Environment Secretary Steve Reed has called on Southern Water's chief executive to reject a pay rise worth hundreds of thousands of pounds, describing it as "outrageous" and unmerited. Lawrence Gosden received £691,000 as part of a long-term incentive plan this year, adding to his fixed salary of £687,000.
The chief executive, who has led Southern Water since 2022, is understood to have received half of this payment this year, bringing his total compensation to more than £1 million. Reed told the BBC's Sunday With Laura Kuenssberg that the pay increase sent the wrong message to customers at a time when trust in water companies has plummeted.
Minister calls for pay rejection
"Trust between the customers and the water companies is at the lowest point probably ever, and by paying their senior executives rises of that kind, what message are they sending to their customers?" Reed said. When asked whether Gosden should turn down the pay rise, the Environment Secretary replied: "I think it would be right if he did."
Reed added that he did not believe Southern Water had "performed well enough for that kind of pay increase to be merited". The criticism comes as the water industry faces mounting pressure over executive compensation whilst failing to meet environmental and infrastructure targets.
Company banned from bonuses
Southern Water was banned from paying bonuses last month following a "category 1" sewage spill in the New Forest, Hampshire, in August 2024. Under new regulations, companies cannot pay bonuses if they fail to meet environmental, consumer or financial standards, or face criminal convictions.
The company has insisted Gosden's payment is not a bonus but part of a long-term incentive plan established in 2023, linked to a two-year performance improvement programme. Southern Water emphasised that the payment comes directly from shareholders rather than customer bills.
Landmark review expected
A Southern Water spokesperson said the chief executive's pay and benefits were decided by a remuneration committee "following protocols and rules set out by Ofwat and in accordance with the law". They described the package as including "a relocation allowance, and long-term incentive plan paid by shareholders which marks improvements made during the delivery of our turnaround plan".
Reed's intervention comes ahead of a landmark review of the water industry expected to recommend sweeping regulatory reforms, including potentially abolishing regulator Ofwat. The review follows widespread criticism of water companies for awarding large executive bonuses whilst missing infrastructure investment targets and overseeing rising sewage pollution.
Financial struggles mount
Earlier this month, Southern Water was forced to request an additional £2.1 billion from its owner, Australian investment firm Macquarie, to bolster its struggling finances. The company, which supplies 4.7 million people across the south and south-east of England, has accumulated nearly £9 billion of debt.
This makes Southern Water one of the most heavily indebted water firms in the UK, trailing only Thames Water, which was also previously owned by Macquarie. The mounting financial pressures have intensified scrutiny over executive compensation packages across the sector.
(PA) Note: This article has been edited with the help of Artificial Intelligence.
