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Anybody who followed the supposed “clampdown” on bankers’ bonuses after the great financial crash in 2008 knew what to expect when water company bosses became a similar target for a bash in the bonus department. We would see the waterbed principle in action: when you push down in one area of remuneration, such as the performance-related stuff, another tends to go up.
Back in the day, banks invented “role-based allowances” – salary top-ups – to “compensate”, as they put it, their top earners for being subject to EU caps on bonuses. No executive was seriously inconvenienced by forgoing the chance of an astronomical (but not guaranteed) bonus and getting a smaller (but still hefty) increase in fixed pay instead. Some even preferred greater certainty over what they would take home.
In water-land, the Labour government arrived in 2024 promising to “ban the payment of bonuses to polluting water bosses until they have cleaned up their filth”, which generated a few pleasing headlines. But the flaw in the resulting Water (Special Measures) Act of 2025 was always obvious. While the regulator for England and Wales, Ofwat, was given powers to block performance-related bonuses at the worst environmental and financial miscreants, it could do nothing formally about other payments.
Thus – surprise, surprise – salary increases, allowance awards and, most of all, retention payments have proliferated. After the English and Welsh companies published their annual reports last month, this newspaper found that overall reported pay packets rose by 1.5% to £25.3m for chief executives and chief financial officers for the year. It was the second year in a row that a bonus ban had resulted in higher overall pay across the sector.
One can usually rely on Thames Water to muddy things further, and its post-annual report contribution was the news that the chief financial officer, Steve Buck, who was paid £591,000 in the financial year to March, got a delayed £1m signing fee at the end of July. As for retention payments for other executives that were “paused” after a political kerfuffle a year ago, the company has “entered into 14 agreements” to “resolve its liability for any potential claims”.
The government is shocked, or pretends to be. “It is 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,” a spokesperson for the environment department said.
Again, though, one must ask: what did ministers think would happen? It’s easy to agree that executives of underperforming monopolies are grossly overpaid but it was fantastically naive on the part of politicians to think a ban on bonuses would not result in alternative wheezes. It was predictable.
Water companies in general have deployed the retention manoeuvre in less-than-transparent – or just shameless – ways, it should be added. Helen Campbell, the interim executive director of Ofwat, was clearly correct last month when she complained that customers’ trust is harmed when remuneration committees make decisions that “give the appearance of circumventing the rule” or aren’t explained.
The point, though, is that the government left the door wide open to such behaviour. If ministers were relying on remuneration committees to obey the “spirit” of their reforms, they were born yesterday. Restricting bonuses is not the same as restricting overall pay. And Ofwat can only use the powers it was given by parliament.
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The dance now moves to the regulator’s review, due in the autumn, of whether the rules should be strengthened. Maybe it will yield something different in the prime minister Andy Burnham’s undefined era of “greater public control”. On past experience, however, believe it when you see it.
