UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Securities Exchange Act of 1934
(Amendment (Amendment No. )
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
Check the appropriate box:
| þ | Filed by the Registrant | o | Filed by a Party other than the Registrant |
| Check the appropriate box: | |||
| o | Preliminary Proxy Statement | ||
| o | |||
| þ | Definitive Proxy Statement | ||
| o | Definitive Additional Materials | ||
| o | Soliciting Material Under Rule 14a-12 | ||
Aqua America, Inc.
AQUA AMERICA, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Thanthan the Registrant)
Payment of Filing Fee (Check the appropriate box):
| Payment of Filing Fee (Check the appropriate box): | |||||
| þ | No fee required. | ||||
| o | Fee computed on table below per Exchange Act Rules 14a-6(i) | ||||
(1) Title of each class of securities to which transaction applies: | |||||
(2) Aggregate number of securities to which transaction applies: | |||||
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule | |||||
(4) Proposed maximum aggregate value of transaction: | |||||
(5) Total fee paid: | |||||
| o | Fee paid previously with preliminary | ||||
| o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the | ||||
| (1) Amount Previously Paid: | |||||
| |||||
(2) Form, Schedule or Registration Statement No.: | |||||
| (3) Filing Party: | |||||
| ||||
|
AQUA AMERICA, INC.
2017 ANNUAL MEETING OF SHAREHOLDERS
Christopher H. Franklin
| LETTER TO OUR SHAREHOLDERS
Dear Fellow Shareholder, I believe when we look back at the history of Aqua America, 2018 will stand out as a momentous year in our company’s story. In the span of one year, Aqua closed on six municipal acquisitions, welcomed our 1-millionth customer connection, and announced our entry into the natural gas distribution business thorough our acquisition of Pittsburgh-based natural gas company Peoples for $4.275 billion. Today, Aqua is a leader in rebuilding infrastructure and delivering safe and reliable water and wastewater services to our customers in the communities we serve. We remain committed to delivering on our promises to our customers, employees, the communities where we live and work, and you, our shareholders. Over the last few years, Aqua has experienced tremendous growth – with all our subsidiaries and employees working together. Collaboration across disciplines and geography has always led to the greatest successes for this company, and I’m grateful to be leading this organization as we continue to grow together in the years to come. Looking ahead, 2019 is poised to be another exciting and important year for Aqua, as we continue to successfully operate and grow our water and wastewater business, while also establishing ourselves in the natural gas industry. We understand the responsibility and opportunity we have to protect public health, the environment and the lives of our customers each and every day. Across the organization, our team of professionals works together to provide safe and reliable water to our customers, and to return treated wastewater to the environment in better condition than when we removed it. And this year, we look forward to welcoming and getting to know the employees and customers of Peoples. All these successes take dedication at every level of our organization. I am extremely proud of our employees, the leadership team, and our board of directors who are instrumental in helping chart our course. In August 2018, we appointed two new directors who will come up for election for the first time at our annual meeting: Elizabeth B. Amato and Lee C. Stewart. Beth, a seasoned human resources executive, and Lee, a financial consultant, both have contributed to and enabled our vision of excellence. In addition, a new director nominee is presented for election by the shareholders at this meeting, Christopher C. Womack, president of external affairs for Southern Company, an Atlanta-based energy company. These individuals and all our accomplished directors bring a superior caliber of thought leadership that benefits Aqua and its customers, employees, and shareholders. I’d like to express my deep appreciation to outgoing directors Carolyn J. Burke, William P. Hankowsky, and Wendell F. Holland for their service to our board. Carolyn, who has served since 2016, Bill, who has served since 2004, and Wendell, who has served since 2011, have helped guide Aqua into a new era and I wish them well as they move on to new endeavors. We look forward to seeing you at our In connection with the Annual Meeting, we have prepared a Notice of Annual Meeting of Shareholders, a Proxy Statement, and our 2018 Annual Report. On or about March 22, 2019, we began mailing to our shareholders these materials or a Notice of Availability of Proxy Materials containing instructions on how to access these materials online. Whether you plan on attending the Annual Meeting in person or not, we encourage you to read the Proxy Statement and all other materials and vote your shares. You may vote over the Internet, by telephone, or, if you received or requested to receive printed proxy materials, by signing, dating, and returning the proxy card enclosed with the proxy materials in the postage-paid envelope that is provided. On behalf of the senior leadership team, board of directors, and our team of employees who supports Aqua’s mission each day, thank you to our shareholders for your confidence, trust and support. Sincerely, Christopher H. Franklin
 |
My team and I will speak more about these topics at the Annual Meeting. In the meantime, I would like to share the following list of notable accomplishments our company has experienced during 2016—the year of our 130th anniversary:
*See Appendix B for a reconciliation of non-GAAP financial measures to GAAP financial measures.
I am honored to serve as the President and Chief Executive Officer of what I believe is the best water and wastewater company in the nation, and I look forward to seeing you at our Annual Meeting in May.
Sincerely,
Christopher H. Franklin
AQUA AMERICA, INC.
762 W. Lancaster Avenue
Bryn Mawr, Pennsylvania 19010
Notice of Annual Meeting of Shareholders
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
 |  |  | ||
| DATE & TIME | LOCATION | RECORD DATE | ||
| Thursday, May 2, 2019 8:00 A.M. Local Time | The Omni Richmond Hotel 100 South 12th Street Richmond, Virginia 23219 | March 4, 2019 | ||
Wednesday, May 3, 2017 at 8:30 A.M. local time
The Annual Meeting of Shareholders of AQUA AMERICA, INC. (the “Company”) will be held at theDrexelbrook Banquet Facility & Corporate Events Center, 4700 Drexelbrook Drive, Drexel Hill, PA 19026 Omni Richmond Hotel onWednesday, Thursday, May 3, 2017, 2, 2019, at8:3000 A.M., local time, for the following purposes:
Only shareholders of record at the close of business on March 7, 2017 will be entitled to notice of, and to vote at, the meeting and at any adjournments or postponements thereof.
By Order of the Board of Directors,
CHRISTOPHER P. LUNING
Secretary
March 24, 2017
1 | To consider and take action on the election of seven nominees for directors; | 3
| To approve an advisory vote on the compensation paid to the Company’s named executive officers for 2018, as disclosed in the Proxy Statement; | |
2
| To consider and take action on the ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2019 fiscal year; | 4 | To approve the Amended and Restated Omnibus Equity Compensation Plan; and | |
5
| To transact such other business as may properly come before the meeting or any adjournments or postponements thereof. | |||
Only shareholders of record at the close of business on March 4, 2019 will be entitled to notice of, and to vote at, the meeting and at any adjournments or postponements thereof.
| By Order of the Board of Directors, CHRISTOPHER P. LUNING Secretary | |||
We urge each shareholder to promptly sign and return the enclosed proxy card, or to use telephone or internet voting. See our questions and answers about the meeting and the voting section of the proxy statement for information about voting by telephone or internet, how to revoke a proxy and how to vote your shares in person.
FORWARD-LOOKING INFORMATION This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are based on management’s beliefs and assumptions. Various factors may cause actual results to be materially different than the suggested outcomes within forward-looking statements. Accordingly, there is no assurance that such results will be realized. For details on the uncertainties that may cause the Company’s actual future results to be materially different than those expressed in our forward-looking statements, see our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) and available on the SEC’s website at www.sec.gov. In light of these risks, uncertainties, and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made. Aqua America, Inc. expressly disclaims an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. |
TABLE OF CONTENTSTable of Contents
 | 2019 Proxy Statement i |
SUMMARY OF MATTERS TO BE VOTED UPON AT THE ANNUAL MEETING The following summarizes the items that shareholders are being asked to vote on at the 2019 Annual Meeting: | | DATE & TIME | Thursday, May 2, 2019 8:00 A.M. Local Time | |
| LOCATION | The Omni Richmond Hotel 100 South 12th Street | ||
| RECORD DATE | March 4, 2019 |
| PROPOSAL1 Election of Directors (Page 2) |
| The Board of Directors of the Company (the “Board of Directors” or the “Board”) and the Corporate Governance Committee believe that the seven director nominees possess the necessary qualifications, attributes, skills, and experience to provide advice and counsel to the Company’s management and effectively oversee the business and the long-term interests of our shareholders. | The Board recommends a voteFOR each director nominee. |
| PROPOSAL2 Ratification of the Appointment of PricewaterhouseCoopers LLP as the Independent Registered Public Accounting Firm for the 2019 Fiscal Year (Page 19) |
| The Board believes that the retention of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the 2019 fiscal year is in the best interests of the Company and its shareholders. As a matter of good corporate governance, shareholders are being asked to ratify the Audit Committee’s selection of PricewaterhouseCoopers LLP. | The Board recommends a voteFOR Proposal 2. |
| PROPOSAL3 Approval, on an Advisory Basis, of the Compensation Paid to the Company’s Named Executive Officers for 2018 (Page 21) |
| The Company seeks a non-binding advisory vote to approve the compensation of its named executive officers for 2018 as described in the Compensation Discussion and Analysis (“CD&A”) and the compensation tables and narrative discussion. The Board values shareholders’ opinions, and the Compensation Committee will take into account the outcome of the advisory vote when considering future executive compensation decisions. | The Board recommends a voteFOR Proposal 3. |
| PROPOSAL4 Approval of the Amended and Restated Omnibus Equity Compensation Plan (Page 52) |
| The Board believes that its Amended and Restated Omnibus Equity Compensation Plan properly aligns the interests of the Company’s shareholders with those of its management by providing appropriate incentives based upon sound compensation practices. | The Board recommends a voteFOR Proposal 4. |
| ii 2019 Proxy Statement | |
Director Nominees
The following table provides summary information about each of the Company’s seven director nominees. Each director shall serve a one-year term if elected.
| Name, Primary Occupation and Age | Director Since | Independent | Other Public Company Boards |
Elizabeth B. Amato, 62 Executive Vice President and Chief Human Resources | 2018 | Yes | 0 |
Nicholas DeBenedictis, 73 Chairman Emeritus and Former Chief Executive Officer, Aqua America, Inc. | 1992 | No | 3 |
Christopher H. Franklin, 53 Chairman, President and Chief Executive Officer, Aqua America, Inc. | 2015 | No | 0 |
Daniel J. Hilferty1, 62 President and Chief Executive Officer, Independence Health Group | 2017 | Yes | 0 |
Ellen T. Ruff, 70 Former President, Duke Energy | 2006 | Yes | 0 |
Lee C. Stewart, 70 Private Financial Consultant | 2018 | Yes | 3 |
Christopher C. Womack, 61 President, External Affairs, Southern Company | Nominee | Yes | 0 |
1Lead Independent Director
| Compensation Highlights | |
| ü | Compensation program highly correlated to total shareholder return, adjusted earnings per share, and other financial metrics |
| ü | Emphasis on performance-based compensation |
| ü | Significant portion of compensation is variable and at risk |
| ü | Modest perquisites and other personal benefits |
| ü | Reasonable change-in-control agreements with double-trigger termination |
| ü | Clawback policies in place |
| ü | Shareholder say on pay results in excess of 93% for six years |
| ü | Shareholding guidelines ensure that executives are aligned with shareholders |
| ü | Reasonable severance arrangements |
| ü | No tax gross ups |
| ü | Compensation committee conducted request for proposal process to determine its independent compensation consultant |
| Corporate Governance Highlights | |||||||
| |||||||
| ü | |||||||
| ü | |||||||
| ü | Mandatory retirement age of 75 for directors | ||||||
| ü | Mandatory resignation upon the 15thanniversary of a director elected on or after December 2015 | ||||||
| Risk oversight by full Board and all committees | |||||||
| ü | Self-evaluations of the Board and its committees annually and individual directors every second year | ||||||
| ü | Commenced active shareholder engagement program in 2017 | ||||||
| ü | Lead independent director with clearly defined and robust responsibilities | ||||||
| ü | Independent audit, compensation, and governance committees | ||||||
| ü | Robust oversight of cybersecurity measures by full Board and Risk Mitigation and Investment Policy Committees | ||||||
| ü | Anti-hedging and anti-pledging policy | ||||||
| ü | Robust director and management stock ownership guidelines | ||||||
| ü | Diversity—approximately 30% of the Board is gender diverse | ||||||
| ü | Board refreshment—since the 2018 Annual Meeting, the Board of Directors appointed two new directors to serve until the 2019 Annual Meeting and has nominated a third new director for the shareholders’ consideration. | ||||||
| 2019 Proxy Statement iii |
| ||||
| ||||
2018 Financial Highlights
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 3, 2017During 2018, our leadership team remained focused on growing our customer base through acquisitions, prudently investing capital to renew our aging infrastructure, and creating efficiencies across the organization. Our efforts help to ensure quality water and wastewater for our customers as well as shareholder value. We see great opportunities ahead and remain focused on investing in infrastructure and delivering sustainable growth for our investors. We do this while building on our core values of respect, integrity, and excellence.
| · | We made significant investments to build and improve our communities’ infrastructure. Over the past five years, we have invested more than $2 billion in infrastructure improvements, including approximately 870 of miles of pipe replacement and plant upgrades to enhance water quality. |
| · | In 2018, we invested $495.7 million on infrastructure projects, helping to ensure safe and reliable water for all customers. |
| · | Revenues were $838.1 million in 2018, an increase of 3.5 percent over 2017. |
| · | Earnings per share were $1.08 in 2018, including items from the Peoples transaction. Excluding these items, adjusted (non-GAAP) earnings per share were $1.41 compared to earnings per share of $1.35 in 2017.* |
| · | We added 22,726 customer connections in 2018 and reached the one million water and wastewater customer connection milestone. The total customer connection count increased by more than 2 percent, which includes customers from organic growth and acquisitions. Our acquisitions in 2018 added over $100 million in rate base, and we have signed acquisitions expected to close in 2019 with another $100 million in rate base. |
| · | From January 1, 2016 to December 31, 2018, the total return to our shareholders, including share price appreciation and dividends paid, shows 23.32 percent growth. |
| · | In August 2018, the Board of Directors approved a 7 percent increase in the quarterly dividend to an annualized rate of $0.88 per share. |
| · | We announced an agreement to acquire Peoples, a natural gas distribution utility, in an all-cash transaction that reflects an enterprise value of $4.275 billion, which includes the assumption of approximately $1.3 billion of debt, creating a new infrastructure company well-positioned for growth. |
| · | We issued an inaugural Corporate Social Responsibility report and submitted our first report to the CDP. |
*See Appendix B for a reconciliation of non-GAAP financial measures to GAAP financial measures.
Below is a chart showing our Total Return to our shareholders over the past 5 years as compared to the S&P 500 Index, the S&P MidCap 400 Utilities Index, and our identified Peer Group.
| iv 2019 Proxy Statement | |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May 2, 2019
The Notice of Annual Meeting, Proxy Statement and 20162018 Annual Report to Shareholders
are available at: http://ir.aquaamerica.com/
AQUA AMERICA, INC.
762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
PROXY STATEMENTProxy Statement
This proxy statement (the “Proxy Statement”) is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board of Directors” or the “Board”) of Aqua America, Inc. (“Aqua America”, “Aqua” or the “Company”) to be used at the Annual Meeting of Shareholders to be held on Wednesday,Thursday, May 3, 20172, 2019 at 8.308:00 a.m., local time at The Omni Richmond Hotel, 100 South 12thStreet, Richmond, Virginia 23219, and at any adjournments or postponements thereof (“20172019 Annual Meeting” or the “meeting”“Annual Meeting”).
The cost of soliciting proxies will be paid by the Company, which has arranged for reimbursement at the rate suggested by the New York Stock Exchange (the “NYSE”) of brokerage houses, nominees, custodians and fiduciaries for the forwarding of proxy materials to the beneficial owners of shares held of record. In addition, the Company has retained Alliance Advisors LLC to assist in the solicitation of proxies from (i) brokers, bank nominees and other institutional holders, and (ii) individual holders of record. The fee paid to Alliance Advisors LLC for normal proxy solicitation does not exceed $7,500$8,000 plus expenses, which will be paid by the Company. Directors, officers and regular employees of the Company may solicit proxies, although no compensation will be paid by the Company for such efforts.
Under rules adopted by the U.S. Securities and Exchange Commission (“SEC”),SEC, the Company is now furnishing proxy materials to many of its shareholders onvia the Internet, rather than mailing printed copies of those materials to each shareholder. If you received a notice of availability over the Internet of the proxy materials (“Notice”) by mail, you will not receive a printed copy of the proxy materials unless you request one. Instead, the Notice will instruct you as to how you may access and review the proxy materials on the Internet. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice. The Notice is being sent to shareholders of record as of March 7, 20174, 2019 on or about March 24, 2017.22, 2019. Proxy materials, which include the Notice of Annual Meeting of Shareholders, this Proxy Statement and the Annual Report to Shareholders for the year ended December 31, 2016,2018, including financial statements and other information with respect to the Company and its subsidiaries (the “Annual Report”), are first being made available to shareholders of record as of March 7, 2017,4, 2019, on or about March 24, 2017.22, 2019. Additional copies of the Annual Report may be obtained by writing to the Company at the address and in the manner set forth under “Additional Information” on page 70.66.
PURPOSE OF THE MEETING
As the meeting is the Annual Meeting of Shareholders, the shareholders of the Company will be requested to:
| · | Consider and take action on the election of seven nominees for directors; |
| · | Consider and take action on the ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2019 fiscal year; |
| · | Approve a non-binding advisory vote on the compensation paid to the Company’s named executive officers for 2018 as disclosed in this Proxy Statement; |
| · | Approve the Amended and Restated Omnibus Equity Compensation Plan; and |
| · | Transact such other business as may properly come before the meeting or any adjournments or postponements thereof. |
| 2019 Proxy Statement 1 |
QUESTIONS AND ANSWERS ABOUT THE 2017 ANNUAL MEETING
Who is entitled to vote?
Holders of shares of the Company’s common stock (the “Common Stock”) of record at the close of business on March 7, 2017 are entitled to vote at the meeting.
Each shareholder entitled to vote shall have the right to one vote on each matter presented at the meeting for each share of Common Stock outstanding in such shareholder’s name.
How many shares can vote?
As of March 7, 2017, there were 177,567,809 shares of Common Stock outstanding and entitled to be voted at the meeting.
How do I cast my vote?
Shares can be voted in the following four ways:
What is the proxy?
The proxy card or electronic proxy that you are being asked to give is a means by which a shareholder may authorize the voting of his or her shares at the meeting if he or she is unable to attend in person. The individuals to whom you are giving a proxy to vote your shares are Christopher P. Luning, our Senior Vice President, General Counsel and Secretary, and David P. Smeltzer, our Executive Vice President and Chief Financial Officer.
The shares of Common Stock represented by each properly executed proxy card or electronic proxy will be voted at the meeting in accordance with each
shareholder’s direction. Shareholders are urged to specify their choices by marking the appropriate boxes on the proxy card or electronic proxy, or voting via telephone. If the proxy card or electronic proxy is signed, but no choice has been specified, the shares will be voted as recommended by the Board of Directors. If any other matters are properly presented at the meeting or any adjournment or postponement thereof for action, the proxy holders will vote the proxies (which confer discretionary authority to vote on such matters) in accordance with their judgment.
If a proxy is executed, can a shareholder still attend the meeting in person?
Yes. Execution of the accompanying proxy or voting through an electronic proxy or voting by telephone will not affect a shareholder’s right to
attend the meeting and, if desired, vote in person. You can submit a proxy and still attend the meeting without voting in person.
Can a shareholder revoke or change his or her vote?
Yes. Any shareholder giving a proxy card or voting by electronic proxy or voting by telephone has the right to revoke the proxy or the electronic or telephonic vote by giving written notice of revocation to the Secretary of the Company at any time before the proxy is voted, by executing a proxy
bearing a later date, by making a later-dated vote electronically or by telephone, or by attending the meeting and voting in person. Attendance at the meeting will not, by itself, revoke a previously granted proxy.
|
What are the voting requirements to approve the proposals presented in the Proxy Statement?
The Company’s Articles of Incorporation and Bylaws, as amended, provide that the affirmative vote of a majority of the votes cast by those shareholders present in person or represented by proxy at the meeting is required to take action with respect to any matter properly brought before the meeting, other than the election of directors, on the recommendation of a vote of a majority of the entire Board of Directors (i.e., Proposals 2, 3, and 4). Abstentions and brokernon-votes, if any, will have
no effect with respect to such matters, other than for purposes of determining the presence of a quorum.
The Company’s Bylaws also provide that the affirmative vote of at least three quarters of the votes which all voting shareholders, voting as a single class, are entitled to cast is required to take action with respect to any other matter properly brought before the meeting, other than the election of directors, without the recommendation of a vote of a majority of the entire Board of Directors.
What is a quorum?
A quorum of shareholders is necessary to hold a valid meeting of shareholders for the transaction of business. The holders of a majority of the shares entitled to vote, present in person or represented by
proxy at the meeting, constitute a quorum. Abstentions and “brokernon-votes” are counted as present and entitled to vote for purposes of determining a quorum.
What is a brokernon-vote?
A “brokernon-vote” occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power under NYSE rules for that particular item and has not received instructions from the beneficial owner.
If you are a beneficial owner, your bank, broker or other holder of record is permitted under NYSE rules to vote your shares on the ratification of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for the 2016 fiscal year, even if the record holder does not receive voting instructions from you. The record holder may not vote on the election of directors, the advisory vote on the compensation paid to the Company’s named executive officers for 2016 or the advisory vote on the frequency of the advisory vote on the compensation paid to the Company’s named executive officers without instructions from you. Without your voting instructions on these matters, a brokernon-vote will occur.
YOUR PROXY VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE ASKED TO COMPLETE, SIGN AND RETURN THE PROXY CARD OR SUBMIT AN ELECTRONIC PROXY, VOTE TELEPHONICALLY OR PROVIDE YOUR BROKER WITH INSTRUCTIONS ON HOW TO VOTE YOUR SHARES, REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
|
PROPOSALS UNDER CONSIDERATION AT THIS MEETING
How are directors elected?
Under the Company’s Articles of Incorporation and Bylaws, directors are elected by a plurality of the votes cast at the meeting. A description of the Company’s majority voting resignation policy is set forth in the answer to the question below. Votes may be cast FOR or WITHHOLD for each nominee. Brokernon-votes will be excluded entirely from the vote to elect directors and will have no effect, other than for purposes of
determining the presence of a quorum. Abstentions will have no effect on the election of directors. The director nominees who receive the highest number of votes up to the number of directors to be elected will be elected at the meeting. All of the directors elected at the 2017 Annual Meeting will be elected for one year terms expiring at the 2018 Annual Meeting and until their successors are duly elected and qualified.
What if an incumbent director receives more WITHHOLD votes than FOR votes in an uncontested election?
In 2011, the Board of Directors adopted a majority voting resignation policy for the election of directors in uncontested elections. Under this policy, in an election where the only nominees are those recommended by the Board of Directors, any incumbent director who is nominated forre-election and who receives a greater number of WITHHOLD votes than FOR votes for the director’s election shall promptly tender his or her resignation to the Board of Directors. The Board shall evaluate the relevant facts and circumstances in connection with such director’s resignation, giving due consideration to the best interests of the Company and its shareholders. Within 90 days after the election, the independent directors shall make a decision on whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of Directors
will promptly disclose publicly its decision and the reasons for its decision.
The Board of Directors believes that this process enhances accountability to shareholders and responsiveness to shareholder votes, while allowing the Board of Directors appropriate discretion in considering whether a particular director’s resignation would be in the best interests of the Company and its shareholders.
The Company’s majority voting resignation policy is set forth in the Company’s Corporate Governance Guidelines. Copies of the Corporate Governance Guidelines can be obtained free of charge from the Corporate Governance portion of the Investor Relations section of the Company’s website,www.aquaamerica.com.
Why are the shareholders asked to vote on the ratification of the selection of the independent registered public accounting firm?
The Audit Committee of our Board of Directors carefully considers the qualifications of the independent auditors before engaging them to conduct an audit, and has the oversight authority with respect to the performance of the independent auditors. The Board of Directors thinks it is important to provide an opportunity for the shareholders to voice any concern with respect to the independent auditors selected, which is the reason for this ratification vote. Under the Company’s Articles of Incorporation and Bylaws, the
affirmative vote of a majority of the votes cast by those shareholders present in person or by proxy at the meeting is required to ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2017 fiscal year. Abstentions will not be considered votes cast on this proposal and, therefore, will have no effect, other than for purposes of determining the presence of a quorum.
What is the impact of the advisory vote on the compensation paid to the Company’s named executive officers, referred to as “Say on Pay” vote?
The Board of Directors and the Executive Compensation Committee, which is comprised of independent directors, value the opinions of the Company’s shareholders and expect to take into
account the outcome of thenon-binding advisory vote when considering future executive compensation decisions to the extent they can determine the cause or causes of any significant negative voting results.
|
Why are shareholders being asked to provide an advisory vote on the frequency of how often the Say on Pay vote will be submitted to shareholders in future years?
The Company first submitted to shareholders an advisory vote on the compensation of its named executive officers in its 2011 proxy statement. At that time, the shareholders overwhelmingly supported the provision of the Say on Pay vote every year, which advisory vote was adopted
by the Board of Directors in 2011. Applicable law requires the Company to seek an advisory vote of the frequency of the Say on Pay vote at least once every six years, therefore we are providing this advisory vote on the frequency of the Say on Pay vote at the 2017 Annual Meeting.
What does the Board of Directors recommend for the frequency advisory vote on named executive officer compensation?
Since 2011, the advisory vote on say-on-pay for our named executive officers has achieved greater than 92% support from shareholders. The Executive Compensation Committee of the Board of Directors considers the advisory vote results each year in making compensation decisions for the following year. The Board of Directors believes that annual advisory votes provide shareholders
with the opportunity to voice support or concern regarding the named executive officer compensation on a more timely basis, which is why the Board of Directors is recommending that the shareholders select the annual frequency so that such annual Say on Pay votes will continue.
PROCESS FOR SUBMITTING SHAREHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Who can submit a shareholder proposal at an Annual Meeting?
Shareholders may submit proposals, which are proper subjects for inclusion in the Company’s Proxy Materials, which are this Proxy Statement and the form of proxy attached, for consideration at an
Annual Meeting of Shareholders, by following the procedures prescribed by Rule14a-8(e) of the Securities Exchange Act of 1934, as amended.
What is the deadline for submitting shareholder proposals for inclusion in the Company’s Proxy Materials for the next Annual Meeting?
To be eligible for inclusion in the Company’s Proxy Materials relating to the 2018 Annual Meeting of Shareholders, proposals must be submitted in
writing and received by the Company at the address below no later than November 24, 2017.
What is the deadline for proposing business to be considered at the next Annual Meeting, but not to have the proposed business included in the Company’s Proxy Materials?
A shareholder of the Company may wish to propose business to be considered at an Annual Meeting of Shareholders, but not to have the proposed business included in the Company’s Proxy Materials relating to that meeting. Section 3.17 of the Company’s Bylaws requires that the Company receive written notice of business that a shareholder wishes to present for consideration at the 2018 Annual Meeting of Shareholders (other than matters included in the Company’s Proxy Materials) not earlier than January 3, 2018 or later than February 2, 2018. The notice must meet certain other
requirements set forth in the Company’s Bylaws. Copies of the Company’s Bylaws can be obtained by submitting a written request to the Secretary of the Company at the address below:
Proposals, notices and requests for copy by our Bylaws should be addressed as follows:
CORPORATE SECRETARY
AQUA AMERICA, INC.
762 W. LANCASTER AVENUE
BRYN MAWR, PA 19010
|
NOMINATING CANDIDATES FOR DIRECTOR
How does a shareholder nominate a director for election to the Board of Directors at the 2017 Annual Meeting?
A shareholder entitled to vote for the election of directors may make a nomination for director provided that written notice (the “Nomination Notice”) of the shareholder’s intent to nominate a director at the meeting is filed with the Secretary of the Company prior to the 2017 Annual Meeting in accordance with provisions of the Company’s Articles of Incorporation and Bylaws.
Section 4.14 of the Company’s Bylaws requires the Nomination Notice to be received by the Secretary of the Company not less than 14 days nor more than 50 days prior to any meeting of the shareholders called for the election of directors, with certain exceptions. These notice requirements do not apply to nominations for which proxies are solicited under applicable regulations of the SEC. The Nomination Notice must contain or be accompanied by the following information:
What is the deadline for submitting a Nomination Notice for the 2017 Annual Meeting?
Pursuant to the above requirements, a Nomination Notice for the 2017 Annual Meeting must be
received by the Secretary of the Company no later than April 19, 2017.
CONSIDERATION OF DIRECTOR CANDIDATES
Who chooses director candidates?
The Corporate Governance Committee identifies, evaluates and recommends director candidates to our Board of Directors for nomination. The process followed by our Corporate Governance Committee to identify and evaluate director candidates includes
requests to current directors and others for recommendations, consideration of candidates proposed by shareholders, meetings from time to time to evaluate potential candidates and interviews of potential candidates.
|
How are director candidates evaluated?
In considering candidates for director, the Corporate Governance Committee will consider the candidates’ personal abilities, qualifications, independence, knowledge, judgment, character, leadership skills, education, background and their expertise and experience in fields and disciplines relevant to the Company, including financial expertise or financial literacy. When assessing a candidate, consideration will be given to the effect such candidate will have on the diversity of the Board. Diversity of the Board is evaluated by considering a broad range of attributes, such as background, demographic (including, without limitation, race, gender and national origin),
expertise and experience. Due consideration will also be given to the position the candidate holds at the time of his or her nomination and his or her capabilities to advance the Company’s interests with its various constituencies. The Corporate Governance Committee considers all of these qualities when selecting, subject to ratification by our Board of Directors, candidates for director.
The Corporate Governance Committee will evaluate shareholder-recommended candidates in the same manner as it evaluates candidates recommended by others.
What is the deadline for submitting a shareholder recommendation for a director candidate at the 2018 Annual Meeting?
If you would like a director candidate considered by the Corporate Governance Committee for selection as a nominee at the 2018 Annual Meeting, such recommendation should be submitted to the Chairperson of the Corporate Governance
Committee at least 120 days before the date on which the Company first mailed its proxy materials for the prior year’s Annual Meeting of Shareholders—that is, with respect to the 2018 Annual Meeting, no later than November 24, 2017.
COMMUNICATIONS WITH THE COMPANY OR INDEPENDENT DIRECTORS
The Company receives many shareholder suggestions which are not in the form of proposals. All are given careful consideration. We welcome and encourage your comments and suggestions. Your correspondence should be addressed as follows:
CORPORATE SECRETARY
AQUA AMERICA, INC.
762 W. LANCASTER AVENUE
BRYN MAWR, PA 19010
In addition, shareholders or other interested parties may communicate directly with the independent directors or the lead independent director by writing
to the address set forth below. The Company will review all such correspondence and provide any comments along with the full text of the shareholder’s or other interested party’s communication to the independent directors or the lead independent director.
THE INDEPENDENT DIRECTORSOR
LEAD INDEPENDENT DIRECTOR
AQUA AMERICA, INC.
C/O CORPORATE SECRETARY
762 W. LANCASTER AVENUE
BRYN MAWR, PA 19010
|
All of the directorsdirector nominees who are elected, will be elected for aone-year term expiring at the 20182020 Annual Meeting of Shareholders, and until their successors are duly elected and qualified. In accordance with the Company’s Corporate Governance Guidelines, the Chairperson of the Corporate Governance Committee reported to the Corporate Governance Committee that Carolyn J. Burke,Elizabeth B. Amato, Nicholas DeBenedictis, Christopher H. Franklin, Richard H. Glanton, Lon R. Greenberg, William P. Hankowsky, Wendell F. Holland, andDaniel J. Hilferty, Ellen T. Ruff, Lee C. Stewart and Christopher C. Womack would be willing to serve on the Board of Directors, if elected. Mr. Womack was recommended as a first-time director nominee by a third-party search firm. The Corporate Governance Committee reviewed the qualifications of the directorsdirector nominees in relation to the criteria for candidates for nomination for election to the Board of Directors under the Company’s Corporate Governance Guidelines. The Corporate Governance Committee voted to recommend to the Board of Directors, and the Board of Directors approved, the nomination of Ms. Burke,Amato, Mr. DeBenedictis, Mr. Franklin, Mr. Glanton,Hilferty, Ms. Ruff, Mr. Greenberg,Stewart, and Mr. Hankowsky, Mr. Holland, and Ms. RuffWomack for election as directors at the 20172019 Annual Meeting, with each nominee abstaining from the vote with respect to his or her nomination.nomination, as applicable.
Therefore, eight directorsseven nominees will stand for election by a plurality of the votes cast at the 20172019 Annual Meeting. At the 20172019 Annual Meeting, proxies in the accompanying form, properly executed, will be voted for the election of the seven nominees listed below, unless authority to do so has been withheld in the manner specified in the instructions on the proxy card or the record holder does not have discretionary voting power under the NYSE rules (see “What is the proxy?” on page 261 and “Proposals“Information About Proposals Under Consideration at This Meeting” on page 4)63). Discretionary authority is reserved to cast votes for the election of a substitute should any nominee be unable or become unwilling to serve as a director. Each nominee has stated his or her willingness to serve and the Company believes that the nominees will be available to serve.
INFORMATION REGARDING NOMINEES
Information Regarding Nominees
For each of the eightseven nominees for election as directors at the 20172019 Annual Meeting, set forth below is information as to the positions and offices with the Company held by each, the principal occupation of each during at least the past five years, the directorships of public companies and other organizations held by each and the experience, qualifications, attributes or skills that, in the opinion of the Corporate Governance Committee and the Board of Directors, make the individual qualified to serve as a director of the Company. The chart below summarizes the experience, qualifications, attributes, and skills of each of the nominees:
Experience,
| Utility Industry | Regulatory | Financial | Legal/ Government | Leadership | Mergers & Acquisitions | Geographic Diversity | “C-Suite” Experience | ||||||||||||||||
| Amato | √ | √ | √ | √ | ||||||||||||||||||||
| DeBenedictis | √ | √ | √ | √ | √ | √ | √ | |||||||||||||||||
| Franklin | √ | √ | √ | √ | √ | √ | ||||||||||||||||||
| Hilferty | √ | √ | √ | √ | ||||||||||||||||||||
| Ruff | √ | √ | √ | √ | √ | √ | ||||||||||||||||||
| Stewart | √ | √ | √ | √ | √ | √ | √ | |||||||||||||||||
| Womack | √ | √ | √ | √ | √ |
| |
|
Nominees for Election at the 2019 Annual Meeting
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
| ||||||||||||||||||||||||
ELIZABETH B. AMATO |  | |||||||||||||||||||||||
Director since2018 Age62 | Executive Vice President and Chief Human Resources Officer, United Technologies Corp. | |||||||||||||||||||||||
Biography: Ms. Amato is Executive Vice President & Chief Human Resources Officer of United Technologies Corp. (“UTC”) since November 2015. Prior to that, she was Senior Vice President, Human Resources and Organization of UTC from August 2012 to November 2015, with global responsibility for UTC’s Human Resources and Communications functions. Ms. Amato joined UTC in 1985 at Pratt & Whitney and has held a variety of the most senior human resources leadership positions across the corporation in both aerospace and commercial building systems, including UTC Climate, Controls & Security (2011-2012), Carrier (2010-2011), Pratt & Whitney (2006-2009) and Sikorsky (1997-2006). Ms. Amato is a recipient of the YWCA Women Achievers Award and is currently a member of the National Academy of Human Resources CHRO Board Academy and is a member of the Board of Directors for Children’s Healthcare Charity, Inc. Qualifications: Ms. Amato has over 30 years of experience in various roles with responsibilities ranging from integrating acquisitions to human resources to executive compensation. The Board of Directors views Ms. Amato’s independence, her broad experience, and her leadership roles within the industry as important qualifications, skills and experience that support the Board of Director’s conclusion that Ms. Amato should serve as a director of the Company. | Member, Corporate Governance Member, Executive Compensation | ||
| 2019 Proxy Statement 3 |
NICHOLAS DEBENEDICTIS |  | ||
Director since1992 Age73 | Chairman Emeritus, Aqua America, Inc. | ||
Biography: Mr. DeBenedictis is Chairman Emeritus of the Board, having retired as Chief Executive Officer of the Company in 2015 and as non-executive Chairman of the Board in 2017. Mr. DeBenedictis was Chief Executive Officer from 1992 until 2015 and Chairman of the Board from 1993 until 2017. Between April 1989 and June 1992, he served as Senior Vice President for Corporate Affairs of PECO Energy Company (an Exelon Corporation). From December 1986 to April 1989, he served as President of the Greater Philadelphia Chamber of Commerce and from 1983 to 1986 he served as the Secretary of the Pennsylvania Department of Environmental Resources. Mr. DeBenedictis is a director of Exelon Corporation, P.H. Glatfelter Company and Mistras Group. He also serves on the Boards of Pennsylvania area non-profit, civic, and business organizations, including Independence Health Group. Qualifications: In addition to his knowledge and experience as the Company’s previous Chairman of the Board from 1993 to 2017 and Chief Executive Officer from 1992 to 2015, and his prior experience as a senior executive of a major electric utility, Mr. DeBenedictis has experience as the head of Pennsylvania’s environmental regulatory agency. He serves as a director of three other public companies, including, from time to time, as a member of the corporate governance, audit, finance and compensation committees of those companies. Mr. DeBenedictis has also held leadership positions with various, educational, business, civic and charitable institutions. The Board of Directors views Mr. DeBenedictis’ experience with various aspects of the utility industry and his demonstrated leadership roles in business and community activities as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. DeBenedictis should serve as a director of the Company. | Member, Risk Mitigation and | ||
| 4 2019 Proxy Statement | |
CHRISTOPHER H. FRANKLIN |  | ||
Director since2015 Age53 | Chairman, President, and Chief Executive Officer, Aqua America, Inc. | ||
Biography: Christopher H. Franklin is Chairman, President, and Chief Executive Officer of the Company. Mr. Franklin has worked for the Company for 27 years in a variety of leadership positions: Mr. Franklin served as President and Chief Executive Officer (July 2015 to December 2017); as Executive Vice President, and President and Chief Operating Officer, Regulated Operations (January 2012 to July 2015); Regional President—Midwest and Southern Operations and Senior Vice President, Public Affairs (January 2010 to January 2012); Regional President—Southern Operations and Senior Vice President, Public Affairs and Customer Relations (February 2007 to January 2010); Vice President, Public Affairs and Customer Operations (May 2005 to February 2007); Vice President, Corporate and Public Affairs (February 1997 to May 2005); and Manager Corporate & Public Affairs (December 1992 to February 1997). Qualifications: Since joining the Company in December 1992 as manager, corporate and public affairs, Mr. Franklin headed several successful projects, including advocacy for the passage of legislation designed to provide customers of state-regulated water and wastewater utilities with improved water quality and better water and wastewater systems while allowing a fair and reasonable return for shareholders. Before joining the Company, Mr. Franklin worked at PECO Energy Company (an Exelon company) where he was regional, civic and economic development officer, responsible for the review, recommendation and promotion of economic development initiatives in the Philadelphia region. Mr. Franklin earned his B.S. from West Chester University and his M.B.A. from Villanova University. Mr. Franklin has served on the board of ITC, Holdings, NYSE:ITC before the company was sold in 2016. Mr. Franklin is active in the community and serves on the following nonprofit boards: University of Pennsylvania Board of Trustees, Philadelphia, PA and West Chester University’s Council of Trustees, West Chester, PA. The Board of Directors views Mr. Franklin’s extensive experience with the Company, capabilities, and his demonstrated leadership roles with the Company and in business and community activities as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Franklin should serve as a director of the Company. | Chair, Executive Committee; | ||
| 2019 Proxy Statement 5 |
DANIEL J. HILFERTY |  | ||
Director since2017 Age62 | Lead Independent Director, Aqua America, Inc. President and CEO, Independence Health Group | ||
Biography: Mr. Hilferty has served as the President and Chief Executive Officer of Independence Health Group (“IHG”), one of the nation’s leading health insurers serving 9 million customers in 25 states and Washington D.C., since 2010. Mr. Hilferty is past Chairman of the Board of Directors for the Blue Cross and Blue Shield Association, serves on the Executive Committee of the Board of Directors of America’s Health Insurance Plans, and on the Board of Directors of BCS Financial, where he serves as Chairman of the BCS Audit Committee. In 2015, he served as co-chair on the Executive Leadership Cabinet of the World Meeting of Families. Prior to 2010, Mr. Hilferty was President and Chief Executive Officer of the AmeriHealth Mercy Family of Companies, Executive Director of PennPORTS in the administration of Pennsylvania Governor Robert P. Casey, and Assistant Vice President overseeing community and media relations for Saint Joseph’s University. Mr. Hilferty also served on the Board of Directors for Fund III of Franklin Square Investments. Qualifications: Mr. Hilferty has extensive knowledge and experience in the areas of mergers and acquisitions, the health care field, and government relations and regulation. Based on Mr. Hilferty’s experience, qualifications, and knowledge, in 2017, the Board of Directors determined that Mr. Hilferty should serve as its Lead Independent Director. Prior to doing so, the Board reviewed, as part of its independence determination, information that IHG serves as the administrator for the Company’s self-insured health plans for the employees of the Company and its subsidiaries. The Board then determined that Mr. Hilferty is independent in accordance with the Company’s corporate governance guidelines and applicable NYSE and SEC requirements. The Board of Directors views Mr. Hilferty’s independence, his experience with regulation, his reputation in the healthcare industry, and his leadership roles in business and community activities as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Hilferty should serve as a director of the Company. | Lead Independent Director Member, Executive Committee | ||
| 6 2019 Proxy Statement | |
ELLEN T. RUFF |  | ||
Director since2006 Age70 | Former President, Duke Energy | ||
Biography: Ms. Ruff was President, Office of Nuclear Development, for Duke Energy Corporation, from December 2008 until her retirement in January 2011. Ms. Ruff was a partner at the law firm of McGuire Woods LLP from 2011 to 2018. From April 2006 through December 2008, Ms. Ruff was President of Duke Energy Carolinas, an electric utility that provides electricity and other services to customers in North Carolina and South Carolina. Ms. Ruff joined Duke Energy in 1978 and during her career held a number of key positions, including: Vice President and General Counsel of Corporate, Gas and Electric Operations; Senior Vice President and General Counsel for Duke Energy; Senior Vice President of Asset Management for Duke Power; Senior Vice President of Power Policy and Planning; and Group Vice President of Planning and External Affairs. Qualifications: Ms. Ruff has over 30 years of experience with a major utility company in various management, operations, legal planning and public affairs positions. Ms. Ruff has lived and worked in North Carolina, an important area of the Company’s operations, for many years. The Board of Directors has determined that Ms. Ruff is an independent director. The Board of Directors views Ms. Ruff’s independence, her experience with various aspects of the utility industry, her knowledge of North Carolina and her demonstrated leadership roles in business and community activities as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Ms. Ruff should serve as a director of the Company. | Chair, Executive Compensation Committee Member, Executive Committee Member, Corporate Governance Committee | ||
| 2019 Proxy Statement 7 |
LEE C. STEWART |  | ||
Director since2018 Age70 | Private Financial Consultant | ||
Biography: Mr. Stewart is a private financial consultant with over 25 years of experience as an investment banker. He was Vice President at Union Carbide Corporation from 1996 to 2001, responsible for various treasury and finance functions, and from 2001 to 2002 was Chief Financial Officer of Foamex International, Inc. Mr. Stewart has been a director of P.H. Glatfelter Company, a New York Stock Exchange-listed global supplier of specialty papers and engineered materials, since 2002. Mr. Stewart serves as a director of Mood Media Corp., a publicly traded media and marketing company, and as a director of Hexion Holdings, LLC, a global leader in thermoset resins. Mr. Stewart was a director of ITC Holdings Corp., a New York Stock Exchange-listed electricity transmission company, from 2005 to 2016 when ITC was acquired by Fortis. Mr. Stewart also served as a director of AEP Industries, Inc., a chemical company listed on the Toronto Stock Exchange, from 2000 until its sale in 2011, and Momentive Performance Materials Inc., a specialty chemical company in silicone and advanced materials, from May 2013 through its successful emergence from bankruptcy in October 2014. Mr. Stewart has significant experience with professional services, financial services, finance and banking, public-company accounting and financial reporting, strategic planning, operations and risk management and corporate governance. He has over 23 years of experience as a public company director, having first served on the board of a public company in 1996. Qualifications: Mr. Stewart has over 25 years of experience as an investment banker and over 23 years of experience as a director of a public company. Mr. Stewart possesses significant experience with financial services, finance and banking, public company accounting and financial reporting, strategic planning, operations and risk management, and corporate governance. The Board of Directors has determined that Mr. Stewart is an independent director. The Board of Directors views Mr. Stewart’s independence and his experience in the financial services industry and on a public company board as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Stewart should serve as a director of the Company. | Member, Audit Committee Policy Committee | ||
| 8 2019 Proxy Statement | |
CHRISTOPHER C. WOMACK |  | ||
Director Nominee Age61 | President, External Affairs, Southern Company | ||
Biography: Mr. Womack has served as President, External Affairs, Southern Company, a leading American gas and electric utility holding company based in Atlanta, Georgia, from December 2008 until the present. He has worked in various executive leadership positions at Southern Company since 1988, including Executive Vice President, Georgia Power Company from March 2006 to December 2008; Senior Vice President, Fossil & Hydro Power, Georgia Power Company from December 2001 to March 2006; and Senior Vice President, Human Resources from March 1998 to December 2001. From 1979 to 1987 he served as a legislative aide in the U.S. House of Representatives. Qualifications: Mr. Womack has over 20 years of experience as an executive of a gas and electric utility. Mr. Womack possesses significant experience with utility operations, human resources and governmental affairs. The Board of Directors has determined that Mr. Womack is an independent director. The Board of Directors views Mr. Womack’s independence and his leadership experience as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Womack should serve as a director of the Company. | |||
| The Board of Directors Unanimously Recommends that the Shareholders Vote for the Election of Ms. Amato, Mr. DeBenedictis, Mr. Franklin, Mr. Hilferty, Ms. Ruff, Mr. Stewart and Mr. Womack as directors. |
| 2019 Proxy Statement 9 |
|
NOMINEES FOR ELECTION AT THE 2017 ANNUAL MEETING
|
|
Biography: Ms. Burke has served as Executive Vice President, Strategy at Dynegy, Inc. since October 2016. In this role, she leads Dynegy’s strategic planning activities and is responsible for its clean technology strategy. Since October 2014, she has also served as Chief Integration Officer with overall responsibility for integration management, most recently integrating Dynegy’s acquisition of ENGIE’s US fossil portfolio. From July 2015 through October 2016, Ms. Burke served as Executive Vice President, Business Operations and Systems at Dynegy with overall responsibility for Procurement, Safety, Environmental, Information Technology, Construction & Engineering, Outage Services and PRIDE-Dynegy’s signature continuous margin and process improvement program. From August 2011 to October 2014, Ms. Burke served as Dynegy’s Chief Administrative Officer over corporate functions including Communications, Human Resources, Information Technology, Investor Relations and Regulatory Affairs. Prior to joining Dynegy, Ms. Burke served as Global Controller for J.P. Morgan’s Global Commodities business. She was also NRG Energy’s Vice President & Corporate Controller from 2006 to 2008 and Executive Director of Planning and Analysis from 2004 to 2006. Early in her career, she held various key financial roles at Yale University, the University of Pennsylvania and at Atlantic Richfield Company. Ms. Burke graduated from Wellesley College with a BA in Economics and Political Science and earned her MBA at The University Chicago Booth School of Business.
Qualifications:Ms. Burke has over 20 years of experience in various roles within the energy and infrastructure industry with responsibilities ranging from accounting and finance, to information technology and human resources to operations and environmental compliance. The Board of Directors views Ms. Burke’s independence, her broad experience in finance and operations, and her leadership roles within the industry as important qualifications, skills and experience that support the Board of Directors’ conclusion that Ms. Burke should serve as a director of the Company.
 |
|
Biography:Mr. DeBenedictis retired as Chief Executive Officer of the Company on June 30, 2015 and currently serves asnon-executive Chairman of the Board, a position that he has held since July 2015. Mr. DeBenedictis has been Chairman of the Board since May 1993. Between April 1989 and June 1992, he served as Senior Vice President for Corporate Affairs of PECO Energy Company (an Exelon Corporation). From December 1986 to
|
April 1989, he served as President of the Greater Philadelphia Chamber of Commerce and from 1983 to 1986 he served as the Secretary of the Pennsylvania Department of Environmental Resources. Mr. DeBenedictis is a director of Exelon Corporation, P.H. Glatfelter Company and Mistras Group. He also serves on the Boards of Pennsylvania areanon-profit, civic and business organizations
Qualifications:In addition to his knowledge and experience as the Company’s Chief Executive Officer from 1992 to 2015, and his prior experience as a senior executive of a major electric utility, Mr. DeBenedictis has experience as the head of Pennsylvania’s environmental regulatory agency. He serves as a director of three other public companies, including, from time to time, as a member of the corporate governance, audit, finance and compensation committees of those companies. Mr. DeBenedictis has also held leadership positions with various, educational, business, civic and charitable institutions. The Board of Directors views Mr. DeBenedictis’ experience with various aspects of the utility industry and his demonstrated leadership roles in business and community activities as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. DeBenedictis should serve as a director of the Company.
|
|
Biography:Christopher H. Franklin is President and Chief Executive Officer of the Company. Previously, Mr. Franklin served as our Executive Vice President and President and Chief Operating Officer, Regulated Operations (January 2012 to 2015); Regional President—Midwest and Southern Operations and Senior Vice President, Public Affairs (January 2010 to January 2012); Regional President—Southern Operations and Senior Vice President, Public Affairs and Customer Relations (February 2007 to 2010); Vice President, Public Affairs and Customer Relations (May 2005 to February 2007); Vice President, Corporate and Public Affairs (1997 to May 2005); and Manager Corporate & Public Affairs (December 1992 to 1997).
Qualifications:Since joining the Company in December 1992 as manager, corporate and public affairs, Mr. Franklin headed several successful projects, including advocacy for the passage of legislation designed to provide customers of state-regulated water and wastewater utilities with improved water quality and better water and wastewater systems while allowing a fair and reasonable return for shareholders. Mr. Franklin also attained national print and broadcast media coverage for the Company changed the name and rebranded the Company and its subsidiaries, and expanded its investor relations outreach to increase analyst coverage of the Company. Before joining the Company, Mr. Franklin worked at PECO Energy Company (an Exelon company) where he was regional, civic and economic development officer, responsible for the review, recommendation and promotion of economic development initiatives in the Philadelphia region. Mr. Franklin earned his B.S. from West Chester University and his M.B.A. from Villanova University. In addition, Mr. Franklin is active in the community and serves on the following nonprofit boards: University of Pennsylvania Board of Trustees, Philadelphia, PA and West Chester University’s Council of Trustees, West Chester, PA.
|
|
|
Biography:Mr. Glanton is Founder, Chairman and Chief Executive Officer of ElectedFace Inc., anon-line social media website which consolidates 21 of the most proven and popular social media features and functions into one platform to connect individuals and organizations of all types, including government officials and agencies, educational institutions and their leaders, businesses, faith groups, cultural icons and establishments, and community organizations and associations. Mr. Glanton was Senior Vice President of Corporate Development at Exelon Corporation from 2003 to 2008. From 1983 to 2003, he was a partner at the law firms of Wolf Block LLP (1983 to 1986) and Reed Smith LLP (1986 to 2003). Mr. Glanton is a director of The GEO Group, Inc. and Mistras Group, Inc.
Qualifications:Mr. Glanton has more than 25 years of legal experience in law firms and 13 years of executive experience as President of The Barnes Foundation for more than eight years from 1990 to 1998 and at Exelon Corporation. Mr. Glanton has approximately 29 years of continuous experience serving on boards of publicly traded companies. He has served as a director on boards of five publicly traded companies, four of which are traded on the NYSE and one, CGU, is traded on the United Kingdom Stock Exchange. He served as a director of CGU of North America, a British-based Insurance Company, from 1983 to 2003 when it was sold to White Mountain Group of Exeter, New Hampshire and Berkshire Hathaway. He was a member of both its Executive and Audit Committees during his20-year tenure on that board. From 1990 until 2003, he served as a director of PECO Energy/Exelon Corporation until he resigned to assume a senior management position within the company at the request of its Chairman. He served on the Executive, Audit and Governance Committees of PECO/Exelon. He has been a director of the GEO Group since 1998, where he serves on its three member Executive Committee, and as Chairman of the Audit and Finance Committee and a member of its Governance and Compensation Committees. The Board has determined that Mr. Glanton is an independent director. The Board of Directors views Mr. Glanton’s independence, his experience in utility acquisitions, his experience as a director of other publicly traded companies and his demonstrated leadership roles in other business activities as important qualifications, skills and experience that support the Board of Directors’ conclusion that Mr. Glanton should serve as a director of the Company.
|
|
Biography:Mr. Greenberg is Chairman Emeritus of UGI Corporation. He retired from his position asnon-executive Chairman of the Board of Directors of UGI Corporation on January 28, 2016, where he served as Chairman since August 1996 and Chief Executive Officer since August 1995, until his retirement in April 2013.
|
He was formerly President (July 1994 to August 2005), Vice Chairman of the Board (1995 to 1996) and Senior Vice President – Legal and Corporate Development (1989 to 1994) of UGI Corporation. Mr. Greenberg is a member of the Board of Trustees of Temple University, the Chairman of the Board of Trustees of the Temple University Health System, and a member of the Board of Trustees of Fox Chase Cancer Center. Mr. Greenberg also is a member of the Board of Directors of The United Way of Greater Philadelphia and Southern New Jersey and of the Board of Managers of The Philadelphia Foundation. Mr. Greenberg serves as a director of Ameriprise Financial, Inc. and AmerisourceBergen Corporation.
Qualifications:Mr. Greenberg has over 30 years of experience in various executive, legal and corporate development roles with a NYSE listed regulated utility,non-regulated energy distribution company and international distributor of propane, where he also served as Chairman and Chief Executive Officer for 18 years. He presently serves as a director for a NYSE listed financial planning, products and services company, as well as a NYSE listed global pharmaceutical sourcing and distribution services company. He is a member of the Board of Trustees of a major university in Philadelphia and the university’s health system. Mr. Greenberg has served as a member of the Company’s Executive Compensation Committee since 2005, and was appointed Committee Chairman in 2015. He has served as a member of the Company’s Audit Committee since 2009, serving as Chairman from 2012 through 2015. Mr. Greenberg has also held leadership positions with various civic and charitable institutions. The Board of Directors has determined that Mr. Greenberg is an independent director, financially literate and an audit committee financial expert within the meaning of applicable SEC rules. The Board of Directors views Mr. Greenberg’s independence, his experience with various aspects of the utility industry, his experience as an executive of anon-utility business and his demonstrated leadership roles in business and community activities as important qualifications, skills and experience that support the Board of Directors’ conclusion that Mr. Greenberg should serve as a director of the Company.
|
|
Biography:Mr. Hankowsky has been Chairman, President and Chief Executive Officer of Liberty Property Trust, a fully integrated real estate firm, since 2003. Mr. Hankowsky joined Liberty in 2001 as Executive Vice President and Chief Investment Officer. Prior to joining Liberty, he served for 11 years as President of the Philadelphia Industrial Development Corporation. Prior to that, he was Commerce Director for the City of Philadelphia. Mr. Hankowsky serves on the Board of Directors of Citizens Financial Group and on various charitable and civic boards, including the Greater Philadelphia Chamber of Commerce and the Pennsylvania Academy of Fine Arts.
Qualifications:Mr. Hankowsky has over 35 years of experience managing public, private andnon-profit organizations, including eleven years as Chairman and Chief Executive Officer of Liberty Property Trust, a publicly traded Real Estate Investment Trust which owns 100 million square feet of office and industrial space in over 24 markets throughout the United States and the United Kingdom. He has experience in financing, acquisitions and real estate matters across the United States. Mr. Hankowsky has also held leadership positions with various cultural and civic institutions in the greater Philadelphia region. Mr. Hankowsky has served as Chairman of the Company’s Executive Compensation Committee from 2005 through 2015, and presently serves as Chairman of the Company’s Audit Committee. The Board of Directors has determined that Mr. Hankowsky is an independent director, financially literate and an audit committee financial expert within the meaning of
|
applicable SEC rules. The Board of Directors views Mr. Hankowsky’s independence, his experience with real estate, financing and acquisitions and his demonstrated leadership roles in business and community activities as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Hankowsky should serve as a director of the Company.
|
|
Biography:Mr. Holland has been a partner in CFSD Group, LLC, advisors for local and regional utility financing, since July 2009. Mr. Holland was partner in the law firm of Saul Ewing, LLP from October 2008 to September 2013. Mr. Holland served as Chairman of the Pennsylvania Public Utility Commission from 2004 to 2008 and as a Commissioner from 1990 to 1993, and 2003 to 2004. Mr. Holland was Of Counsel to the law firm of Obermayer Rebman from 1999 to 2003, Vice President of American Water Works Company from 1996 to 1999 and a partner at the law firm of LeBoeuf Lamb Greene and McRae from 1993 to 1995. He has served as Treasurer of the National Association of Utility Regulatory Commissioners (NARUC) and also served on NARUC’s Executive Committee, Board of Directors, and as Chairman of its Audit and Investment Committees. He is a director of Bryn Mawr Trust Bank and was a member of the Allegheny Energy Board of Directors from 1994 to 2003.
Qualifications:Mr. Holland has extensive knowledge and experience in the regulation of public utilities, especially water utilities. His experience as chairman of the Public Utility Commission in Pennsylvania for four years and a Commissioner for an additional four years enables him to provide valuable insight into the regulatory process. His prior service as a member of the Board of Directors of a large, publicly traded energy company also enables him to play a meaningful role on the Company’s Board of Directors. As outside counsel to, and an executive at other public utility companies, he has a valuable perspective on the various issues facing public utility companies. The Board of Directors has determined that Mr. Holland is an independent director. The Board of Directors views Mr. Holland’s independence, his experience with utility regulation and utility operations, his reputation in the utility industry and his leadership roles in business and community activities as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Holland should serve as a director of the Company.
|
|
|
Biography: Ms. Ruff is a partner in the law firm of McGuireWoods, LLP. She was President, Office of Nuclear Development, for Duke Energy Corporation, from December 2008 until her retirement in January 2011. Duke Energy Corporation is a leading energy company focused on electric power and gas distribution operations and other energy services in the Americas. From April 2006 through December 2008, Ms. Ruff was President of Duke Energy Carolinas, an electric utility that provides electricity and other services to customers in North Carolina and South Carolina. Ms. Ruff joined Duke Energy in 1978 and during her career held a number of key positions, including: Vice President and General Counsel of Corporate, Gas and Electric Operations; Senior Vice President and General Counsel for Duke Energy; Senior Vice President of Asset Management for Duke Power; Senior Vice President of Power Policy and Planning; and Group Vice President of Planning and External Affairs. Ms. Ruff is a retired director of Mistras Group, Inc.
Qualifications:Ms. Ruff has over 30 years of experience with a major utility company in various management, operations, legal planning and public affairs positions. Ms. Ruff has lived and worked in North Carolina, an important area of the Company’s operations, for many years. Ms. Ruff has served as a member of the Company’s Executive Compensation Committee since 2006. The Board of Directors has determined that Ms. Ruff is an independent director. The Board of Directors views Ms. Ruff’s independence, her experience with various aspects of the utility industry, her knowledge of North Carolina and her demonstrated leadership roles in business and community activities as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Ms. Ruff should serve as a director of the Company.
|
The Board of Directors operates pursuant to a set of written Corporate Governance Guidelines. Copies of these Guidelines can be obtained free of charge from the Corporate Governance portion of the Investor Relations section of the Company’s website,www.aquaamerica.com.website: www.aquaamerica.com. Our website is not part of this Proxy Statement. References to our website address in this Proxy Statement are intended to be inactive textual references only.
DIRECTOR INDEPENDENCE
Director Independence
The Board of Directors is, among other things, responsible for determining whether each of the directors is independent in light of any relationship such director may have with the Company. The Board has adopted Corporate Governance Guidelines that contain categorical standards of director independence that are consistent with the listing standards of the NYSE. Under the Company’s Corporate Governance Guidelines, a director will not be deemed independent if:
| · | the director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer of the Company; |
| · | the director (A) or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor, (B) is a current employee of such a firm, (C) has an immediate family member who is a current employee of such a firm and personally works on the Company’s audit, or (D) or an immediate family member was within the last three years (but is no longer) a partner or employee of such firm and personally worked on the Company’s audit within that time; |
| · | the director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serves or served on that company’s compensation committee; |
| · | the director has received, or has an immediate family member who has received, during any twelve month period within the last three years, more than $120,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service) and, in the case of an immediate family member who is not an executive officer, other than compensation for service as an employee of the Company; |
| · | the director is an executive officer or employee, or someone in her/his immediate family is an executive officer, of another company that, during any of the other company’s past three fiscal years made payments to, or received payments from, the Company for property or services in an amount which, in any single fiscal year of the other company, exceeded the greater of $1 million or 2% of the other company’s consolidated gross revenues; or |
| · | the director serves as an executive officer of a charitable organization and, during any of the charitable organization’s past three fiscal years, the Company made charitable contributions to the charitable organization in any single fiscal year of the charitable organization that exceeded the greater of $1 million or two percent of the charitable organization’s consolidated gross revenues. |
For purposes of the categorical standards set forth above (a) a person’s immediate family includes a person’s spouse, parents, children, siblings, mothers- andfathers-in-law, sons- anddaughters-in-law, and brothers- andsisters-in-law and anyone (other than domestic employees) who shares such person’s home, (b) the term “executive officer” has the same meaning specified for the term “officer” in Rule16a-1(f) under the Exchange Act, and (c) the “Company” includes Aqua and its consolidated subsidiaries.
|
In addition to these categorical standards, no director will be considered independent unless the Board of Directors affirmatively determines that the director has no material relationship with the Company (either directly, or as a partner, stockholder,shareholder, director or officer, of an organization that has a relationship with the Company). When making independence determinations, the Board of Directors broadly considers all relevant facts and circumstances surrounding any relationship between a director or nominee and the Company. Transactions, relationships and arrangements between directors or members of their immediate family and the Company that are not addressed by the categorical standards may be material depending on the relevant facts and circumstances of such transactions, relationships and arrangements. The Board of Directors considered the following transactions, relationships and arrangements in connection with making the independence determinations for the current boardBoard of directors:Directors:
| 1. |
| 2. |
| 10 2019 Proxy Statement | |
Corporate Governance
| 3. | The Company has banking arrangements with Citizens Financial Group or its affiliates, and Mr. Hankowsky is a member of the Board of Directors of Citizens Financial Group. The amounts paid by the Company to Citizens Financial Group or its affiliates are not material to these entities or to the Company. |
| 4. | The Company has insurance arrangements with |
| Fiscal Year | Fees Paid to IHG | IHG Gross Revenues | Fees Paid as a Percentage of IHG Gross Revenues |
| 2016 | $1,455,046 | $16,700,000,000 | 0.009% |
| 2017 | $2,313,302 | $16,400,000,000 | 0.014% |
| 2018 | $2,125,045 | $17,000,000,000 | 0.013% |
Under the self-insured nature of the medical plans, the Company also submitted payments to IHG to maintain the necessary insurance reserves and to pay medical claims made for such years. As administrator, these payments were “pass through” payments and do not represent compensation to, or revenue of, IHG. The following “pass through” payments were made to IHG in the last three fiscal years:
| Fiscal Year | Pass Through Payments |
| 2016 | $14,985,194 |
| 2017 | $12,763,289 |
| 2018 | $14,303,630 |
Mr. Hilferty is President and Chief Executive Officer of IHG. The amounts paid by the Company to IHG are not material to IHG or to the Company.
| 5. | Mr. DeBenedictis is a member of the Board of Directors of |
| 6. | Southern Company or its affiliates provides natural gas service at tariff rates to the Company and sold goods to the company pursuant to an existing contractual relationship. The amounts paid by the Company to |
Based on a review applying the standards set forth in the Company’s Corporate Governance Guidelines, including a review of the applicable NYSE, SEC, and Company standards, and considering the relevant facts and circumstances of the transactions, relationships, and arrangements between the directors and the Company described above, the Board of Directors has affirmatively determined that each director and nominee for director, other than Mr. Franklin, the Company’s Chairman, President, and Chief Executive Officer, and Mr. DeBenedictis, the Company’s Chairman Emeritus and former Chief Executive Officer, is independent.
BOARDOF DIRECTORS LEADERSHIP STRUCTURE
Board of Directors Leadership Structure
In 2017, the Board of Directors determined to recombine the roles of Chairman and Chief Executive Officer. Currently, Mr. Franklin serves as Chief Executive Officer and Mr. DeBenedictis serves as thenon-executiveChairman of the Board.Board and Chief Executive Officer. The Board of Directors believes this structure provides continuity and efficiency for the Company, while providing clear accountability to the execution of the Company’s strategy and best utilizes the skills and experience of Mr. Franklin and Mr. DeBenedictis.
its results. Under this present structure, the Board of Directors annually elects a lead independent directorLead Independent Director to coordinate the activities of the other independent directors and enhance the role of the independent directors in the overall corporate governance of the Company. At the same time that Mr. Glanton is currentlyFranklin was appointed Chairman, Mr. Hilferty was elected the Lead Independent Director. In 2018, Mr. Hilferty was re-elected as Lead Independent Director.
The duties and powers of the lead independent directorLead Independent Director include:
| · | Presiding at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors; |
| · | Serving as liaison between the independent directors and the Chairman of the Board; |
| · | Consulting with the Chairman of the Board, reviewing and approving meeting agendas and information provided to the Board for meetings, including the authority to add items to the agendas for any such meeting; |
| · | ||||
|
| 2019 Proxy Statement 11 |
Corporate Governance
| · | Having the authority to call executive sessions of the independent directors and to prepare the agendas for such executive sessions; |
| · | If requested by major shareholders, ensuring that he is available for consultation and direct communications; |
| · | Serving as a member of the Executive Committee; |
| · | In the event of the death or incapacity of the Chairman, becoming the acting Chairman of the Board until a new Chairman is selected; and |
| · | Having the authority (with the approval of at least the majority of the directors) to engage such legal, financial or other advisors as the independent directors shall deem appropriate at the expense of the Company and without consultation or the need to obtain approval of any officer of the Company. |
Age and the Chairman of the Board;
AGEAND TERM LIMITSTerm Limits
The Board believes that term limits are an important element of good governance. However, it also believes that it must strike the appropriate balance between the contribution of directors who have developed, over a period of time, meaningful insight into the Company and its operations, and therefore can provide an increasing contribution to the Board as a whole. Accordingly, in 2015, the Board established that upon the fifteenth anniversary of a director accepting an initial appointment or election to the Board of Directors, the director shall tender his or her resignation to the Board (the “Term Limit Policy”). The Term Limit Policy does not apply to directors who were elected on or before December 1, 2015.
The
In 2017, the Board also believesre-evaluated its position on mandatory retirement based upon the age of a director. Following extensive research, including conducting an outreach program to the Company’s largest shareholders in which the Company sought the opinion of those shareholders, the Board determined that our current policyincreasing the age for a director to submit his or her resignation from the Board of retirement for directors at age 72 isDirectors to 75 was appropriate. AllAs such, all directors are required to submit their resignation from the Board effective as of their 7275ndthbirthday.
OVERSIGHTOF RISK MANAGEMENT
Annual Peer, Committee, Board Evaluation
Each year, directors complete a targeted questionnaire to assess the performance of the Board and each of the standing Committees. Every second year, directors complete a targeted questionnaire to assess the performance of the directors individually. Both questionnaires elicit quantitative and qualitative ratings in key areas of Board operation and function. Each Committee member completes questions to evaluate how well the Committees on which he or she serves are functioning and to provide suggestions for improvement.
In 2018, the Lead Independent Director and the Chairman met with each director, provided the results of the evaluations to each director, and discussed the director’s participation, preparation, and performance.
Shareholder Engagement
In 2018, the Company continued its governance outreach campaign to our top 25 shareholders. We engaged with every shareholder who accepted our offer to meet. We covered numerous topics, including executive compensation matters, merger and acquisition strategy, the impact of Pennsylvania’s anti-takeover laws on such strategy, sustainability, and social and governance issues. In addition to the annual governance campaign, as a part of its investor relations program management met with over 125 institutional holders, participated in 10 conferences, and conducted various retail shareholder efforts.
Director Onboarding
In 2018, the Company appointed Ms. Amato and Mr. Stewart as directors. In addition to informal meetings with the existing directors, and in conjunction with their appointment, Ms. Amato and Mr. Stewart participated in an onboarding process that included in-depth meetings with the named executive officers focused on items such as mergers and acquisition strategy, regulatory matters, utility accounting and financing, water and wastewater operations, Board governance functions, Pennsylvania law, and the Company’s Articles of Incorporation, Bylaws, and Corporate Governance Guidelines.
Oversight of Risk Management
The Board oversees management’s risk management activities through a combination of processes:
| · | Pursuant to its charter, the Risk Mitigation and Investment Policy Committee’s primary purpose is to assist the Board of Directors in fulfilling its oversight responsibilities with respect to the Company’s risk management practices, the Company’s compliance with legal and regulatory requirements, the Company’s potential investments in acquisitions and growth vehicles, and to review and approve the Company’s risk management framework. |
| · | At least quarterly, the Risk Mitigation and Investment Policy Committee reviews the results of the Company’s enterprise risk management process, and management presents to the Board a report on the status of the risks and the metrics used to monitor those risks. Each risk that is tracked as part of the enterprise risk management process has a member of the Company’s management who serves as the owner and monitor for that risk. The risk owners and monitors report on the status of their respective risks at the quarterly meeting of management’s Compliance Committee. The information discussed at
Corporate Governance
The Board believes that the present leadership structure, along with the important risk oversight functions performed by management, the Audit Committee, the Risk Mitigation and Investment Policy Committee, the Executive Compensation Committee, the Corporate Governance Committee and the full Board, permits the Board to effectively perform its role in the risk oversight of the Company.
Copies of the Company’s Code of Ethical Business Conduct can be obtained free of charge from the Corporate Governance portion of the Investor Relations section of the Company’s
Corporate Governance Director Share Ownership Guidelines In December 2015, the Board of Directors approved share ownership guidelines for each director to own shares of Company common stock having a value equal to five times the annual base cash retainer for directors. Directors had up to three years from December 2015 or upon appointment, whichever is later, to attain this new guideline share ownership level. In 2017, the Board of Directors approved a modification to these guidelines prohibiting a director from selling Company common stock until the director has attained the required share ownership. Once the required share ownership level is attained, the director must maintain the level of share ownership for the duration of the director’s service. As of December 31, 2018, each director nominee owned sufficient shares to comply with these guidelines, except Ms. Amato and Mr. Stewart, who have been directors since 2018, Mr. Hilferty, who has been a director since 2017, and Mr. Womack, who is standing for election for the first time. The below chart shows the shareholdings of the director nominees as of December 31, 2018:
Anti-Hedging and Anti-Pledging Policy We believe that issuance of incentive and compensatory equity awards to our directors and named executive officers along with our stock ownership guidelines help to align the interests of such officers with our shareholders. As part of our insider trading policy, we prohibit
Environmental Stewardship The Company has been in the business of practicing sustainability and corporate social responsibility for more than 130 years. Each year, the Company delivers more than 86 billion gallons of water, the Earth’s single most essential resource, to approximately 3 million people across eight states. Our top priority is to provide our customers with water that is safe to drink and is treated through the most sustainable and environmentally friendly methods available. The Company also focuses on rebuilding aging infrastructure in the states in which it operates. In 2018, the Company published its first Corporate Social Responsibility (“CSR”) report and reinforced its commitment to environmental stewardship by joining the CDP, an international not-for-profit organization that runs a global disclosure system for companies to manage their environmental impacts. For 2018, the Company’s CDP ranking was among the top 40 percent of U.S. companies in terms of its understanding of climate change impact on business and the positioning of senior leadership to oversee key environmental issues. The Board of Directors receives reports at regularly scheduled meetings on safety, sustainability, and environmental stewardship matters. These programs are overseen and managed by the Company’s senior leadership. A Our corporate responsibility and sustainability programs consist of:
Corporate Governance
In addition, the Company is dedicated to creating a sustainable working atmosphere for its employees to attract and retain the best employees. Its programs include a commitment to diversity, building a culture of inclusion, supporting employee wellness and focusing on safety for our employees. In 2017, the Company was named as a winning “W” Company by 2020 Women on Boards because its board of directors was made up of 25 percent women. The Company also devotes a significant amount of time to improving its customer experience, including customer education and customer security, and maintaining and growing its supplier diversity programs. Finally, the Company actively encourages corporate giving and volunteerism by its leadership, employees, suppliers, and vendors. Cybersecurity Management In 2018, the Board of Directors oversaw the Company’s cybersecurity risk assessment and security measures. By receiving at least quarterly reports, the Board of Directors and the Risk Mitigation and Investment Policy Committee ensure that the Company is devoting the appropriate amount of resources to ensure that the risk of a cybersecurity breach is mitigated and that there is a clear response plan in the event of a breach. Policies and Procedures for Approval of Related Person Transactions The Board has a written policy with respect to related person transactions to document procedures pursuant to which such transactions are reviewed, approved or ratified. The policy applies to any transaction in which: (1) the Company is a participant, (2) any related person has a direct or indirect material interest, and the annual amount involved exceeds $120,000, but excludes certain types of transactions in which the related person is deemed not to have a material interest. Under this policy, a related person means: (a) any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director, an executive officer or a director nominee; (b) any person known to be the beneficial owner of more than 5% of any class of the Company’s voting securities; (c) any immediate family member of a person identified in items (a) or (b) above, meaning such person’s spouse, parent, stepparent, child, stepchild, sibling, mother- orfather-in-law,son- ordaughter-in-law, brother- orsister-in-law or any other individual (other than a tenant or employee) who shares the person’s household; or (d) any entity that employs any person identified in (a), (b) or (c) or in which any person identified in (a), (b) or (c) directly or indirectly owns or otherwise has a material interest. The Corporate Governance Committee, with assistance from the Company’s General Counsel, is responsible for reviewing
The Corporate Governance Committee intends to approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders.
Board and Board Committees During 2018, our Board of Directors consisted of Elizabeth A. Amato, Carolyn J. Burke, Nicholas DeBenedictis, Christopher H. Franklin, William P. Hankowsky, Daniel J. Hilferty, Wendell F. Holland, Ellen T. Ruff and Lee C. Stewart. Ms. Burke and Mr. Hankowsky and Mr. Holland are not standing for re-election as a director. Mr. Hankowsky and the Corporate Governance Committee evaluated his time commitments including his service as Chief Executive Officer and Chairman of the Board of Liberty Property Trust and as a member of Citizens Financial Group board of directors in addition to the Company’s Board. The Corporate Governance Committee was aware that Ms. Burke accepted a new position which required her service on several internal boards and her singular focus on her new position. The Company’s Bylaws provide that the Board of Directors, by resolution adopted by a majority of the whole Board, may designate an Executive Committee and one or more other committees, with each such committee to consist of two or more directors except for the Audit Committee and Executive Compensation Committee, which must have at least three members. The Board of Directors annually elects from its members the Executive, Audit, Executive Compensation, Risk
Corporate Governance Mitigation and Investment Policy, and Corporate Governance Committees. The Board may also from time to time appoint ad hoc committees such as an Executive Search Committee to oversee the Company’s succession planning activities. The Retirement and Employee Benefits Committee, which is comprised of senior management of the Company, reports periodically to the Board of Directors. The Board of Directors held Each of the standing Committees of the Board of Directors operates pursuant to a written Committee Charter. Copies of these Charters can be obtained free of charge from the Corporate Governance portion of the Investor Relations section of the Company’s
Executive Committee Pursuant to its charter, the Executive Committee
The Audit Committee is presently composed of The Audit Committee has the exclusive authority to select, evaluate and, where appropriate, replace the Company’s independent registered public accounting firm. The
Executive Compensation Committee The Executive Compensation Committee is composed of
Corporate Governance The Executive Compensation Committee reviews the recommendations of the Company’s Chief Executive Officer as to appropriate compensation of the Company’s executive officers (other than the Chief Executive Officer) and determines the compensation of such executive officers. The Executive Compensation Committee reviews and recommends to the Board of Directors the compensation for the Company’s Chief Executive Officer, which is subject to final approval by the independent members of the Board of Directors. The Executive Compensation Committee has the power to delegate aspects of its work to subcommittees, with the approval of the Board of Directors. The Executive Compensation Committee met
Corporate Governance Committee The Corporate Governance Committee is composed of
Risk Mitigation and Investment Policy Committee The Risk Mitigation and Investment Policy Committee is composed of four directors and the Company’s Chief Financial Officer. The
approved charter, which states its duties and responsibilities. The Committee oversees the Company’s risk management process, policies, and procedures for identifying, managing and monitoring critical risks, including
In
All directors are reimbursed for reasonable expenses incurred in connection with attendance at Board or Committee meetings.
The Audit Committee of the Board of Directors Although shareholder ratification of the PwC has informed us that they are not aware of any independence-related relationships between their firm and the Company other than the professional services discussed in “Services and Fees” below. Under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), the Audit Committee is responsible for the appointment, compensation and oversight of the work of the independent registered public accounting firm. As a result, the Audit Committee is required topre-approve the audit andnon-audit services performed by the independent registered public accounting firm in order to assure that such services do not impair the auditor’s independence from the Company. The Audit Committee has established a procedure topre-approve all auditing and Services and Fees The following table presents the fees paid to PwC for professional services rendered with respect to the
The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal control. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements in the Annual Report on Form 10-K for the year ended December 31, 2018 including: the quality of the accounting principles, practices and judgments; the reasonableness of significant judgments; the clarity of disclosures in the financial statements; and the integrity of the Company’s financial reporting processes and controls. The Committee also discussed the selection and evaluation of the independent registered public accounting firm, including the review of all relationships between the independent registered public accounting firm and the Company. The Audit Committee reviewed with the independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles in the United States of America, their judgments as to the quality of the Company’s accounting principles and such other matters as required to be discussed by the Auditing Standard No. 1301, Communications with Audit Committees as adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee has discussed with the independent registered public accounting firm, the firm’s independence from management and the Company, including the matters in the written disclosures required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and considered the compatibility ofnon-audit services with the accountants’ independence. The Audit Committee discussed with the Company’s internal auditors and independent registered public accounting firm, the overall scope and plans for their respective audits. The Audit Committee meets with the internal auditors and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the Company’s audited financial statements in the Company’s Annual Report on Form10-K for the year ended December 31, Respectfully submitted, William P. Hankowsky, Chairman
Lee C. Stewart February 27, 2019 The foregoing Report of the Audit Committee
Under Section 14A of the Exchange Act, shareholders are entitled to an advisory(non-binding) vote on the executive compensation as described in this Proxy Statement for our named executive officers (sometimes referred to as “Say on Pay”). Currently, this vote is conducted every year. Accordingly, the following resolution is being presented by the Board of Directors at the “RESOLVED, that the compensation paid to the Company’s named executive officers for 2018, as disclosed pursuant to Item 402 of RegulationS-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.” This vote isnon-binding. The Board of Directors and the Executive Compensation Committee, which is comprised of independent directors, expect to take into account the outcome of the vote when considering future executive compensation decisions to the extent they can determine the cause or causes of any significant negative voting results. As described in detail under our Compensation Discussion and Analysis on pages
Table of Contents
Compensation Discussion and Analysis
In this Compensation Discussion and Analysis (“CD&A”), we address our compensation philosophy and program, and compensation paid to or earned by the following
We refer to these executive officers as our “named executive officers” or “NEOs”. As used in this CD&A, the total of base salary and annual cash incentive compensation is referred to as “total cash compensation,” and the total of base salary, annual cash incentive compensation and equity incentive compensation is referred to as “total direct compensation.” The purpose of the CD&A is to explain: the elements of compensation; why our Executive Compensation Committee (the “Compensation Committee”) selects these elements; and how the Compensation Committee determines the relative size of each element of compensation. Compensation decisions for Messrs. Smeltzer, Schuller, Fox, Rhodes, and Luning were made by the Compensation Committee. Compensation decisions for Mr. Franklin were made by the independent members of our Board of Directors Based on input from Pay Governance LLC (“Pay Governance” or the “consultant”), the independent compensation consultant retained by the Compensation Committee, we believe that the types of compensation vehicles we use and the relative proportion of the named executive officers’ total direct compensation represented by these vehicles is consistent with current competitive compensation practices in our industry. We believe our program’s performance measures align the interests of our stakeholders and our named executive officers by correlating pay to our short-term and long-term performance. We measure the competitiveness of our program for our named executive officers against the median compensation for comparable positions at other companies in our benchmark group composed of other Executive Summary Our
Executive Compensation
*See Appendix B for a reconciliation of non-GAAP financial measures to GAAP financial measures.
Objectives of our Compensation Program Our compensation program for named executive officers is designed to:
Align Interests of
We supplement ourpay-for-performance program with a number of compensation policies intended to align the interests of management and our shareholders. Input received from our shareholders during our 2018 shareholder engagement is reflected in our pay-for-performance compensation program. The following are several key features of our executive compensation program:
With respect to the named executive officer’s total direct compensation, at least
* Reflects an average. Pay for Performance and Our goal is to instill a “pay for performance” culture throughout the Company. At our 2018 Annual Meeting, we submitted a proposal to our shareholders for a non-binding advisory vote on our 2017 compensation awarded to our named executive officers. Our shareholders approved the proposal with over 94 % of the
Our executive compensation program is composed of the following seven elements, which we believe are important components of a well-designed, balanced and competitive compensation program:
Executive Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
We utilize these elements to achieve the objectives of our compensation program as follows:
| Element of Compensation | Objectives | |
Competitively benchmarked | Designed to attract and retain named executive officers consistent with their talent and experience; market-based salary increases are designed to recognize the executives’ performance of their duties and responsibilities; and promotions and related salary increases are designed to encourage executives to assume increased job duties and | |
Short-term incentives or | Intended to reward executives for (1) improving the quality of service to our customers, (2) controlling the cost of service to our customers by managing expenses and improving performance, (3) achieving economies of scale by the acquisition of additional water and wastewater systems that can benefit from our resources and expertise, (4) disposing of | |
| Designed to reward named executive officers for (1) enhancing our financial health, which also benefits our customers, (2) improving our long-term performance through both revenue increases and cost control, and (3) achieving increases in the Company’s equity and in absolute shareholder value and shareholder value relative to peer companies, as well as helping to retain executives due to the longer term nature of these | |
Retirement benefits | Intended to assist named executive officers to provide income for their | |
Non-qualified deferred | Designed to allow eligible executives to manage their financial and tax planning and defer current income until a later date, including following retirement or other separation from employment without an additional contribution from the | |
Change-in-control | Designed to promote stability and dedication to shareholder value in the event of a fundamental transaction affecting the ownership of the Company and to enable the named executive officers to evaluate such a transaction | |
Stock ownership guidelines | Designed to focus named executive officers on the long-term performance of the Company and align the interests of our executives with our shareholders by encouraging named executive officers to maintain a significant ownership interest in the | |
LINK BETWEEN OPERATING PERFORMANCEAND EXECUTIVE COMPENSATION
Our stock performanceThe following chart provides a brief summary of the principal elements of our executive compensation program for 2018. We describe these elements, as well as retirement, severance and other benefits, in 2016 reflected our success and contributed significantly to our total shareholder return for the year. The chart below summarizes our stock performance over the past five years compared to the S&P 500 Index and the S&P MidCap 400 Utilities Index.more detail in this CD&A.
| Compensation Element | Form | Compensation Objective | Relation To Objective | |
| Base Salary | Fixed annual cash paid bi-weekly | Compensate executives for their level of responsibility and sustained individual performance based on market data. | Merit salary increases are based on subjective performance evaluations. | |
| Annual Cash Incentive Awards | Variable cash paid on an annual basis based on achievement of pre-established goals | Motivate executives to focus on achievement of our annual business objectives. | The amount of the annual incentive award, if any, is entirely dependent on achievement of pre-established Company and individual goals. | |
| Long-Term Equity Incentive Awards | Restricted Stock Units | Align executive interests with shareholder interests; retain key executives. | Provide equity that will have same value as shares owned by shareholders; subject to stock ownership guidelines. | |
| Performance Share Units | Align executive interests with shareholder interests; create a strong financial incentive for achieving or exceeding long term performance goals. | The named executive officers receive equity only if the pre-established performance goals are achieved. | ||
| Aligns executive interests with shareholder interests; through performance based nature, provides strong incentives to achieve core company goals. | The named executive officers receive options only if the pre-established performance goals are achieved. |
| 26 2019 Proxy Statement | |
We have been steadfast in delivering sustainable dividend growth. We increased our dividend 7.5 percent in 2016Executive Compensation
Benchmarking Competitive Compensation and as a result, our annualized dividend rate is $0.7652 per share. Our dividend policy is premised on continuing to grow our dividend in a prudent manner. We anticipate this growth will allow our dividend to continue to be a meaningful elementthe Role of our overall shareholder return proposition. The chart below summarizes our dividend growth over recent years:the Compensation Committee’s Consultant
BENCHMARKING COMPETITIVE COMPENSATIONANDTHE ROLEOFTHE COMPENSATION COMMITTEE’S CONSULTANT
The Compensation Committee has retained Pay Governance, a nationally-recognized compensation consulting firm, as the Compensation Committee’s consultant to assist it in designing and assessing the competitiveness of our executive compensation program. The Compensation Committee has concluded that Pay Governance is an independent consultant after considering the factors relevant to Pay Governance’s independence from management, including the factors set forth in the NYSE and SEC rules regarding compensation consultant independence.
Annually, the Compensation Committee has the consultant develop a market rate for base salary, total cash compensation, and total direct compensation for each of the named executive officer positions, including the allocation between cash compensation and equity incentives. Each market rate represents the median compensation level that would be paid to a hypothetical, seasoned performer in a position having similar responsibilities and scope, in an organization of similar size and type as the Company.
In developing the market ratesmedian for the named executive officers, the Compensation Committee’s consultant, Pay Governance, used compensation data from all 6159 investor-owned utilities in the utility industry database used by the consultant and approved by the Compensation Committee to determine the market ratesmedian for similarly situated executives of utility companies. The Compensation Committee believes that utilizing the data from only utility companies and adjusting the Company’s revenues as described below, to better align the Company’s data with the data in the utility industry compensation database, provides an appropriate comparison for determining the market rates for the Company’s named executive officers given that we are primarily a utility company. Also, due to the relatively limited number of investor-owned water utility companies of the Company’s size, the Compensation Committee believes that using the broader utility market data provides reasonable and reliable data for determining competitive compensation levels. All 6159 companies in the utility industry compensation database used by the consultant are listed in Appendix A to this Proxy Statement. The Company has no involvement in the selection of the companies that are included in the database used by the consultant. Each company in Appendix A was used in the development of the market rates,median, as described in this paragraph.
Management, the Compensation Committee, and Pay Governance are mindful that compensation levels for executives of companies are often correlated with a company’s size as defined by revenues. In other words, executives in companies with higher revenues are generally paid more than executives with comparable positions
|
in companies with lower revenues. The Compensation Committee and Pay Governance have concluded that the Company’s revenues under-represent the complexity and scope of the Company’s business given the Company’s low cost of goods sold relative to energy-based utilities. The cost of goods sold as a percentage of revenues is significant for energy-based utilities due to their fuel, gas and other power costs. These commodity costs are subsequently recovered through the revenues of the energy-based utilities as they are ultimately passed through to the customer. The Company, like other water utilities, does not have comparable commodity costs. The purpose of the adjusted revenue analysis is to create a consistent comparison to the compensation data in the utility compensation database used by Pay Governance by estimating the revenue that the Company would earn if its cost of goods sold was in similar proportion to that of the energy-based utilities that constitute the majority of the companies in the database. In order to determine a factor by which to adjust the Company’s annual revenues, the Compensation Committee recommended that the consultant analyze the income statements of a sample of delivery- focuseddelivery-focused (i.e.,non-power generating) utilities, chosen by the consultant with no input from the Compensation Committee or management, to develop a typical cost of goods sold factor attributable to commodity costs.
Pay Governance’s analysis for 20162018 determined that the commodity portion of the cost of goods sold averaged 45%40% of revenues for these companies and calculated what the Company’s adjusted revenues would be using this factor. Since there are certain complexities associated with procuring these commodities at the energy- basedenergy-based utilities, the consultant recommended, and the Compensation Committee agreed, that it would be appropriate to discount the market ratesmedian rate generated by the adjusted revenue methodology. Thus, it was agreed that the Company would use an average of the market data produced using the Company’s adjusted revenue scope with market data generated using the Company’s actual revenue scope in determining the market rates for the Company’s named executive officers.
Because the companies listed in Appendix A vary widely in terms of revenues, Pay Governance used regression analysis tosize-adjust the benchmark data for each named executive officer’s revenue responsibility using the Company’s actual and adjusted revenues, where possible, and then averaging the results to determine market ratesmedians for base salary, total cash compensation and total direct compensation for each named executive officer. Tabular data was used where regression data was unavailable due to insufficient correlation between officer positions in the Company and the companies in the database and/or limited sample size to ensure the accuracy of the regression analysis. Regression analysis is an objective calculation that identifies a relationship between one variable (in this case, compensation) and another variable that is correlated to it (in this case, total company revenues). Therefore, in developing the market ratesmedians for base salary, total cash compensation, and total direct compensation, Pay Governance used regression analysis to determine what the companies in Appendix A would pay at the median for positions comparable to those of the Company’s named executive officers. The Compensation Committee considers target total direct compensation levels that are within a rangecombination of 15%salary, short-term incentives, and long-term incentives is intended to compensate executives at approximately the 50th percentile of the market median rates developed bywhen the consultant for each position to be competitive. Variances within this range can beCompany performs at a result of performance, experience and other factors. Payouts of prior cash incentives and changes in the value of equity incentives granted in previous years are not taken into account in determining the amounts of current awards because annual incentives are intended to reward annual performance and thetarget level.
| 2019 Proxy Statement 27 |
Executive Compensation Committee makes grants of equity incentives based on their grant date value and the applicable competitive benchmarks for each named executive officer’s position.
Pay Governance reviews the Company’s executive compensation program for the Compensation Committee and annually provides the data and analysis described above. The compensation consultant discusses the proposed actual compensation awards for the named executive officers and provides research and input to the Compensation Committee on changes to the compensation program.
In 2016,2018, Pay Governance also analyzed the Company’s executive compensation program to ensure that it remained competitive in the market placemedian to show the market rate for base salary, total cash compensation and
|
total direct compensation, including the allocation between cash compensation and equity incentives. Pay Governance provides no other services to the Company other than serving as the Compensation Committee’s compensation consultant.consultant for executive and director compensation decisions.
The Compensation Committee has concluded that Pay Governance is an independent consultant after considering the factors relevant to Pay Governance’s independence from management, including the factors set forth in the NYSE and SEC rules regarding compensation consultant independence.
OTHER CONSIDERATIONSOther Considerations
The Compensation Committee also takes into consideration the results of the advisory votes on the Company’s executive compensation program for the few years prior to the year for which the executive compensation decisions are being made. For the years 2014 2015, and 2016,through 2018, the shareholders approved the advisory vote on the compensation of our named executive officers by 93% to 94% of the votes cast.
DETERMINATIONOF ACTUAL COMPENSATION
Determination of Actual Compensation
We emphasize pay for performance, especially for our higher-level executives. Therefore, the named executive officers tend to receive a substantial portion of their total direct compensation from annual cash incentives and long-term equity incentives. In addition, the percentages of total direct compensation represented by base salary, annual cash incentive opportunities, and equity incentives, respectively, for the named executive officers are generally in line with the percentages represented by these elements of total direct compensation for the competitive market median benchmarks.
The Compensation Committee determines the actual amount of each element of annual compensation to award to the Company’s named executive officers with the goal of having the target total direct compensation opportunity for each named executive officer generally within a range of 15% above or below the market median rate for his position over time. We emphasize pay for performance, especially for our higher-level executives.
Therefore, the named executive officers tend to receive a substantial portion of their total annual compensation from annual cash incentives and long-term equity incentives. In addition, the percentages of total direct compensation represented by base salary, annual cash incentive opportunities, and equity incentives, respectively, for the named executive officers are generally in line with the percentages represented by these elements of total direct compensation for the competitive market rate benchmarks.
A competitive base salary is necessary to attract and retain a talented and experienced workforce. Actual salaries for the named executive officers, other than the Chief Executive Officer whose salary is determined by the Board of Directors using the same criteria, are determined by the Compensation Committee by considering both the market median rate for the position and internal equity with both the other named executive officers and other employees of the Company. The Compensation Committee’s goal is to maintain base salaries generally within a range of 15% above or belowin line with the market median rate over time for each of the named executive officers, although deviations from this goal may occur due to promotions, and the time the executive has been in a particular salary grade. Base salaries are considered for adjustment annually and adjustments are based on general movement in external salary levels, changes in the market rate for the named executive officers’ positions, individual performance, internal equity and changes in individual duties and responsibilities. For 2016,2018, the annual increases to the salaries for the named executive officers reflected these assessments and averaged 4%6.9%. The base salaries approved by the Compensation Committee for 2018, effective April 1, 2018, were as follows: Mr. Franklin, $760,055; Mr. Smeltzer, $418,411, Mr. Fox, $378,104; Mr. Schuller, $419,928; and Mr. Luning, $343,287. The Compensation Committee approved a base salary for Mr. Rhodes of $390,000.
THE 2016 ANNUAL CASH INCENTIVE AWARDSShort-Term Incentive Awards
The 2018 Annual Cash Incentive Awards
Annual cash incentive awards under the Annual Cash Incentive Compensation Plan (the “Annual Plan”) wereare intended to motivate management to focus on the achievement of annual corporate and individual objectives that would, among other things, improve the level of service to our customers, control the cost of
|
service, and enhance our financial performance. The annual cash incentive portion of total direct compensation for 2016 was based on a target incentive award for each named executive officer, stated as a percentage of his base salary. The Compensation Committee selected a target annual incentive percentage for each named executive officer so that the executive’s target total cash compensation, consisting of base salary and target annual cash incentive, when combined with the executive’s target equity incentives, is generally in a range of 15% above or below the total direct compensation for the market median rate for that position. The target annual incentive percentage for 2016 as a percentage of base salary for each of the named executive officers was: Christopher H. Franklin 85%; David P. Smeltzer 55%; Richard S. Fox 55% ; Daniel J. Schuller 55%; and Christopher P. Luning 45%.
Actual annual cash incentive awards for executive officers are calculated using the following formula:
Salary x Target Incentive Percentage x Company Factor x Individual Factor
The “Company Factor” for the named executive officers is a percentage based on the performance of the Company against an annual financial target. The “Individual Factor” is a percentage based on the named executive officer’s performance against individual objectives established separately each year for each named executive officer.
The Company Factor ranges from 35% of target (if 75% of the annual financial performance target is achieved), to 125% of target (if 110% or more of the annual financial target is achieved). The Company Factor will be 0% if the Company does not achieve at least 75% of the annual financial performance target. The scale for determining the Company Factor is as follows:
| Percent of Target | Company Factor | |||||
Threshold | <75% | 0% | ||||
| 75 | 35 | |||||
| 80 | 40 | |||||
| 85 | 45 | |||||
| 90 | 60 | |||||
| 95 | 80 | |||||
| 100 | 100 | |||||
| 105 | 110 | |||||
Maximum | >110 | 125 |
We believe this approach strikes a reasonable balance between pay for performance and encouraging our management team to make appropriate decisions for the longer-term interest of the Company. For the period of 2014 through 2016, the achievement of the Company Factors for the named executive officers ranged from 104% to 113%.
The financial performance target established as the Company Factor for 2016 for the named executive officers was the Company’s budgeted annual net income. Net income is utilized as the performance metric because it is a key performance metric for management, which is impacted by management’s efforts to control costs for the benefit of the Company’s customers, and growth in net income forms the basis for enhancing shareholder value. Adjustments may be made to the actual net income results to reflect the impact of changes in reporting / classification not impacting economic substance but inadvertently impacting the comparison to target, changes in accounting related to the adoption of new accounting standards, acquisition pursuit costs, and other factors as designated byDuring 2018, the Compensation Committee, and the Board of Directors.
|
For purposes of determining the Company Factor for 2016, the range of 75% to 110% of Aqua America’s net income was $173,160 million to $253,968 million. For 2016, the 100% Company Factor amount was $230,880 million and the resulting Company Factor for each named executive officer for purposes of calculating the annual cash incentive award earned for 2016, and paid in 2017, was 105%, as adjusted based upon the Compensation Committee’s approved adjustment criteria. The 2016 100% Company Factor amount represents the amount of net income required for the named executive officers to achieve a resulting Company Factor of 100%.
The Individual Factor ranges from 0% to 150% and is determined based on the individual named executive officer’s performance against separate objectives established each year for each executive, along with discretionary points based on the individual’s performance. Each named executive officer has approximately 10 individual objectives each year. The Compensation Committee and Board of Directors approve the objectives for the Chief Executive Officer, and the Chief Executive Officer approves the objectives and point weighting for each objective for the other named executive officers. The other named executive officers must achieve objectives with a point rating of at least 70 points to be eligible to receive an annual cash incentive award and the maximum points that an executive can achieve based on the executive’s performance against his objectives is 110 points. Up to 40 discretionary points can be awarded for exceptional performance or for achievements on matters not covered by the executive’s original objectives, for a maximum total Individual Factor of 150%. For the Chief Executive Officer, the Individual Factor is based on the overall assessment by the Compensation Committee and the Board of Directors of his achievements with respect to his objectives with a maximum of 150 points for all the objectives combined. Thus, the maximum Individual Factor rating he can achieve is 150% based on achieving all of his objectives for the year.
|
The individual annual objectives established for the named executive officers vary depending on their primary areas of responsibility, but the majority of the objectives can be categorized into common areas of emphasis. These common areas of emphasis are customer growth and strategy, improving customer service, employee safety, cost control, performance improvement, compliance and revenue improvement. The Compensation Committee considers the named executive officers’ annual objectives to be achievable, but challenging. The individual objectives for the named executive officers in 2016 focused on the following areas:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
For 2016, the Compensation Committee determined that the Individual Factors achieved by the named executive officers based on their performance against their objectives and discretionary points ranged from 100% to 150%. The Individual Factors for the named executive officers for 2016 were: Christopher H. Franklin—145%; David P. Smeltzer—122%; Daniel J. Schuller—130%; Richard S. Fox—125%; and, Christopher P. Luning—120%.
Actual annual cash incentive awards under the Annual Plan paid to the named executive officers are determined based on the applicable Company Factor, certified by the Company’s Chief Financial Officer, Director of Internal Audit, and by the Compensation Committee and each named executive officer’s Individual Factor. For the Chief Executive Officer, the Board of Directors reviews and approves his Individual Factor based on the Compensation Committee’s assessment of the Chief Executive Officer’s performance against his objectives. For the other named executive officers, the Compensation Committee reviews and approves the Individual Factors based on the Chief Executive Officer’s assessment of the named executive officers’ performance against their objectives and possible discretionary points recommended by the Chief Executive Officer. Regardless of the Company’s financial performance, the Compensation Committee retains the authority
|
to determine the final Company Factor, and the actual payment and amount of any annual cash incentive award is always subject to the discretion of the Compensation Committee. The Compensation Committee did not exercise its discretion to reduce a cash incentive award to a named executive officer that was otherwise earned under the Annual Plan.
Based on the above-described factors, the following table shows the target annual cash incentive awards and the actual annual cash incentive awards approved by the Compensation Committee for 2016 for the named executive officers. The target annual cash incentive award is calculated assuming a 100% Company Factor and a 100% Individual Factor for each of the named executive officers, except the Chief Executive Officer, for whom the target assumes a 150% Individual Factor based on how the Compensation Committee assesses his overall performance as described above.
| Name | 2016 Target Bonus % | 2016 Target Award | 2016 Actual Award | |||||||||
FRANKLIN | 85% | $ | 566,738 | $ | 862,858 | |||||||
SMELTZER | 55% | $ | 214,830 | $ | 275,197 | |||||||
FOX | 55% | $ | 187,374 | $ | 245,928 | |||||||
SCHULLER | 55% | $ | 196,350 | $ | 268,018 | |||||||
LUNING | 45% | $ | 143,100 | $ | 180,306 | |||||||
CHANGESTOTHE ANNUAL CASH INCENTIVE AWARD DESIGNFOR 2017
During 2016, the Compensation Committee, its consultant Pay Governance, and management determined that it was appropriate to revise the design of the annual cash incentive portion of the total direct compensation paid to the named executive officers to place more emphasis on financial, safety, and compliance performance metrics and to reduce the weight allocated to individual goals. The Compensation Committee believes that these changes will focus the named executive officers’ efforts on business metrics that are core to the Company’s mission and reward the named executive officers’ performance in achieving these metrics.
| 28 2019 Proxy Statement | |
Executive Compensation
The changes in 2017 are applicable to all of the named executive officers and alignAnnual Plan aligns the Company’s goals with payouts dependent upon achievement of certain performance objectives over a one year period. The tables and the narrative below detail the 20172018 Annual Cash Incentive Award Metrics.
| 2018 ANNUAL CASH INCENTIVE AWARD METRICS | 2018 ANNUAL CASH INCENTIVE AWARD METRICS | ||||||||||||||||||||
| Target Achievement | |||||||||||||||||||||
| Metric Weight | Metric | Metric Components & Weights | 50% | 100% | 150% | ||||||||||||||||
| 50% | Financial | Adjusted Earnings Per Share* | $ 1.34 | 1.39 | 1.44 | ||||||||||||||||
| Return on Equity | –3.75 | 9.41 | 3.75 | ||||||||||||||||||
| 15% | Safety | Lost Time Incidents | 24 | 21 | 18 | ||||||||||||||||
| Responsible Vehicle Accident Rate | 4.5 | 4.1 | 3.7 | ||||||||||||||||||
| 2017 Annual Cash Incentive Award Metrics | Recordable Incidents | 87 | 76 | 65 | |||||||||||||||||
| Metric Weight | Metric | Metric Components & Weights | Target Achievement | ||||||||||||||||||
| 15% | Compliance | Drinking Water | 99.10% | 99.50% | 99.90% | ||||||||||||||||
| 50% | 100% | 150% | Wastewater | 91.00% | 94.00% | 96.00% | |||||||||||||||
60% | Financial | Earnings Per Share | $ | 1.31 | $ | 1.36 | $ | 1.41 | |||||||||||||
15% | Safety | 36% - Lost Time Incidents | 8 Points | 14 Points | 21 Points | ||||||||||||||||
36% - Responsible Vehicle Accident Rate | |||||||||||||||||||||
| 14% - Safety Training Hours | |||||||||||||||||||||
| 14% - Incident Reporting | |||||||||||||||||||||
15% | Compliance | 50% - Drinking Water | 99.00% | 99.50% | 99.80% | ||||||||||||||||
| 50% - Wastewater | 90.00% | 93.00% | 95.00% | ||||||||||||||||||
10% | Individual Goals | 50% | 100% | 150% | Customer Satisfaction | Service Level | 80.00% | 82.00% | 84.00% | ||||||||||||
| 10% | Individual Goals | 50% | 100% | 150% | |||||||||||||||||
1The Target ROE is based upon the Company’s consolidated allowed ROE, excluding the Company’s Texas operations.
|
Financial – 60%50%
The financial metric iswas based on the Company’s adjusted earnings per share (EPS)* and on the Company’s return on equity (ROE).
The target achievement
*Adjusted EPS is a non-GAAP financial measure. See Appendix B for reconciliation to the GAAP financial measure and adjustments made for purposes of the EPS goal is as follows:compensation metric attainment.
| Target | ||
| EPS | Payout | |
$1.41 | 150% | |
$1.40 | 140% | |
$1.39 | 130% | |
$1.38 | 120% | |
$1.37 | 110% | |
$1.36 | 100% | |
$1.35 | 90% | |
$1.34 | 80% | |
$1.33 | 70% | |
$1.32 | 60% | |
$1.31 | 50% | |
Safety – 15%
The safety metric will be achieved through the accumulationwas comprised of points focused onthree equally weighted specific safety components including Lost Time Incidents, Safety Training Hours, Incident Reporting, and Responsible Vehicle Accident Rate.Rate, and Recordable Incidents. The table below illustrates the weighting and performance range was 50% to 150% of each safety goal and a corresponding point score.the target.
|
| |||||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
Compliance – 15%
The compliance metric hashad two components – drinking water compliance rate and waste water. Similar to the safety metric, thewater compliance metric will also have arate. The performance range ofwas 50% to 150%. The tables below detail the components of the compliance metric.target.
| Drinking Water Compliance Component | ||||
| Compliance Percentage | Number of Compliance Days / System / Year | Performance Range | ||
99.00% | 3.7 | 50 | ||
99.10% | 3.3 | 60 | ||
99.20% | 2.9 | 70 | ||
99.30% | 2.6 | 80 | ||
99.40% | 2.2 | 90 | ||
Target - 99.50% | 1.8 | 100 | ||
99.58% | 1.6 | 113 | ||
99.65% | 1.3 | 125 | ||
99.73% | 1.0 | 138 | ||
99.80% | 0.7 | 150 | ||
Customer Satisfaction – 10%
| Wastewater Compliance Component | ||||
| Compliance Percentage | Number of Compliance Days / System / Year | Performance Range | ||
90.00% | 36.5 | 50 | ||
91.00% | 32.9 | 60 | ||
91.50% | 31.0 | 70 | ||
92.00% | 29.2 | 80 | ||
92.50% | 27.4 | 90 | ||
Target - 93.00% | 25.6 | 100 | ||
93.50% | 23.7 | 113 | ||
94.00% | 21.9 | 125 | ||
94.50% | 20.1 | 138 | ||
95.0% | 18.3 | 150 | ||
In 2018, the Company decided to incent management to focus on customer satisfaction through the use of measuring the “service level” with which it provides to its customers. The performance range was 50% to 150% of the target.
Individual Goals – 10%
Two
At the beginning of 2018, two individual goals arewere identified for each named executive officer that alignaligned with the broader Company goals. Similarly, when Mr. Rhodes joined the Company, two individual goals were identified for him. Individual goals focus on the named executive officer’s role with the Company. Each named executive officer will bewas rated on the achievement of each goal receivingand received a rating between 50%, 100%, or 150% completion-150%.
| 2019 Proxy Statement 29 |
Executive Compensation
2018 Performance
Based on the above-described factors, the following table shows the 2018 performance of the Company compared to the targets set in the Annual Plan:
| Metric | Metric Component | Report Date | Threshold 50% | Target 100% | Maximum 150% | Actual | Actual Attainment | Weight | Final Achievement | |||||||
| Financial | Adjusted Earnings Per share | 12/31/2018 | $ 1.34 | $ 1.39 | $ 1.44 | $ 1.44 | 1 | 150.00% | 35% | 52.50% | ||||||
| Return on Equity | 12/31/2018 | -3.75 | 9.4 | 2 | 3.75 | 11.1 | 122.67% | 15.0% | 18.40% | |||||||
| Safety | Lost Time Incidents | 12/31/2018 | 24 | 21 | 18 | 12 | 150.00% | 5.0% | 7.50% | |||||||
| Responsible Vehicle Accident Rate | 12/31/2018 | 4.5 | 4.1 | 3.7 | 3.7 | 150.00% | 5.0% | 7.50% | ||||||||
| Recordable Incidents | 12/31/2018 | 87 | 76 | 65 | 55 | 150.00% | 5.0% | 7.50% | ||||||||
| Compliance | Water | 12/31/2018 | 99.10% | 99.50% | 99.90% | 99.75% | 131.25% | 7.50% | 9.84% | |||||||
| Wastewater | 12/31/2018 | 91.00% | 94.00% | 96.00% | 94.32% | 108.00% | 7.50% | 8.10% | ||||||||
| Customer Satisfaction | Service Level | 12/31/2018 | 80.00% | 82.00% | 84.00% | 87.48% | 150.00% | 10.00% | 15.00% |
| 1 | Adjusted EPS is a non-GAAP financial measure. See Appendix B for a reconciliation of this metric to the GAAP financial measure and adjustments made for purposes of the compensation metric attainment. |
| 2 | The Target ROE is based upon the Company’s consolidated allowed ROE, excluding the Company’s Texas operations. |
The Compensation Committee evaluated the actual attainment of each performance goal, with particular emphasis on the above-target achievement of all goals, and determined that the aggregate achievement of the corporate goals was 126.34%. Based on this determination, the below table shows the target annual cash incentive awards and the actual annual cash incentive awards, based on both corporate and individual goals, approved by the Compensation Committee for 2018 for the named executive officers. The “2018 Salary Rate” is an annualized rate.
LONG-TERM EQUITY INCENTIVE AWARDS
| Name | 2018 Salary Rate ($) | 2018 Target Bonus % | 2018 Company Metric Excluding Individual Metric | 2018 Individual Metric | Total Factor | Bonus ($) |
| Christopher H. Franklin | 760,055 | 85% | 126.34% | 15% | 141.34% | 913,150 |
| Daniel J. Schuller | 419,928 | 55% | 126.34% | 15% | 141.34% | 326,449 |
| Richard S. Fox | 378,104 | 60% | 126.34% | 11% | 137.34% | 311,582 |
| Matthew Rhodes | 391,000 | 55% | 126.34% | 14% | 140.34% | 301,810 |
| Christopher P. Luning | 343, 287 | 45% | 126.34% | 14% | 140.34% | 216,803 |
| David P. Smeltzer* | 418,411 | 55% | 100.00% | 10% | 110.00% | 210,833 |
*Mr. Smeltzer retired in 2018.
Long-Term Equity Incentive Awards
Our use of equity incentive awards are intended to reward our named executive officers for: (1) enhancing the Company’s financial health, which also benefits our customers; (2) improving our long-term performance through both revenue increases and cost control; and (3) achieving increases in the Company’s equity and shareholder value, as well as helping to retain such executives due to the longer-term nature of these awards. We make these equity incentive awards under our 2009 Omnibus Equity Compensation Plan, as amended (the “Plan”). Under the Plan, the Compensation Committee and the Board of Directors may grant stock options, dividend equivalents, performance-based or service-based stock units and stock awards, stock appreciation rights
|
and other stock-based awards to officers, directors, key employees and key consultants of the Company and its subsidiaries who are in a position to contribute materially to the successful operation of our business.
As part of its review of the total compensation package for our named executive officers, the Compensation Committee annually reviews our equity incentive compensation program. Starting in 2011, the Compensation Committee began using a combination of performance share units and restricted sharestock units to better link the named executive officer’s long-term incentive compensation to performance results that led to increased shareholder value and enhanced our long-term financial stability, which also benefits our customers. In 2017, the Compensation Committee added performance-based stock options to the long-term incentive compensation program for the same reasons.
| 30 2019 Proxy Statement | |
Executive Compensation
We aim to strike a balance between the incentive and retention goals of our equity grants:
| · | All of the equity grants to our Chief Executive Officer are subject to performance goals. |
| · | For our other named executive officers, two-thirds of the equity grant value as of the grant date is in the form of performance based awards, with the performance metrics described below, and one-third is in the form of service-based restricted stock units. |
Using the equity grants to our Chief Executive Officer are subject to performance goals.
The Compensation Committee bases the annual equity incentive awards made to the named executive officers as part of the total compensation package designed to be competitive with the benchmarked group and our industry. The Compensation Committee does not consider any increase or decrease in the value of past equity incentive awards in making these annual decisions. In considering the number of equity incentive awards to be granted in total to all employees each year, the Compensation Committee considers the number of equity incentive awards outstanding and the number of equity incentive awards to be awarded as a percentage of Aqua America’s total shares outstanding. The number of equity incentive awards granted annually to all employees has been less than 1.0%1% of Aqua America’s total shares outstanding per year for the past several years.
Equity It is our equity granting policy to make all equity incentive awards are generally all made on the same grant date. It is our policy to make the grant date of equity compensation grants the date that
Long Term Equity Incentive Awards Balance
Each year, the Compensation Committee approvesseeks to strike the grants, which is eitherright balance between performance-based equity awards and restricted share units. Performance-based equity awards provide guidance and incentives to management for building shareholder growth, while restricted share units provide retention benefits while closely aligning management with the date of the Compensation Committee’s meeting or the date of the Board meeting following the Compensation Committee’s meeting.shareholders. The dates for all Board and Compensation Committee meetings, includingis also focused on tying the dates forawards to the Compensation Committee to approveappropriate metric. Below are charts describing the equity grants, are set in advance, subject to changes for scheduling conflicts,balance between the performance share units metrics, performance-based options, and are independentrestricted share units:
| 2019 Proxy Statement 31 |
Executive Compensation
Vested Performance Share Awards and Status of the timing of our disclosure of any materialnon-public information other than our normal annual earnings release.
PERFORMANCE SHARE AWARDSOutstanding Performance Share Awards
Performance share or performance share unit grants (“PSU”) (together referred to as performance shares) provide the named executive officer with the opportunity to earn awards of shares based on Company performance against designatedpre-determined, objective metrics. Participants are granted a target number of shares or units that for the 2014, 2015 and 2016 PSU awards, can increase to 200% of the target or decrease to zero based on the Company’s actual performance compared to the designated metrics. Dividends or dividend equivalents, as applicable, on the performance shares accrue and will be paid when the performance shares are earned and paid based on the number of shares actually earned, if any.
Since 2014, the
The performance goals to be achieved under the PSU awards have been based on the following performance goals, with the weighting of each goal assessed each year:
| · | The Company’s total shareholder return (“TSR”) at the end of the performance period as compared to the TSR of the other large investor-owned water companies (American Water Works Company, American States Water Company, Connecticut Water Service, Inc., California Water Service Group, Middlesex Water Company and SJW Corporation) (“Metric 1”); |
| · | The Company’s TSR compared to the TSR for the companies in the S&P Midcap Utility Index (“Metric 2”); |
| · | The achievement of maintaining Operating and Maintenance (“O&M”) expenses within the Company’s regulated operations over the performance period (“Metric 3”); and |
| · | The achievement of the three-year cumulative total earnings before taxes in non-Aqua Pennsylvania subsidiaries (“Metric 4”). |
2016-2018 PSU Awards Achievement
The three-year performance period as compared to the TSR of the other large investor-owned water companies (American Water Works Company, American States Water Company, Connecticut Water Service, Inc., California Water Service Group, Middlesex Water Company and SJW Corporation);
|
Outstanding 2016 PSU Awards
The Compensation Committee has granted PSU awards each year since 2011. Thein 2016 PSU awards have similar performance goals to the 2017 PSU awards, with the same percentile rankings and scales, and a performance period that began on January 1, 2016 and will endended on December 31, 2018. Please seeIn February 2019, the disclosure underCompensation Committee determined the heading “Outstanding Equity Awards at Fiscal Year- End”achievement of performance goals for the 2016 PSUs.
As a descriptionresult, the Compensation Committee certified that a 70.68% payout of the status of such 2016 PSU awards.awards was earned in accordance with the following results and weightings:
| 2016 PSU Metrics | ||||
| Payout | Weight | Extrapolated | ||
| METRIC 1 | 0.00% | 27.5% | 0.00% | |
| METRIC 2 | 0.00% | 27.5% | 0.00% | |
| METRIC 3 | 122.72% | 25.0% | 30.68% | |
| METRIC 4 | 200.00% | 20.0% | 40.00% | |
| 70.68% | ||||
Applying this performance, the below table shows the Target PSU award and the Actual PSU award approved by the Compensation Committee for the NEOs.*
| Name | 2016 Target PSU | 2016 Actual PSU Awarded |
| Franklin | 28,333 | 20,026 |
| Schuller | 7,467 | 5,278 |
| Fox | 7,467 | 5,278 |
| Rhodes | — | — |
| Luning | 6,800 | 4,806 |
| Smeltzer | 8,667 | 5,287 |
| *Mr. Rhodes did not have any 2016 PSUs. | ||
As is seen by the above charts, the Compensation Committee believes that its long-term incentive compensation program aligns with the shareholders, combining total shareholder return with objective metrics aimed at increasing shareholder value, with the actual payout based on actual achievement of four metrics that the Compensation Committee believes address share-based and operational metrics that are important to shareholders. It is anticipated that, following the consummation of the Peoples Gas acquisition and completion of a transition period, when appropriate metrics can be established, the executive compensation program will return to a structure similar to the foregoing awards, as adapted for the combined businesses.
| 32 2019 Proxy Statement | |
Executive Compensation
Outstanding 20152017-2019 PSU Awards
The PSU awards granted in 20152017 have similar performance goals to the 2016 PSU awards, with different percentile rankings and scales, and a performance period that began on January 1, 20152017 and will end on December 31, 2017.2019. Please see the disclosure under the heading “Outstanding Equity Awards at Fiscal Year- End”Year-End” for a description of the status of such 20152017 PSU awards.
2014
Outstanding 2018-2020 PSU Awards Achievement
The three-year2018 PSU awards have similar performance goals to the 2016 and 2017 PSU awards, and a performance period for the PSU awards made by the Compensation Committee in 2014 endedthat began on January 1, 2018 and will end on December 31, 2016. In February 2017,2020. Please see the Compensation Committee determineddisclosure under the achievement of performance goalsheading “Outstanding Equity Awards at Fiscal Year-End” for the 2014 PSUs. The Company’s TSR was ranked 10th among the companies in the S&P Midcap 400 Utilities Index (Metric 1), the Company’s TSR was ranked 7th among the other water companies (Metric 2), the O&M expense to revenue ratio for Aqua Pennsylvania was 30.70% (Metric 3), and the three-year cumulative total earnings before taxes innon-Aqua Pennsylvania subsidiaries was $297,465 million (Metric 4).
As a result, the Compensation Committee certified that a 97.31% payoutdescription of the 2014status of such 2018 PSU awards was earned in accordance with the following results and weightings:awards.
2014 PSU Metrics | Payout | Weight | Percentage | |||||||||
Metric 1 | 58.30 | % | 30% | 17.49% | ||||||||
Metric 2 | 0.00 | % | 30% | 0.00% | ||||||||
Metric 3 | 199.10 | % | 20% | 39.82% | ||||||||
Metric 4 | 200.00 | % | 20% | 40% |
CHANGESTOTHE LONG-TERM EQUITY INCENTIVE AWARD DESIGNFOR 2017
The 2017 Performance-Based Grants
For the performance-based grants made by the Compensation Committee in 2017, the Compensation Committee determined to grant 85% of the performance-based grants in the form of PSUs and 15% of the performance based grants in the form of stock options.
|
The 2017 PSUs
For the PSUs, the period over which the Company’s performance will be measured will be the three-year period of 2017 through 2019. The performance metrics for the 2017 PSUs represent both internal and external performance goals tied to TSR, cost reduction goals and rate base growth. All such awards are made subject to the terms and conditions of the Plan.
Specifically, the PSUs are subject to the following performance goals:
The Compensation Committee believes the mixture of performance goals that compare the Company’s performance to both the broader index of peer investor-owned utilities used by Pay Governance in evaluating the competitiveness of the Company’s executive compensation program, and the specific investor-owned water utilities, coupled with performance goals designed to encourage the growth of the Company while continuing to focus on cost control and efficiency at the operating subsidiaries, leading to income growth, properly align the named executive officer compensation with the interests of shareholders.
The performance period for the 2017 PSUs is from January 1, 2017 until December 31, 2019.
Stock Options
In 2017, the Compensation Committee added performance-based stock options to the grants to the named executive officers. The Compensation Committee believes that the award of stock options, when paired with the performance and service-based stock awards, completely aligns the interests of the named executive officers with those of the shareholders. Fifteen percentshareholders as the value of the stock option is a function of the price of the Company’s stock. In addition, stock options provide the use of an additional performance metric for the earning of long-term equity compensation.
The named executive officer’s outstanding performance-based awardsstock options will vest ratably over a three-year period of time based upon the Company’s achievement of at least an adjusted return on equity equal to 150 basis points below the return on equity granted by the Pennsylvania Public Utility Commission (the “PUC”) during Aqua Pennsylvania’s, the Company’s Pennsylvania subsidiary’ssubsidiary, last rate proceeding. The Company’s adjusted return on equity shall beis calculated annually in accordance with the below descriptive formula and if the adjusted return on equity meets or exceeds 150 basis points below the return of equity of the most current Pennsylvania Public Utility CommissionPUC rate award, the award shallawards will vest:
Return on Equity = net income (excluding net income or loss from acquisitions which have not yet been incorporated into a rate application as of the last year end) / equity (excluding equity applicable to acquisitions which are not yet incorporated in a rate application during the award period).
|
The Compensation Committee believes that by providing the named executive officers with the ability to earn stock options, the named executive officers’ interests are aligned with the shareholders’ interests as the value of the stock option is a function of the price of the Company’s stock. In addition, stock options provide the use of an additional performance metric for the earning of long-term equity compensation.
RESTRICTED SHARE AWARDSRestricted Share Awards
Annual restricted share or restricted sharestock unit grants (together referred to as “restricted shares”) entitle the named executive officer to receive the number of shares granted at the end of a given period of time, or in increments over a period of years on the anniversaries of the grant date, provided the named executive officer remains an employee of the Company, unless separation is due to death, disability, retirement or termination following a Change in Control, in which cases acceleration of the lapse of forfeiture restrictions occurs as set forth in the Plan. Dividends or dividend equivalents, as applicable, are accumulated and paid when the restricted shares are paid. The restricted shares to the other named executive officers (other than the Chief Executive Officer) vest 100% after three years, with vesting subject solely to continued service with the Company.
The restricted shares to the Chief Executive Officer vest 100% after three years, with vesting subject to continued service with the Company and the Company’s achievement of at least an adjusted return on equity equal to 150 basis points below return on equity granted by the Pennsylvania Public Utility Commission during the Company’s Pennsylvania subsidiary’s last rate proceeding.proceeding, subjected to adjustments as allowed pursuant to the Plan. The return on equity shall be calculated in the same manner as it is calculated for the purposes of determining the return on equity required for the vesting of stock options.
Impact of the Peoples Gas Transaction
The acquisition of Peoples Gas is projected to close in mid-2019. Because of this projected closing date, the Compensation Committee reviewed several different alternatives for addressing the uncertainty associated with the acquisition. Among other items, the Compensation Committee considered various performance metrics with a goal of aligning management’s interests with the Company’s shareholders. In the end, the Compensation Committee determined that keeping management engaged and aligned with the Company’s shareholders was paramount and that granting performance-based stock options, with performance based on stock price, and continuing to award service-based restricted stock units would be the best way to align the interests.
Accordingly, the Compensation Committee determined that the 2019 executive long-term compensation plan will consist of 70% performance-based stock options with the ROE goal described above, with a three year pro-rata vesting cycle and 30% service-based restricted stock units with a three year cliff vesting cycle. The Compensation Committee believes this LTI program will most closely align the interests of management with the shareholders for this transition year. For management to be rewarded, the Company’s share price must increase, aligning management’s interests with the Company’s shareholders. Similarly, the grant of restricted stock units, when coupled with our stock ownership requirements, further aligns management with the shareholders by increasing the amount of shares each member of management holds.
| 2019 Proxy Statement 33 |
Executive Compensation
Retirement Plans
Our retirement plans are intended to provide competitive retirement benefits to help attract and retain employees. Some of our named executive officers are participants in our qualified pension plan (benefits frozen as of December 31, 2014) (the “Retirement Plan”), and in ournon-qualified pension benefit plan (the“Non-Qualified “Non-Qualified Pension Benefit Plan”). Ournon-qualified retirement plan is intended to provide executive officers with a retirement benefit that is comparable on a percentage of salary basis to that of our other employees participating in the Retirement Plan by providing the benefits that are limited under current Internal Revenue Service regulations. Benefits continue to accrue for some of our named executive officers in theNon-Qualified Pension Benefit Plan. Starting in 2009, the Company began to fund the trust for the benefits under theNon-Qualified Pension Benefit Plan using trust-owned life insurance. A named executive officer’s retirement benefits under our qualified andnon-qualified retirement plan are not taken into account in determining the executive’s current compensation. Effective December 31, 2014, the named executive officers ceased accruing a benefit under the Retirement Plan. Specifically, their plan compensation and credited service for purposes of determining their benefits was frozen in the Retirement Plan as of December 31, 2014. Vesting service will continue to accrue in the Retirement Plan as long as the named executive officer remains employed by the Company.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
Non-Qualified Deferred Compensation Plan
We maintain anon-qualified Executive Deferred Compensation Plan (the “Executive Deferral Plan”) that allows eligible members of management to defer all or a portion of their salary and annual cash incentives, which enables participants to save for retirement and other life events in atax-effective manner. Deferred amounts are deemed invested in one or more mutual funds selected by the participant under trust-owned life insurance policies on the lives of eligible executives. In addition, in order to provide named executive officers with the full Company matching contribution available to other employees under our qualified plans, executives who choose to defer up to six percent of their salary under one of Aqua America’s 401(k) plans, but do not receive the full
|
Company matching contribution under such qualified plans due to the Internal Revenue Service regulations limiting the total dollar amount that can be deferred under a 401(k) plan ($17,50018,000 for 2014,2016, and $18,000$18,500 for 20152017 and 2016)2018), receive the portion of the Company matching contribution that would otherwise be forfeited by the executive as an Aqua America contribution into the Executive Deferral Plan. Effective January 1, 2009, the Company began to fund the trust holding amounts deferred by the participants in the Executive Deferral Plan using trust-owned life insurance. A named executive officer’s deferrals the Company’s contributions and any earnings on deferrals and contributions under ournon-qualified deferred compensation plan are not taken into account in determining the named executive officer’s current compensation.
Severance Plans
All of the named executive officers are covered by a severance policy. The policy provides the named executive officers with a severance benefit of one full year salary and one full year projected bonus and a minimum of one month of continued medical benefits and a maximum of six months of continued medical benefits following termination, provided that the named executive officer is terminated for any reason other than for cause.
Additionally, Mr. Franklin and the Company have entered into an Employment Agreement when he became our Chief Executive Officer (“Mr. Franklin’s Employment Agreement”). Pursuant to Mr. Franklin’s Employment Agreement, if the Company terminates Mr. Franklin’s employment without cause or does not renew the term of the Employment Agreement, or Mr. Franklin terminates his employment for good reason (as defined in the agreement), Mr. Franklin will receive any accrued but unpaid salary and accrued vacation as well as a lump sum equal to (i) 24 months of base salary and (ii) two times the target annual bonus. If the Company terminates Mr. Franklin’s employment for cause or if he terminates his employment without good reason, or for death or disability, Mr. Franklin (or his estate) will receive any accrued but unpaid salary and accrued vacation. Mr. Franklin’s Employment Agreement expires July 1, 2021, and may be extended for successive one-year terms upon mutual agreement of the Company and Mr. Franklin. Mr. Franklin’s Employment Agreement is filed with our SEC filings.
Change-In-Control Agreements
We maintainchange-in-control agreements with the named executive officers. Thesechange-in-control agreements are intended to minimize the distraction and uncertainty that could affect key management in the event we become involved in a transaction that could result in a change in control of Aqua America, enable the executives to impartially evaluate such a transaction, provide a retention incentive to our named executive officers and encourage their attention and dedication to their duties and responsibilities in the event of a possiblechange-in-control. Under the terms of these agreements, the covered named executive officer is entitled to certain severance payments and a payment in lieu of the continuation of benefits if he experiences a termination of employment other than for cause, or in the event the executive resigns for good reason, as defined in the agreements, within two years following achange-in-control of Aqua America. (See the description of “Potential Payments Upon Termination orChange-in-Control” on pages 5949 through 65.51.)
| 34 2019 Proxy Statement | |
Executive Compensation
Thesechange-in-control agreements are referred to as “double trigger” agreements because they only provide a benefit to executives whose employment is terminated, or who have good reason to resign, following achange-in-control. Thesechange-in-control agreements do not provide any payments or benefits to the covered executives merely as a result of achange-in-control. The normal annual restricted share, stock option and performance share grants to the named executive officers since 2011 also contain double trigger provisions. Each of thechange-in- control change-in-control agreements limits the amount of the payments under the agreements to the Internal Revenue Service’s limitation on the deductibility of these payments under Section 280G of the Internal Revenue Code (the “Code”).
The Company has determined that there will be no taxgross-ups in anychange-in-control agreements with executives and that all such agreements will be subject to the limitations under Section 280G of the Code. We believe that the multiples of compensation and other benefits provided under thechange-in-control
|
agreements, as described on pages 5949 through 60,51, are consistent with the multiples in the market. Named executive officers who receive payments under theirchange-in-control change-in- control agreements in connection with their separation from employment following achange-in-control will not be entitled to any payments under our normal severance policy.
THE ROLEOF MANAGEMENTINTHE EXECUTIVE COMPENSATION PROCESS
Perquisites
We offer a limited number of perquisites for our named executive officers. The Board has authorized executive benefits consisting of executive financial planning and annual executive physical exams. The Board regularly reviews the benefits provided to our executives and makes appropriate modifications based on the value of these benefits.
The Role of Management in the Executive Compensation Process
Our Senior Vice President, and Chief Human RelationsResources Officer assists the Compensation Committee by preparing schedules showing the present compensation of executives and compiling the recommended salary grade midpoints, market median rates, target annual cash incentives and target range of equity compensation awards from the information provided by the Compensation Committee’s consultant. Our Chief Executive Officer compiles and presents the supporting information for the individual executives’ performance against their objectives and his recommendations for any discretionary points for the calculationevaluation of the Individual Factorextent of achievement of individual goals (the “Individual Factor”) under the Annual Cash Incentive Compensation Plan. He also provides the Compensation Committee with his recommendations for annual salary increases, any changes in target annual cash incentive percentages and equity incentive awards for the other executive officers. Our Chief Executive Officer also provides the Compensation Committee with a self-assessment of his performance against his objectives. Our Chief Financial Officer provides the Compensation Committee with certifications as to our financial performance for purposes of the Compensation Committee’s determination of the Company Factorachievement of the Company-specific goals (the “Company Factor”) for the Annual Cash Incentive Compensation Plan, our performance against the criteria established by the Compensation Committee for the vesting of restricted share grants and the earning of performance shares. These financial measures are also certified by our Director of Internal Audit. Our Chief Executive Officer makes recommendations to the Compensation Committee with respect to the compensation awards for the named executive officers other than himself, but the ultimate decisions regarding compensation for these officers are made by the Compensation Committee.
THE IMPACTOF TAX CONSIDERATIONSON EXECUTIVE COMPENSATION DECISIONS
While the Company’s executive compensation program is structured to be sensitive to the deductibility of compensation for federal income tax purposes, the program is principally designed to achieve our objectives as described above. Section 162(m) of the Code generally precludes the deduction for federal income tax purposes of more than $1 million in compensation (including long-term incentive compensation) paid individually to our Chief Executive Officer and the other named executive officers in any one year, subject to certain specified exceptions. We have determined that it may be appropriate for our Chief Executive Officer’s compensation to be at a level such that a portion is not entirely deductible for federal income tax purposes.Stock Ownership Guidelines
STOCK OWNERSHIP GUIDELINES/ANTI-HEDGINGAND ANTI-PLEDGING POLICY
In 2005, the Board of Directors established stock ownership guidelines for the named executive officers to encourage these executives to maintain a significant ownership interest in the Company and to help align the interests of these executive officers with the long-term performance of the Company. In 2012,2017, these guidelines were modified to recognize the different levels of executives who may be among the named executive officers and to state the guidelines in terms of the number of shares to be held rather than a dollar value, in order to avoid fluctuations in the number of shares to be held based on variations in the Company’s stock price. In establishing the number of shares to be held, the Compensation Committee useduses a round number of shares, the value of which approximates the following multiples of the midpoint of the average base salary grade for the executives:
| Position | Approximate Multiple of Salary Midpoint | Number of Shares | ||||||
Chief Executive Officer | 5 | 150,000 | ||||||
Executive Vice President | 3 | 40,000 | ||||||
Senior Vice President | 2 | 20,000 |
| Position | Multiple of Midpoint of 2018 Average Base Salary | Approximate Shares, PSUs, and RSUs To Be Held Based upon December 31, 2018 Share Price |
| Chief Executive Officer | 5 | 113,400 |
| Executive Vice President | 3 | 35,100 |
| Senior Vice President | 2 | 20,200 |
|
Each named executive officer is expected to have shareholdings consistent with these guidelines within five years after becoming a named executive officer or after receiving a significant promotion. Messrs. Franklin and Fox each received a significant promotion in 2015 and Mr. Schuller was initially hired in 2015 and Mr. Rhodes was initially hired in 2018, starting a new five-year period for each.
| 2019 Proxy Statement 35 |
Executive Compensation
Shareholdings, as defined for ownership requirement purposes, include shares held directly or beneficially, including shares acquired under our Employee Stock Purchase Plan or 401(k) plans. Shareholdings do not include exercisable stock options,plans and restricted shares still subject to restrictions orunits and performance shares before being earned.share units. An executive who has not achieved the guideline within this five-year period is expected to retainone- half one-half of any equity awards, after any required tax withholding, in Company stock and to use 10% of any annual cash incentive awards after tax to purchase shares of Company stock until the guideline is met. The below chart shows the share ownershipshareholdings of the named executive officers as of March 7, 2017:December 31, 2018:
| Name | Position | Shares, PSUs(1), and RSUs Held | ||||||||
| Franklin | Chief Executive Officer | 222,349 | |||||||
| Schuller | Executive Vice President | 39,765 | |||||||
| Fox | Executive Vice President | 41,730 | |||||||
| Rhodes | Executive Vice President | 17,931 | |||||||
| Luning | Senior Vice President | 61,249 | |||||||
| (1) PSUs listed at target amount. | ||||||||||
Anti-Hedging and Anti-Pledging Policy
It is the Company’s policy not to permit hedging or pledging or short-selling of the Company’s stock by its named executive officers. None of our named executive officers pledged any shares of Company stock during 2016.2018. None of our named executive officers engaged in any hedging activities with respect to the Company stock during 2016.2018.
CLAWBACKOF INCENTIVE COMPENSATION
Clawback of Incentive Compensation
In the event of a significant restatement of our financial results caused by executive fraud or willful misconduct, the Compensation Committee reserves the right to review the cash incentive compensation received by the named executive officers with respect to the period to which the restatement relates, recalculate Aqua America’s results for the period to which the restatement relates and seek reimbursement of that portion of the cash incentive compensation that was based on the misstated financial results from the executive or executives whose fraud or willful misconduct was the cause of the restatement. In addition, starting with the performance share unit grants and restricted sharestock unit grants in 2014, all shares issued pursuant to those grants are subject to any applicable recoupment or clawback policies and other policies implemented by the Board, as in effect from time to time.
Report of the Executive Compensation Committee
The purpose of the Compensation Committee is to assist the Board of Directors in its general oversight of the Company’s compensation programs and the compensation of the Company’s executives. The Compensation Committee Charter describes in greater detail the full responsibilities of the committee and is available on our website:www.aquaamerica.com. The Executive Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis on pages 23 through 51 with management. Based on this review and discussion, the Executive Compensation Committee recommended to the Company’s Board of Directors, and the Board of Directors approved, the inclusion of the Compensation Discussion and Analysis in the Company’s Proxy Statement for the 2019 Annual Meeting of Shareholders.
Respectfully submitted,
Ellen T. Ruff, Chair
Elizabeth B. Amato
Daniel J. Hilferty
The foregoing Report of the Executive Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.
| 36 2019 Proxy Statement | |
Executive Compensation
Summary Compensation Table
49
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table shows compensation paid to or earned by the named executive officers.officers in 2018.
| Summary Compensation Table | |||||||||
| Principal Position | Year | Salary ($)(1) | Bonus ($) | Grant Date Fair Value of PSUs and RSUs ($)(2) | Grant Date Fair Value of Stock Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(1)(3) | Change in Pension Value and Non-qualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($)(6) |
| Christopher H. Franklin | 2018 | 749,321 | — | 1,158,719 | 178,220 | 913,150 | 535,338 | 17,957 | 3,552,705 |
| President and | 2017 | 705,730 | — | 1,139,644 | 110,106 | 711,103 | 1,632,770 | 14,150 | 4,313,503 |
| Chief Executive Officer | 2016 | 658,324 | — | 1,271,034 | — | 862,858 | 1,017,238 | 14,645 | 3,824,099 |
| Daniel J. Schuller | 2018 | 392,384 | — | 289,223 | 44,487 | 326,449 | — | 150,121 | 1,202,664 |
| EVP and Chief Financial | 2017 | 367,984 | — | 285,998 | 27,631 | 252,579 | — | 22,399 | 956,591 |
| Officer, Principal | 2016 | 355,143 | — | 515,590 | — | 268,018 | — | 24,544 | 1,163,295 |
| Financial Officer | |||||||||
| Richard S. Fox | 2018 | 373,257 | — | 296,461 | 45,594 | 311,582 | 217,073 | 22,794 | 1,266,761 |
| EVP and Chief | 2017 | 354,871 | — | 293,136 | 28,319 | 258,061 | 372,738 | 20,312 | 1,327,437 |
| Operating Officer | 2016 | 338,907 | — | 334,954 | — | 245,928 | 237,445 | 16,863 | 1,174,097 |
| Matthew R. Rhodes | 2018 | 203,019 | 65,000 | 636,372 | 36,885 | 301,810 | — | 76,605 | 1,319,691 |
| EVP, Strategy & | 2017 | — | — | — | — | — | — | — | — |
| Corporate | 2016 | — | — | — | — | — | — | — | — |
| Development(7) | |||||||||
| Christopher P. Luning | 2018 | 339,732 | — | 239,251 | 36,797 | 216,803 | 31,811 | 14,562 | 878,956 |
| SVP, General Counsel | 2017 | 326,831 | — | 238,853 | 23,077 | 177,414 | 276,991 | 10,680 | 1,053,846 |
| and Secretary | 2016 | 313,224 | — | 305,048 | — | 180,306 | 205,336 | 14,934 | 1,018,848 |
| David P. Smeltzer | 2018 | 357,754 | — | 328,045 | 50,454 | 210,833 | — | 18,043 | 965,129 |
| Former EVP and Chief | 2017 | 399,163 | — | 327,477 | 31,640 | 270,929 | 604,934 | 19,471 | 1,653,614 |
| Financial Officer, | 2016 | 385,663 | — | 388,786 | — | 275,197 | 565,493 | 18,778 | 1,633,917 |
| Principal Financial | |||||||||
| Officer* | |||||||||
*Mr. Smeltzer retired in October 2018.
| (1) | Salary andNon-Equity Incentive Plan Compensation amounts include amounts deferred by the named executive officer pursuant to the Executive Deferral Plan described on pages |
| (2) | The grant date fair value of stock-based compensation is based on the fair market value on the date of grant as determined in accordance with the |
| (3) | Non-Equity Incentive Plan Compensation is shown for the year in which the compensation is earned and is generally paid in the following calendar year. See the description of these annual cash incentive awards above under the CD&A section of this Proxy Statement. |
| (4) | The change in pension value is based on the aggregate change in the actuarial present value of the named executive officer’s accumulated benefit under all defined benefit pension plans (includingnon-qualified pension plans) from the pension plan measurement date used for financial statement reporting purposes in the Company’s audited statements for the prior completed fiscal year to the pension plan measurement date used for financial statement reporting purposes in the Company’s audited financial statements for the covered fiscal year. All amounts deferred by participants in the Executive Deferral Plan and all prior deferrals under the Executive Deferral Plan are invested in a variety of mutual funds selected by each participant under trust-owned life insurance used by the Company to fund the Executive Deferral Plan; there are no preferential or above-market earnings on this deferred compensation. |
| 2019 Proxy Statement 37 |
Executive Compensation
| (5) | “All Other Compensation” includes the following components: |
|
| All Other Compensation | |||||||
| Dividend Equivalents ($)(a) | Group Life ($)(b) | 401(k) Company Match and Company Contribution ($)(c) | Relocation ($)(d) | Car Allowance ($)(e) | Total ($) | ||
| Franklin | 2018 | — | 3,450 | 8,250 | — | 6,257 | 17,957 |
| 2017 | — | 3,450 | 8,100 | — | 2,600 | 14,150 | |
| 2016 | — | 3,450 | 7,950 | — | 3,245 | 14,645 | |
| Schuller | 2018 | — | 270 | 22,040 | 119,867 | 7,944 | 150,121 |
| 2017 | — | 270 | 15,888 | — | 6,241 | 22,399 | |
| 2016 | — | 248 | 16,249 | — | 8,047 | 24,544 | |
| Fox | 2018 | — | 3,648 | 8,250 | — | 10,896 | 22,794 |
| 2017 | — | 3,462 | 8,100 | — | 8,750 | 20,312 | |
| 2016 | — | 3,261 | 7,950 | — | 5,652 | 16,863 | |
| Rhodes | 2018 | — | — | — | 76,605 | — | 76,605 |
| Luning | 2018 | — | 1,758 | 8,250 | — | 4,554 | 14,562 |
| 2017 | — | 1,100 | 7,620 | — | 1,960 | 10,680 | |
| 2016 | — | 1,055 | 7,929 | — | 5,950 | 14,934 | |
| Smeltzer | 2018 | — | 5,194 | 3,220 | — | 9,629 | 18,043 |
| 2017 | — | 3,896 | 7,938 | — | 7,637 | 19,471 | |
| 2016 | — | 3,777 | 7,950 | — | 7,051 | 18,778 | |
| Represents dividends paid pursuant to the Plan. |
| Represents the taxable value of group life insurance benefit for the named executive officer. |
| Includes Company match and year end contribution to the |
| Represents reimbursement provided under the Company’s relocation policy. |
| The Company provides the use of Company owned or leased vehicles for |
| (6) | Total compensation is calculated in accordance with the SEC requirements under Item 402(c) of Regulation S-K, but does not reflect the compensation paid for the year. Specifically, the Total compensation includes the change in pension value in the qualified and non-qualified defined benefit pension plans in which the named executive officers participate. Such pension benefits will not be paid to the named executive officers until they retire from service to the Company. |
| (7) | Mr. Rhodes’ annualized base salary is $391,000. As part of his compensation package, Mr. Rhodes received a $65,000 signing bonus. If he voluntarily terminates his employment with the Company within the first year, he will be required to repay the signing bonus on a pro-rata basis. The “Grant Date Fair Value of PSUs and RSUs” and “Non-Equity Incentive Plan Compensation” amounts reflect the Make Whole RSU awards and 2018 LTI award made to Mr. Rhodes as part of his recruitment package. Further information on the Make Whole RSU awards are in footnote 8 to the Grants of Plan-Based Awards table on page 39. |
| 38 2019 Proxy Statement | |
Executive Compensation
Grants of Plan-Based Awards
The following table sets forth information regarding equity andnon-equity awards granted to the named executive officers in 2016:2018:
| GRANTS OF PLAN-BASED AWARDS | ||||||||||||||||||||||||||||||||||||||||||||
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (5) | All Other Units (6)
| All Other
| Exercise or
| Grant
| |||||||||||||||||||||||||||||||||||||||
| Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||||||||||
| Name | Grant | ($)(2) | ($)(3) | ($)(4) | (#) | (#) | (#) | (#) | (#) | ($/Sh) | ($)(7) | |||||||||||||||||||||||||||||||||
FRANKLIN | 3/30/16 | 138,851 | 566,738 | 1,062,633 | 14,167 | 28,333 | 56,666 | — | — | — | 814,857 | |||||||||||||||||||||||||||||||||
| 3/30/16 | — | — | — | — | 14,167 | — | — | — | — | 456,177 | ||||||||||||||||||||||||||||||||||
SMELTZER | 3/30/16 | 52,633 | 214,830 | 402,806 | 4,334 | 8,667 | 17,334 | 4,333 | — | — | 388,786 | |||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
FOX | 3/30/16 | 45,907 | 187,374 | 351,326 | 3,734 | 7,467 | 14,934 | 3,733 | — | — | 334,954 | |||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
SCHULLER | 2/25/16 | 48,106 | 196,350 | 368,156 | 2,323 | 4,645 | 9,290 | 875 | — | — | 180,637 | |||||||||||||||||||||||||||||||||
| 3/30/16 | — | — | — | 3,734 | 7,467 | 14,934 | 3,733 | — | — | 334,954 | ||||||||||||||||||||||||||||||||||
LUNING | 3/30/16 | 35,060 | 143,100 | 268,313 | 3,400 | 6,800 | 13,600 | 3,400 | — | — | 305,048 | |||||||||||||||||||||||||||||||||
| Grants of Plan-Based Awards | ||||||||||||
| All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards | Grant Date Fair Value of Stock and Option Awards | |||||||||
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(5) | |||||||||||
| Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||
| Name | Grant | ($)(2) | ($)(3) | ($)(4) | (#) | (#) | (#) | (#)(6) | (#) | ($/Sh) | ($)(7) | |
| Franklin | 2/27/18 | 323,023 | 646,047 | 969,070 | 22,183 | 31,698 | 50,728 | — | 34,945 | $34.51 | 1,336,939 | |
| Schuller | 2/27/18 | 115,480 | 230,960 | 346,441 | 2,375 | 4,750 | 9,500 | 3,162 | 8,723 | $34.51 | 333,710 | |
| Fox | 2/27/18 | 113,431 | 226,862 | 340,294 | 2,435 | 4,869 | 9,738 | 3,241 | 8,940 | $34.51 | 342,055 | |
| Rhodes(8) | 7/9/18 | 107,525 | 215,050 | 322,575 | 2,292 | 4,583 | 9,166 | 13,348 | 6,856 | $35.44 | 673,257 | |
| Luning | 2/27/18 | 77,240 | 154,479 | 231,719 | 1,965 | 3,929 | 7,858 | 2,616 | 7,215 | $34.51 | 276,048 | |
| Smeltzer | 2/27/18 | 115,063 | 230,126 | 345,189 | 2,694 | 5,388 | 10,776 | 3,586 | 9,893 | $34.51 | 378,500 | |
| (1) | The named executive |
| (2) | The ThresholdNon-Equity Incentive Plan Award is based on the |
|
| (3) | The TargetNon-Equity Incentive Plan Award is based on the |
| (4) | The MaximumNon-Equity Incentive Plan Award is based the factors described on |
| (5) | The |
| (6) | Represents service-based |
| (7) | The grant date fair value of |
| (8) | Mr. Rhodes’ equity compensation in 2018 included make-whole awards related to his recruitment to the Company from Goldman Sachs & Co. These make-whole awards consist of RSUs with a grant date value of $240,000, which vested in February 2019, RSUs with a grant date value of $120,000, cliff vesting in February 2020and RSUs, PSUs, and Stock Options with a grant date value of $277,000, cliff vesting in February 2021,as long as he remains employed by the Company. |
Equity awards in 20162018 consisted of RSUs, PSUs, and PSUs.Stock Options. The RSU grants to the named executive officers vest at the end of three years from the grant date. The PSU grants to the named executive officers vest at the end of three years from the grant date, but the amount of the payout can range from 0% to 200% of the target grant depending on the Company’s performance against the performance goals described on pages 4330 to 44.33. The threshold level of PSUs that a grantee can earn is 50%75% of the target grant and the maximum level a grantee can earn is 200% of the target grant. The threshold, target and maximum payout for each of the named executive officers is shown in the Grants of Plan-Based Awards Table above. Stock Options grants to the named executive officers vest 33 ⅓% in 2019, 33 ⅓% in 2020, and 33 ⅓% in 2021.
If the Company does not achieve the required financial performance to meet the designated performance criteria, the performance shares and stock options that are subject to such performance criteria that would otherwise vest are forfeited.
| 2019 Proxy Statement 39 |
|
OUTSTANDING EQUITY AWARDSAT FISCAL YEAR-END
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information on outstanding stock option and stock awards held by the named executive officers at the end of 2016.December 31, 2018.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| Name | Number of Exercisable | Number of Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option ($) | Option Expiration Date | Number (1) (2) (#) | Market ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other (#) | Equity (3) (4) ($) | |||||||||||||||||||||||||||
FRANKLIN | — | — | — | — | — | 8,173 | 260,234 | 74,127 | 2,259,293 | |||||||||||||||||||||||||||
SMELTZER | — | — | — | — | — | 9,730 | 309,810 | 33,000 | 1,013,744 | |||||||||||||||||||||||||||
FOX | 5,750 | — | — | 13.72 | 01/22/2020 | 1,459 | 46,456 | 19,375 | 589,908 | |||||||||||||||||||||||||||
SCHULLER | — | — | — | — | — | 2,894 | 88,288 | 20,045 | 608,240 | |||||||||||||||||||||||||||
LUNING | — | — | — | — | — | 6,811 | 216,867 | 24,200 | 742,823 | |||||||||||||||||||||||||||
| Outstanding Equity Awards at Fiscal Year-End | ||||||||||
| Option Awards | Stock Awards | |||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(1)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(1)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3)(4) | |||
| Franklin | 27,053 | $ | 30.4700 | 2/22/2027 | 20,026 | 726,220 | 83,067 | 2,913,028 | ||
| 34,945 | $ | 34.5100 | 2/27/2028 | |||||||
| Schuller | 6,789 | $ | 30.4700 | 2/22/2027 | 5,278 | 191,391 | 20,981 | 736,013 | ||
| 8,723 | $ | 34.5100 | 2/27/2018 | |||||||
| Fox | 6,958 | $ | 30.4700 | 2/22/2027 | 5,278 | 191,391 | 21,412 | 751,021 | ||
| 8,940 | $ | 34.5100 | 2/27/2028 | |||||||
| Rhodes | 6,856 | $ | 35.4400 | 2/27/2028 | — | — | 17,931 | 616,424 | ||
| Luning | 5,670 | $ | 30.4700 | 2/22/2027 | 4,806 | 174,295 | 17,742 | 622,768 | ||
| 7,215 | $ | 34.5100 | 2/27/2028 | |||||||
| Smeltzer | 4,374 | $ | 30.4700 | 12/31/2021 | 5,287 | 191,743 | 4,991 | 174,902 | ||
| 2,223 | $ | 34.5100 | 12/31/2021 | |||||||
| (1) | The performance goals for the PSUs granted for |
| (2) | The PSUs and RSUs in this column that are vested and earned for the named executive officers as of the date of this proxy statement are: |
| Named Executive Officer | Date Vested, Earned and Paid | Number of Shares Issued | ||||||||||||||
| Franklin | 12/31/2018 | 2/21/2019 | 20,026 | |||||||||||||
| Schuller | 12/31/ | 2018 | 2/ | 5,278 | |||||||||||
| Fox | 12/31/ | 2018 | 2/ | 5,278 | |||||||||||
| Rhodes | 12/31/ | 2018 | 2/ | — | |||||||||||
| Luning | 12/31/ | 2018 | 2/ | 4,806 | |||||||||||
| Smeltzer | 12/31/ | 2018 | 2/ | 5,287 | |||||||||||
The value of the PSU awards includes accrued and unpaid dividend equivalents. The dividend equivalents were accrued based upon the assumption that the PSUs would be issued at target award.
| 40 2019 Proxy Statement | |
Executive Compensation
| (3) | For the PSUs granted in |
| Performance Share Units | Restricted Share Units | ||||||
| Named Executive Officer | Performance Period Ends | Date To Be Vested, Earned And Paid lf Applicable | Number Of Units Issued At Target | Vesting Period Ends | Date To Be Earned And Paid If Applicable | Number Of Units Issued At Target | |
| Franklin | — | — | — | 2/21/2019 | 2/21/2019 | 14,167 | |
| 12/31/2019 | 2/22/2020 | 23,378 | 2/22/2020 | 2/22/2020 | 13,824 | ||
| 12/31/2020 | 2/27/2021 | 19,030 | 2/27/2021 | 2/27/2021 | 12,668 | ||
| Schuller | — | — | — | 2/21/2019 | 2/21/2019 | 3,733 | |
| 12/31/2019 | 2/22/2020 | 5,867 | 2/22/2020 | 2/22/2020 | 3,469 | ||
| 12/31/2020 | 2/27/2021 | 4,750 | 2/27/2021 | 2/27/2021 | 3,162 | ||
| Fox | — | — | — | 2/21/2019 | 2/21/2019 | 3,733 | |
| 12/31/2019 | 2/22/2020 | 6,013 | 2/22/2020 | 2/22/2020 | 3,556 | ||
| 12/31/2020 | 2/27/2021 | 4,869 | 2/27/2021 | 2/27/2021 | 3,241 | ||
| Rhodes | — | — | — | 2/21/2019 | 2/21/2019 | 7,162 | |
| 12/31/2019 | 2/22/2020 | — | 2/22/2020 | 2/22/2020 | 3,581 | ||
| 12/31/2020 | 2/27/2021 | 4,583 | 2/27/2021 | 2/27/2021 | 2,605 | ||
| Luning | — | — | — | 2/21/2019 | 2/21/2019 | 3,400 | |
| 12/31/2019 | 2/22/2020 | 4,900 | 2/22/2020 | 2/22/2020 | 2,897 | ||
| 12/31/2020 | 2/27/2021 | 3,929 | 2/27/2021 | 2/27/2021 | 2,616 | ||
| Smeltzer | — | — | — | — | — | — | |
| 12/31/2019 | 2/22/2020 | 3,780 | — | — | — | ||
| 12/31/2020 | 2/27/2021 | 1,211 | — | — | — | ||
|
| (4) | Performance Share Units | Restricted Share Units | ||||||||||||||||||||||||
| Named Executive Officer | Date To Be Earned If Applicable | Date To Be Vested And Paid If Earned | Number Of Units Issued At Target | Date To Be If Applicable | Date To Be Vested And Paid If Earned | Number Of Units Issued At Target | ||||||||||||||||||||
| — | — | — | 2/27/2017 | 2/27/2017 | 4,200 | |||||||||||||||||||||
FRANKLIN | 12/31/2017 | 2/23/2018 | 18,292 | 2/23/2018 | 2/23/2018 | 9,135 | ||||||||||||||||||||
| 12/31/2018 | 2/21/2019 | 28,333 | 2/21/2019 | 2/21/2019 | 14,167 | |||||||||||||||||||||
| — | — | — | 2/27/2017 | 2/27/2017 | 5,000 | |||||||||||||||||||||
SMELTZER | 12/31/2017 | 2/23/2018 | 10,000 | 2/23/2018 | 2/23/2018 | 5,000 | ||||||||||||||||||||
| 12/31/2018 | 2/21/2019 | 8,667 | 2/21/2019 | 2/21/2019 | 4,333 | |||||||||||||||||||||
| — | — | — | 2/27/2017 | 2/27/2017 | 750 | |||||||||||||||||||||
FOX | 12/31/2017 | 2/23/2018 | 4,950 | 2/23/2018 | 2/23/2018 | 2,475 | ||||||||||||||||||||
| 12/31/2018 | 2/21/2019 | 7,467 | 2/21/2019 | 2/21/2019 | 3,733 | |||||||||||||||||||||
| — | — | — | 2/27/2017 | 2/27/2017 | — | |||||||||||||||||||||
SCHULLER | 12/31/2017 | 2/23/2018 | 5,870 | 2/23/2018 | 2/23/2018 | 2,975 | ||||||||||||||||||||
| 12/31/2018 | 2/21/2019 | 7,467 | 2/21/2019 | 2/21/2019 | 3,733 | |||||||||||||||||||||
| — | — | — | 2/27/2017 | 2/27/2016 | 3,500 | |||||||||||||||||||||
LUNING | 12/31/2017 | 2/23/2018 | 7,000 | 2/23/2018 | 2/27/2017 | 3,500 | ||||||||||||||||||||
| 12/31/2018 | 2/21/2019 | 6,800 | 2/21/2019 | 2/21/2019 | 3,400 | |||||||||||||||||||||
| (4) | All such PSUs are subject to the achievement of the applicable performance criteria for the designated performance period, and continued service with the Company on the vesting date; actual results could vary materially at the end of the performance period. All RSUs for Mr. Franklin are subject to the achievement of applicable performance criteria |
OPTIONS EXERCISEDAND STOCK VESTED
Options Exercised and Stock Vested
The following table sets forth (1) the number of shares of stock options, restricted shares, PSUs or RSUs previously granted to the named executive officers that were exercised, vested or were earned for 2016,during 2018, and (2) the value realized by those officers upon the exercise, vesting, or payment of such shares based on the closing market price for our shares of Common Stock on the exercise or vesting date.
| OPTIONS EXERCISED AND STOCK VESTED | ||||||||||||||||
| Option Awards | Stock Awards | |||||||||||||||
| Name | Number of Shares (#) | Value Realized on ($) | Number of Shares (#)(1) | Value Realized on ($) | ||||||||||||
FRANKLIN | 31,422 | 316,775 | 14,904 | 485,752 | ||||||||||||
SMELTZER | 10,000 | 176,990 | 16,560 | 539,724 | ||||||||||||
FOX | — | — | 3,524 | 114,842 | ||||||||||||
SCHULLER | — | — | — | — | ||||||||||||
LUNING | — | — | 7,452 | 242,147 | ||||||||||||
| Options Exercised and Stock Vested | |||||
| Option Awards | Stock Awards | ||||
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#)(1) | Value Realized on Vesting ($)(2) | |
| Franklin | — | — | 29,108 | 1,069,319 | |
| Schuller | — | — | 9,384 | 342,596 | |
| Fox | — | — | 7,880 | 289,275 | |
| Rhodes | — | — | — | — | |
| Luning | — | — | 11,143 | 410,357 | |
| Smeltzer | — | — | 22,700 | 817,579 | |
| (1) | The “Number of Shares Acquired on Vesting” column represents the number of shares of common stock issued upon the earning and vesting of the |
| (2) | The “Value Realized on Vesting” column includes the fair value of the shares paid on the vesting date plus |
| 2019 Proxy Statement 41 |
|
RETIREMENT PLANS AND OTHER POST-EMPLOYMENT BENEFITSExecutive Compensation
CEO to Median Employee Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Franklin:
For 2018, as is permitted under the rules of the SEC, to determine our median employee, we chose “base salary” as our consistently-applied compensation measure and utilized the same median employee as in 2017. We annualized this measure of compensation for those who commenced employment during 2018. Using a determination date of December 31, 2018, we calculated the median base salary for all required employees. The annual total compensation of the employee identified as the median employee of the Company (other than Mr. Franklin), was $75,791 and, the annual total compensation of Mr. Franklin was $3,552,902. The annual total compensation for the median employee and Mr. Franklin were calculated under Item 402(c) of Regulation S-K.
Accordingly, the ratio of the annual total compensation of Mr. Franklin to the median of the annual total compensation of all employees of the Company was estimated to be 47 to 1.
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, pay ratios reported by other companies may not be comparable to the pay ratio reported above.
Retirement Plans and Other Post-Employment Benefits
Pension Benefits
The following table sets forth: (1) the number of years of credited service for the named executive officers under our various retirement plans as of December 31, 2016;2018; (2) the actuarial present value of accumulated benefits under those plans as of December 31, 2016;2018; and, (3) any payments made to the named executive officers in 2016during 2018 under those plans.
| PENSION BENEFITS | ||||||||||||||
| Name | Plan Name | Number of Years of Credited Service* (#) | Present Value ($) | Payments During Last Fiscal Year ($) | ||||||||||
FRANKLIN | Retirement Income Plan for Aqua America, Inc. and Subsidiaries | 22 | 890,511 | — | ||||||||||
| Non-Qualified Retirement Plan | 24 | 2,092,109 | — | |||||||||||
SMELTZER | Retirement Income Plan for Aqua America, Inc. and Subsidiaries | 29 | 1,379,329 | — | ||||||||||
| Non-Qualified Retirement Plan | 31 | 2,392,391 | — | |||||||||||
FOX | Retirement Income Plan for Aqua America, Inc. and Subsidiaries | 13 | 468,060 | — | ||||||||||
| Non-Qualified Retirement Plan | 15 | 284,534 | — | |||||||||||
SCHULLER | Retirement Income Plan for Aqua America, Inc. and Subsidiaries | — | — | — | ||||||||||
| Non-Qualified Retirement Plan | — | — | — | |||||||||||
LUNING | Retirement Income Plan for Aqua America, Inc. and Subsidiaries | 12 | 352,279 | — | ||||||||||
| Non-Qualified Retirement Plan | 14 | 368,885 | — | |||||||||||
| Pension Benefits | ||||
| Name | Plan Name | Number of Years of Credited Service* (#) | Present Value of Accumulated Benefit ($) | Payments During Last Fiscal Year ($) |
| Franklin | Retirement Income Plan for Aqua America, Inc. and | 22 | 922,813 | — |
| Subsidiaries Non Qualified Retirement Plan | 26 | 4,227,915 | — | |
| Schuller | Retirement Income Plan for Aqua America, Inc. and | — | — | — |
| Subsidiaries Non Qualified Retirement Plan | — | — | — | |
| Fox | Retirement Income Plan for Aqua America, Inc. and | 13 | 487,144 | — |
| Subsidiaries Non Qualified Retirement Plan | 17 | 855,261 | — | |
| Rhodes | Retirement Income Plan for Aqua America, Inc. and | — | — | — |
| Subsidiaries Non Qualified Retirement Plan | — | — | — | |
| Luning | Retirement Income Plan for Aqua America, Inc. and | 12 | 362,627 | — |
| Subsidiaries Non Qualified Retirement Plan | 16 | 667,339 | — | |
| Smeltzer | Retirement Income Plan for Aqua America, Inc. and | 29 | — | 1,496,363 |
| Subsidiaries Non Qualified Retirement Plan | 33 | 2,842,762 | — | |
| * | For benefit accrual purposes, credited service in the Retirement Plan is frozen as of |
RETIREMENT INCOME PLANFOR AQUA AMERICA, INC.AND SUBSIDIARIES (THE “RETIREMENT PLAN”
| 42 2019 Proxy Statement | |
Executive Compensation
Retirement Income Plan for Aqua America, Inc. and Subsidiaries (the “Retirement Plan”)
The Company sponsors a qualified defined benefit Retirement Plan to provide retirement income to the company’s employees hired prior to certain dates starting in 2003. Effective December 31, 2014, the named executive officers (other than Mr. Schuller, and Mr. Rhodes who are not participants in the plan) ceased accruing a benefit under the Retirement Plan. Specifically, their plan compensation and credited service for purposes of determining their benefits were frozen in the Retirement Plan as of December 31, 2014.
For the portion of the Retirement Plan covering certain of the named executive officers, plan compensation is defined as total compensation paid, but excludes contributions made by the Company to a plan of deferred compensation, distributions from a deferred compensation plan, amounts realized from the exercise of stock options or when restricted shares underlying restricted sharestock units or performance shares become freely transferable, fringe benefits, welfare benefits, reimbursements or other expense allowances, moving expenses and commissions. The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), imposes maximum limitations on the annual amount of pension benefits that may be paid, and the amount of compensation that may be taken into account in calculating benefits, under a qualified, funded, defined benefit pension plan such as the Retirement Plan. The Retirement Plan complies with these ERISA limitations.
Benefits earned under the final pay formula for the retirement plan are equal to 1.35% of average plan compensation plus 0.45% of average plan compensation above “Covered Compensation” for each year of credited service up to 25 years, and 0.5% of average plan compensation for each year of credited service above 25 years. The annual benefit is further subject to a minimum benefit schedule. Average plan compensation is defined as the average of plan compensation over the highest five consecutive years out of the last ten years.
|
Covered Compensation is defined as the average of the Social Security Wage Bases (as defined in the Retirement Plan) in effect for each calendar year during the35-year period ending with the last day of the calendar year of the benefit determination. Effective December 31, 2014, years of credited service and plan compensation in the Retirement Plan werewas frozen for the named executive officers.officers (other than Mr. Schuller and Mr. Rhodes).
Under the terms of the Retirement Plan, a Company participant becomes fully vested in his or her accrued pension benefit after five years of credited service. All named executive officers (with the exception of Mr.Messrs. Rhodes and Schuller) are vested in the Retirement Plan. Participants may retire as early as age 55 with 10 years of service. Unreduced benefits are available when a participant attains the earlier of age 65 with 5 years of vesting service or age 62 with 30 years of vesting service. Otherwise, benefits are reduced 3% for each year by which retirement precedes the attainment of age 65 or are reduced actuarially in accordance with the terms of the Retirement Plan and federal law if payment occurs before age 55. Pension benefits earned are payable in the form of a lifetime annuity or can be collected as a lump sum benefit after retirement.benefit. Married individuals may receive a reduced benefit paid in the form of a qualified joint and survivor annuity. Mr. SmeltzerFox is currently eligible to retire under the Retirement Plan. Mr. Smeltzer retired during 2018 and commenced payment of his Retirement Plan benefit.
Non-Qualified Retirement Plan
Effective December 1, 1989, the Board of Directors adopted a supplemental benefits plan for salaried employees of the Company. On December 1, 2014, the Board of Directors adopted an amended benefits plan for salaried employees of the Company (the“Non-Qualified “Non-Qualified Pension Benefit Plan”). TheNon-Qualified Pension Benefit Plan is a plan that is intended to provide an additional pension benefit to Company participants in the Retirement Plan and their beneficiaries whose benefits under the Retirement Plan are adversely affected by the ERISA limitations described above. Effective December 31, 2014, theNon-Qualified Pension Benefit Plan was amended to include credited service and plan compensation that the named executive officers would have otherwise accrued under the Retirement Plan if their benefit had not been frozen in the Retirement Plan. In addition, deferred compensation is excluded from the Retirement Plan “plan compensation” definition, but is included in the calculation of benefits under theNon-Qualified Pension Benefit Plan. The benefit under theNon-Qualified Pension Benefit Plan is equal to the difference between (i) the amount of the benefit the Company participant would have been entitled to under the Retirement Plan absent such ERISA limitations, absent the freezing of plan compensation and credited service, and including deferred compensation in the final average earnings calculation, and (ii) the amount of the benefit actually payable under the Retirement Plan.
Participants may retire as early as age 55 with 10 years of service under theNon-Qualified Pension Benefit Plan. Unreduced benefits are available when a participant attains the earlier of age 65 with 5 years of service or age 62 with 30 years of service. Otherwise, benefits are reduced 3% for each year by which retirement precedes the attainment of age 65. Pension benefits earned under theNon-Qualified Pension Benefits Plan are payable in the form of a lump sum, unless an alternative election is made. An alternative election may be made such that benefits are paid as an annuity for life (and the life of the participant’s spouse upon death), in a series of installments or under certain circumstances transferred at separation from employment to up to five separationseparate distribution accounts under the Company’s Executive Deferral Plan.
Messrs. Franklin, Fox, Smeltzer and Luning are earning benefits under theNon-Qualified Pension Benefit Plan, and are fully vested in those benefits. Messrs.Mr. Fox and Smeltzer areis currently eligible to retire under theNon-Qualified Pension Benefit Plan. Mr. Smeltzer retired during 2018 and the value of his benefit under the Non-Qualified Pension Benefit Plan will be transferred to the Company’s Executive Deferral Plan. Messrs. Rhodes and Schuller doesdo not earn any benefits under the Non-Qualified Pension Benefit Plan. In 2009, the Company began to fund theNon-Qualified Pension Benefit Plan through the use of trust-owned life insurance.
| 2019 Proxy Statement 43 |
|
ACTUARIAL ASSUMPTIONS USEDTO DETERMINE VALUESINTHE PENSION BENEFITS TABLE
Actuarial Assumptions used to Determine Values in the Pension Benefits Table
The amounts shown in the Pension Benefits Table above are actuarial present values of the benefits accumulated through the date shown. An actuarial present value is calculated by estimating expected future payments starting at an assumed retirement age, weighting the estimated payments by the estimated probability of surviving to each post-retirement age, and discounting the weighted payments at an assumed discount rate to reflect the time value of money. The actuarial present value represents an estimate of the amount, which, if invested today at the discount rate, would be sufficient on an average basis to provide estimated future payments based on the current accumulated benefit. Assumptions used to determine the values are the same as those disclosed on the Company’s financial statements as of those dates with the exception of the assumed retirement age and the assumed probabilities of leaving employment prior to retirement. Retirement was assumed to occur at the earliest possible unreduced retirement age (or current age, if later) for each plan in which the executive participates. For purposes of determining the earliest unreduced retirement age, service was assumed to be granted until the actual date of retirement. Actual benefit present values will vary from these estimates depending on many factors, including an executive’s actual retirement age. The key assumptions included in the calculations are as follows:
| RETIREMENT AGES | ||||
| December 31, 2016 | December 31, 2015 | |||
| Discount rate | 4.13% | 4.48% | ||
FRANKLIN | 62 | 62 | ||
SMELTZER | 62 | 62 | ||
LUNING | 65 | 65 | ||
FOX | 65 | 65 | ||
Termination,pre-retirement mortality and disability rates | None | None | ||
Post-Retirement Mortality | 50% of the present value for the Retirement Plan is calculated using theRP-2014 gender specific annuitant mortality tables (withMP-2014 mortality improvements removed from 2006 to 2014) projected generationally from 2006 with Scale BB2-Dimensional improvements. 50% of the present value of the Retirement Plan and 100% of the present value for theNon-Qualified Pension Plan is calculated using a 50% male and a 50% female blendedRP-2014 annuitant mortality table (withMP-2014 mortality improvements removed from 2006 to 2014) projected generationally from 2006 with Scale BB2-Dimensional improvements. | 50% of the present value for the Retirement Plan is calculated using theRP-2014 gender specific annuitant mortality tables (withMP-2014 mortality improvements removed from 2006 to 2014) projected generationally from 2006 with Scale BB2-Dimensional improvements. 50% of the present value of the Retirement Plan and 100% of the present value for theNon-Qualified Pension Plan is calculated using a 50% male and a 50% female blendedRP-2014 annuitant mortality table (withMP-2014 mortality improvements removed from 2006 to 2014) projected generationally from 2006 with Scale BB2-Dimensional improvements. | ||
| Retirement Ages | ||
| December 31, 2018 | December 31, 2017 | |
| Discount Rate | 4.30% | 3.66% |
| Franklin | 62 | 62 |
| Smeltzer | n/a* | 62 |
| Luning | 65 | 65 |
| Fox | 65 | 65 |
| Termination, pre-retirement mortality and disability rates | None | None |
| Post-Retirement Mortality | 50% of the present value for the Retirement Plan is calculated using the RP-2014 gender specific annuitant mortality tables (with MP-2014 mortality improvements removed from 2006 to 2014) projected generationally from 2006 with Scale MP-2018 improvements. 50% of the present value of the Retirement Plan and 100% of the present value for the Non-Qualified Pension Plan is calculated using a 50% male and a 50% female blended RP-2014 annuitant mortality table (with MP-2014 mortality improvements removed from 2006 to 2014) projected generationally from 2006 with Scale MP-2018 improvements. | 50% of the present value for the Retirement Plan is calculated using the RP-2014 gender specific annuitant mortality tables (with MP-2014 mortality improvements removed from 2006 to 2014) projected generationally from 2006 with Scale MP-2017 improvements. 50% of the present value of the Retirement Plan and 100% of the present value for the Non-Qualified Pension Plan is calculated using a 50% male and a 50% female blended RP-2014 annuitant mortality table (with MP-2014 mortality improvements removed from 2006 to 2014) projected generationally from 2006 with Scale MP-2017 improvements. |
*Actual plan payments are shown for Mr. Smeltzer.
| 44 2019 Proxy Statement | |
Executive Compensation
Non-Qualified Deferred Compensation
57
NON-QUALIFIED DEFERRED COMPENSATION
The following table sets forth information regarding contributions to, earnings on, withdrawals from and balances as of the end of 2016December 31, 2018 for our non-qualified Executive Deferral Plan.
| NON-QUALIFIED DEFERRED COMPENSATION | ||||||||||||||||
| Name | Registrant ($) | Aggregate Earnings in Last FY ($)(1) | Aggregate Withdrawals / Distributions ($) | Aggregate Balance at Last FYE ($) | ||||||||||||
FRANKLIN | — | 3,144 | — | 72,088 | ||||||||||||
SMELTZER | 53,196 | 20,264 | — | 456,721 | ||||||||||||
FOX | 48,415 | 4,640 | — | 62,884 | ||||||||||||
SCHULLER | — | — | — | — | ||||||||||||
LUNING | — | — | — | — | ||||||||||||
| Non-Qualified Deferred Compensation | |||||
Name | Registrant Contributions in Last FY ($) | Individual Contributions in Last FY ($)(1) | Aggregate Earnings in Last FY ($)(2) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) |
| Franklin | — | — | (5,618) | — | 76,180 |
| Schuller | — | — | — | — | — |
| Fox | — | 79,767 | (15,562) | — | 218,437 |
| Rhodes | — | — | — | — | — |
| Luning | — | — | — | — | — |
| Smeltzer | 3,080,570 | 304,613 | (150,211) | — | 3,523,052 |
| (1) |
| (2) | In |
Employees with total projectedW-2 compensation for 20162018 in excess of $141,000 arewere eligible to participate in the Company’s Executive Deferral Plan for 2017.2018. Participants may defer up to 100% of their salary and 100% of theirnon-equity incentive compensation under the Company’s Annual Cash Incentive Compensation Plan. At the time the participant elects to make a deferral under the Executive Deferral Plan, the participant is also required to elect the form of payment with respect to the amounts deferred for the upcoming calendar year. If a separation distribution account is elected, the participant may choose to receive his or her distribution in either a lump sum payment or, subject to certain requirements, in annual installments over 2 to 15 years. If a flexible distribution account is elected, the participant will receive his or her distribution in a lump sum payment. The executive officers, including the named executive officers, may not commence the receipt of their account balances and the earnings on these deferrals sooner than the first day of the seventh month following the date of the executive’s separation from employment.
Potential Payments Upon Termination or Change-In-Control
Change-In-Control
|
POTENTIAL PAYMENTS UPON TERMINATION ORCHANGE-IN-CONTROL
The Company maintainschange-in-control agreements with its named executive officers. Payments under these agreements are triggered if the named executive officer’s employment is terminated other than for cause or the executive resigns for good reason, as defined in the agreements, within two years after consummation of achange-in-control transaction involving the Company.
The following table provides a summary of the benefits to which each named executive officer would be entitled under thechange-in-control agreements.
| Name | Multiple of Base Compensation | Payment in lieu of Benefit Continuation | Outplacement Services | |||||||||
FRANKLIN | 2 | 2 | 6 Months | |||||||||
SMELTZER | 2 | 2 | 6 Months | |||||||||
FOX | 2 | 2 | 6 Months | |||||||||
SCHULLER | 2 | 2 | 6 Months | |||||||||
LUNING | 2 | 2 | 6 Months | |||||||||
| Name | Multiple of Base Compensation | Payment in Lieu of Health Benefit Continuation Period | Outplacement Services |
| Franklin | 3 | 3 | 36 Months |
| Fox | 2 | 2 | 6 Months |
| Rhodes | 2 | 2 | 6 Months |
| Schuller | 2 | 2 | 6 Months |
| Luning | 2 | 2 | 6 Months |
| 2019 Proxy Statement 45 |
Executive Compensation
For purposes of thechange-in-control agreements, “Base Compensation” is defined as current base annual salary, plus the greater of the named executive officer’s target bonus for the year in which the executive incurs a termination of employment, or the last actual bonus paid to the named executive officer under the Annual Cash Incentive Compensation Plan (or any successor plan maintained by Aqua America), in all capacities with Aqua America and its subsidiaries or affiliates. The executive’s Base Compensation would be determined prior to reduction for salary deferred by the named executive officer under any deferred compensation plan of Aqua America and its subsidiaries or affiliates, or otherwise. The named executive officer is entitled to receive apro- rata pro-rata share of the named executive officer’s target annual cash incentive compensation based on the portion of the calendar year that has elapsed at the time of the named executive officer’s termination. The named executive officer is also entitled to receive a lump sum payment in lieu of the continuation of certain health benefits for a period of 2 years and outplacement services.
The payment of the multiple of Base Compensation would be made in a lump sum within 60 days after the executive’s termination as defined under the agreement, although pursuant to the requirements of Section 409A of the Code, part or all of such payment may need to be deferred until the first day of the seventh month following the date of the named executive officer’s separation from employment. Each executive is required to execute a standard release of the Company as a condition to receiving the payment under the agreement.
Starting in 2011, for
For equity incentive awards made under the Plan: (i) for restricted sharestock units without performance goals, if achange-in-control occurs prior to the vesting date, the restricted sharestock units would remain outstanding and vest on the vesting date;date or, if earlier, vest upon a qualified termination event following a change-in-control; (ii) for Options, if a change-in-control occurs prior to any vesting date, the Options would remain outstanding and (ii)vest in accordance with the vesting schedule, or, if earlier, accelerate and vest upon a qualified termination event following a change-in-control; and (iii) for performance shares, if achange-in-control occurs, performance would be measured at the date of thechange-in-control, and the number of performance shares earned wouldto be determined as of the date of thechange-in-control as follows:
| · | If a change-in-control occurs more than one year after the grant date, the number of performance shares earned as of the change-in-control |
