A £195,000 bonus awarded to the boss of Thames Water should not be paid for by customers, regulator Ofwat is expected to say on Thursday.
The BBC understands the regulator will say that any bonuses paid should be borne by owners and lenders to the company rather than paid by customers,
Thames Water chief executive Chris Weston previously warned that the company only has enough cash to survive till next May but many think it will run out of money by Christmas.
The announcement will come as part of an Ofwat update into executive pay and financial resilience across the sector.
Ofwat has new powers to prevent bonuses being funded from customer bills if the company is judged to have missed environmental or performance targets.
Weston, a former British Gas executive, was hired in January this year to try and turn around the fortunes of a company drowning in debts of £18bn.
Over the summer it emerged that he had been 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 will insist that it is not paid by the operating company, and must be borne by the company owners. Thames Water declined to comment.
In expectation of this approach 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.
The majority of the lenders to Thames have offered to throw it a financial lifeline loan of up to £3bn if Ofwat agrees to customer bill rises of around 50% above inflation over the next five years.
The lenders are currently finalising proposals for a restructuring of the company which would involve them taking a discount on the money they are owed, bringing in new operational expertise, and exploring the possibility of a break up and or public listing of the company.
Yesterday, environment secretary Steve Reed, who was appearing before MPs, once again ruled out the nationalisation of Thames.
In the past he has said it would cost taxpayers billions of pounds and take years.
Reed said he believed the problems in the sector as a whole were ones of “regulation and governance” and he recently commissioned Sir John 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 of next year. The final determination of how much water companies can charge their customers for the next five years is expected on 19 December.