- Anglian Water's chief executive could receive retention payments worth up to £800,000 despite the industry's bonus ban
- Nine water companies were barred from paying executive bonuses for 2025-26, blocking more than £6.5m in potential payments
- Ofwat has launched a four-week review examining whether retention awards and salary increases undermine the restrictions
Britain's water companies could face tougher restrictions on executive pay after the regulator warned that some businesses may be finding alternative ways to reward their bosses despite a ban on performance-related bonuses.
The Water Services Regulation Authority (Ofwat) is accelerating its review of the rules after raising concerns about large retention payments and substantial increases in executive salaries. It warned that such arrangements risk undermining the purpose of the restrictions and further damaging public confidence in an industry already facing criticism over sewage pollution and poor customer service.
Anglian Water has come under particular scrutiny over potential retention payments worth up to £800,000 for its chief executive, Mark Thurston, across 2025 and 2026. Ofwat said the arrangement could give the impression that the company had offered an alternative cash award to replace performance-related pay prohibited under the rules.
The regulator has written to Anglian Water seeking improvements in its governance and transparency around executive remuneration. It will also increase monitoring of the company's wider governance arrangements.
Ofwat's concerns extend beyond Anglian Water. It identified potential retention payments of £1m for Thames Water's chief financial officer, £1.5m for Northumbrian Water chief executive Heidi Mottram and up to £1.74m for United Utilities chief executive Louise Beardmore.
The regulator said companies had not always provided sufficient public explanation of why such payments were necessary.
Why is Ofwat reviewing the bonus ban?
The restrictions were introduced through the Water (Special Measures) Act after growing public anger over sewage discharges, environmental failures and executive rewards at water companies.
Under the rules, companies must prohibit performance-related payments to board-level directors when they trigger specified environmental or operational performance failures.
For the 2025-26 financial year, nine companies in England and Wales triggered the restrictions: Anglian Water, Northumbrian Water, Severn Trent Water, Southern Water, South West Water, Thames Water, Wessex Water, Yorkshire Water and Dŵr Cymru, also known as Welsh Water.
Seven of the bans were linked to environmental pollution. Ofwat said the restrictions prevented more than £6.5m in potential executive bonuses and other performance-related payments during the year. Combined with the previous financial year, more than £10m has now been blocked since the rules were introduced.
However, the regulator is concerned that the restrictions do not cover every form of executive remuneration. Retention payments and fixed salary increases can fall outside the definition of performance-related pay, even when their effect may resemble the rewards the ban was designed to prevent.
Ofwat also highlighted substantial increases in base salaries at some companies. United Utilities increased the salaries of its chief executive and chief financial officer by 20 per cent in 2025-26, while Severn Trent raised its chief financial officer's salary by 22 per cent. The latter company said the increase largely reflected expanded responsibilities beyond its regulated water business.
Ofwat said poorly explained salary increases and retention arrangements could weaken public confidence, particularly when companies continue to fall short of environmental and service expectations.
Environment Secretary Dame Angela Eagle said the government wanted to close loopholes in the restrictions.
"People are sick of seeing water bosses profit while rivers are polluted and customers are repeatedly let down," she said.
She added that the review would ensure that failure did not pay, regardless of what companies called the payments.
The regulator's four-week call for evidence opened on November 12 and will close on December 10. Responses will help inform possible changes, with any proposed reforms expected to be subject to further consultation.
Could the new rules affect payments from parent companies?
One of the issues under consideration is whether remuneration paid by the parent companies of water suppliers should also fall within the restrictions.
This matters because some executive payments are made through wider corporate structures rather than directly by the regulated water business. Ofwat's concern is that this distinction could leave room for payments that undermine the purpose of the bonus ban.
The issue has already featured in scrutiny of Thames Water. The company paid chief executive Chris Weston a deferred bonus of £99,000 during 2025-26, relating to an earlier award. Ofwat said the cost must be borne by the company's future owners rather than passed on to customers through their bills.
The regulator also highlighted concerns about the disclosure of executive remuneration at South Staffs Water, saying the information provided was insufficient.
Meanwhile, South East Water was not subject to the bonus ban during the year, but Ofwat said its shareholders would have to fund future bonuses following serious supply failures that left tens of thousands of households without water.
The review comes as the government faces wider pressure to improve accountability across the water industry. Companies are dealing with scrutiny over pollution, ageing infrastructure, rising bills and the financial difficulties of some major suppliers.
For customers, the question is not simply whether executives receive bonuses or retention awards. It is whether the money paid to senior leaders reflects improvements in the services they are responsible for delivering.
Ofwat's review could broaden the definition of payments covered by the restrictions, but no changes have yet been confirmed. The regulator will first assess the evidence before deciding whether further reforms are needed.
