By Helen Campbell, Interim Executive Director, Delivery
Public trust in the water sector remains low, and the payment of executive bonuses which do not properly reflect performance is part of the reason why. Each year the issue draws attention, and understandably so. Recent stories about decisions on pay made by companies whose performance remains unacceptably poor have only reinforced that frustration.
The Government recognised that a stronger approach was needed and gave Ofwat new powers under the Water Special Measures Act to go further, including blocking performance bonuses entirely where warranted.
We have already used this power – in 2024-25, our new bonus rule blocked approximately £4 million in potential bonuses across six companies.
I have been clear about what I expect from companies. In January, I told the EFRA committee that transparency is essential to rebuilding trust, and I met water companies directly to share this message. In April, I wrote to remuneration chairs to make plain that pay rises and retention schemes without sufficient justification and transparent explanations are not acceptable.
Those are not suggestions — they are requirements, and those requirements are backed by real powers.
But customers’ trust in the sector is harmed still when they see companies making decisions that give the appearance of circumventing the rule. This includes excessive payments made under the rationale of retaining leaders, but which are not transparent or sufficiently explained.
All companies must publish their Annual Performance Reports by 15 July, setting out their remuneration decisions and the reasoning behind them. Those reports feed directly into our sector-wide performance assessment, which includes determining whether companies have complied with our rule.
If water companies want to rebuild public trust, they need to demonstrate that clearly through their decisions. They must do much more to acknowledge the strength of feelings from customers on bonuses, make the case for why the remuneration is needed and fair, and explain how it will help to deliver the improved performance customers expect.
We are planning to review the rule in the future and take a comprehensive look at its impact to see if it is delivering against our original objective to restore public trust in the sector. If it is not, we will make changes – but companies should be under no illusion that we will take action and tighten requirements if their behaviours do not to align with the rule’s objectives, or those of the legislation that created it.