Thames Water has deferred awarding bosses retention payments totalling £2.5m, avoiding a potentially damaging pre-Christmas row as the heavily indebted utility scrambles to agree a multibillion-pound rescue deal.
Sources at the UK’s biggest water company confirmed the controversial retention payment package for 21 senior executives, which had been due to go out this month, would remain on hold until the new year.
The bonuses were put on pause earlier this year after the Guardian revealed the chair of the company wrongly told parliament that creditors had “insisted” on the payments.
Sir Adrian Montague admitted he “may have misspoken” after he incorrectly told the environment, food and rural affairs (Efra) select committee that the lenders had insisted that “very substantial” bonuses of up to 50% of salary should be paid to executives to help retain important staff.
It is understood that senior figures at Thames Water have been frustrated with the inability to pay bonuses to executives, as it has been difficult to retain staff at the struggling owing to low morale.
The previous environment secretary, Steve Reed, had promised to block Thames Water paying bonuses out of its emergency loan. However, the Water (Special Measures) Act passed in May only bans performance-related payments for those at the top of water companies including the chief executive and chief financial officer. As the latest awards are retention payments, they do not fall within the scope of the ban.
The chair of the Efra committee, Alistair Carmichael, said: “It’s important that the focus of Thames management is on turning round the company and not on rewarding staff and having to handle negative headlines.
“The public is rightly furious at the prospect of senior staff in a company with the performance record of Thames receiving bonuses. We will continue to monitor this situation.”
The first tranche of retention payments to senior managers, totalling almost £2.5m, was paid in April. The company later said it had no intention of clawing that money back. The managers were due to receive the same amount again in December, and a further £10.8m collectively next June.
Paying executives large sums, in some cases up to £1m each, proved controversial because the retention payments came from a £3bn emergency loan secured by Thames’ class-A creditors.
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 that it already owes about £11.5bn, including Aberdeen, M&G, Elliott Management and Invesco.
The same creditors are now the lead contenders to take over formal ownership of Thames in return for a further £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.
Thames is in a desperate race to raise funds and persuade the water regulator to let it off hundreds of millions of pounds in fines or risk being renationalised.
The class-A creditors have been trying to persuade the government to sign off on a recapitalisation deal which would let Thames Water escape environmental obligations and fines. The alternative would put the company into special administration.
Thames Water declined to comment.
