Water company bonus ban to be tightened as regulator warns of damage to public trust

The ban on bonuses for water companies is set to be tightened. The regulator has accused the industry of paying large sums to bosses in ways that appear to get around the rules, creating a risk of damaging public trust.

Anglian Water was singled out for particular criticism. Despite the bonus ban, chief executive Mark Thurston received so-called retention payments worth up to £800,000. Because of the controversial payments, Anglian will face increased monitoring of its governance arrangements.

On Thursday, the regulator Ofwat said nine water companies in England and Wales — including Thames Water and Yorkshire Water — were banned from paying bonuses for the 2025-26 financial year. Seven of the bans related to environmental pollution.

The Labour government introduced the bonus ban last year amid public outrage over sewage leaking into Britain's rivers and seas. Yet Guardian analysis shows water company bosses' pay has risen in the past two years despite the ban.

Campaigners and opposition politicians have argued that companies are circumventing the ban through a variety of payments which are not performance-related but which effectively replace the banned bonuses.

Ofwat said on Thursday it would accelerate a review into the rules, over concerns that companies were deliberately undermining the ban. It is understood that the review will also consider whether payments from water companies' parent companies should be included in the ban.

The regulator said 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.

Ofwat said Anglian's payments to Thurston could give the impression the company had prioritised offering executive directors a cash award in a way that would not technically breach the rule and would in practice replace the loss of performance-related pay prohibited by it.

As well as Anglian, Ofwat highlighted potential retention payments of £1m for Thames Water's chief financial officer, £1.5m for Northumbrian Water chief executive Heidi Mottram, and £1.7m for Louise Beardmore, the chief executive of United Utilities.

Thames Water paid its chief executive, Chris Weston, a previously deferred bonus of £99,000 during the year, despite the ban. Ofwat said Thames Water's future owners would have to pay for the bonus, rather than the money coming from customer bills. Thames was also criticised for raising executives' base pay.

The other companies banned from paying bonuses were Severn Trent Water, Southern Water, South West Water, Wessex Water and Dŵr Cymru (Welsh Water). Ofwat said they would have paid out another £6.5m to executives during the year had the ban not been in place. £10m in payments have been blocked in the past two years.

Helen Campbell, the interim executive director for delivery at Ofwat, said it is disappointing that so many companies continue to trigger the rule through serious performance failures. 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. That is why the review is being accelerated, to ensure the rule better delivers the outcomes customers rightly expect.