Water companies are being required to link bosses’ pay and shareholder dividends to customer service performance, as part of efforts to bolster public trust.
Industry regulator Ofwat said firms across England and Wales had until September to submit their updated business plans for the 2020-25 price period.
It had already announced that businesses must set out how they plan to share additional financial gains with their customers.
The watchdog said it could intervene next spring if any plans for benefit-sharing fall short – ahead of price controls being agreed.
Image: The regulator wants customers to benefit from a provider’s success as well as shareholders
But it also confirmed that it had limited enforcement powers should a company break its agreed commitments during the 2020-25 period – with any potential action limited to “naming and shaming” ahead of the next price review.
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.”
There are signs that Thames Water – long singled-out by the industry for muddying its reputation – is now taking the “customers first” approach seriously.
The country’s largest water firm announced a series of reforms late last year to boost its image – long tarnished by rewards for investors over performance for its customers.
Image: Thames Water expects to hit its leak targets by 2020. Pic: Thames Water
It was announced last week that chief executive Steve Robertson would forgo a bonus for the next two years after the company forked out £120m in compensation to customers and penalties for missing targets to cut leaks.
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But under overhauled pay plans unveiled in the group’s annual report, Thames revealed it would pay out a maximum £3.75m to Mr Robertson in 2020 if all targets tackling leaks and pollution are met.
The company 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.