REG - Water Services Auth - New bonus rule blocks £4m in first year

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RNS Number : 1862G  Water Services Regulation Authority  05 November 2025

New bonus rule blocks £4m in first year of operation

 

More than £4 million of potential bonuses were blocked by Ofwat's new rule on
water bosses' performance related pay in the last financial year as firms
chose to comply.

 

Ofwat has published the figure in its latest performance related executive pay
report today, 5 November, which details how the new rule on performance
related executive pay (PRP) has worked since it was introduced in June 2025.
The new rule on PRP, which is one of the powers given to Ofwat by the Water
(Special Measure) Act, has been applied for the first time alongside the PRP
cost recovery mechanism, which ensures that customers do not fund bonuses
which do not meet Ofwat's expectations.

 

Six water companies triggered the bonus ban rule for 2024/25 for a variety of
performance failures, mostly involving category 1 pollution incidents, and all
companies correctly complied with the rule by not giving their directors an
annual bonus and other relevant performance related pay. The companies in
question are Anglian Water, Southern Water, Thames Water, United Utilities,
Wessex Water and Yorkshire Water.

 

Where we considered that customers should not pay for the costs of executive
bonuses, most companies also chose not to charge customers for this. In the
case of Dŵr Cymru, who have currently withheld payment of £147,000 of PRP
awarded to directors, we will use our cost recovery mechanism to prevent
customers funding this if the company decides to pay.

 

In addition, recognising the critical role of transparency on executive pay,
Ofwat is also consulting on new requirements for full disclosure of director
remuneration from group companies, and is committed to ongoing engagement with
independent bodies, stakeholders, and the public to ensure that standards
continue to rise.

 

Ofwat has also published today its latest Monitoring Financial Resilience
(MFR) report covering the 2024-25 year. The latest report shows a change in
financial resilience status category for three companies, with the other
thirteen companies unchanged.

 

 

 Financial resilience status    Monitoring and engagement approach    Company 2024 MFR Category                                                      Company 2025 MFR Category
 Action Required                Active                                Thames                                                                         Thames
                                South East and Southern                                                                                              South East and Southern
 Elevated Concern               Enhanced                              Affinity, Northumbrian, Portsmouth, SES, South Staffs, Wessex and Yorkshire    Anglian, Affinity, Northumbrian, Portsmouth, Wessex and Yorkshire
 Standard                       Routine                               Anglian, Dŵr Cymru, Hafren, Severn Trent, South West and United Utilities      Dŵr Cymru, Hafren, SES, Severn Trent, South Staffs, South West and United
                                                                                                                                                     Utilities

 

 

The report acknowledges the steps companies have taken over 2024-25 to
strengthen their financial resilience, however noting that in some cases,
action has been necessary to address company financial challenges.

 

As of 31 March 2025, 12 of the 16 water companies held at least one credit
rating of Baa1/BBB+ or higher for licence monitoring purposes - consistent
with our target credit rating applied at PR24 to support long-term resilience
and access to finance.

 

As a result of our licence modifications, since May 2023 all companies have
been required to take account of their performance, financial resilience and
investment needs in their dividend decisions, and in April 2025 our new,
earlier credit rating trigger for cash lock-up came into effect.

 

Last year, dividend policies and transparency improved. Nine companies did not
declare a dividend for 2024-25, in some cases to support financial resilience
and growth. Thames, Southern, and South East are currently in cash lock-up
under their licence and cannot pay dividends without Ofwat's consent. In May
2025, Thames was fined £18.2 million for failing to link a dividend payments
to company performance.

 

While progress has been made, further action is needed by some companies to
ensure their long-term financial resilience. Looking ahead, a significant
increase in investment across the water sector is required. Our PR24 final
determinations support a record £104bn level of spending by water companies
over 2025-30 (AMP8). Delivering this scale of investment requires significant
new funding - both debt and equity.

 

It is essential that water companies maintain financially resilient structures
to ensure that they can raise the level of finance necessary and withstand
potential downside risks - as highlighted by the significant events
experienced during AMP7, including the global pandemic and high inflation.

 

Notes for editors

 

The performance related executive pay report is published here
(https://www.ofwat.gov.uk/publication/performance-related-executive-pay-2024-25-assessment)
. A company-by-company breakdown is in the report.

 

The Monitoring Financial Resilience report is published here
(https://www.ofwat.gov.uk/publication/monitoring-financial-resilience-report-2024-25)
.

 

As required under the Water Industry Act 1991, the PRP prohibition rule sets
standards which, if triggered, requires the water company to prohibit all
relevant PRP due to be awarded to directors who are members of the regulated
company's board. These standards are when a company has:

 

·      been found by Ofwat to have breached a principal statutory duty
during the PRP year and where Ofwat made a final decision that the breach
warranted a financial penalty or where they have failed to subsequently comply
with an enforcement order or undertaking linked to the breach;

·      received a 1 star rating by the Environment Agency (EA) or
Natural Resources Wales (NRW) as reported in the Environmental Performance
Assessment (EPA) for the calendar year finishing in the PRP year;

·      had a category 1 pollution incident reported by environmental
regulators in the EPA for the calendar year finishing in the PRP year;

·      breached its licence requirement to hold sufficient credit
ratings (in the PRP year) or has failed to subsequently comply with an
enforcement order or undertaking linked to the licence breach; or

·      received a sentence in the PRP year, following a conviction for a
criminal offence, unless the court has made low culpability or harm findings
against the company.

 

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