Ofwat will tomorrow (6 June 2025) implement new powers from
government to ban executive performance bonuses when water
companies fail to meet certain standards set out in the Water
(Special Measurers) Act.
Water company executives will be banned from receiving a bonus if
they trigger standards relating to consumer and environmental
matters, criminal liability and financial resilience, under new
powers coming into force today.
The Water Special Measures Act 2025 has given Ofwat new powers to
take tougher and quicker action on water companies that fail to
protect the environment and customers and hold executives to
account by blocking their bonuses completely.
This builds on Ofwat's previous powers on this issue, which
stopped companies from recovering the cost of unjustified bonuses
from customers. This policy, which came into full effect last
year, saw three companies blocked from making customers foot the
bill for executive bonuses totalling £1.5 million in the 2023/24
financial year.
There are four requirements that Ofwat will be measuring and
monitoring companies against under the strengthened powers, to
ensure any executives who do not deserve a bonus will not receive
one.
1. Consumer matters – When Ofwat makes a decision that a breach
of a principal statutory duty (as defined in the Water Industry
Act 1991) warrants a financial penalty and/or subsequently fails
to comply with an associated enforcement order of undertaking.
-
Environment – if a company has had a category 1 pollution
incident as recorded
by the environmental regulators' Environmental Performance
Assessment (EPA) for the calendar year finishing in the PRP
year or has received a 1-star ("poor performing") rating in
the EPA.
-
Financial resilience – if a company breaches its licence
requirement to hold a sufficient credit rating and/or
subsequently fails to comply with an associated enforcement
order or undertaking.
-
Criminal liability – if a company is convicted of an offence
(with some exceptions outlined in our guidance).
Public trust in the water sector is at an all-time low and it is
in the public interest for Ofwat to apply the new rule to bonuses
paid in relation to the 2024/25 financial year. Ofwat will be
reviewing all performance related bonuses paid in relation to the
financial year starting 1 April 2024 onwards and will announce
any action we decide to take for non-compliance with the rule
later in the year.
Where a water company does not comply with the rule, Ofwat may
issue a direction to the company which may include requiring the
bonuses to be stopped or clawed back. If the company does not
comply with a direction, we will take enforcement action.
, Senior Director for Sector
Performance at Ofwat, said:
“Water company bosses have a clear duty to safeguard our precious
natural environment.
“That's why we welcome these new powers from government – they
strengthen our ability to hold water companies accountable to
their customers by stopping their most senior directors from
taking bonuses when there have been serious environmental or
other failings.
“Company bonuses continue to cause real concerns and
understandably damage trust, so this new power significantly
increases the pressure on water company executives to become
better custodians of our rivers and seas.
“We will use this new rule to drive lasting change in the culture
and behaviour of leadership in water companies. This is essential
to delivering our vision of a secure and sustainable water sector
that acts in the best interests of customers, communities, and
the environment."
ENDS
Notes for editors
We are not considering interview requests on this topic at this
time.
We will be reviewing companies' compliance with the rule when
they announce their executive remuneration decisions. Where we
believe any of these decisions might not comply with the rule, we
will consider whether to issue a direction to the company, which
may include requiring the company retrieves any bonuses that are
paid. Any directions issued would be likely announced later this
year.
The rule has been informed by feedback from engagement with a
variety of stakeholders, as well as the responses from two
consultations held in October 2024 and March 2025.
We plan to conduct a review of the rule on prohibition of
performance related executive pay in the future to evaluate the
impact it has had, and outcomes delivered, and, if necessary,
consider what new or revised standards might be needed.
The Water (Special Measures) Act also requires Ofwat to develop
two further rules to:
-
Require water companies to appoint and have in place people
in senior roles only if they meet specified standards on
fitness and propriety.
-
Require companies to involve consumers in decisions that are
likely to have a material impact on consumer matters.
We intend to launch statutory consultations for these two
rules in the coming months with the aim of implementing them
in the latter part of 2025.
