significant proportion of their incentives.

A successful five-year regulatory period from 2010–15 has been reflected both in total shareholder return of around 115 per cent, and in executive pay outcomes

Strong alignment of performance and pay in 2014/15

During the year, performance was strong overall with underlying operating profit growing by five per cent, continued improvement in customer service and successful delivery of the capital investment programme. The company's asset serviceability performance has also been good and we were pleased that the company retained its 'World Class' status in the Dow Jones Sustainability Index for the seventh successive year. The company did not, however, meet its bad debt recovery targets with debt collection continuing to be challenging, particularly as our region suffers from high levels of income deprivation.

This level of financial and operational performance, together with the achievement of a number of stretching personal objectives, has resulted in bonus payments of around 77 per cent of maximum for the executive directors. As the same bonus measures are used throughout the company, employees at all levels have also benefited from this success, receiving bonuses totalling £15 million for the year.

The long-term incentive awards which were granted in 2012, and whose performance was measured over the three years to 31 March 2015, vested at 97.5 per cent. This followed a period of strong share price growth which, together with the dividend policy to grow dividends each year by RPI plus two per cent, resulted in a total shareholder return of around 80 per cent over the three years. The company also delivered excellent results against its operational and capital expenditure targets over the same period.

Key changes for 2015/16

In accordance with our continued conservative approach to overall remuneration, there will be no changes to the quantum of incentive plans for 2015/16, nor to the structure of the Long Term Plan (LTP), last reviewed in 2013, and it is expected that executive salary increases will continue to be in line with those applied across the wider workforce.

Following the company's acceptance in January 2015 of Ofwat's final determination for 2015–20, the committee reviewed the annual bonus measures to ensure that they fully incentivise delivery of our business strategy and annual plan, and reflect the importance and challenge of regulatory commitments for the next regulatory period. These new bonus measures will apply not only to the executive directors, but also to all managers and employees throughout the company, to ensure alignment to delivery of the business plan at all levels.

The changes to the bonus measures are:

  • the introduction of a measure based on newly introduced outcome delivery incentives (ODIs);
  • changes to the time, cost and quality (TCQi) measure, which measures the extent to which we deliver our capital projects on time, to budget and to the required standard, to reflect the move to a new totex model and to make it more stretching with respect to large capital projects; and
  • the removal of three measures (regulatory capital expenditure, serviceability and bad debt) which do not form part of the new regulatory regime or the delivery of which are considered to be adequately incentivised via the other bonus measures.

Further details of the bonus measures for 2015/16 are given in the annual report on remuneration and their alignment to the business strategy.

The performance targets for the 2015 LTP are expected to be as for the 2014 awards, with the exception of the sustainable dividend performance measure. Following the announcement by the board in January 2015 of our dividend policy for the 2015–20 period, the measure will switch focus to dividend cover, with the delivery of our dividend policy as an underpin.

And finally, to provide further alignment with shareholder interests, the board agreed in May 2015 to increase the shareholding guideline for executive directors from 100 per cent to 200 per cent of base salary. Both executive directors have a shareholding in excess of this level.

The committee concluded that no changes to the policy approved at last year's AGM were necessary and so there will not be a separate vote on it at this year's AGM.

Agenda for 2015/16

During 2015/16 the committee will continue to keep executive remuneration arrangements under review, although no substantial changes are expected. As always, we continue to welcome feedback from shareholders.

I hope we will receive your support for the resolution relating to remuneration at the 2015 AGM.

Sara Weller
Chair of the remuneration committee

At a glance summary: Executive directors' remuneration

  • Salary increase of 2.5 per cent from 1 September 2014 in line with the wider workforce (see here)
  • 2014/15 annual bonus outcome of 77.4 per cent of maximum (see here)
  • 50 per cent of 2014/15 annual bonus deferred in shares for three years (see here)
  • Long-term incentive payout of 97.5 per cent, supported by TSR of around 80 per cent over the period 1 April 2012 to 31 March 2015 (see here)
  • Shareholding guideline increased to 200 per cent of salary and personal shareholdings remain above this level (see here)
  • Annual bonus measures changed for 2015/16 to align with new regulatory period 2015-20 (see here)
  • Long Term Plan sustainable dividends measure for 2015 grants to focus on dividend cover, with the delivery of dividend policy as an underpin (see here)