Three water firms, Thames Water, Yorkshire Water and Welsh supplier Dwr Cymru Welsh Water, have been directly blocked from using customer money to pay bonuses collectively worth £1.6m.
The watchdog Ofwat said that any “undeserved” bonuses were now being borne by owners and lenders to the companies rather than paid by customers.
A total of nine firms were prevented from using customer money to pay for bonuses under new regulatory powers.
The other six firms voluntarily decided to use shareholder money to fund boss bonuses.
David Black, chief executive of Ofwat, said that water firms “need to do more to rebuild public trust”.
He said that by stopping customers from “paying for undeserved bonuses”, it was looking “to sharpen executive mindsets” and to push firms to improve their cultures of performance and accountability.
When questioned by the BBC’s Today programme on why the public should trust Ofwat when the environment secretary has said regulation has not been robust enough, Mr Black said Ofwat had changed the way it regulates the industry.
“We have stepped in to protect customers’ interests, we will continue to do so. The announcement today in terms of blocking chief executive bonuses from being recovered from customers is part of that,” he said.
Ofwat’s new powers prevent bonuses being funded from customer bills if the company is judged to have missed environmental or performance targets.
Thames Water chief executive Chris Weston, who was hired in January to try and turn around the fortunes of a company drowning in debts, was awarded a bonus of £195,000 for his first three months at the company, taking his total pay for the period to £437,000.
It’s not clear whether the bonus has in fact been paid out, but the regulator’s rules now mean it cannot paid by the operating company, and must be borne by the company owners.
Thames Water declined to comment.
Other companies – including debt-laden Southern Water – have already said shareholders rather than customers would pay bonuses to executives.
But the problem for Thames is that it effectively has no shareholders.
Earlier this year, Thames Water owners refused to follow through with a promised cash injection for the troubled company after Ofwat indicated it was not prepared to accept requests for bill rises of 44% above inflation over the next five years.
In a preliminary decision, Ofwat said it would allow bill rises of 21% above inflation, which the shareholders did not accept.
They walked away, effectively leaving the company under the control of its lenders.
Environment Secretary Steve Reed said it was “disgraceful” that half of water firms have given out “unjustifiable” and “unmerited” bonuses.
He said the introduction of “urgent legislation” was so that such bonus culture can “never happen again”.
Reed had previously said he believed the problems in the sector as a whole were ones of “regulation and governance” and he recently commissioned Sir Jon Cunliffe, former deputy governor of the Bank of England, to conduct an independent review of the sector.
That review is not due to report back until June next year. The final determination of how much water companies can charge their customers for the next five years is expected on 19 December.
