Six firms set to be unable to pay bonuses under new rules

Defra has indicated that six water companies will be prevented from paying bonuses for the 2024-25 financial year, after Ofwat took possession of Water (Special Measures) Act powers to prevent water executives whose companies have fallen short on key performance metrics from receiving bonuses at all. Before this, it had the powers to prevent customers from paying for the bonuses, but not to block them completely.

There are four requirements that Ofwat will be measuring and monitoring companies against under the strengthened powers:

• 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 that the company subsequently fails to comply with an associated enforcement order or undertaking. 

• Environment – if a company has had a category 1 pollution incident recorded in the Environmental Performance Assessment (EPA) for the calendar year finishing in the PRP year, or has received a 1-star (poor) 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).

[^ Table Source: https://www.gov.uk/government/news/governments-new-law-sees-unfair-bonuses-banned-for-six-water-companies-with-immediate-effect?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=0bf9ab66-40f5-4206-a6f2-4bf6877e45af&utm_content=immediately  ]

The table shows companies’ compliance based on current information. Thames Water, Yorkshire Water, Anglian Water, Wessex Water, United Utilities and Southern Water are not permitted to pay bonuses.

Ofwat said it will consider any action required once water companies publish their remuneration decisions in their annual reports for the 2024-25 financial year. If a company pays a bonus while banned, Ofwat has the power to claw back the money. Any company that does not comply with Ofwat’s directions will face enforcement action.