Since many years, the bonuses of executives in private firms that offer public services are under scrutiny. This is a controversial topic that makes national headlines often. And, each time, an emotional tug-of war is at play. One side is a transparent, progressive movement that focuses on the unfairness of excessive compensation. The other side is the drive for flexible and discretionary rewards to ensure that businesses remain competitive.
Rarely does the UK Government intervene. The recent case of Thames Water is one example. Central government told bosses they were “rewarding [themselves] for failure.”
This intervention raises questions:
- Do boards and remuneration panels need to adopt a remuneration strategy that balances the bottom-line with ESG metrics broader in scope?
- Can a certain amount of regulation prevent businesses from retaining their best talent or expertise, and preventing them from remaining competitive on the market?
- What role should the government play if internal self-scrutiny cannot be achieved?
We will examine these questions using the Thames Water Saga as an illustration.
Thames Water timeline
- Thames Water has been facing significant financial challenges for the last 18 months. Sarah Bentley, the former chief executive of Thames Water, resigned in June 2023 after less than 3 years on the job. During that time, she doubled her salary from PS1.5m to PS1.5m.
- In November 2024 the regulator Ofwat revealed that Thames Water planned to use cash from customers to pay bonuses. They ruled this was not “justified.”
- Chris Weston, the Chief Executive of Thames, commented in December 2024: “We need to attract talent for this company… if we don’t provide competitive packages, people won’t come and work here.”
- The company obtained a PS3bn loan in February 2025 to avoid renationalisation. The company announced that it would pay bonuses to its bosses of up to PS770,000, despite the fact that customer bills were rising by as much as 59%.
- Thames Water “paused”, in May 2025 its bonus scheme for top executives under pressure from the Government. The Government commented that “rewarding oneself for failure is not acceptable.”
The fallout of the Thames Water Saga
Six water companies, including Thames Water, Yorkshire Water and Anglian Water as well as United Utilities, Wessex Water and Southern Water, have been informed that they are not allowed to issue bonuses in the financial year of 2024/25.
New rules prohibit executive bonuses if a company fails to meet environmental and consumer standards, financial resilience requirements or is convicted for a criminal offense. Companies can reward employees for the financial year 2025/26 if they follow the rules.
The new rules come into effect against the backdrop of existing negotiations between Ofwat, and the water companies who were pushing for more flexibility in raising the price cap by April 2025. The national outcry and the standoff point to the fact that organisations in regulated sectors should consider a wider variety of performance metrics when issuing bonuses.
Arguments for regulation and intervention
One of the main arguments for increasing regulation in industries regulated like water is to align executive bonuses and compensation with the public’s interest.
Thames Water is in the position of having a natural monopoly, and therefore little need to compete with other companies for customers. Public trust can be increased by measures that improve accountability and ensure money is spent on essential infrastructure, even though this may reduce shareholder dividends.
Also, there is some consideration to force environmental and social impacts into rewards. Thames Water was very concerned about water quality, sewage discharge and other issues. This led to Sarah Bentley’s resignation in 2023. Theoretically better regulation could lead to greater investment in these areas and a more real impact.
Business case for regulation
The main focus of the counterargument is on talent retention. The fear is that by imposing caps and restrictions on compensation and rewards, most highly skilled executives would simply leave.
Thames, for example, needs executives with experience. Leaders who are able to manage costs, innovate, and achieve environmental targets are needed, despite (in some cases), the complexity of managing services that run on Victorian infrastructure. They are valued for their ability to anticipate issues and fix them.
Two other questions are raised in a geopolitical context: Would Welsh Water, which serves three million people, require the same level of regulation as Thames Water (16 million people)? Second, could there be a risk that more red tape would turn utilities like water into political pawns, much more vulnerable to party politics and election cycles?
Does the problem of executive bonuses have a hybrid solution?
To avoid additional red tape, boards of directors and remuneration panels will have to convince the UK Government they can deliver financial results aligned with ESG measures. How could they achieve this?
- Strong governance : Policies that combine ESG metrics and financial metrics in order to avoid government intervention.
- Clarify base pay vs. variable pay ratios: This should include a clear explanation of the role that bonuses play in remuneration packages and how they can be structured to adapt to changing needs.
- Take into account metrics for Long-Term Incentives Plans (LTIPs).Align bonus payments with public impact such as sewage reduction or customer satisfaction rather than a restructuring that resulted PS18.5m being paid to senior executives. These metrics can be weighted so that both factors influence pay and performance. They could also be measured and rewarded in the long-term. This allows for a greater focus to be placed on areas like maintenance and investments that don’t have an immediate return.
The Thames Water incident has taught us that executives and business leaders should pay attention to executive bonuses and compensation. Future governments could introduce bonus caps, ban bonuses for underperformance outright (as the EU did in 2014) or publicly shame companies and officials who receive excessive and unjustified rewards. It is important to take action because otherwise, executives could be left with a bad face.
