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Thames Water has threatened to raise executives’ base salaries if the UK government presses ahead with plans to restrict bonuses for water bosses.
The utility, which is planning to raise bills by at least a third for the 16mn customers it serves in and around London, has warned the water regulator of its plans to raise base pay, according to a report by the company’s regulatory strategy committee to the board of Thames Water.
“We have made it very clear to Ofwat that, if it proceeds with its proposals, it is highly likely that base pay will need to be increased to compensate for the loss of performance-related pay plans,” reads the report dated December 3 by Jon Haskins, chief risk and compliance officer at Thames Water.
“We also highlight the impact the proposals will have on attracting, retaining and motivating critically needed talent across the sector, and the importance of this for attracting investment,” the report adds.
The plan to clamp down on pay and bonuses for poorly performing water companies is part of the government’s water (special measures) bill, which is making its way through parliament and is expected to be ratified this year.
The new law would allow Ofwat to ban performance-related pay entirely in certain circumstances. It would also enable executives and directors to be prosecuted where an offence, such as obstruction of investigations by environmental regulators, had been committed with their consent, or because of their neglect.
Currently, the regulator says it can force shareholders rather than customers to pay bonuses at poorly performing companies. In 2024, Ofwat intervened in this way with three companies, including Thames Water.
The bill would also enable executives and directors to be prosecuted when an offence such as sewage pollution had been committed with their consent or because of their neglect.
When the EU introduced a banker bonus cap after the financial crisis, many banks responded by raising base salaries. The UK has since scrapped the cap as part of a post-Brexit push to boost the City of London.
At Thames Water, chief executive Chris Weston, who is on a total pay package of as much as £2.3mn, received a £195,000 bonus for three months’ work after he joined in January last year. This took his total pay from January to the end of March 2024 to £437,000. His predecessor Sarah Bentley declined a bonus in 2022-23.
Thames Water’s plan to push against the new bonus rules comes despite Ofwat allowing the company to raise customer bills to an average of £588 over the next five years, and its poor record on pollution and leaks.
The company, which is struggling with a £19bn debt mountain, has warned that it may run out of cash next month and is trying to avoid temporary renationalisation.
Thames Water has agreed a £3bn loan with creditors, which needs to be ratified by the courts. The company’s senior bondholders, which include the hedge fund Elliott, have offered the utility’s management team a lucrative package of “retention” incentives.
High pay for executives has become a lightning rod for anger at Britain’s 16 privatised water companies, which are accused of using debt to pay dividends while failing to invest adequately in infrastructure leading to sewage pollution, water outages and leaks.
Overall, the English water companies have paid out £83bn in dividends over the 34 years since privatisation, while amassing more than £74bn in debt, according to research by the Financial Times.
Charlie Maynard, a Liberal Democrat MP, said “the focus on stopping bonuses is distracting from the fundamental problem that these companies are drowning in debt”.
Ofwat said in a statement that it would take “forward further action under powers to regulate executive pay proposed in the government’s water (special measures) bill”.
Thames Water declined to comment. The Department for Environment, Food and Rural Affairs did not immediately respond to a request for comment.
