New British Gas boss Mark Hodges could earn up to £3.75m if he turns company's retail business around

Mark Hodges could earn twice his annual £625,000 salary if he outperforms in his job as managing director

Finance director Nick Luff used the announcement of a fall in profits to launch a diatribe against Ofgem (Getty Images)

British Gas has appointed an industry outsider who could be paid as much as £3.75m if he succeeds in turning around the retail business.

Mark Hodges could earn twice his annual £625,000 salary if he outperforms in his job as managing director. He is also in line for a long-term incentive plan worth three times his basic salary.

The insurance industry veteran, who worked for Norwich Union and Aviva for 20 years, rising to be chief executive of its UK business, will take over from Ian Peters, the interim chief executive, in June.

Mr Hodges, 49, is the first major hire of Iain Conn, the new chief executive of British Gas’s parent company, Centrica, and shows that the former BP man is looking for a fresh perspective on customer service.

British Gas lost 380,000 customers last year, and now has 15 million electricity and gas customers, sharply down from the peak where it had nearly 17 million customers.

Mr Hodges may find himself facing a political battle if Labour is the biggest party after the election. Ed Miliband has promised to freeze household energy prices.

The Competition and Markets Authority, the new competition watchdog, is also investigating whether energy companies have acted anti-competitively in a long-running inquiry that is due to report at the end of the year.

Mr Hodges said: “I am excited by the great potential the company has to benefit customers through improved service and in developing new products. Centrica is at the forefront of meeting the energy and energy services needs of customers in a range of markets.”

Mr Hodges was thought to be in line for the top job at Aviva, where he had been seen as a prodigy of Andrew Moss, the former chief executive. He left the insurer in 2011 to become chief executive of private-equity owned specialist insurer Towergate.

Centrica has repeatedly attracted criticism for its high levels of executive pay and Mr Hodges’ pay is likely to attract similar scrutiny. Executive pay arrangements are being revised and will be voted on at its annual meeting this month.

The energy company was forced to slash its dividend for the first time since 1997 in February, as a combination of falling prices and the weather cut profits by a third.

The appointment follows the departure of Chris Weston, who announced he was leaving British Gas to join Aggreko last May.