Publication Of Performance Related Executive Pay & Monitoring Financial Resilience (MFR) Reports

Ofwat Continues To Scrutinise And Hold Companies To Account On Executive Pay

For the first time, both the Performance Related Pay (PRP) Prohibition Rule and the PRP cost recovery mechanism have been used together. The Rule bans bonuses being paid to water company executives in certain circumstances, while the recovery mechanism stops customers paying for bonuses where the company's decision does not meet Ofwat's expectations. Together, the rule and mechanism help to better align companies' PRP outcomes with customers' expectations and ensuring that bonuses are not paid or charged to customers if performance is poor.

Six water companies (Anglian Water, Southern Water, Thames Water, United Utilities, Wessex Water and Yorkshire Water) triggered the PRP Prohibition Rule due to performance failures, mainly involving pollution. This means that the payment of bonuses to executives for these companies was set to be banned. All companies correctly applied the rule, and we estimate that as a result more than £4 million of potential annual bonuses were prohibited.

Where we considered that customers should not pay for the costs of executive bonuses, most companies also chose not to charge customers for this. In the case of Dŵr Cymru, who have currently withheld payment of £150,000 of PRP awarded to directors, we will use our cost recovery mechanism to prevent customers funding this if the company decides to pay.

Our assessment of PRP decisions in relation to 2024-25 took place during a period of continued intense public scrutiny of PRP in the water sector. We recognise the important role that transparency plays in addressing this and rebuilding public trust. As such, Ofwat also intends to extend the requirements for companies' annual regulatory reporting, including introducing new requirements for the full disclosure of director remuneration from group companies. This will be in force for companies' reporting of the 2025-26 financial year, with further information about the consultation to follow.

The Performance Related Executive Pay 2024-25 report can be found here.

Monitoring Financial Resilience (MFR) 2024–25 Report

Ofwat has today also published its latest annual Monitoring Financial Resilience (MFR) report, covering the 2024-25 financial year, which marks the end of the AMP7 (Asset Management Period 7) investment period (2020-2025). The purpose of the report is to enhance transparency of company financial resilience and dividend payments and to promote financial resilience.

Ofwat has remained engaged with all companies throughout AMP7, monitoring financial positions and the delivery of commitments made. We have strengthened our oversight of water companies' financial resilience and where we have identified concerns based on our assessment of risk, we have increased our scrutiny and engagement. We have intervened where necessary to help drive change and the actions needed, and ensure companies are held companies accountable.

We are closely monitoring six companies (Affinity Water, Anglian Water, Northumbrian Water, Portsmouth Water, Wessex Water and Yorkshire Water) in our Elevated and Enhanced Monitoring category, compared to seven last year. Thames Water is in our Turnaround Oversight Regime given the scale and complexity of its challenges, and both Southern Water and South East Water remain in our Action Required category.

Seven companies (Dŵr Cymru, Hafren, SES Water, Severn Trent, South Staffordshire Water, South West Water and United Utilities) are in our Standard and Routine Monitoring category.

We will continue to work closely with the industry, especially those in the Action Required category, to ensure that they are taking appropriate steps to secure their financial resilience and stability.

Price Review 2024 (PR24) final determinations support record levels of spending (£104 billion) over the period 2025–30, AMP8. This includes a fourfold increase of investment in new infrastructure, creating major opportunities to enhance services for customers and deliver long-term value for investors. Delivering this scale of investment requires significant new funding, and it is therefore essential that water companies maintain financially resilient structures to ensure they can raise the level of finance necessary and withstand shocks.

The Monitoring Financial Resilience (MFR) 2024–25 Report can be found here.

The Independent Water Commission Report

Following the publication of the Independent Water Commission final report, the UK government has set out a new direction for the water sector with the formation of a new regulator in England. This marks an opportunity to reset the sector, so it delivers better outcomes for customers and the environment.

Ofwat will now work with the government and other regulators to form this new body in England and continue to engage with the Welsh Government and contribute to discussions on the options for Wales.

Transparency and public trust remain pivotal. Ofwat expects accountability, openness, and financial resilience from water companies, and until these new arrangements are in place, we will continue working hard to drive water companies to improve performance and deliver maximum value for customers, communities, and the environment.