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Thames Water has threatened to increase basic pay for executives if the UK government goes ahead plans to limit bonuses for water bosses.
A utility company that plans raise bills by at least a third for the 16 million customers it serves in and around London, has warned the water regulator about its plans to increase basic pay, according to a report by Thames Water’s regulatory strategy board.
“We have made it clear to Ofwat that, if it proceeds with its proposals, it is very likely that basic pay will need to be increased to compensate for the loss of performance-related pay schemes,” said the December 3 report by Jon Haskins, chief executive officer risk and compliance 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 in attracting investment,” the report added.
The plan to cut wages and bonuses for underperforming water companies is part of the government’s draft 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-based payments entirely in certain circumstances. It would also allow executives and directors to be prosecuted if a crime, such as obstructing investigations by environmental regulators, was committed with their consent or because of their neglect.
Currently, the regulator says it can force shareholders, not customers, to pay bonuses to underperforming companies. In 2024 Ofwat intervened in this way with three companies including Thames Water.
The bill would also allow executive officers and directors to be prosecuted if an offense such as sewage pollution was committed with their consent or through their negligence.
When the EU introduced a cap on bankers’ bonuses after the financial crisis, many banks responded by increasing basic salaries. Great Britain has since the cap was written off as part of efforts to strengthen the City of London after Brexit.
At Thames Water, chief executive Chris Weston, who has a total salary of as much as £2.3m, got it Bonus of £195,000 in three months of work after joining in January last year. This took his total salary from January to the end of March 2024 to £437,000. His predecessor, Sarah Bentley, refused a bonus in the 2022-23 season.
Thames Water’s plan to oppose new bonus rules comes despite Ofwat allowing the company to raise customer bills by an average of £588 over the next five years, despite a poor record on pollution and leaks.
The company, struggling with a £19bn debt mountain, has warned it could run out of cash next month and is trying to avoid temporary renationalization.
Thames Water has agreed a £3bn loan with creditors, which needs to be ratified by the courts. The company’s senior bondholders, including hedge fund Elliott, have offered the utility’s management a lucrative package incentives for “retention”..
High executive pay has become a lightning rod for anger at Britain’s 16 privatized water companies, which are accused of using debt to pay dividends while underinvesting in infrastructure that has led to sewage pollution, water outages and leaks.
Generally, English water companies have paid £83 billion in dividends in the 34 years since privatisation, while amassing more than £74bn of debt, according to research by the Financial Times.
Charlie Maynard, a Liberal Democrat MP, said that “the focus on stopping bonuses distracts from the fundamental problem that these companies are drowning in debt”.
Ofwat said in a statement that it would take “further steps towards the 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.
