This part of the directors' remuneration report sets out an abridged version of the remuneration policy which was approved by shareholders at the AGM on 25 July 2014. The policy took formal effect from the date of approval and is intended to apply until the 2017 AGM.

A full version of the policy can be found in the Annual Report and Financial Statements for the year ended 31 March 2014.

Overview of remuneration policy

The company's remuneration arrangements are designed so that the overall level of remuneration (including salary and benefits, together with the short and long-term incentive opportunities) is sufficient to attract, retain and motivate executives of the quality required to run the company successfully. The company does not pay more than is necessary for this purpose. The committee recognises that the company operates in the North West of England in a regulated environment and therefore needs to ensure that the structure of executive remuneration reflects both the practices of the markets in which its executives operate, and stakeholder expectations of how the company should be run.

A significant proportion of senior executives' remuneration is performance related. Senior executives are incentivised to achieve stretching results which are delivered with an acceptable level of risk. There is a strong direct link between incentives and the company's strategy and if the strategy is delivered, senior executives will be rewarded through the annual bonus and long-term incentives. If it is not delivered, then a significant part of their potential remuneration will not be paid.

Policy table for directors

Base salary

Purpose and link to strategy: To attract and retain executives of the experience and quality required to deliver the company's strategy.

OperationMaximum opportunity
Reviewed annually, effective 1 September.

Significant increases in salary should only take place infrequently, for example where there has been a material increase in:
  • the size of the individual's role;
  • the size of the company (through mergers and acquisitions); or
  • the pay market for directly comparable companies (for example, companies of a similar size and complexity).
On recruitment or promotion to executive director, the committee will take into account previous remuneration and pay levels for comparable companies when setting salary levels. This may lead to salary being set at a lower or higher level than for the previous incumbent.
Current salary levels are shown in the annual report on remuneration.

Executive directors will normally receive a salary increase broadly in line with the increase awarded to the general workforce, unless one or more of the conditions outlined under 'operation' is met.

Where the committee has set the salary of a new hire at a discount to the market level initially, a series of planned increases can be implemented over the following few years to bring the salary to the appropriate market position, subject to individual performance.

Performance measures



Purpose and link to strategy: To provide market competitive benefits to help recruit and retain high calibre executives.

OperationMaximum opportunity
Provision of benefits such as:
  • health benefits;
  • car or car allowance;
  • relocation assistance;
  • life assurance;
  • group income protection;
  • all employee share schemes (e.g. opportunity to join the ShareBuy scheme);
  • travel; and
  • communication costs.
Additional benefits might be provided from time to time if the committee decides payment of such benefits is appropriate and in line with emerging market practice.
As it is not possible to calculate in advance the cost of all benefits, a maximum is not pre-determined.

Performance measures



Purpose and link to strategy: To provide a broadly mid-market level of retirement benefits.

OperationMaximum opportunity
Executive directors are offered the choice of:
  • a company contribution into a defined contribution pension scheme; or
  • a cash allowance in lieu of pension; or
  • a combination of a company contribution into a defined contribution pension scheme and a cash allowance.
External hires will not be eligible to join a defined benefit pension scheme.

Internal promotees who are active members of a United Utilities defined benefit scheme will be offered the choice of staying in that scheme or of choosing one of the above options(1).
  • 25 per cent of salary into a defined contribution scheme; or
  • cash allowance of 22 per cent of base salary; or
  • a combination of both such that the cost to the company is broadly the same.
Under the defined benefit schemes, a maximum future accrual of 1/80th pension plus 3/80ths lump sum of final pensionable salary for each year of service(1).

Performance measures


  1. In 2010 the company made a number of changes to defined benefit pension provision including a restriction on salary increases which count for pension purposes. Since that time salary increases above inflation (RPI), including those relating to any promotions, are no longer pensionable.
Annual bonus

Purpose and link to strategy: To incentivise performance against personal objectives and selected financial and operational KPIs which are directly linked to business strategy. Deferral of part of bonus into shares aligns the interests of executive directors and shareholders.

OperationMaximum opportunity
50 per cent paid as cash.

50 per cent deferred into company shares under the Deferred Bonus Plan (DBP) for three years.

DBP shares accrue dividend equivalents.

Not pensionable.

Bonuses are subject to clawback or malus in the event of a material overstatement in the financial statements of the company because of fraud or error.

Deferred shares under the DBP are subject to malus in such negative circumstances as the committee considers is appropriate. For example: material misstatement of audited financial results, serious failure of risk management or serious reputational damage.
Maximum 130 per cent of salary bonus potential, for the achievement of stretching performance objectives.

Performance measures

Payments predominantly based on financial and operational performance, with a minority based on achievement of personal objectives.

Targets set by reference to the company's financial and operating plans.

Target bonus of 50 per cent of maximum bonus potential and bonus of 25 per cent of maximum for threshold performance.
Long Term Plan (LTP)

Purpose and link to strategy: To incentivise long-term value creation and alignment with longer term returns to shareholders.

OperationMaximum opportunity
Awards under the Long Term Plan are rights to receive company shares, subject to certain performance conditions.

Each award is measured over a three-year performance period starting at the beginning of the financial year in which awards are granted.

An additional two-year holding period applies after the end of the three-year performance period.

Vested shares accrue dividend equivalents.

Shares under the LTP are subject to malus in such negative circumstances as the committee considers are appropriate. For example: material misstatement of audited financial results, serious failure of risk management or serious reputational damage.
130 per cent of salary per annum.

In exceptional circumstances the committee retains the discretion to grant awards up to plan limits of 200 per cent of salary.

Performance measures

One-third of awards vest based on relative total shareholder return (TSR), one-third based on customer service excellence and one–third based on a sustainable dividends performance condition.

Any vesting is also subject to the committee being satisfied that the company's performance on these measures is consistent with underlying business performance.

100 per cent of awards vest for stretch performance, 25 per cent of an award vests for threshold performance and no awards vest for below threshold performance.
Non-executive directors' fees and benefits

Purpose and link to strategy: To attract non-executive directors with a broad range of experience and skills to oversee the development and implementation of our strategy.

OperationMaximum opportunity
The remuneration policy for the non-executive directors (with the exception of the Chairman) is set by a separate committee of the board. The policy for the Chairman is determined by the remuneration committee (of which the Chairman is not a member).

Fees are reviewed annually taking into account the levels of fees paid by companies of a similar size and complexity. Any changes are effective from 1 September.

Additional fees are paid to the chairs of certain board sub-committees and for the senior independent non-executive director.

No eligibility for bonuses, long-term incentive plans, pension schemes, healthcare arrangements or employee share schemes.

The company repays any reasonable expenses that a non-executive director incurs in carrying out their duties as a director. In addition, travel, hospitality-related and other modest benefits will be payable on occasion.
Current fee levels are shown in the annual report on remuneration.

The value of benefits may vary from year to year according to the cost to the company.

Performance measures

Non-executive directors are not eligible to participate in any performance-related arrangements.

Notes to the policy table

Selection of performance measures and targets

Performance measures for the annual bonus are selected annually to align with the company's key strategic goals for the year and reflect financial, operational and personal objectives. 'Target' performance is typically set in line with the business plan for the year, following rigorous debate and approval of the plan by the board. Threshold to stretch targets are then set based on a sliding scale on the basis of relevant commercial factors. Only modest rewards are available for delivering threshold performance levels, with rewards at stretch requiring substantial outperformance of the business plan. Details of the measures used for the annual bonus are given in the annual report on remuneration.

LTP targets are set taking into account a number of factors, including reference to market practice, the company business plan and analysts' forecasts where relevant. The LTP will only vest in full if stretching business performance is achieved.

Annual bonus and long-term incentives – flexibility, discretion and judgement

The committee will operate the company's incentive plans according to their respective rules and consistent with normal market practice, the Listing Rules and HMRC rules where relevant, including flexibility in a number of regards.

Any discretion exercised (and the rationale) will be disclosed in the annual remuneration report.

Scenarios for total remuneration

The charts below show the payout under the remuneration policy for each executive director under three different scenarios. Please note that the charts have been updated from those in the policy approved at the AGM on 25 July 2014 to reflect updated fixed pay figures.





In developing the scenarios the following assumptions have been made:
FixedConsists of base salary, benefits and pension (£'000)
Base salary is latest known salary
Benefits measured at benefits figure shown in single figure table
Pension measured by applying cash in lieu rate against latest known salary
Base salaryBenefitsPensionTotal fixed
TargetAnnual bonus element pays out at 50% of maximum
Long Term Plan element vests at 50% of maximum
MaximumBased on what a director would receive if the maximum level of performance was achieved:
Annual bonus element pays out in full (at 100% of maximum)
Long Term Plan element vests in full (at 100% of maximum)

Annual bonus includes amounts compulsorily deferred into shares.

Long Term Plan is measured at face value i.e. no assumption for changes in share price or dividends.

Service contracts and letters of appointment

Executive directors' service contracts are subject to up to one year's notice period when terminated by the company and at least six months' notice when terminated by the director. A company notice period longer than one year may be provided if necessary for recruitment, but reducing to a rolling one-year period after the initial period has expired.

The policy on payments for loss of office is set out in the next section.

The Chairman and other non-executive directors have letters of appointment rather than service contracts. Their appointments may be terminated without compensation at any time. All non-executive directors are subject to re-election at the AGM.

Copies of executive directors' service contracts and non-executive directors' letters of appointment are available for inspection at the company's registered office during normal hours of business and will be available at the company's AGM. Copies of non-executive directors' letters of appointment can also be viewed on the company's website.

Shareholding guidelines

The committee believes that it is important for a significant investment to be made by each executive director in the shares of the company to provide alignment with shareholder interests. Executive directors are encouraged to build up and retain a targeted shareholding of at least 100 per cent of base salary, normally within five years of appointment. There is an expectation that executive directors will continue to build a shareholding throughout their period of employment with the company, after the target shareholding is reached.

Approach to recruitment remuneration

The remuneration package for a new executive director would be set in accordance with the terms of the company's approved remuneration policy in force at the time of appointment.

Buy-out awards

In addition, the committee may offer additional cash and/or share-based elements (on a one-time basis or ongoing) when it considers these to be in the best interests of the company (and therefore shareholders). Any such payments would be limited to a reasonable estimate of value of remuneration lost when leaving the former employer and would reflect the delivery mechanism (i.e. cash and/or share-based), time horizons and whether performance requirements are attached to that remuneration. Shareholders will be informed of any such payments at the time of appointment.

Maximum level of variable pay

The maximum initial level of long-term incentives which may be awarded to a new executive director will be limited to the maximum Long Term Plan limit of 200 per cent of salary. Therefore, the maximum initial level of overall variable pay that may be offered will be 330 per cent of salary (i.e. 130 per cent annual bonus plus 200 per cent Long Term Plan). These limits are in addition to the value of any buy-out arrangements which are governed by the policy above.

In the case of an internal appointment, any variable pay element awarded in respect of the prior role would be allowed to pay out according to its terms, adjusted as relevant to take into account the appointment. In addition, any other previously awarded entitlements would continue and be disclosed in the next annual report on remuneration.

Base salary and relocation expenses

The committee has the flexibility to set the salary of a new appointment at a discount to the market level initially, with a series of planned increases implemented over the following few years to bring the salary to the appropriate market position, subject to individual performance in the role.

For external and internal appointments, the committee may agree that the company will meet certain relocation expenses as appropriate.

Appointment of non-executive directors

For the appointment of a new Chairman or non-executive director, the fee arrangement would be set in accordance with the approved remuneration policy in force at that time. Non-executive directors' fees are set by a separate committee of the board; the Chairman's fees are set by the remuneration committee.

Payment for loss of office

The circumstances of the termination (taking into account the individual's performance) and an individual's duty and opportunity to mitigate losses are taken into account in every case. Our policy is to stop or reduce compensatory payments to former executive directors to the extent that they receive remuneration from other employment during the compensation period. A robust line on reducing compensation is applied and payments to departing employees may be phased in order to mitigate loss. A full version of the policy can be found in the Annual Report and Financial Statements for the year ended 31 March 2014.