Ofwat, the water industry regulator, has implemented new powers to prevent water companies from using customer money to pay executive bonuses. Nine water firms have been affected by these regulatory changes, with three companies – Thames Water, Yorkshire Water, and Dwr Cymru Welsh Water – directly blocked from using customer funds to pay bonuses totaling £1.6 million.
The remaining six firms voluntarily chose to use shareholder money to fund executive bonuses. David Black, Ofwat’s chief executive, emphasized that this move is designed to rebuild public trust and “sharpen executive mindsets” by ensuring accountability for company performance.
The new regulations specifically prevent bonuses from being funded through customer bills if a company fails to meet environmental or performance targets. This comes at a critical time for the water industry, which has faced significant scrutiny over its performance and executive compensation.
Thames Water provides a particularly complex case. CEO Chris Weston, hired in January to address the company’s financial challenges, was awarded a £195,000 bonus for his first three months, bringing his total compensation to £437,000. However, the new rules mean this bonus cannot be paid from customer bills and must instead be covered by company owners.
The situation is further complicated by Thames Water’s unique ownership structure. The company effectively has no shareholders after owners walked away earlier this year, refusing to provide a promised cash injection. This occurred after Ofwat rejected the company’s request for a 44% bill increase, instead proposing a 21% rise above inflation.
Environment Secretary Steve Reed has been highly critical of the bonus culture, calling it “disgraceful” and suggesting urgent legislation to prevent such practices in the future. He has commissioned an independent review of the water sector, to be conducted by Sir John Cunliffe, former deputy governor of the Bank of England, with results expected in June next year.
The final determination of water company pricing for the next five years is scheduled for December 19th. This comes amid broader concerns about the water industry’s governance, environmental performance, and financial management.
Other debt-laden companies like Southern Water have already committed to paying executive bonuses through shareholder funds rather than customer bills. The regulatory changes represent a significant shift in how water companies are held accountable for their performance and compensation practices.
Ofwat’s approach aims to create a more transparent and responsible system, ensuring that executives are not rewarded for poor performance at customers’ expense. The regulator hopes these measures will help rebuild public trust in an industry that has faced considerable criticism for its environmental and financial management.
The ongoing review and regulatory changes signal a potential transformation in the water industry’s approach to governance, performance, and executive compensation.
