Image description: Aerial view of a sewage treatment facility. Photo by Patrick Federi on Unsplash

£10m in bonuses blocked, but retention payments raise questions

Ofwat’s second annual report on remuneration and governance shows that nine companies triggered its ban on performance-related executive pay in 2025-26: Anglian, Northumbrian, Severn Trent, Southern, South West, Thames, Wessex, Yorkshire and Dŵr Cymru. The failures were mainly linked to pollution and enforcement cases, and more than £6.5m of potential bonuses was blocked, taking the total to over £10m since the rule began. Ofwat says all companies applied the rule correctly, but it has identified changes in pay behaviour that risk undermining it, including fixed “retention payments” and large unexplained rises in base pay. It is therefore accelerating its planned review, starting with a call for evidence.

The Guardian reports that Anglian Water was singled out over retention payments worth up to £800,000 for chief executive Mark Thurston and will face increased monitoring of its governance arrangements. Ofwat also highlighted potential retention payments at Thames Water, Northumbrian Water and United Utilities, and said Thames Water’s future owners, rather than customers, must fund a previously deferred bonus of £99,000 paid to its chief executive.

Regulator and minister signal a closing of loopholes

Helen Campbell, Interim Executive Director, Delivery at Ofwat said public trust remains low and that bonuses not reflecting performance, retention payments and poorly explained pay rises contribute to it. Environment Secretary Angela Eagle said she wanted to “close loopholes” so that “failure doesn’t pay”, and the Guardian reports that ministers will consider whether payments from parent companies could be brought within the ban. The Guardian also notes that campaigners and opposition politicians have argued companies are circumventing the ban, and citing their own analysis that executive pay has risen over the past two years despite the rule.

The report also found that all 16 companies have published their first consumer involvement plans and that every fit and proper person test reviewed so far has been compliant.

Expect scrutiny of total executive pay, not just bonuses

Companies should expect tighter rules that look at total executive remuneration, not just bonuses, and closer scrutiny of any payment that could be read as replacing a blocked bonus.

Sources:

The Guardian: Water industry bonus ban to be tightened as Ofwat warns of ‘damage to public trust’

Ofwat: £6.5m in bonuses blocked as nine water companies trigger Ofwat’s rule