UK regulator could block all bonus payments at Thames Water and others if pollution and mismanagement continue

Thames Water, already under intense scrutiny for environmental failings and spiralling debt, could soon be barred from issuing any staff bonuses as the government pushes sweeping reforms. Under new powers granted by the Water (Special Measures) Act, regulator Ofwat will be able to prevent payouts from both customer bills and private funds—halting financial rewards even if sourced from shareholders or lenders.

This marks a sharp escalation in efforts to hold UK water companies accountable for poor environmental performance. Environment Secretary Steve Reed described the move as ending the days of firms “dumping a tidal wave of sewage into our rivers while pocketing millions of pounds of bonuses”.

While Ofwat previously blocked companies from using customer money to fund bonuses, this new legislation extends that reach. It will allow retrospective clawbacks on past bonuses and restrict all payments unless companies meet strict standards on environmental protection, financial stability, customer service and criminal liability.

Thames Water’s Legal Dodge

In a swift response, Thames Water claimed its planned payments were not performance-related bonuses, but “retention payments” to key staff guiding the troubled firm through a “complex turnaround”. A spokesperson said none of these payments would come from customer funds and were critical to stabilising operations.

With 16 million customers, Thames Water is the UK’s largest water company but has been beset by scandals. It faces up to £900 million in potential fines over the next five years for leaks and sewage spills. In March, the firm secured a £3 billion rescue loan and named US investment giant KKR as its preferred buyer.

Thames chairman Sir Adrian Montague defended the bonus-like payments earlier this week, telling MPs: “We live in a competitive marketplace and we have to provide the right sort of packages to these people otherwise the head hunters come knocking.”

Public Outrage and Political Pressure

Public anger over repeated sewage discharges and failing infrastructure has mounted. The government now insists mismanagement should no longer be rewarded. “The days of profiting from failure are over,” said Reed, promising that new rules would block “unfair bonuses for polluting water bosses”.

Last year, Ofwat blocked three firms—Thames Water, Yorkshire Water and Dŵr Cymru—from using customer money to fund £1.6 million in executive bonuses. It said the move was designed to shift corporate culture and sharpen executive accountability.

Now, the bar has been raised. If the new rules come into force as expected next month, no bonus payments—no matter how funded—will be permitted if companies fail to meet minimum performance criteria. And past bonuses could be clawed back.

A Precarious Turnaround

For Thames Water, the timing could not be worse. Its financial and environmental credibility is at stake, and mounting public pressure is forcing the firm into deep restructuring. Yet the company insists key personnel must be retained to drive change.

“We must retain the people best placed to deliver improved outcomes,” the firm said. It stressed that the new retention payments were necessary to attract and keep skilled leadership during an “intense transformation phase”.

However, with ministers, regulators and the public demanding clear results, Thames and other water firms are on notice: deliver—or forfeit the payouts.