Water industry bonus ban to be tightened as Ofwat warns of ‘damage to public trust’
The water industry bonus ban is set to be tightened after regulator Ofwat accused companies of risking 'damage to public trust' through large payments to executives that appear to circumvent the rules.
Anglian Water was singled out for particular criticism over 'retention payments' worth up to £800,000 for chief executive Mark Thurston despite the bonus ban. The company will face increased monitoring of its governance arrangements because of these controversial payments.
The Labour government introduced the bonus ban last year amid public outrage over sewage leaking into Britain's rivers and seas. However, water company bosses' pay has risen in the past two years despite the ban, according to Guardian analysis.
Circumvention tactics
Campaigners and opposition politicians have argued that companies are circumventing the ban through various payments that are not 'performance-related' but effectively replace the banned bonuses. Ofwat said it would accelerate a review into the rules over concerns that companies were deliberately 'undermining' the ban.
The regulator highlighted potential retention payments of £1m for Thames Water's chief financial officer, £1.5m for Northumbrian Water chief executive Heidi Mottram, and £1.7m for Louise Beardmore, the chief executive of United Utilities.
The growing use of fixed so-called 'retention payments' and substantial increases in base pay without sufficient explanation or supporting evidence risks damaging public trust and creating a perception that companies are circumventing the rule.
Government response
Andy Burnham is under pressure to clamp down on the water industry. He has said he wants to exert 'more public control' over the water industry, although he is yet to give details. He is yet to make a decision on whether to move Thames into temporary government ownership after years of financial struggles and mismanagement.
Thames Water paid its chief executive, Chris Weston, a previously deferred bonus of £99,000 during the year despite the ban. Ofwat said that Thames Water's future owners would have to pay for the bonus, rather than the money coming from customer bills.
Industry-wide impact
Nine water companies in England and Wales were banned from paying bonuses for the 2025-26 financial year, with seven of the bans relating to environmental pollution. The other companies banned were Severn Trent Water, Southern Water, South West Water, Wessex Water and Dŵr Cymru (Welsh Water).
Public trust in the water sector remains low, and executive bonuses which do not reflect performance, use of retention payments and poorly explained increases in base pay contribute to that low trust. That is why we are accelerating our review to ensure the rule better delivers the outcomes customers rightly expect.
Ofwat said these companies would have paid out another £6.5m to executives during the year had the ban not been in place. South East Water was not subject to the ban, but its shareholders will have to pay for future bonuses after huge supply failures left tens of thousands of households without water.
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