Macclesfield Forest Countryside

Remuneration

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Remuneration philosophy

There are three key principles of our approach to executive remuneration.

1

Align

to our purpose, vision and strategy

2

Incentivise

great customer service

3

Create
long-term value

for all of our stakeholders

Aligning our remuneration approach to business strategy

Annual bonus:

Underlying operating profit

Alignment to strategy:

Key measure of shareholder value

Link to strategic themes:
Alignment to purpose reflecting views of different stakeholders:

Customer service in year

  • C-MeX ranking
  • Written complaints
Alignment to strategy:

Delivering the best service to customers is a strategic objective.

Ofwat can apply financial incentives or penalties depending on our customer service performance.

Link to strategic themes:
Alignment to purpose reflecting views of different stakeholders:

Maintaining and enhancing services for customers

  • Outcome delivery incentive (ODI) composite
  • Time, cost and quality of the capital programme (TCQi)
Alignment to strategy:

Delivering the best service to customers is a strategic objective.

Delivering the best service to customers is a strategic objective.

Keeping tight control of our capital programmes ensures we can provide a reliable service to our customers at the lowest sustainable cost.

Link to strategic themes:
Alignment to purpose reflecting views of different stakeholders:

Compulsory deferral of bonus

Alignment to strategy:

Deferral of part of bonus into shares aligns the interests of executive directors and shareholders

Link to strategic themes:
Alignment to purpose reflecting views of different stakeholders:

Long term Plan (LTP)

Return on regulated equity (RoRE)

Alignment to strategy:

Outperformance will result in an increase to RoRE which should translate into higher returns for investors through share price performance.

Link to strategic themes:
Alignment to purpose reflecting views of different stakeholders:

Customer basket of measures

Alignment to strategy:

Delivering the best service to customers is a strategic objective.

There is a direct financial impact on the company of Ofwat incentives and penalties for delivery/non-delivery of customer promises.

Link to strategic themes:
Alignment to purpose reflecting views of different stakeholders:

Additional holding period (at least two years)

Alignment to strategy:

Ensures continued alignment with shareholder interests and provides an additional period over which withholding can be applied.

Link to strategic themes:
Alignment to purpose reflecting views of different stakeholders:

Shareholding guidelines

Alignment to strategy:

It is important that each executive director builds and maintains a significant shareholding in shares of the company to provide alignment with shareholder interests.

Alignment to purpose reflecting views of different stakeholders:

KEY

  • The best service to customers

  • At the lowest sustainable cost

  • In a responsible manner

  • Communities

  • Customers

  • Environment

  • Investors

  • Suppliers

Executive directors’ remuneration policy

Elements of executive directors’ pay

A significant proportion of executive directors’ pay is performance-linked, long-term and remains ‘at risk’ (i.e. subject to withholding and recovery provisions for a period over which the committee can withhold vesting or recover sums paid):

Fixed vs performance-linked (%)(1)

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Short-term vs long-term (%)(1)

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  1. Based on maximum payout scenario for executive directors in line with the current remuneration policy, assuming the normal maximum award level of 130 per cent of salary for the Long Term Plan (LTP).

Pay at risk

Pay at risk

Single total figure of remuneration for executive directors for 2020/21

Fixed pay comprises base salary, benefits and pension.

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Annual bonus and long term plan (LTP) outcomes

The charts below show the results of the performance against targets for the annual bonus and LTP.

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Aligning pay with performance

ANNUAL BONUS – YEAR ENDED 31 MARCH 2021

Underlying operating profit(1)

£763.0m

C-MeX ranking versus the other water companies

5th out of 17

Written complaints

16.51

Outcome delivery incentive (ODI) composite

£18.1m

Time, Cost and Quality index (TCQi)

95.3%

LONG TERM PLAN – THREE YEARS ENDED 31 MARCH 2021

Total shareholder return (TSR)(2)

48.0%

Underlying dividend cover(3)

1.35

Customer service excellence(4)

4th out of 11

Key to strategic themes:

  • At or above stretch target
  • Between threshold and stretch targets
  • Below threshold target
  1. For the purpose of annual bonus, underlying operating profit excludes infrastructure renewals expenditure and property trading.
  2. Above stretch versus the comparator group.
  3. Average underlying dividend cover over 2018/19 and 2019/20.
  4. The estimated ranking versus the other WASCs in a combined customer service measure comprising C-MeX and written complaints.

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