Nine water firms, including the heavily indebted Thames Water, have been stopped from using customer funds to pay “undeserved” bonuses to top executives, worth a total of £6.8 million.
The decision was announced by the regulator, Ofwat, under its new powers.
Ofwat stated it had intervened to ensure bonuses were tied to performance before allowing companies to use customer money for such payouts. This intervention impacted 73% of the total executive bonuses proposed across the industry.
Thames Water, Yorkshire Water, and Dŵr Cymru Welsh Water were specifically blocked from using £1.55 million in customer funds to pay executive bonuses. Additionally, six other companies voluntarily decided not to pass the cost of £5.2 million in bonuses onto customers, opting to have shareholders cover the payouts instead. Ofwat made it clear that it would have stepped in to block these payouts if necessary.
David Black, Ofwat’s Chief Executive, emphasized the need for stronger accountability and improved performance in the sector. “By stopping customers from paying for undeserved bonuses that do not properly reflect performance, we aim to push companies to rebuild public trust,” he said.
New rules introduced by Ofwat on executive bonuses and shareholder dividends are being enforced for the first time, with the regulator adjusting company costs to ensure blocked bonuses are not recovered from customer payments.
Thames Water, which is burdened with over £16 billion in debt and under fire for pollution and rising customer bills, had planned to use £770,000 in customer funds for bonuses to its CEO Chris Weston and CFO Alastair Cochran. Yorkshire Water’s executives were set to receive £616,000 in bonuses, while Dŵr Cymru Welsh Water planned £163,000 in payouts.
Environment Secretary Steve Reed criticized the bonuses as “disgraceful” and announced urgent legislation to ban such payments to executives of polluting water companies. “We are launching the largest review of the sector since privatisation to address these deeper issues,” he added.
Ofwat revealed that water firms paid a total of £9.3 million in executive bonuses in the last financial year. This comes amid increasing public and political scrutiny over issues such as sewage pollution, leaks, and rising customer bills.
The regulator also reported that water firms paid £1 billion in shareholder dividends during 2023-24, a £400 million decrease compared to the previous year, reflecting a stronger link to performance.
Ofwat’s latest report on financial resilience highlighted serious financial gaps at Thames Water, South East Water, and Southern Water, all of which are now under high-priority monitoring. These firms are also subject to cash lock-up measures, restricting dividend payments without regulatory approval.
Seven additional companies were flagged as having “elevated concern” over their financial resilience, while six were rated as “standard,” indicating no significant concerns.
David Black reiterated the importance of the regulator’s new measures, enforcement actions, and incentive regimes, which have imposed £430 million in performance penalties since 2020. “We are challenging companies to deliver improvements for customers and the environment,” he stated.
Ofwat is expected to confirm in December how much water companies will be allowed to increase customer bills over the next five years, adding further scrutiny to an industry under growing pressure to improve its performance. Photo by José Manuel Suárez, Wikimedia commons.