What’s the Story?

A bonus ban on water companies performing poorly on the environment, customer service or with a fragile financial profile, was announced by government on 6 June 2025.

Six industry giants are named: 

• Anglian Water

• Southern Water

• Thames Water

• United Utilities

• Wessex Water

• Yorkshire Water

The ban extends to LTIPs; and is backdated to 2024, so clawback of past payments applies.  

The ban was imposed by Ofwat under The Water (Special Measures) Act 2025. The Labour Party manifesto promised new powers in 2024, so adoption and immediate use is unsurprising. 

The government press release stated: 

Water companies have awarded over £112 million in bonuses and incentives over the last decade. Last year alone [2024], £7.6 million in bonuses were paid to water bosses in England. 

Environment Secretary Steve Reed said:       

“Water company bosses, like anyone else, should only get bonuses if they’ve performed well, certainly not if they’ve failed to tackle water pollution.   

Undeserved bonuses will now be banned as part of the Government’s plan to clean up our rivers, lakes and seas for good.  

Today’s ban holds water bosses to account and ensures they can no longer cash in while their companies pollute rivers, neglect customers, or mismanage finances”.   

Only weeks ago, the CEO of troubled Thames Water, Chris Weston was reported as being paid a bonus for the three months served since joining - and so a Metro headline read: 

“I deserve £195,000 bonus for boosting staff morale, says Thames Water chief.” 

No doubt true, but given Thames’s history, the Sir Jon Cuncliff review of the industry, and the nationalisation prospect following KKR’s rescue talks withdrawal, this seems insensitive.  

Thames Water also planned to pay new finance stay-amounts to the top team, as falling outside the bonus-ban powers, proposals now shelved. 

The government has also said on radio more latterly that water industry leaders should “listen to their customers” and not upshift base pay post bonus ban. Banks used a base pay hike following the 2008 financial crash. 

While dramatic, the water bonus dry-up is unsurprising. In fact last month CORPGRO said: 

 “There will be grim satisfaction in seeing a poorly performing water company boss not receiving their future bonus.

But better still by far that they do get paid but only paid for good performance delivered from a correctly focussed incentive design”. 

Why Does it Matter?

Water companies have a major problem. How do you get top talent to fix big industry issues with zero performance pay?

A dry pipeline of talent plus talent flight-risk is a poor combination to solve extensive and extreme business issues in a critical industry. A multi-billion and multi-decade revamp of infrastructure, within a tight regulatory regime is needed. The task is huge.

In a regulated water company, the main aim should be service delivery. Profit matters too but must be balanced against the prime purposes.  

Water companies are capital-intensive and should get a good risk based return, but only after delivering the required customer and environment outcomes.  

Revised water incentives will be seen and rapidly. How that unfolds will need much care. A remixed more of the same will not do, the scope for self delusional error is not small.

That aside, the robustness of clawback at these firms will be of keen interest to the government and others. Another story waiting in the wings. 

Newspoint view

Water is a critical natural resource. Top talent is essential to engage with huge legacy investment and activity challenges.

Underpaying talent is a tempting but dysfunctional response. Instead a deep rethink of incentive focus and structure is required. 

Re-framing prior incentive plans re-jigged to fly under the radar is a potential reply, but is wrong too. Past practice reflects incorrect priorities, values and culture. The upshot will be unacceptable in results and payout profile. Another smack to the business will result, and will help nobody.

Instead, a first principles overhaul of water company incentives is needed: 

• Environment and service factors must chime smoothly with the finance metrics within water company incentives. These should not be self-stand items. Yes, that’s more complicated, but no, it is not impossible; and

• OFWAT should have a control power over required executive compensation policy. This is akin to the binding shareholder policy vote for UK listed companies.

Shareholder interests are served by protecting the franchise to trade. For UK water that has been damaged.

Reframed water incentives are key to the needed reset of focus, culture and performance delivery.

Strongly refreshed water incentives will be welcomed by executives, customers, regulator, and government.

What’s not to like?

Executive Compensation and Incentive Design

Reward and Share Plans 

Remuneration Advisory and Support

ESG and Sustainability

Please feel free to email or call:

Damian Carnell - [email protected] +44 (0) 7989 337118

VA Bec Bostock - [email protected]

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