Watchdog demands water firms link executive pay to customer service

Firms must link executive pay to customer service under new rules set out by Britain's water watchdog to repair trust and put consumer interests at the "heart" of corporate decision-making.

It follows a wide-ranging consultation by Ofwat, which will force companies to "transparently" explain how performance-based pay for their executives will be tied to delivery for customers.

They will also have to explain how their dividend payout policies - covering the period from 2020 to 2025 - take their service into account.

That is on top of a requirement which will see businesses set out proposals on how they will share financial gains with their customers.

Ofwat has warned it will consider intervening if company plans for benefit-sharing fall short of expectations.

Ofwat chief executive Rachel Fletcher said: "The decisions some water companies have made on dividends, financial structures and top executive pay have damaged customer trust.

"We have looked in detail at the incentives we give water companies. Through the measures we've announced today, we are strengthening the incentive on companies to improve their performance for customers and cutting the rewards that come from financial engineering.

"This is an important step in making sure water companies put customers' interests, and those of future generations, at the heart of all the decisions they take."

The notice comes as bosses from the likes of Thames Water, Bristol Water, Albion Water and Castle Water prepare to appear in front of MPs from the Environment, Food and Rural Affairs Committee on Tuesday as part of an evidence session on the regulation of the water industry.

Last week, Thames Water confirmed that chief executive Steve Robertson would forgo a bonus for the next two years after the company forked out £120 million in compensation to customers and penalties for missing targets to cut leaks.

But under overhauled pay plans unveiled in the group's annual report, Thames Water revealed it will pay out a maximum £3.75 million to Mr Robertson in 2020 if all targets on leaks and pollution are met.

Last month, Ofwat ordered Thames Water to pay customers £15 each over the next two years after the watchdog found the firm breached two of its legal responsibilities, including that the board and management "did not pay enough attention" to solving leakage issues.

As a result, Thames Water was ordered to pay £55 million as a penalty for missing the commitment it made to customers to cut leaks and agreed to a further £65 million in customer compensation.

Thames Water has pledged to cut leaks by a further 15% by 2025 and do more to engage with customers on leakage issues, including at board level.

The company is fixing more than 1,000 leaks a week and spending hundreds of millions of pounds on fixing its ageing pipe network.

It has been hampered in the past, as many of the leaks are underground, but said it now has better technology in place to accurately detect leaks.