New bonus rule blocks £4m in first year of operation
6 Nov 2025 09:01 AM
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 yesterday, 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 Measures) Act 2025, 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 yesterday also published 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.
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. A company-by-company breakdown is available in the report.
The Monitoring Financial Resilience report is published here.
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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