Thames Water says it will raise base pay of bosses if Ofwat limits bonuses

Troubled Thames Water has threatened to increase the salaries of its executives if the industry regulator sees through on plans to limit bonuses for the bosses of water companies.

The company, which serves more than 16 million customers across the London area and the Thames valley, is attempting to stabilise its debt-laden finances. It has told Ofwat that it intends to raise base executive pay.

Thames told Ofwat that the bonus proposals would make it hard to attract talent to the sector, according to a report submitted in early December by the company’s regulatory strategy committee to the regulator’s board, the Financial Times reported.

“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,” said the report by Jonathan Haskins, the 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.”

In recent years, water companies have faced public anger and political backlash over executive bonuses, leaks and sewage discharge at a time when many people have also come under increasing financial strain.

Chris Weston, the chief executive of Thames Water, said last month that it needed to offer “competitive packages” to attract talent, as he defended bonuses worth £770,000 that were awarded to him and the company’s finance chief. Weston was awarded £195,000 for his first three months at Thames, in early 2024.

Feargal Sharkey, the former Undertones lead singer turned campaigner, said Thames’s demand showed that banning water chief executive bonuses was “nothing but ineffectual, cheap political posturing”.

“The simple truth is if they want to change the culture they need to change the whole ethos of Ofwat and the water companies,” Sharkey said.

“Ofwat can already set limits on CEO pay by setting an enforcement order. CEOs are always going to try to make as much money for themselves as they can without a care about the environment. The government tried limiting bonuses in the City already and that didn’t work as they just massively inflated their salaries. The same is happening here.”

The government is looking to strengthen regulation of water companies and ban the payment of bonuses at the worst performers through legislation that is making its way through parliament. It would also introduce personal criminal liability for water executives responsible for pollution.

Ofwat is able to force water companies to make investors pick up the tab for executive bonuses, rather than allowing customers to foot the bill.

The regulator used its new powers in November for Thames Water, Yorkshire Water, and Dŵr Cymru Welsh Water, after determining the sector had awarded “undeserved” extra payments.

Last month, Ofwat levied an £18.2m penalty on Thames – which is planning to raise customer bills by a third over the next five years – after the company was found to have breached dividend rules on shareholder payouts made in 2023 and 2024.

Thames hopes to secure a £3bn emergency funding package, which it has described as essential to ensure the company has enough money to stave off temporary nationalisation.

The Guardian revealed in December that Thames Water intentionally diverted millions of pounds pledged for environmental cleanups towards other costs including bonuses and dividends.

Thames declined to comment.