Bosses at six water companies have been banned from receiving bonuses for the last financial year under new legislation that comes into force on Friday.
Senior executives at Thames Water, Yorkshire Water, Anglian Water, Wessex Water, United Utilities and Southern Water all face the restriction on performance-related pay for breaches of environmental, customer service or financial standards.
All six companies committed the most serious ‘Category 1’ pollution breaches, with Thames responsible for six such incidents, as well as breaching financial resilience regulations when its credit rating was downgraded.
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The nine largest water and wastewater providers paid a total of £112m in executive bonuses since 2014-15, though the 2023-24 total of £7.6m was the smallest annual figure in a decade.
The new rules give water industry regulator Ofwat the power to retrospectively prevent bonuses paid in cash, shares or long-term incentive schemes to chief executives and chief financial officers for breaches in a given financial year.
Ofwat cannot, however, prevent lost bonuses being replaced by increased salaries, as routinely happened in the banking sector when bonus pots were capped following the financial crisis.
Government sources insist they do not want to cap executive pay, but suggested the regulator could consider expanding its powers to ensure any remuneration is covered by shareholder funds rather than customer bills.
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Water suppliers have routinely defended executive bonuses and pay on the grounds that awards are necessary to attract and retain the best talent to lead complex, multi-stakeholder organisations.
Thames Water’s chief executive, Chris Weston, was paid a bonus of £195,000 three months after joining the company in January 2024, taking his total remuneration to £2.3m.
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Last month, the company withdrew plans to pay “retention” bonuses of up to 50% of annual salary to senior executives after securing an emergency £3bn loan intended to keep the company afloat into next year.
Earlier this week, its preferred equity partner, US private equity giant KKR, walked away from a deal to inject £4bn despite direct lobbying from 10 Downing Street, in part because of concern over the negative political sentiment towards the water industry.
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The decision came a few days after Thames was hit with a record fine of £123m for multiple pollution incidents and breaching dividend payment rules.
Welcoming the bonus ban, the Environment Secretary Steve Reed said: “Water company bosses, like anyone else, should only get bonuses if they’ve performed well, certainly not if they’ve failed to tackle water pollution.
“Undeserved bonuses will now be banned as part of the government’s plan to clean up our rivers, lakes and seas for good.”
Read more:
Water boss defends six-figure bonus
Thames Water fined £123m
Yorkshire Water fined £40m
Whitehall sources say they “make no apology” for calling out water company conduct, despite concerns raised by an independent reviewer that negative sentiment and misdirected regulation has put off investors and raised the cost of financing the privatised system.
In an interim report, former Bank of England deputy governor Sir Jon Cunliffe said “negative political and public narrative and Ofwat’s approach to financial regulation have made the sector less attractive”.
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Sir Jon will publish final recommendations to reform water regulation next month, with the aim of addressing public concerns over pollution and customer service, while attracting long-term, low-risk, low-return investors.
Water bills will rise on average by 36% over the next five years as companies pledge to spend £103bn on operating, maintaining, and improving infrastructure, including £12bn on cutting sewage spills.
