About Consultation
This consultation invites views on our proposals to introduce a rule to prohibit performance related executive pay (PRP) as part of new powers introduced by the Water (Special Measures) Act 2025 to set rules about remuneration and governance.
The proposals build on a consultation we launched in October 2024, which set out our initial thinking on three remuneration and governance rules required by the Act. This consultation only focuses on the rule to prohibit PRP, with the other two rules due to be consulted on later this year.
Our proposed rule (the PRP Prohibition Rule) will require companies to prohibit the payment of PRP for the relevant year when a water company has failed to meet any of the following four key standards:
- 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.
- Environment – if the company has received a 1-star (“poor performing”) rating in the Environmental Performance Assessment (EPA) for the calendar year preceding the end of the PRP payment year.
- Financial resilience – if the company breaches its licence requirement to hold a sufficient credit rating and/or subsequently fails to comply with a enforcement order or undertaking.
- Criminal liability – if the company is convicted of any offences (with some exceptions allowed).
Subject to this consultation, the PRP Prohibition Rule will apply to the largest companies holding an appointment as a water and/or sewerage undertaker under the Water Industry Act 1991 collectively referred to as ‘undertakers’, ‘water companies’ or ‘companies’ in this document.
The rule will not apply to new appointees (otherwise known as NAVs) for the time being, although we intend to consider in the future bespoke standards that will apply to them.
Subject to the responses we receive to this consultation, we intend to implement the PRP Prohibition Rule for PRP paid from 1 April 2024 and onwards. We also plan to conduct a review of how this rule has operated and what outcomes it has delivered in 2027.
This document contains the proposed wording of the PRP Prohibition Rule, the associated non-mandatory guidance for companies to help them comply with the rule and the rationale behind what we have proposed. These have been informed by responses we received to the previous consultation and an impact appraisal that we will be publishing in the coming days to accompany this consultation.
Responding to our consultation
We are asking for responses to the consultation by 29 April 2025.
We welcome responses to the consultation on the proposed rule and ask stakeholders to make us aware of any considerations or challenges with implementation that we may encounter as well as any other alternative ways to achieve the same outcome we set out in the consultation.
Please email responses to: [email protected].
We intend to publish responses to this consultation on our website at www.ofwat.gov.uk. Subject to the information outlined in the consultation document, by providing a response to this consultation you are deemed to consent to its publication.