Water companies have been found to be circumventing bonus rules, despite the government's efforts to clamp down on excessive executive pay. This is not surprising, given the history of financial institutions finding creative ways to avoid regulations. The Labour government's Water (Special Measures) Act of 2025 aimed to ban performance-related bonuses for polluting water company bosses, but it lacked the power to address other forms of compensation. As a result, salary increases, allowance awards, and retention payments have increased, leading to a 1.5% rise in overall pay packets for chief executives and chief financial officers. Thames Water, in particular, has been criticized for its delayed signing fee and unresolved retention agreements. The government's response has been to express shock and call for improved performance, but it's clear that ministers were naive in expecting a ban on bonuses to solve the issue. The regulator's review in the autumn may yield stronger rules, but past experience suggests that such measures are often ineffective. The key issue is that the government relied on remuneration committees to follow the 'spirit' of their reforms, which is a risky approach. Overall, this situation highlights the need for more comprehensive regulation and a deeper understanding of the financial incentives driving executive pay.
