Our views

Severn Trent has struck the right balance between pay and performance


Ashley Hamilton Claxton, Head of Responsible Investment

17 July 2018

We are voting in favour of Severn Trent’s executive pay this year. We had positive engagement with the company on changes to pay and we are pleased that the board was responsive to our feedback. While we recognise that pay in the water utilities sector is a divisive issue, and the sector has some way to go to restore stakeholder confidence, Severn Trent has struck the right balance between pay and performance. We are confident that the management team is well positioned to address recent concerns expressed by the regulator, Ofwat, about customer service during this winter’s extreme weather conditions. 
Ofwat, the regulator for water utilities in the UK, has recently sent a clear message to water companies that they need to keep customers at the heart of their business. It has set out new rules requiring water companies to explain how they are delivering good customer outcomes and to better link this to how they pay their executives and distribute profits to shareholders through dividends. We think this is a positive move by the regulator, and complements work we have been doing to engage with water companies over the last six months on environmental, social and governance (ESG) risks in the water sector.
Our research found that of all the ESG risks facing the water sector, companies’ approach to leakage and managing water scarcity was one of the most important investment issues. While water often seems abundant in the UK, the recent hot, dry weather should remind us that water is a vital and precious resource that requires conservation and proper management.

We are voting in favour of Severn Trent’s executive pay this year. We had positive engagement with the company on changes to pay and we are pleased that the board was responsive to our feedback. While we recognise that pay in the water utilities sector is a divisive issue, and the sector has some way to go to restore stakeholder confidence, Severn Trent has struck the right balance between pay and performance. We are confident that the management team is well positioned to address recent concerns expressed by the regulator, Ofwat, about customer service during this winter’s extreme weather conditions. 

Ofwat, the regulator for water utilities in the UK, has recently sent a clear message to water companies that they need to keep customers at the heart of their business. It has set out new rules requiring water companies to explain how they are delivering good customer outcomes and to better link this to how they pay their executives and distribute profits to shareholders through dividends. We think this is a positive move by the regulator, and complements work we have been doing to engage with water companies over the last six months on environmental, social and governance (ESG) risks in the water sector.

Our research found that of all the ESG risks facing the water sector, companies’ approach to leakage and managing water scarcity was one of the most important investment issues. While water often seems abundant in the UK, the recent hot, dry weather should remind us that water is a vital and precious resource that requires conservation and proper management.

Past performance is no guide to the future. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.