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UK water regulator Ofwat said on Thursday that nine companies would not be able to pay executive bonuses out of customer bills as it put a record number of groups under scrutiny over concerns about their finances.
The regulator said it would step in to block bonuses at Thames Water, Yorkshire Water and Dwyr Cymru Welsh Water given the performance issues at the three companies. A further six companies have voluntarily agreed that shareholders will bear the cost. The move will affect bonuses worth £6.8mn in total.
David Black, chief executive of Ofwat, said: “In stopping customers from paying for undeserved bonuses that do not properly reflect performance, we are looking to sharpen executive mindsets and push companies to improve their performance and culture of accountability.”
High pay for executives has become a lightning rod for anger at water companies, which are accused of paying high dividends while ramping up the debt and failing to invest in infrastructure leading to unknown quantities of sewage pouring into rivers and coastal waters.
The move came in the first year that the regulator won powers to insist that bonuses of poorly performing companies are paid by owners, rather than customers.
Thames’ current shareholders turned their back on the business in March this year, declaring it “uninvestable”. The company, which has 16m customers in London and surrounding areas, is fighting for survival and may run out of cash in the new year unless it can secure £3bn of debt. It is currently seeking new shareholders to pump in £3bn of equity next year.
Despite this Chris Weston, who joined as chief executive in January, took a £195,000 bonus for the three months to the end of March, taking his total pay to £437,000 during the period when Britain’s largest water utility is battling to avoid nationalisation. It is unclear whether Weston has already been paid.
The move comes ahead of the Water (Special Measures) Bill that is currently going through parliament. That would allow Ofwat to prohibit performance-related pay entirely in certain circumstances rather than just forcing shareholders to pay.
The regulator also on Thursday said that more than half of the companies it regulated would require closer monitoring because of their financial problems.
Thames Water is the most at risk, but Southern Water and South East Water also remain on the “action required” list, according to Ofwat’s latest annual Monitoring Financial Resilience Report published on Thursday.
Seven other companies including Affinity, Portsmouth, Northumbrian and Yorkshire Water remain in the “elevated concern” category, Ofwat said.
Companies on Ofwat’s financial watch list are more closely monitored by the regulator and may be required to take action such as raising equity and debt to ensure they can deliver their investment plans.
Water companies have come under pressure from rising chemical, labour and energy costs, as well as higher financing costs on their debt. Borrowing in the sector increased from £68.3bn in March 2023 to £74.5bn in March 2024, the regulator said.
