Excessive payouts for the bosses of England’s privatised water companies and their investors have damaged customer trust and could be curbed in future, the industry watchdog has said.
Warning of intervention powers over executive pay and dividends, Ofwat said it would run an assessment over the winter to check whether water companies were doing enough to link performance-related pay to customer delivery. Firms will submit their business plans, including their pay and dividend policies, to the regulator this September.
Rachel Fletcher, the watchdog’s chief executive, said: “The decisions some water companies have made on dividends, financial structures and top executive pay have damaged customer trust.”
She added that Ofwat would strengthen the incentive on companies to improve their performance for customers, while cutting the rewards that come from financial engineering – which involves firms ratcheting up their debts and using complex corporate structures.
“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,” she said.
Water industry bosses faced sharp criticism last month after the GMB trade union found they had banked £58m in pay and benefits over the last five years while customers have faced above-inflation rises in their water bills.
Household water bills have risen by 40% above inflation since the industry was privatised in 1989, according to a National Audit Office report.
The move from Ofwat also comes after the environment secretary, Michael Gove, attacked water companies for paying their bosses large salaries and huge dividends to shareholders while contributing little or no tax.
Labour has promised to bring water companies back into public ownership to save households money, amid rising public anger over pay and poor performance.
Ofwat issued a damning report last month, finding that water companies badly let down their customers during the “beast from the east” weather earlier this year. More than 200,000 households were cut off, yet compensation payouts totalled only £7m.
The watchdog’s new rules announced on Tuesday govern the period 2020 to 2025 and will force companies paying dividends above 5% to explain why that would be in their customers’ interests and not just for the benefit of their investors.
