The short version
- The UK water regulator is speeding up its review of executive pay rules after finding that companies are using retention payments and salary increases to bypass the existing bonus ban.
- Nine water firms in England and Wales were barred from paying bonuses for the 2025-26 financial year, primarily due to environmental pollution failures, with £10 million in payments blocked over two years.
- Anglian Water faced specific criticism for large retention payments to its chief executive, while other major utilities including Thames Water and United Utilities were also highlighted for controversial compensation structures.
The regulatory body overseeing the UK water sector has announced it will accelerate a review of executive compensation rules, citing concerns that companies are circumventing existing bans on bonuses. Ofwat stated that the growing use of fixed retention payments and substantial increases in base salaries without adequate justification risks damaging public trust. The regulator argued that these practices create a perception that firms are deliberately undermining the spirit of the ban, which was introduced to hold executives accountable for service failures.
Nine water companies operating in England and Wales have been prohibited from paying bonuses for the 2025-26 financial year. Ofwat reported that seven of these bans were directly linked to environmental pollution incidents. The regulator noted that £10 million in executive payments had been blocked over the past two years due to serious performance failures. Despite these restrictions, analysis suggests that overall pay for water company bosses has risen during this period, raising questions about the effectiveness of current measures.
Anglian Water was singled out for particular scrutiny regarding retention payments made to its chief executive, Mark Thurston. The regulator criticized the firm for offering payments worth up to £800,000, which appeared designed to replace performance-related pay prohibited by the ban. Ofwat indicated that these arrangements could give the impression that the company prioritized cash awards for directors in a manner that technically avoided breaching the rule while effectively negating its intent. As a result, Anglian Water will face increased monitoring of its governance arrangements.
Other major utilities were also highlighted for controversial compensation structures. Ofwat pointed to potential retention payments of £1 million for Thames Water’s chief financial officer, £1.5 million for Northumbrian Water chief executive Heidi Mottram, and £1.7 million for Louise Beardmore, the chief executive of United Utilities. Thames Water was additionally criticized for raising executives’ base pay and paying a previously deferred bonus of £99,000 to its chief executive, Chris Weston. The regulator clarified that future owners of Thames Water would be responsible for covering this bonus, rather than customers bearing the cost through bills.
The remaining companies banned from paying bonuses include Severn Trent Water, Southern Water, South West Water, Wessex Water, and Dŵr Cymru (Welsh Water). Ofwat estimated that these firms would have paid out an additional £6.5 million to executives during the year had the ban not been enforced. South East Water was not subject to the ban but faced criticism regarding shareholder responsibility for future bonuses after significant supply failures left tens of thousands of households without water. The regulator also noted a lack of transparency in pay reporting by South Staffs Water.
The bonus ban was introduced by the Labour government last year following widespread public outrage over sewage leaking into Britain’s rivers and seas. Environment Secretary Angela Eagle emphasized the need to close loopholes to ensure that failure does not result in financial gain for executives. She stated that the current review would examine whether payments from water companies’ parent companies should also be included in the restrictions. The goal is to prevent any form of payment, regardless of its label, from rewarding poor performance.
Helen Campbell, interim executive director for delivery at Ofwat, expressed disappointment that so many companies continue to trigger the ban through serious performance failures. She noted that public trust in the water sector remains low and that executive bonuses which do not reflect performance contribute significantly to this distrust. The accelerated review aims to ensure that the rules better deliver the outcomes customers expect, addressing both the letter and the spirit of the compensation restrictions.
Political pressure is mounting on Chancellor Andy Burnham to exert more public control over the water industry. While he has suggested considering temporary government ownership for struggling firms like Thames Water, no final decision has been made. The upcoming review will likely influence future policy decisions regarding executive accountability and corporate governance in the sector. Stakeholders are watching closely to see how regulators balance enforcement with the need for stable investment in infrastructure improvements.
Sources behind this briefing
Go to the original reporting
- The Guardian World↗Water industry bonus ban to be tightened as Ofwat warns of ‘damage to public trust’
