Water Bosses Found the Loophole: 'Retention Payments' Replace Banned Bonuses While Sewage Flows

Ofwat's bonus ban blocked £10m in executive payouts over two years, but water companies quietly routed cash through 'retention payments' and base pay hikes — up to £1.7m per executive — making the ban performative.

Nine water companies in England and Wales have been banned from paying performance bonuses for 2025-26, with seven of those bans triggered by environmental pollution failures. Ofwat blocked £6.5m in payouts that would otherwise have gone to executives this year alone, and £10m over the past two years. On paper, the regulatory mechanism is working. In practice, the money is finding new channels.

Anglian Water drew the sharpest rebuke. Chief executive Mark Thurston stands to receive up to £800,000 in "retention payments" — a fixed cash award structured specifically to avoid the bonus ban's definition of performance-related pay. Ofwat said the payments "could give the impression the company had prioritised offering executive directors a cash award in a way that would not technically breach the rule." That's regulator-speak for: they found the loophole and drove a truck through it. Anglian is not alone. Thames Water's CFO faces a potential £1m retention payment. Northumbrian Water's CEO Heidi Mottram could receive £1.5m. Louise Beardmore at United Utilities tops the list at £1.7m. Thames also paid CEO Chris Weston a previously deferred bonus of £99,000 during the ban period, and raised executives' base pay — a quieter but equally effective circumvention. Ofwat ruled that Thames's future owners, not customers, must cover Weston's bonus. The pattern is textbook regulatory arbitrage. A rule targets one category of payment; the industry invents a new category that delivers identical value to the same recipients. "Retention payments" perform no accountability function — they are not tied to service quality, pollution reduction, or infrastructure investment. They are salary supplements with a different name, designed by compensation consultants to thread a regulatory needle. Environment Secretary Angela Eagle announced a review to "close loopholes" and ensure "failure doesn't pay, whatever name the payment goes by." Ministers are also reportedly considering whether payments from parent companies — another avenue for circumvention — should fall within the ban's scope. Ofwat will accelerate its own review of the rules. The question is whether the next iteration of the ban will be any harder to route around than the first. The structural problem runs deeper than bonus nomenclature. England's privatised water monopolies operate without competitive pressure on executive compensation. Customers cannot switch providers. Shareholders face minimal accountability for pollution. The bonus ban was the political system's response to public outrage over sewage in rivers and rising bills — but it targeted the symptom (visible executive rewards) rather than the cause (a governance model that separates profit extraction from service delivery). Andy Burnham has signalled interest in "more public control" but has not committed to specifics, including on Thames Water's potential temporary nationalisation. South East Water, not subject to the bonus ban, left tens of thousands of households without water during the year. Ofwat ruled that shareholders must pay for future bonuses — a precedent that shifts cost allocation but does not address the underlying incentive structure. South Staffs Water was criticised simply for failing to report adequate pay information. The sector's relationship with transparency remains adversarial.