Water companies have found creative ways to circumvent bonus restrictions, leaving the government with a challenging situation. The Water (Special Measures) Act of 2025, aimed at curbing bonuses for polluting water bosses, has had unintended consequences. While Ofwat, the regulator, can block performance-related bonuses for the worst performers, it lacks the authority to address other forms of compensation. As a result, water companies have increased salary increases, allowance awards, and retention payments, leading to a 1.5% rise in overall pay for chief executives and financial officers. This trend is particularly concerning for Thames Water, which has faced scrutiny for its delayed signing fee and unresolved retention agreements. The government's response, expressing shock and calling for improved performance, seems disingenuous. It's clear that ministers should have anticipated the emergence of alternative compensation methods. Water companies have been accused of making decisions that appear to circumvent the rules, and the government's reliance on remuneration committees to uphold the spirit of their reforms is naive. The upcoming review of the rules by Ofwat may offer a chance for change, but past experiences suggest a cautious approach is warranted.
