Water companies’ big bonuses and poor performance have damaged trust, says Ofwat

Firms will also have to explain how dividend payouts will benefit customers, not just shareholders

Water bosses are set to appear before MPs on the Environment, Food and Rural Affairs Committee on Tuesday to answer questions about regulation of the industry (PA)

Excessive pay and poor performance have damaged consumers’ trust in water companies, the industry regulator has said.

Ofwat said firms must link senior executives’ pay to improved customer service, while companies that boost their profits by borrowing large amounts of money may have to share bumper rewards with customers.

They will also have to explain how any dividend payouts above 5 per cent will benefit customers and not just shareholders.

The package of measures covering the period 2020 to 2025 was announced after water firms came in for criticism for their performance during the “Beast from the East” snowstorms. Thousands of customers were left without water for days in some areas, due to inadequate preparation and poor responses, drawing heavy criticism from the regulator.

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.”

Bosses from Thames Water, Bristol Water, Albion Water and Castle Water are set to appear before MPs on the Environment, Food and Rural Affairs Committee on Tuesday to answer questions about regulation of the industry.

Thames Water said last week that chief executive Steve Robertson will forego his bonus after the company the firm paid out £120m in compensation and penalties for delays in fixing leaks.

Between 2006 and 2015 the company paid out £1.1bn in dividends but paid no corporation tax because it offset interest payments against profits.

The company has committed to cut leaks by a further 15 per cent by 2025 and do more to engage with customers.