Nearly £1m in bonuses paid out to three Scottish Water execs

It comes despite the Scottish Government's public sector pay policy rules maintaining a suspension of performance related bonuses for over seven years.

State-owned Scottish Water, is included amongst the list of bodies, including Scottish Government's core directorates, its associated departments, agencies and corporations that the pay policy applies to. Other state-owned firms such as CalMac and Ferguson Marine are not included on the list.

The Scottish Government has confirmed that ministers have approved the bonus payments and revealed Scottish Water had a longstanding exemption from the rules.

News of the bonuses has shocked some union leaders, who are in the midst of a pay dispute with Scottish Water and led to new calls for a rethink of the public sector pay rules.

READ MORE: Why ScotGov-owned bodies are at the centre of a pay rules row

Scottish Water serves 2.6 million households supplying more than 1.5 billion litres of water and treating in excess of 1 billion litres of used and surface water daily.

Net new borrowing by Scottish Water from the Scottish Government was planned to be to the tune of £196m in 2023/24 to carry out its activities.

Scottish Water operates under an annual borrowing limit set by the Scottish Government. The annual borrowing limit controls the amount by which Scottish Water can increase externally sourced finance.

As at March 31, 2023, government loans totalled £4.5 billion.

Meanwhile Scottish Water customers have seen their bills rise by over 9% in the last two years. They increased by 5% from April 2023 after a 4.2% hike in 2022.

A series of rolling strikes starts this week which could impact domestic water and sewage services.

GMB Scotland said the bonuses paid to Scottish Water executives would "only increase the anger and suspicion" of staff as industrial action looms.

Organiser Claire Greer said: “Given the last few months, it will be very difficult for our members to be shocked or made angrier by anything this company does.

“Sadly, they will not be surprised by executives being awarded such huge bonuses nor will they be surprised that ministers have signed them off.

“This is a public utility already ripping up the rules when it comes to industrial relations and apparently being allowed to rip up the rules when it comes to executive pay.

“If the Scottish Government’s public pay policy is more of a vague suggestion, is it a policy at all?

“It is increasingly acting like a rogue company and it is beyond time for ministers to stop giving the highest-paid executives special dispensation and start asking them why industrial relations are through the floor.”

Scottish Water is mired in an industrial dispute with staff with unions claiming the organisation attempted to bolt a pay offer to changes to a wider overhaul of grades and salaries without agreement. They say the wider restructuring of grades and salaries would limit future wages and must be negotiated separately.

The company has had the same pay structure for 21 years and has been designing a new one, leading to objections and then a strike vote by the GMB, Unite and Unison trade unions.

Financial reports seen by the Herald show that the collective level of bonuses to the three executives rose by £12,000 from £199,000 in 2021/22 to £211,000 in 2022/23.

Outgoing chief executive Douglas Millican alone has taken home £345,000 in bonuses under Scottish Water's annual out-performance incentive plan (AOIP) over the five years to 2022/23. He waived his £96,184 bonus for 2019/20 with the water company donating an equivalent sum to the charity World Vision to support their global Coronavirus emergency response to limit the spread of Covid-19 and reduce its impact on vulnerable children and families.

He also received benefits over the five years of £60,0000.

Benefits to executives include the value of car benefit or  allowance and annual life assurance premiums associated with the Scottish Water Life Assurance Scheme.

Douglas Millican

Mr Millican, who took a flexible retirement with reduced salary from October 1, 2022 before his successor was appointed in June had an initial salary and fees payment of £245,000 in 2022/23, with £12,000 in benefits and £80,000 in performance bonus.

His salary package minus pension payments in 2022/23 amounted to £337,000, down from £360,000 the previous year.

Peter Farrer, the chief operating officer got £332,000 in bonuses under the incentive plan over the five years along with benefits of £56,000.

His latest annual salary package minus pension payments was at £278,000 - up 9,000 on the previous year and included £11,000 in benefits and £66,000 in bonus, up £6000 on the previous year.

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Alan Scott who became strategy and commercial director in February, last year after being finance director has amassed £292,000 in bonus over the five years. His latest annual salary package minus pension payments was at £272,000, up £6000 on the previous year and included £65,000 in bonus, a rise of £6000 and benefits of £8000, down by £3000.

According to the Scottish Government's pay rules the suspension of bonuses allows public bodies to maximise the resources available to them to "address fair pay issues and pay restoration".

It said that the suspension applies to all non-consolidated performance payments and is normally based on performance in the preceding year.

It says: "If any pay awards are implemented or daily fees are introduced without approval, or increased beyond that for which approval had been obtained previously, the sponsor director will be required to explain the matter to the remuneration group. This could result in punitive action being taken by the Scottish Government, such as the recovery of any overpayments, the capping of future increases or a governance review of the public body."

Scottish Water financial papers state that they maintain and operate a "simple remuneration structure made up of base salary and benefits, an annual outperformance incentive plan (AOIP) and a single long-term incentive plan (LTIP), which provide a clear link between pay and Scottish Water’s key strategic priorities."

It says the overall remuneration policy aims are to "attract, develop, motivate and retain highly talented people at all levels of the organisation" and to "incentivize and reward good individual and corporate performance as well as out-performance".

The public pay policy outlines the organisations covered and includes Scottish Water.

It says: "The aim is to pay a base salary that is competitive, but appropriate for a public corporation. Incentive pay is earned for exceeding demanding targets, with the required degree of out-performance reviewed on an annual basis."

Scottish Water said it subscribes to the remuneration database of the global business consultants Korn and uses this as required to "review the remuneration of comparator organisations and industry in general against its own."

Past calls have been made for a rethink on public pay rules after the Herald revealed concerns over the £295,000 basic salary of the new chief Scottish Water.

GMB Scotland are among the unions that raised concerns that Scottish Water's new chief executive Alex Plant was receiving £50,000 more than the Scottish Government-set public sector pay rules had laid down.

However the Scottish Government state there was no breach, with pay policy guidance stating that the expectation of a reduction in a new chief executive's pay was predicated on the ability to fill the post with a suitable candidate having regard to external market levels, value for money and recruitment and retention issues.

Video: Scottish Water's 'Piped by Us, Owned by You' advert

Mr Plant's appointment was announced on June 1 and his selection was signed off by Scottish ministers.

Scottish Water, which directly employs nearly 4,500 people, said the new chief executive's salary was "less than any comparable water company chief executive in Great Britain".

The first strikes by GMB Scotland and other trade unions will take place across the weekend of Friday, November 10 and Monday, November 13 with further action, including overtime bans, planned for subsequent weekends through December and into January.

Unions say the action will disrupt both emergency callouts and everyday maintenance.

The GMB has written to the First Minister Humza Yousaf urging him to intervene in the dispute.

Dame Susan Rice, the Scottish Water chairman has defended Scottish Water salaries and reward packages telling net zero committee convener Edward Mountain: "Our chief executive’s salary is less than that of any comparable water company chief executive in the UK, so Alex Plant did not benefit by making the move and jumping in. You need to understand that. That gives you a context for the pool that we chose from. We ran a very wide search and looked at a lot of individuals.

"The pay reflects the essential nature of water and waste water services to the daily lives of everybody in Scotland, as well as the relationship to public health and some relationship to economic prosperity. The role is a key one with a lot of responsibility. Scottish Water is the fourth-biggest water and waste water utility in the UK, and we have to attract suitable leadership.

"We cannot simply say, 'Here’s someone who’s volunteering. Let’s put them in the role'. You cannot run an organisation as important as Scottish Water without having someone who has the personal leadership qualities and the knowledge and experience to bring to bear.

"The reward packages for all the executive roles in Scottish Water are substantially below reasonable market expectations. They have been benchmarked."

Mr Mountain said: "My only comment is that there is no other water company in the UK that is owned directly and underwritten by the Scottish Government and the people of Scotland. They are the owners, whereas other companies have different ownership structures."

The Scottish Government said Scottish Water's longstanding exemption over the Public Sector Pay Policy is in "recognition of its operating model and the need to retain staff in competition with the private sector". It said the arrangement has been in place since 2011.

The framework for bonus payments was approved by Scottish Ministers in advance of the 2021-27 regulatory period.

The Scottish Government said it was satisfied that the correct process has been followed by the Scottish Water board.

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A Scottish Government spokesman said: “Scottish Water’s current remuneration package is significantly smaller than that paid by comparable utilities, and bonuses are only paid in the event of outperformance of demanding targets that are verified by independent regulators. Scottish Water is publicly owned, which means that, unlike private companies, every pound raised is re-invested in our water industry, while on average, our water charges remain lower than in other parts of the UK.”

A Scottish Water spokesman said: “Scottish Water has operated incentive schemes for all employees since a single set of terms and conditions was established for the company in 2004.

"The executive pay and performance incentives are in line with arrangements approved by the Scottish Water board and the Scottish Government.

“Scottish Water operates an incentive plan (bonus) for employees at all levels, driven by out-performance of clear business targets. Such out-performance is verified by our regulators and overseen by our board and is reported annually in our report and accounts.”