Ofwat tightens water sector bonus ban scrutiny in England and Wales

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Ofwat tightens water sector bonuses

Highlights

Ofwat is expediting a review of water sector executive pay rules after nine firms in England and Wales were found circumventing the bonus ban for 2025-26.
Retention payments up to £1.7 million at United Utilities, £1.5 million at Northumbrian Water, £1 million at Thames Water, and £800,000 at Anglian Water drew specific regulatory scrutiny.
Ofwat's ban blocked £6.5 million in executive payouts this year and £10 million over two years, intensifying pressure on sector governance amid ongoing public and political criticism.

Regulator accelerates review of executive pay rules

As reported by The Guardian, citing Ofwat, the regulator is accelerating its review of water company bonus rules after warning that some pay structures appear to undermine the ban introduced by the Labour government last year. The current restrictions apply to nine water companies in England and Wales for the 2025-26 financial year, with seven of those bans linked to environmental pollution failures.

Ofwat says fixed retention payments and large increases in base pay without clear justification risk damaging public trust by creating the impression that companies are replacing performance-related bonuses with other forms of compensation. The review is also expected to consider whether payments made by parent companies should fall within the scope of the ban.

Anglian Water received particular criticism over retention payments worth up to £800,000 for chief executive Mark Thurston, and the company will face increased monitoring of its governance arrangements. Ofwat also highlighted 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 United Utilities chief executive Louise Beardmore.

Thames Water separately paid chief executive Chris Weston a previously deferred bonus of £99,000 during the year despite the ban. Ofwat says any such payment must be borne by future owners rather than funded through customer bills, while the regulator also criticises the company for raising executives' base pay.

Pressure grows on sector governance and public accountability

Other companies barred from paying bonuses are Severn Trent Water, Southern Water, South West Water, Wessex Water and Dŵr Cymru, also known as Welsh Water. Ofwat says the ban has prevented a further £6.5 million of executive payouts during the year, contributing to £10 million in blocked payments over the past two years.

South East Water is not subject to the ban, but Ofwat says shareholders rather than customers will have to fund any future bonuses after severe supply failures left tens of thousands of households without water during the financial year. The regulator also criticises South Staffs Water for providing too little information on pay.

Helen Campbell, Ofwat's interim executive director for delivery, says it is disappointing that so many companies continue to trigger the rule through serious performance failures. The intervention comes as the sector remains under political and public pressure over sewage spills, financial management and executive rewards, with debate continuing over whether Thames Water should enter temporary government ownership.

We have also analyzed JSE incentive payouts, as PwC found variable rewards for CEOs and CFOs rising faster than fixed pay.

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