Thames Water blocked from allotting ‘undeserved’ bonuses from buyer cash

Thames Water, Yorkshire Water and Dŵr Cymru Welsh Water have been prevented from using customers’ money to pay £1.5million of executive bonuses. 

Nine water companies will not be using customers’ money to fund bonuses, as new Ofwat rules on executive bonuses come into force, the water regulator said on Thursday. 

Ofwat said it had stepped in to halt water companies that cannot show bonuses are sufficiently linked to performance from using customer money to fund the payouts, amounting to 73 per cent of the total executive awards, worth £6.8million, proposed across the industry. 

Six companies voluntarily decided not to push the cost of executive bonuses worth a combined £5.2million onto customers, with shareholders paying instead. 

Ofwat said it would otherwise have moved to block the payouts.

Water firms paid out a total of £9.3million in executive bonuses over the last financial year.

David Black, chief executive of Ofwat, said: ‘In stopping customers from paying for undeserved bonuses that do not properly reflect performance, we are looking to sharpen executive mindsets and push companies to improve their performance and culture of accountability. 

‘While we are starting to see companies take some positive steps, they need to do more to rebuild public trust.’

Ofwat said new rules on water company bonuses and dividend payouts to shareholders were ‘beginning to bite’ in their first full year since being introduced.

In blocking the awards, Ofwat will instead adjust costs for the companies so that they cannot recover the sums from customers.

It revealed that Thames Water – more than £16 billion in debt and at the centre of growing public outrage over pollution and rising bills – was planning to use customer cash to pay £770,000 in bonuses for its chief executive Chris Weston and chief financial officer Alastair Cochran.

Action was also taken against £616,000 worth of payouts for top bosses at Yorkshire Water and £163,000 of bonuses at Dwr Cymru Welsh Water.

Secretary of State for Environment, Food and Rural Affairs Steve Reed said: ‘It is disgraceful that half of water companies have given out unjustifiable and unmerited bonuses.

‘That is why this Government is introducing urgent legislation to ban the payment of unfair bonuses to polluting water bosses so payouts of this kind can never happen again.

‘But there are deeper issues that need long-term solutions, which is why we have launched the largest review of the sector since privatisation.’

Today’s statement from Ofwat comes at a time of growing public and political pressure on the sector to address poor performance on sewage pollution and leaks amid surging customer bills.

Ofwat said it would be able to block bonus payouts entirely under the new water Bill being launched by the government.

The regulator also published its latest report on water firm resilience showing that £1billion was paid out in shareholder dividends in 2023-24, though this was £400million less than the previous year thanks to a ‘clearer link’ to performance.

In the report, it named Thames Water, South East Water and Southern Water as being in need of action to address big holes in their finances.

This means the three firms are subject to high priority monitoring and cash lock-up measures, which prevents them from paying dividends without approval from the regulator.

A further seven companies have been declared as having an ‘elevated concern’ over their financial resilience, while six firms are deemed to be ‘standard’, with no specific concerns over their financial health.

Mr Black said: ‘Our new rules on exec pay and dividends link both to company performance.

‘Through these new rules, our enforcement action and our incentive regime, which has imposed £430 million in performance penalties since 2020, we are challenging companies to deliver improvements for both customers and the environment.’

Water watchdog Ofwat is expected to confirm in December how much it will allow water companies to increase their bills by over the next five years.

On Wednesday, Severn Trent revealed it nearly tripled its profits in the first half of its financial year while also failing to meet a key drinking water safety standard.

The utility company, which supplies water to 4.6million households and business across the Midlands and Wales, said it will fail the so-called compliance risk index, a metric which indicates whether firms are treating water in line with regulations.

Severn expects ‘to be in penalty’ on the metric, largely as a result of issues at a treatment works in Strensham, Worcester, where it said it has introduced a new disinfection scheme.