Ofwat tightens water bonus ban as £4m retention payouts skirt rules

Ofwat blocked an estimated £6.5 million in executive bonuses for the 2025-26 financial year, but the regulator now says water companies are replacing banned performance pay with retention awards worth up to £1.7 million each — and it is accelerating a review of the rules to close the gap.

Nine water companies in England and Wales, including Thames Water, Yorkshire Water, Severn Trent, Southern Water, South West Water, Wessex Water and Dŵr Cymru, are banned from paying bonuses for 2025-26, the regulator announced Thursday. Seven of the nine bans relate to environmental pollution. The ban, introduced by the Labour government last year amid public anger over sewage discharges into rivers and seas, has not stopped executive pay from rising over the past two years, according to Guardian analysis.

Who is paying what?

Anglian Water drew the sharpest criticism. Ofwat singled out retention payments worth up to £800,000 for chief executive Mark Thurston, payments the regulator said could give the impression the company had prioritised "a cash award in a way that would not technically breach the rule and would in practice replace the loss of PRP [performance-related pay] prohibited by it." Anglian will face increased monitoring of its governance arrangements as a result.

The regulator also flagged:

• £1 million in potential retention payments for Thames Water's chief financial officer
• £1.5 million for Northumbrian Water chief executive Heidi Mottram
• £1.7 million for Louise Beardmore, chief executive of United Utilities

Thames Water paid chief executive Chris Weston a previously deferred bonus of £99,000 during the year despite the ban. Ofwat said Thames's future owners will have to absorb that cost rather than recover it from customer bills. The company was separately criticised for raising executives' base pay.

What does the accelerated review change?

Ofwat said it would speed up its review of the bonus rules over concerns that companies are deliberately "undermining" the ban. The review is expected to consider whether payments made by water companies' parent companies should also fall within the ban's scope — a route campaigners and opposition politicians have long argued companies use to circumvent the restriction.

The regulator's statement was blunt: "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."

Helen Campbell, interim executive director for delivery at Ofwat, said: "It is disappointing that so many companies continue to trigger the rule through serious performance failures which has seen £10m in payments blocked in the past two years. 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."

What did the government say?

Environment secretary Angela Eagle announced a wide-ranging review launching immediately. "People are sick of seeing water bosses profit while rivers are polluted and customers are repeatedly let down," Eagle said. "A wide-ranging review launching today will ensure that failure doesn't pay, whatever name the payment goes by. The bonus ban was the first step. Where there are loopholes, I want them closed."

Enforcement beyond the ban

South East Water escaped the bonus ban but will face a different constraint: Ofwat ruled its shareholders must fund future bonuses after supply failures left tens of thousands of households without water during the financial year. South Staffs Water drew criticism for the paucity of pay information it reported.

Anglian Water will operate under enhanced governance monitoring. Thames Water's ownership question remains open — Andy Burnham has said he wants "more public control" over the industry but has yet to decide whether to move Thames into temporary government ownership, months after suggesting he might.

The milestone to watch is the outcome of Ofwat's accelerated review, which will determine whether parent-company payments and retention awards fall inside the ban — and whether the £10 million blocked to date marks the ceiling of enforcement or its floor.