The regulator said they must ensure policy regarding performance-related executive pay are transparent and “demonstrate a substantial link to exceptional delivery for customers”.
Water firms must also set out their dividend policies for 2020 to 2025 in their business plans and explain how they take account of delivery for customers over the period of the price control.
Factors that companies should consider for dividend policies include delivery of obligations and promises to customers, service and cost performance, employee interests and financial resilience.
That’s in addition to businesses setting out proposals on how they will share financial gains with their customers.
They are all part of regulator’s changes to its 2019 price review (PR19) methodology following a consultation with a wide range of stakeholders.
It follows accusations against water companies over their use of “tax havens and excessive profits” earlier this year.
Ofwat will assess each company’s approach to benefit sharing in its initial assessment of each company’s business plan, all of which must be submitted by 3rd September 2018 – and warned it will intervene if they fall short of expectations.
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.”