Thames Water gave finance boss a £1m signing-on fee

The prime minister's official spokesman said: "It's unacceptable that one of the worst-performing water companies is handing out huge payments to its executives when it should be focusing on improving performance and rebuilding public trust.

"We've banned bonuses for polluting water bosses. We expect companies to follow both the letter and the spirit of the rules."

Under new rules, introduced last year, water companies failing to meet key standards would automatically lose their right to award certain bonuses.

Alistair Carmichael, Lib Dem MP and chair of the Environment Committee, said: "Money should be going into improving services, not remunerating already well-paid senior executives.

"The government were clear in the early days that they wanted this to stop. It is obvious that they have not succeeded in this. We need to hear now from them about what they intend to do about it."

In a blog published in July,, external an executive director at the regulator Ofwat said public trust was damaged by unwarranted bonuses.

Helen Campbell wrote: "This includes excessive payments made under the rationale of retaining leaders, but which are not transparent or sufficiently explained."

She added that companies had to set out their reasoning for awarding particular bonuses and Ofwat would determine whether they had "complied with our rule".

The utility company owes roughly £20bn and has been working with creditors and government officials to find a way forward.

Failure to reach a deal could lead to Thames Water being forced into a "special administration regime", a form of temporary nationalisation intended to keep the business operating until a viable solution can be found.

This would see government-appointed officials temporarily running the company – including funding its operations and upgrading infrastructure as well as dealing with any outstanding debts following a restructuring of the business.

If the company was subsequently sold to a private buyer, the government would be able to recoup some taxpayer cash.

Prime Minister Andy Burnham has previously said he would like to see "greater public control" of key water and energy utilities.

In the past year, Thames Water boss Chris Weston saw his pay increase 14% to £1.63m while other directors received bonuses totalling £4.1m.

Speaking on the BBC Big Boss interview late last month, Weston acknowledged there was anger about Thames Water pay, but argued that the company needed to be able attract "capable people to help turn this company around".

"If we're not prepared to pay market rates, then they won't come to us and they won't stay with us," he said.