Nine water companies have been prevented from paying more than £6.5m in executive bonuses following performance failures, prompting Ofwat to examine whether alternative remuneration arrangements are undermining its restrictions on senior management rewards.
Ofwat confirmed that Anglian Water, Northumbrian Water, Severn Trent Water, Southern Water, South West Water, Thames Water, Wessex Water, Yorkshire Water, and Dŵr Cymru triggered its executive bonus prohibition during 2025–26.
The failures principally concerned pollution and regulatory enforcement. All nine companies correctly applied the restriction, preventing the relevant performance bonuses from being awarded to board directors.
The latest assessment brings the total value of potential bonuses blocked under the rule to more than £10m across two reporting years.
However, Ofwat has identified changes in remuneration practices at several companies that could undermine the restrictions. These include retention payments and substantial increases in basic salaries, raising questions about whether limiting performance bonuses is sufficient to prevent poor performance being rewarded through other arrangements.
The regulator is accelerating its planned review of the rules and has launched a call for evidence on how executive remuneration policies operate alongside the existing prohibition.
Executive pay faces wider scrutiny —
The Performance Related Executive Pay Prohibition Rule was introduced in June 2025 under powers provided by the Water (Special Measures) Act 2025.
It prevents water companies from awarding performance bonuses to board directors when specified standards have been breached. The conditions cover environmental performance, consumer matters, financial resilience, and certain criminal offences.
The mechanism connects eligibility for performance rewards to the delivery of regulated services, rather than leaving executive remuneration decisions entirely to individual company boards.
Ofwat’s latest assessment found that all companies triggering the rule complied with their obligations. Its wider concerns relate to the possibility that other components of executive remuneration could weaken the intended financial consequences.
Retention payments and basic salary increases are not automatically prohibited by the rule. However, substantial changes in those payments can affect the relationship between a company’s performance and the total remuneration received by its directors.
Helen Campbell, interim executive director for delivery at Ofwat, said: “Public trust in the water sector remains low”.
She linked the problem to remuneration that fails to reflect company performance, alongside retention payments and poorly explained salary increases.
The review will examine whether additional safeguards are needed and how wider pay arrangements influence the effectiveness of the current restrictions. Any changes would require further regulatory consideration and consultation.
Governance requirements extend beyond bonuses —
Ofwat’s annual assessment also covers new measures intended to strengthen accountability within water companies.
All 16 regulated water companies have published their first consumer involvement plans, outlining arrangements for customers to participate in decisions affecting their services.
The regulator has also reviewed 23 assessments concerning the suitability of directors appointed across 11 companies. All the assessments examined were compliant with the applicable requirements.
The fitness and propriety requirements have applied to new board appointments since 1 April 2026 and will extend to existing directors from 1 April 2027.
These measures form part of a wider effort to examine corporate governance alongside environmental performance, financial stability, and service delivery.
Water companies must continue applying the existing executive bonus prohibition while the review progresses. The evidence collected will inform whether restrictions on performance pay need to account more directly for alternative remuneration arrangements.
