Scottish Water has been plunged into a public sector pay rules row after paying out nearly £1m in bonuses in the past five years.

Three key executives of Scottish Water, Douglas Millican, Peter Farrer and Alan Scott between them pulled in £969,000 in performance bonuses on top of six-figure salaries.

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

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

READ MORE: Revealed: The 'outrageous' £1m in bonuses for three Scottish Water execs

But GMB Scotland say that the bonuses paid to Scottish Water executives would "only increase the anger and suspicion" of staff as industrial action in a pay dispute looms and has questioned the validity of the rules.

Bonuses for Scottish Government-owned bodies such as shipyard firm Ferguson Marine and ferry operator CalMac have come previously come in for criticism even when they are not covered by the pay rules.

What are the pay rules?

They form part of the pay policy framework set by Scottish ministers who make the decisions on pay for most public sector staff in Scotland.

Their decisions are published in the annual public sector pay policy, which is usually announced as part of the draft annual Budget and set the rules for staff and executive pay.

It sets out the parameters for pay increases and senior appointments.

It acts as a reference point for all major public sector workforce groups across Scotland including NHS Scotland, fire-fighters and police officers, teachers and further education workers.

Who do they apply to?

They apply to staff in the Scottish Government and associated departments, agencies, non-departmental public bodies (NDPBs), public corporations, and NHS Scotland senior management posts (grades A to C).

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The wide range of organisations covered range from ferry owners Caledonian Maritime Assets Limited, Highlands and Islands Airports Limited the Scottish National Investment Bank and Scottish Enterprise to Crown Estate Scotland, Historic Environment Scotland, NatureScot and the Scottish Prison Service.

What is their aim?

In 2022/23, the Scottish Government said the pay policy continues to be based on the principle of investing in the public sector workforce which it said delivers "top class, person-centred public services for all and supports employment and the economy, while providing for sustainable public finances"

It is meant to provide a "distinctive, progressive pay policy which is fair, affordable, sustainable and, delivers value for money in exchange for workforce flexibilities".

It is also meant to reflect what it called "real life circumstances, protect those on lower incomes, continue the journey towards pay restoration for the lowest paid and recognise recruitment and retention concerns".

Ministers say the 2022/23 policy was developed in the context of Scotland’s economic recovery as the nation emerges from the ongoing Covid-19 pandemic, and a "commitment to create a greener, fairer and more resilient Scotland".

The Scottish Government says: "As the economy continues to recover from the pandemic, and with some sectors experiencing labour shortages, ministers remain committed to maintaining employment, delivering wage growth and a fair rate of pay in the public sector."

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It says it remains committed to "tackling earnings inequality, providing extra protection to the very lowest paid, and promoting the wellbeing of public sector workers.

It said that it believes there remains a need for the most "senior workers in the public sector to take a lead in demonstrating restraint in their pay settlements.

And it said the pay policy parameters for 2022-23 were set in the context of the "need for ongoing pay restraint for more senior staff to ensure available resources are targeted at increases for lower earners".

The latest 2023/24 pay policy which retained the bonus suspension said the intention was to "balance the fairness, affordability, and fiscal sustainability of pay awards in recognition of a tight financial outlook". It said it supports a commitment to tackle poverty and that delivery of measures for the low paid and "pay caps for high earners" should form part of a progressive, affordable and sustainable solution What do the rules say about the suspension of bonuses?

It says the suspension of bonuses allows public bodies to maximise the resources available to them to address "fair pay issues and pay restoration".

What happens if the pay policy is not followed?

The policy guide 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."

Has there been any other issues relating to public sector bonuses?

Yes. Questions of bonuses to publicly owned groups and organisations emerged after it was revealed that a bonus bill to management of the nationalised shipyard Ferguson Marine reached £134,218 over two years while two long-delayed lifeline ferries - Glen Sannox and Hull 802 - are still to be delivered with costs expected to quadruple from the original £97m contract.

In April, First Minister Humza Yousaf told the Scottish Parliament that it was "his expectation" that bonuses to Ferguson Marine executives should not be paid for the 2023/24 financial year, although Ferguson Marine is not covered by the pay policy.

The Herald: Humza Yousaf at SNP conference

Executives at state-owned ferry operator CalMac which is not covered by the pay policy, have received over £300,000 in performance bonuses and perks between 2016 when the Clyde and Hebrides ferry contract was awarded to the ferry operator and 2022.

They were described as "payments for failure" by some ferry user group officials who are shocked by the bonuses in the wake of concerns over how CalMac has managed lifeline ferry services with an ageing, underinvested fleet of vessels.

So what is the beef?

The concern is from some union leaders over the status of the validity of the pay policy when ministers approved huge bonuses for Scottish Water - when they are supposed to be suspended.

What does the Scottish Government say about the Scottish Water bonuses?

Although the state-owned water company is on the list of bodies covered by the pay policy, it has approved the bonus payments and says that it has a longstanding exemption from the rules in "recognition of its operating model and the need to retain staff in competition with the private sector".

What does Scottish Water say?

It says the bonuses are legitimate incentives for employees at all levels driven by "out-performance of clear business targets" and are in line with arrangements approved by the Scottish Water board and the Scottish Government.

The Herald: Scottish Water

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