UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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ESSENTIAL UTILITIES, INC. | ||
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Christopher H. Franklin
“We are steadfast in our commitments | To Our Shareholders
On behalf of your Board of Directors, I am pleased to invite you to attend the While COVID-19 has been disruptive to most areas of life, it underscored the importance of our mission to deliver Earth’s most essential resources safely and reliably to our customers, especially during a time of so much uncertainty. 2021 marked our first Remarkably, in 2021 we invested a record amount of We are proud of our
I continue to
Thank you for your confidence in
Sincerely, Christopher H. Franklin Chairman,
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ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 1
Notice of Annual Meeting of Shareholders
Notice of Annual Meeting of Shareholders | ||||
Essential Utilities, Inc. Bryn Mawr, Pennsylvania 19010 |
The annual meeting will be held:
Record Date March 7, 2022
To attend, go to: www.virtualshareholdermeeting.com/ WTRG2022 and log in using the control number on your Notice of Internet Availability, proxy card or voting instruction form. The list of shareholders will be available for inspection upon request by any shareholder for any purpose germane to the Annual Meeting for a period of 10 days prior to the Annual Meeting at our principal office located at 762 W. Lancaster Avenue Bryn Mawr, PA 19010, by contacting us at www.essential.co/investor-relations Shareholders will have the same opportunities to participate as they would at an in-person meeting, with the opportunity to vote and ask questions on the matters discussed in this proxy statement.
| Purpose
1 To elect 2To approve an advisory vote on the compensation paid to the Company’s named executive officers for 2021; 3 To ratify an Amendment to the Company’s Amended and Restated Bylaws (the Bylaws) to require disclosure of derivative securities holdings when a shareholder makes a nomination for a director or presents a proposal to be considered by shareholders at an annual meeting of shareholders; 4 To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the
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Who can vote Only shareholders of record at the close of business on March
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Your vote is important We urge each shareholder to promptly sign and return the enclosed proxy card, or to use telephone or internet voting. See our
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How to vote | ||||||
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May
The Notice of Annual Meeting, Proxy Statement and
If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the Virtual Shareholder Meeting login page. |
Online at the meeting Attend the Annual Meeting virtually at | By phone* In the U.S. or Canada
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| By mail Return your proxy card | ||
* You have until 11:59 p.m. (ET) on May | ||||||
By Order of the Board of Directors,
Christopher P. Luning Secretary March
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2 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Contents
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”)Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)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”)(SEC) and available on the SEC’s website at www.sec.gov.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. Essential Utilities, 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.
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 3
This summary highlights information contained elsewhere in this proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement before voting. For more complete information regarding the Company’s 20192021 performance, please review the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2021.
Summary of Matters to be Voted upon at the Annual Meeting
The following table summarizes the items that shareholders are being asked to vote on at the 20202022 Annual Meeting:
Proposal |
Description | Vote Recommendation | Page Reference |
Proposal 1 Election of Directors | The Board of Directors of the Company (the | FOR each Director Nominee | 10 |
Proposal 2 Advisory Vote to Approve Named Executive Officers’ Compensation | The Company seeks a non-binding advisory vote to approve the compensation of its named executive officers for 2021 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. | FOR | 41 |
Proposal 3 Ratification of an Amendment to the Bylaws to require derivative securities holdings disclosure | The Board amended the Bylaws to add a requirement for disclosure of derivative securities holdings by any shareholder nominating a candidate for director or presenting a proposal for consideration by shareholders at an annual meeting. The Board believes full disclosure of all stock holdings, including derivative securities holdings, provides important information to other shareholders in evaluating any such nomination or proposal. As a matter of good corporate governance, shareholders are being asked to ratify this Amendment. | FOR | 42 |
Proposal 4 Ratification of Independent Accounting Firm | The Board believes the retention of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the | FOR | |
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What’s New · We ·We ·We focused on our employees’ health, safety, diversity and inclusion programs. ·The Executive Compensation Committee held in-depth discussions on the Company’s strategy and compensation program, |
component of the package, including base salaries, · |
4 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Proxy Summary
Director Nominees
Director Nominees (page 10)
The following table provides summary information about each of the Company’s nineeight director nominees. Each director will serve a one-year term if elected.
All directors are independent except for Mr. Franklin and Mr. DeBenedictis.
All directors are independent except for Mr. Franklin. | Current and Proposed Committee Memberships | |||||||||
Director Nominee |
Age |
Director |
Principal Occupation | Other Public Company Boards |
Executive |
Executive |
Audit | Risk Mitigation & |
Corporate | |
Elizabeth B. Amato | 65 | 2018 | Former Executive Vice President and Chief Human Resources Officer, United Technologies Corporation | 0 | ● | ● | CHAIR | |||
David A. Ciesinski | 55 | 2021 | President, Chief Executive Officer, and Director, Lancaster Colony Corporation, and President, T. Marzetti Company | 1 | · | · | ||||
Christopher H. Franklin Chairman | 56 | 2015 | Chairman, President and Chief Executive Officer, Essential Utilities, Inc. | 0 | CHAIR | ● | ||||
Daniel J. Hilferty Lead Independent Director | 65 | 2017 | Chairman and Chief Executive Officer, Dune View Strategies, and Executive Advisor, Independence Health Group | 0 | ● | CHAIR | ||||
Edwina Kelly | 35 | 2021 | Managing Director Canada Pension Plan Investment Board, Sustainable Energies Group | 0 | ● | ● | ||||
Ellen T. Ruff | 73 | 2006 | Former President, Office of Nuclear Development, Duke Energy Corporation | 0 |
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Lee C. Stewart | 73 | 2018 | Private Financial Consultant | 1 | ● | ● | CHAIR | |||
Christopher C. Womack | 64 | 2019 | Chairman, President and Chief Executive Officer, Georgia Power | 1 |
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Committee Meetings held in 2021 | 0 | 9 | 8 | 6 | 4 | |||||
Current Committee Memberships | ||||||||||
Director Nominee |
Age |
Director |
Principal Occupation | Other Public Company Boards |
Executive |
Executive |
Audit | Risk Mitigation |
Corporate | |
Elizabeth B. Amato | 63 | 2018 | Executive Vice President and Chief Human Resources Officer United Technologies Corporation | — | ● | ● | ||||
Nicholas DeBenedictis | 74 | 1992 | Chairman Emeritus and Former Chief Executive Officer Essential Utilities, Inc. | 3 | CHAIR | |||||
Christopher H. Franklin | 54 | 2015 | Chairman, President and Chief Executive Officer Essential Utilities, Inc. | — | ● | ● | ||||
Wendy A. Franks | 45 | 2020 | Senior Principal, Canada Pension Plan Investment Board | — | ● | ● | ||||
Daniel J. Hilferty Lead Independent Director | 63 | 2017 | President and Chief Executive Officer Independence Health Group | — | ● | ● | CHAIR | |||
Francis O. Idehen | 42 | 2019 | Chief Operating Officer GCM Grosvenor | — | ● | ● | ||||
Ellen T. Ruff | 71 | 2006 | Former President Duke Energy | — | ● | CHAIR | ● | |||
Lee C. Stewart | 71 | 2018 | Private Financial Consultant | 2 | ● | CHAIR | ● | |||
Christopher C. Womack | 62 | 2019 | President, External Affairs Southern Company | — | ● | ● | ||||
Committee Meetings held in 2019 | 0 | 7 | 10 | 6 | 6 | |||||
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ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 5
Proxy Summary
Board Composition
Board Composition
Diversity of Skills and Experience
Corporate Governance Highlights
Board Composition as of December 31, 2021
Corporate Governance Highlights
We are committed to maintaining strong standards of corporate governance, which promote the long-term interests of our shareholders, strengthen Board and management accountability, and help build public trust in our Company. The “Corporate Governance”Corporate Governance section beginning on page 1819 describes our corporate governance framework.
Board Accountability |
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Board Independence |
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Lead Independent Director | |
Board and Committee Evaluations | |
Board |
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Board Refreshment | |
Board Oversight |
• Board oversight of ESG program |
Stock Ownership Guidelines |
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Shareholder Engagement |
* As of December 31, 2021
6 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Proxy Summary
20192021 Performance Highlights
20192021 Performance Highlights
During 2019,Despite the many challenges during 2021, our leadership team remained focused on growing our customer base through acquisitions, prudently investing capitalinvested a record amount of over $1 billion in infrastructure, maintained operational excellence and demonstrated the resiliency of our water and natural gas platforms. As of year-end 2021, we had a total of eight signed purchase agreements to renew our aging infrastructure, obtaining regulatory approval for the Peoples Natural Gas acquisition, successfully closing on the Company’s first public equity offering since 2006acquire water and its first corporate debt offering,wastewater systems, totaling over $471 million in purchase price and creating efficiencies across the organization.expected to serve approximately 235,000 equivalent retail customers or equivalent dwelling units. 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 the pursuit of excellence.
Financial Highlights
During 2019, we remained focused onexcellence and remaining dedicated to our mission to be the best possible provider of safely and reliably delivering Earth’s most essential natural resources by serving the needs and expectations ofto our customers shareholders, employees and the communities we serve both today and for future generations. At the same time we continued to focus on growing our customer base through acquisitions, prudently investing capital to renew our aging infrastructure, and creating efficiencies across the organization.
All of this was in addition to working on efforts to integrate and close the Peoples Natural Gas transaction and to negotiate and sign the DELCORA municipal wastewater acquisition, which is the largest municipal acquisition in our history. We continue to see great opportunities ahead and remain focused on investing in infrastructure and delivering sustainable growth for our investors.communities.
·In · Revenues were · Earnings per share were · We added approximately · | ·From January 1, ·In July
· ·As of year-end 2021, the Company reached 15% people of color in our employee base towards our multi- year target of 17%. ·Additionally, in controllable spending, we purchased nearly 11% of goods and | |
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ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 7
Proxy Summary
Compensation Highlights
2017–20192019–2021 Pay for Performance Alignment
Our pay programs are designed to reflect the Company’s performance. The following table shows the relationship between financial performance goals and executive performance-based payouts over the past three years:
Target EPS (adjusted for comp plan) | EPS |
STI Payout % |
3 Year TSR Return |
PSU Payout % | |
2017 | $1.36 | $1.37 | 118.44% | 58.08% | 109.19% |
2018 | $1.39 | $1.44 | 136.34% | 23.32% | 70.68% |
2019 | $1.47 | $1.50 | 126.45% | 67.75% | 159.91% |
Target EPS (adjusted for comp plan)* | EPS (adjusted for comp plan)* |
STI Payout % |
3 Year TSR Return |
PSU Payout % | |
2019 | $1.47 | Achieved | 126.45% | 67.75% | 159.91% |
2020 | $1.55 | Achieved | 137.10% | 29.08% | 175.00% |
2021 | $1.66 | Achieved | 129.70% | 65.56% | N/A |
* | Target EPS is a non-GAAP financial measure. See Appendix A. |
Comparison of Five Year Cumulative Total Return*Return*
Below is a chart showing our Total Return to our shareholders over the past five years as compared to the S&P 500 Index and the S&P MidCap 400 Utilities Index.
Compensation Highlights
Highlights of our executive compensation program include:
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8 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Proxy Summary
20192021 Pay for Performance Compensation Program
20192021 Pay for Performance Compensation Program
Our goal is to instill acontinue our pay-for-performance culture throughout our Company. Our compensation program for named executive officers is designed to:
Motivate and reward our named executive officers for contributions to our financial success; |
Attract and retain talented and experienced named executive officers; and |
Ensure a significant portion of pay is performance based to better align pay with the successful achievement of our business objectives. |
20192021 NEO Total Compensation Pay Mix
CEO
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Shareholder Outreach and Results of 20192021 Advisory Vote to Approve Executive Compensation
At our 20192021 annual meeting of shareholders, fewerour shareholders overwhelmingly supported our say on pay proposal thancompensation program, with 96% of shareholders voting in agreement with the 2013-2018 averageCompany’s compensation design. We believe the high level of 95%. The Board believes thatsupport recognized the shareholder return result laggedthoughtfulness and consideration the industry due to the impact of the then-pending large acquisition of Peoples Natural GasExecutive Compensation Committee and the overhang ofmanagement team spent in redesigning the pending equity and debt issuances rather than the underlying performance of the Company. However, management and the Board took the resultingprogram to more closely align with driving shareholder vote seriously and committed to take several steps to address the executive compensation program in 2020.
value.
Over the course of 2019,2021, management held more than 500approximately 300 meetings with investors. Additionally, the Company requested meetings with the 25 largest shareholders, representing over 45%as part of our outstanding common stock. Wegovernance focused outreach, we offered to meet with our top 25 shareholders. For this effort, we engaged with every shareholder who accepted our offer to meet. During these meetings and calls, we discussed numerous topics, including strategic, executive compensation, and environmental, social and governance issues.
As a direct result of these meetings and calls, the Company took a number of actions in 2019 to address shareholder feedback on our executive compensation program and environmental, social, and governance programs.
For more information on our shareholder engagement program, investor feedback and the actions taken in response to that feedback, please see page 2554 in this proxy statement.
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 9
Election of Directors
All of the director nominees who are elected, will be electedOur Board has nominated eight directors for election at this year’s Annual meeting for a one-yearone year term expiring atupon the 2021 Annual Meetingrecommendation of Shareholders, and until their successors are duly elected and qualified. Theour Corporate Governance Committee reviewed the qualifications of the directors in relation to the candidate nomination criteria 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 ofCommittee. Ms. Amato, Mr. DeBenedictis,Ciesinski, Mr. Franklin, Ms. Franks, Mr. Hilferty, Mr. Idehen,Ms. Kelly, Ms. Ruff, Mr. Stewart, and Mr. Womack for election as directors at the 20202022 Annual Meeting, with each nominee abstaining from the vote with respect to his or her nomination, as applicable. Mr. Idehen recently informed us that he is not able to stand for re-election. We have included his information, including his biography, below, as he served on our Board during all of 2021. We thank Mr. Idehen for his service on our Board.
Therefore, nineEight nominees will stand for election by a plurality of the votes cast at the 20202022 Annual Meeting. At the 2020 Annual Meeting, proxies in the accompanying form, properly executed, will be voted for the election of the nineeight 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 NYSE rules. 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.
Director Independence
Based on a review applying the standards 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 any transactions, relationships, and arrangements between the directors and the Company, theThe Board of Directors has affirmatively determined that each director and nominee for director is independent, 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.For more information, see “GovernanceGovernance Practices & Policies”Policies beginning on page 3034 for our Director Independence Standards and Related Persons Transaction Policy.
Age and Term Limits
Term Limits: The Board believes that term limits are an important element of good governance. However, it also believes that it must strike thegovernance, helping create an appropriate balance between the contribution of directors who have developed, over a period, meaningful insight into the Company and its operations, and therefore can provide an increasing contributionnew directors who bring a fresh perspective to the Board as a whole. Accordingly, in 2015, the Board established thatour Board. Any director, upon reaching the fifteenth anniversary of a directortheir accepting an initial appointment or election to the Board of Directors, the director willmust tender his or her resignation to the Board (the “Term Limit Policy”).Board. The Term Limit Policy does not apply to directors who were elected on or before December 1, 2015.
As of the date of this proxy statement, only two directors, including our CEO, were first elected prior to or in 2015.
Following extensive research, including conducting an outreach program to the Company’s largest shareholders to seek their opinion, the Board determined that 75 years of age was the appropriate age for a director to submit his or her resignation from the Board of Directors. As such, allAge Limits: All directors are now required to submit their resignation from the Board effective as of their 75thbirthday.
Information Regarding NomineesBoard Diversity
ForWhen assessing a director nominee candidate, consideration is given to the effect the candidate will have on the diversity of the board. Diversity of the board is evaluated by considering a broad range of attributes, including, without limitation, race, gender and national origin, background, demographics, expertise and experience. Each year, the directors complete a targeted questionnaire that is administered by a neutral, non-affiliated entity to assess the performance of the board and each of the nine nominees for election asstanding committees. Every second year, directors atcomplete a targeted questionnaire to assess the 2020 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 opinionperformance of the Corporate Governance Committee and the Board of Directors, make the individual qualified to serve as a director of the Company.directors individually.
10 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Proposal 11: Election of Directors
Information Regarding NomineesBoard Diversity
Director Nominee Experience, Qualifications, Attributes and Skills Criteria
The chart below summarizes the experience, qualifications, attributes, and skills of each of thethese nominees:
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● | ● | ● | ● | ● | |||||
Legal/Government | ● | ● | ● | ● | |||||
● | ● | ● | ● | ● | ● | ● | ● | ||
● | ● | ● | ● | ● | ● | ● | ● | ||
Geographic Diversity | ● | ● | ● | ● | ● | ● | |||
● | ● | ● | ● | ● | ● | ● | ● |
Based upon these qualifications, attributes, and skills, the Board of Directors determined that the following membersdirector nominees are best suited for service on the following Committees:
Committee | Chair | Other Members | |
Audit | Lee C. | ||
Corporate Governance | Ellen T. Ruff, | ||
Executive Compensation | Daniel J. Hilferty | Elizabeth B. Amato, | |
Executive | Christopher H. Franklin | Daniel J. Hilferty, Lee C. Stewart, | |
Risk Mitigation and Investment Policy |
* | Mr. Idehen is not standing for election in 2022. He served as chair of the Risk Mitigation and Investment Policy Committee in 2021. The Board will elect a new Chair of that Committee. |
*†Audit Committee Financial Expert
Annually, the Corporate Governance Committee and the Board of Directors review the membership of the individuals on the Committees and re-organize the Committees, if necessary.
Information About Our Director Nominees
For each of the eight nominees for election as directors at the 2022 Annual Meeting, we have included biographical information on the following pages that highlights their experience, qualifications, attributes and skills that led the Board to determine the individual is qualified to serve as a director of the Company. At the end, we have included Mr. Idehen’s biography.
�� | The Board of Directors unanimously recommends a vote FOR the election of each of these nominees as director. |
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 11
Proposal 11: Election of Directors
Nominees for Election at the 20202022 Annual Meeting
Nominees for Election at the 20202022 Annual Meeting
Board Committees · Chair, Corporate · Executive Compensation · Executive
Key Skills · Legal/Government · Leadership · Mergers & Acquisitions · Geographic Diversity ·
| Elizabeth B. Amato Former Executive Vice President and Chief Human Resources Officer, | Director since2018 Age Independent Director | |
Experience · Executive Vice President & Chief Human Resources Officer of United Technologies Corp. · Senior Vice President, Human Resources and Organization of UTC with global responsibility for UTC’s Human Resources and Communications functions 2012-2015. | · 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 Human Resources Policy Association, the CHRO Board Academy and is a member of the Board of Directors for Children’s Healthcare Charity, Inc. Ms. Amato holds a bachelor’s degree in political science from Davidson College and a law degree from the University of Connecticut.
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 Directors’ conclusion that Ms. Amato should serve as a director of the Company.
Other current public company directorships (0).
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Board Committees · · Corporate Governance Committee
Key Skills
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12 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Proposal 1 Election of Directors
Nominees for Election at the 2020 Annual Meeting
· Financial · Leadership · Mergers & Acquisitions · Geographic Diversity · C-Suite Experience |
| Director since Age Independent Director | |
Experience · ·Group Vice President and | |||
Qualifications:
Other current public company directorships
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12 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT13
Proposal 11: Election of Directors
Nominees for Election at the 20202022 Annual Meeting
Board Committees · Chair, Executive Committee · Risk Mitigation and
Key Skills · Utility Industry · Regulatory · Financial · Legal/ Government · Leadership · Mergers & Acquisition · | Christopher H. Franklin Chairman, President, and Chief Executive Officer, Essential Utilities, Inc. | Director since2015 Age | |
Experience Chairman, President, and Chief Executive Officer of the Company.
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· Mr. Franklin has worked for the Company for | · Regional President—Southern Operations and Senior Vice President, Public Affairs and Customer Relations 2007 to | ||
Mr. Franklin earned his B.S. from West Chester University and his M.B.A. from Villanova University.
Qualifications: Since 2015, under Mr. Franklin’s leadership as CEO, the Company’s customer base has nearly doubled by completing over During his long tenure at the Company, Mr. Franklin has held a series of roles. Among his accomplishments in public affairs was the passage of key legislation designed to provide customers with improved water quality and better water and wastewater systems while allowing a fair and reasonable return for shareholders; as vice president of customer operations, Mr. Franklin lead the implementation of a single-customer information system and the creation of three central call centers; as operating president, he integrated the acquisition of AquaSource and brought the utility back to full profitability.
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.
Other current public company directorships (0). Other current and past directorships: Past Board member of ITC Holdings (which was sold in 2016). Mr. Franklin is active in the community and serves on a number of nonprofit and higher education boards including the University of Pennsylvania Board of Trustees and the Franklin Institute of Philadelphia. | |||
14 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT13
Proposal 11: Election of Directors
Nominees for Election at the 20202022 Annual Meeting
Board Committees · Chair, · Executive Committee
Key Skills · Regulatory · Financial · Leadership · Mergers & Acquisitions · | Daniel J. Hilferty Lead Independent Director, Essential Utilities, Inc. Chairman and CEO, Dune View Strategies Executive | Director since2017 Age Independent Director | |
Experience · Former President and Chief Executive Officer of, and current Executive Advisor to Independence Health Group 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. · Assistant Vice President overseeing community and media relations for Saint Joseph’s | ||
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. 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.
Other current public company directorships (0). Other current and past directorships: Mr. Hilferty serves on several industry-based and nonprofit boards, including America’s Health Insurance Plans (serves on the Executive Committee), Greater Philadelphia Chamber of Commerce (serves |
14 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT15
Proposal 11: Election of Directors
Nominees for Election at the 20202022 Annual Meeting
Board · Audit Committee · Risk Mitigation and Investment Policy Committee
Key Skills · Utility Industry
· Financial · Leadership · Mergers & Acquisitions · Geographic Diversity · |
| Edwina Kelly Managing Director, | Nominee Age
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Experience · | · | ||||
Ms. Kelly is nominated to the Board as designated by CPPIB under the terms of the Company’s private placement transaction with CPPIB. | |||||
Qualifications:
Other current public company directorships (0). Other current directorships: Canterra, a Canadian farmland portfolio. |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 15
Proposal 1: Election of Directors
Nominees for Election at the 2022 Annual Meeting
Board Committees · · Executive Committee
Key Skills · Utility Industry · Regulatory · Legal Government · Leadership · Mergers & Acquisitions · Geographic Diversity · | Ellen T. Ruff Former President, Office of Nuclear Development Duke Energy Corporation | Director since2006 Age Independent Director | |
Experience · President, Office of Nuclear Development, for Duke Energy Corporation, 2008 until her retirement in January 2011. · Partner at the law firm of McGuire Woods LLP from 2011 to 2018. | · President of Duke Energy Carolinas, an electric utility that provides electricity and other services to customers in North Carolina and South Carolina from 2006 to 2008. | ||
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 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.
Other current public company directorships (0). |
16 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Proposal 1 Election of Directors
Nominees for Election at the 2020 Annual Meeting
Board Committees · ·Executive Committee ·
Key Skills · Utility Industry · Regulatory · Financial · Leadership · Mergers & Acquisitions · Geographic Diversity · | Lee C. Stewart Private Financial Consultant | Director since2018 Age Independent Director | |
Experience · Mr. Stewart is a private financial consultant with over 25 years of experience as an investment banker. · Vice President at Union Carbide Corporation from 1996 to 2001, responsible for various treasury and finance functions. | · Chief Financial Officer of Foamex International, Inc. 2001 to 2002. | ||
Qualifications:
Mr. Stewart has over 25 years of experience as an investment banker and over
Other current public company directorships Currently serves on the |
16 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Proposal 1: Election of Directors
Nominees for Election at the 2022 Annual Meeting
Board Committees · Corporate Governance Committee ·
Key Skills · Utility Industry · Regulatory · Legal/Government · Mergers & Acquisitions · Leadership · Geographic Diversity · | Christopher C. Womack Chairman, President | Director since2019 Age Independent Director | ||
Experience · Chairman, President · He | Executive Vice President, Georgia | Power Company from 2006 to 2008; Senior Vice President, Fossil & Hydro Power, Georgia Power Company from 2001 to 2006; and Senior Vice President, Human Resources from 1998 to 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 views Mr. Womack’s independence and his experience as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Womack should serve as a director of the Company.
Other current public company directorships Currently serves on the board of Invesco Ltd., a New York Stock Exchange-listed global independent investment management firm. |
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 17
Director in 2021 Not Standing for Re-Election
Not Standing for Re-Election
Director Not Standing For Re-Election at the 2022 Annual Meeting
Mr. Idehen served as a director on December 31, 2021 and is included for selected statistics in this proxy statement.
Board Committees · Chair, Risk Mitigation and · Audit Committee · Executive Committee Key Skills · Utility Industry · Regulatory · Financial · Leadership · Mergers & Acquisitions · Geographic Diversity · C-Suite Experience | Francis O. Idehen Former Chief Operating Officer, GCM Grosvenor | Director since 2019 Age 44 Independent Director | |
Experience ·Chief Operating Officer for GCM Grosvenor, an independent alternative asset management firm since May 2017. | ·Served in senior roles at Exelon Corporation from 2011 to 2017, serving as its treasurer, head of investor relations, and managing director of its investment office. | ||
Mr. Idehen has a bachelor’s degree in economics from Yale University and an MBA from Harvard Business School. Qualifications: Mr. Idehen has extensive experience with large and complex businesses, including a major utility Company, in various management and financial positions. Mr. Idehen has lived and worked in Illinois, an important area of the Company’s operations, for many years. The Board of Directors views Mr. Idehen’s independence, his experience with various aspects of the utility industry, and his experience as a chief operating officer charged with making prudent financial investments as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Idehen should serve as a director of the Company. Other current public company directorships (0). |
18 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Corporate Governance
Board Leadership Structure
The Board sets high standards for our employees, officers, and directors. Implicit in this philosophy is the importance of sound corporate governance. Following the principles of our Corporate Governance Guidelines, the Board serves as a prudent fiduciary for shareholders and oversees the management of our business.
Governance Materials Available on our Website The following materials are available on our corporate website at https://www.essential.co/corporate-governance/documents Corporate Governance Guidelinesprovide the principles governing the Board. Developed by the Corporate Governance Committee, the Committee annually reviews these Guidelines and recommends any necessary changes to the full Board. Includes The Board has adopted Corporate Governance Guidelines that contain categorical standards of director independence that are consistent with the listing standards of the NYSE. Board Committee ChartersEach of the standing Committees of the Board of Directors operates under a written Committee Charter.
Code of Ethical Business Conductapplies to our directors, officers, and employees and
Our |
Board Leadership Structure
Mr. Franklin serves as Chairman of the Board and Chief Executive Officer. The Board of Directors deliberately and intentionally determined that the structure of the combined chairmanChairman and Chief Executive Officer along with the position of a strong lead independent director and independent Committee Chairs to be the most appropriate and efficient approach to managing the Company, while providing clear accountability to the execution of the Company’s strategy and its results.
Lead Independent Director
The Board of Directors annually elects the lead independent director to execute the following clear and specific duties:
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18 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT19
Corporate Governance
Board Committee Membership, Meetings and Director Attendance
Board Committee Membership, Meetings and Director Attendance
Under our Bylaws, the Board of Directors may designate an Executive Committee and one or more other committees, with each 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 Mitigation and Investment Policy, and Corporate Governance Committees. The Board may also appoint ad hoc committees. 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 126 meetings in 20192021
Board Committees as of December 31, 2021
Chair Lee C. Stewart
Members
Edwina Kelly Francis O. Idehen All members are independent under NYSE listing requirements and SEC All members are financially literate and . | Audit | Meetings
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The Committee’s primary responsibilities are to: ·monitor the integrity of the Company’s financial reporting process and systems of internal controls, including the review of the Company’s annual audited financial statements; and ·monitor the independence of our independent registered public accounting firm. The Committee has the exclusive authority to select, evaluate and, where appropriate, replace the Company’s independent registered public accounting firm.
The Committee has considered the extent and scope of non-audit services provided to the Company by its independent registered public accounting firm and has determined that these services are compatible with maintaining its independence.
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20 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT19
Corporate Governance
Board Committee Membership, Meetings and Director Attendance
Chair
Members Elizabeth B. Amato
All members are independent under NYSE listing requirements | Executive Compensation |
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The Committee is responsible for administering our equity compensation plans and determining executive compensation each year. As part of its annual compensation-setting process, the Committee: ·reviews the recommendations of the Chief Executive Officer as to appropriate compensation of the Company’s executive officers (other than the Chief Executive Officer) and determines the compensation of these executive officers; and ·reviews and recommends to the Board of Directors the compensation for the Chief Executive Officer, which is subject to final approval by the independent members of the Board of Directors. The Committee has retained an independent compensation consultant, Pay Governance LLC, to assist in designing our executive compensation program and assessing its competitiveness through benchmarking peer analysis and other methodologies.
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Chair
Members
David A. Ciesinski Ellen T. Ruff Christopher C. Womack All members are independent under NYSE listing requirements |
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| 2021 Meetings |
The Committee’s primary responsibilities include: ·identifying and considering qualified nominees for directors; ·developing and periodically reviewing the Corporate Governance Guidelines; ·advising the Board of Directors on director nominees, executive selections and succession planning, including a succession plan for the CEO and other senior executives; and · implementing and overseeing the comprehensive Board, Committee and peer review process.
The Committee
The Committee also has direct oversight over most ESG matters and provides guidance on ESG decisions. At each committee meeting, updates on ESG projects, trends and developments are presented. Additionally, each meeting features presentations on a key area of ESG, allowing for the Committee to study each area in-depth over the course of a year. |
20 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT21
Corporate Governance
Board Committee Membership, Meetings and Director Attendance
Members Edwina Kelly Christopher H. Franklin
| Risk Mitigation and Investment Policy |
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The Committee oversees the Company’s risk management process, policies, and procedures for identifying, managing and monitoring critical risks, including cyber-related risks, and its compliance with legal and regulatory requirements.
· The Committee also oversees the Company’s acquisition process in which it is briefed on all potential transactions in excess of $10 million, and reviews all acquisitions valued in excess of$20 million and all transactions that involve the Company’s stock. ·The Committee’s Chairperson communicates with other Board of Directors Committees to avoid overlap and potential gaps in overseeing the Company’s risks. ·The Committee advises the Board of Directors in its performance of its oversight of enterprise risk management.
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Chair Christopher H. Franklin
Members Elizabeth B. Amato Daniel J. Hilferty
Lee C. Stewart | Executive Committee |
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The Committee has and exercises all the authority of the Board in the management of the business and affairs of the Company, with certain specified exceptions.
·The Committee is intended to serve in the event that action by the Board of Directors is necessary or desirable between regular meetings of the Board ·The Chairman of the Board of Directors serves as Chairman of the Committee.
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22 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT21
Corporate Governance
Board and Committee Evaluations
Board and Committee Evaluations
Each year, the directors complete a targeted questionnaire that is administered by a neutral, non-affiliated entity 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 2019,2021, 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.
Board Refreshment as of December 31, 2021
In 2015, the Board of Directors undertook a multi-year program aimed at refreshing the Board to encourage new ideas, expertise, and oversight while maintaining the institutional experience of the then-current directors. As of December 31, 2021, the Board of Directors consisted of nine directors, with eight of those directors having been newly appointed or elected since 2015. Each of these directors brings his or her own level of expertise and experience. |
In 2015, the Board of Directors undertook a multi-year program aimed at refreshing the Board to encourage new ideas, expertise, and oversight while maintaining the institutional experience of the then-current directors. As a result, the Board of Directors now consists of nine directors, with seven of those directors having been hired since 2015. Each of these directors brings his or her own level of expertise and experience.
Director Onboarding and Continuing Education
In 2019, the Company appointed Mr. Womack and Mr. Idehen as directors. As part of its transaction withthe 2021 equity investment by CPPIB, in March 2020, the Company appointed Ms. FranksKelly was nominated by CPPIB to serve as a director.director of the Company. Mr. Ciesinski also joined the Board as director in July 2021. In addition to informal meetings with the existing directors, and in conjunction with their appointment, Messrs. WomackMs. Kelly and Idehen and Ms. FranksMr. Ciesinski participated in an onboarding process that includedincludes in-depth meetings with the executive officers focused on items such as:
• merger and acquisition strategy; |
• regulatory matters; |
• utility accounting and financing; |
• water, wastewater, and |
• ESG; • board governance functions; |
• Pennsylvania |
• a review of the Company’s Articles of Incorporation, its Bylaws, |
In addition, during 2019, the Board of Directors participated in several education sessions that included rate making, repair tax deduction, and various sessions aimed at financing mechanisms.
22 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT23
Corporate Governance
Board Oversight of Risk Management
Board Oversight of Risk Management
Full Board
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, and the full Board, permits the Board to effectively perform its role in the risk oversight of the Company.
Role of Management
Company.Management In addition to updates at each Board meeting by operating management regarding any significant operational, acquisition, or environmental matters, management provides the Board with an annual update on:
The Risk Mitigation and Investment Policy Committee
The Risk Mitigation and Investment Policy Committee’s primary purpose is to assist the Board of Directors in fulfilling its oversight responsibilities for o environmental matters by our Chief Environmental Officer; o the Company’s risk management practices,proposed capital spending plans by our Vice President, Corporate Engineering; and o 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.
Management receives approval from the Risk Management and Investment Policy Committee on all potential acquisitions valued in excess of $20 million, and the Board approves every acquisition valued in excess of $50 million or which involves the issuance of the Company’s common stock as part of the consideration.
Enterprise Risk Management
The Corporation maintains a Company-wideEnterprise Risk Managementprocess intended to identify, prioritize and monitor key risks that may affect the Company. Management reports the progress and the results of the Enterprise Risk Management program to the Risk Mitigationby our Executive Vice President, General Counsel, and Investment Policy Committee at least quarterly.
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 23
Corporate Governance
Oversight of Risk Management
The Risk Mitigation and Investment Policy Committee regularly 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.
The Audit Committee
The Audit Committee, in consultation with management, the independent registered public accountants and the internal auditors, discusses the Company’s policies and guidelines regarding risk assessment and risk management as well as the Company’sits significant financial risk exposures and the steps management has taken to monitor, control and report such exposures.
o The Audit Committee meets in executive session with the Director of Internal Audit and with the independent registered public accountants at the end of each Audit Committee meeting. o The Company’s General Counsel reports to the Audit Committee quarterly regarding any significant litigation involving the Company and his opinion of the adequacy of the Company’s reserves for such litigation. o The Company’s Internal Audit department reports directly to the Chair of the Audit Committee. |
The Corporate Governance Committee
The Corporate Governance Committee leads an annual discussion by the Board of Directors regarding the Company’s strategic plans and management’s performance with respect to suchthese plans.
The Committee also has direct oversight over most ESG matters and provides guidance on ESG decisions. Executive Compensation Committee
The Executive Compensation Committee reviews the Company’s overall compensation program in the context of the various behaviors that the program may encourage and the risks to the Company as a result of the program. At least annually, the Executive Compensation Committee considers the risks that may be presented by the structure of the Company’s compensation programs and the metrics used to determine individual compensation under that program. Risk Mitigation and Investment Policy Committee The Committee’s primary purpose is to assist the Board of Directors in fulfilling its oversight responsibilities for the Company’s: o risk management practices; o compliance with legal and regulatory requirements; o potential investments in acquisitions and growth vehicles; o cybersecurity risks; and to o review and approve the Company’s risk management framework. Management receives approval from the Risk Management and Investment Policy Committee on all potential acquisitions valued in excess of $20 million, and the Board approves every acquisition valued in excess of $50 million or which involves the issuance of the Company’s common stock as part of the consideration. A company-wide Enterprise Risk Management (ERM ) process is used to identify, prioritize and monitor key risks that may affect the Company. The Committee regularly reviews the results of the Company’s ERM process, and management presents to the Board a report on the status of the risks and the metrics used to monitor those risks. o Each risk tracked as part of the ERM 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. o The Information discussed at the Compliance Committee meeting is then reviewed by the Disclosure Committee composed of the Company’s Chief Executive Officer, Chief Financial Officer, General Counsel, Chief Accounting Officer and Director of Internal Audit. The results of the Disclosure Committee’s meetings are presented to the Risk Mitigation and Investment Policy Committee or the Audit Committee each quarter, as appropriate.
24 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Corporate Governance
Board Oversight of Risk Management
Board Oversight of Cybersecurity Management
The Board oversees 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 time and 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.
The Board of Directors annually reviews and approves the capital and operating budgets, ultimately reviewing and approving the amount spent on cybersecurity measures.
Spotlight on Data Security and Privacy Essential has a robust and long-standing cybersecurity program, which is aligned to the National Institute of Standards and Technology (NIST) Cybersecurity Framework. Management Committee: The information security and cybersecurity program is overseen by a cross-functional committee of senior business leaders. This committee meets bimonthly and is charged with ensuring that cyber risk is managed and that the program is aligned to business goals and objectives. Updates are provided to the board’s risk committee quarterly and the full board once a year. Risk Management: The information security organization is responsible for ongoing vulnerability assessments and threat analysis to essential assets such as customer and employee data, critical business systems, and industrial control environments. Controls, Policy & Compliance: Essential has implemented enterprise-wide security policies, standards and controls that incorporate best practices in security engineering, technology architecture and data protection, which support regulatory compliance. An annual review of Essential’s security framework controls is conducted in conjunction with a third party to promote objectivity. Awareness, Training & Assessment: Specialized programs have been implemented, such as enterprise-wide communications, presentations, phishing simulations and focused training for specific roles. We have developed and implemented a general cybersecurity training program required for all employees. |
Board Oversight of ESG
BOARD OF DIRECTORS The Full Board receives written reports and updates from Company executives at all regularly scheduled meetings on ESG matters including safety, sustainability, environmental stewardship, diversity and human capital management. The Corporate Governance Committee has direct oversight of most ESG matters. At each committee meeting, updates on ESG initiatives, trends and developments are presented. Additionally, each meeting features presentations on a key area of ESG, allowing for the Committee to study each area in-depth over the course of a year. |
MANAGEMENT CEO and Executive Management Team Management is responsible for designing, implementing, and executing our comprehensive ESG program as well as reporting to stakeholders on our ESG performance and progress. Additionally, half of our short-term incentive executive compensation goals focus on these important ESG issues. The ESG Oversight Committee meets at least quarterly to discuss ESG matters, strategy, and technical planning to achieve various goals. This committee is comprised of nearly a dozen senior leaders from different functional areas and backgrounds who offer diverse perspectives. Essential’s CEO is also involved in the issues discussed and initiatives planned. |
ConsiderationESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 25
Corporate Governance
Board Oversight of Risk Management
Board Oversight of Compensation Risk
In administering the executive compensation program, the Executive Compensation Committee aims to strike an appropriate balance among the elements of our compensation program to achieve the program’s objectives. Each of the elements of the program is discussed in greater detail in this proxy statement. As a result of its review of the Company’s overall compensation program in the context of the risks identified in the Company’s enterprise risk management processes, the Executive Compensation Committee does not believe that the risks the Company faces are materially increased by the Company’s compensation programs.
Therefore, the Executive Compensation Committee believes that the compensation program does not create the reasonable likelihood of a material adverse effect on the Company.Company.
ConsiderationBoard Oversight of Human Rights Risk Management
The Board of Directors is responsible for overseeing human rights risk management. In 2019, it enacted a Human Rights Policy that underscores the Company’s commitment to conducting business in a way that minimizes the adverse effects our operations may have on people and the communities that we serve. As more fully described on page 28,34, at a minimum, the Company and its vendors will:
• make efforts to avoid causing or contributing to human rights violations; |
• mitigate and/or remediate adverse human rights impacts of our operations where possible; |
• prohibit the use of child labor, forced labor, or human trafficking; and |
• be transparent in our efforts, successes and challenges. |
24 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Corporate Governance
Board Oversight of Succession Planning
Succession Planning
Under the Company’s Corporate Governance Guidelines, theThe Board of Directors is responsible for the development and periodic review of a management succession plan for the Chief Executive Officer and other executives. The Board and management recognizes the importance of human capital beginning with internal development initiatives and talent reviews, culminating in an annual review on succession planning with the Board of Directors. At least annually and at a special meeting held to only discuss succession planning, including in 2019,2021, the Board of Directors reviews the Company’s succession planning process for the Chief Executive Officer and the named executive officers. During this review, the directors review succession candidates on an immediate basis and more developmentallonger term candidates as well as their development plans so that the Company is well-prepared for the future.
26 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Corporate Governance
Shareholder Outreach
At our 20192021 annual meeting of shareholders, fewerour shareholders supported our say on pay proposal thanoverwhelmingly agreed with the 2013-2018 average of 95%. The Board believes that the shareholder return result lagged the industry due to the impactCompany’s compensation program, with 96% of the large acquisitionshareholders voting in agreement with our compensation design. We believe the high level of Peoples Natural Gassupport recognized the thoughtfulness and consideration the overhang ofmanagement team spent in redesigning the pending equity and debt issuance rather than the underlying performance of the Company. However, management and the Board took the resultingprogram to more closely align with driving shareholder vote seriously and committed to take several steps to address the executive compensation plan in 2020.
value.
Over the course of 2019,2021, management held more than 500approximately 300 meetings with investors. Additionally, the Company requested meetings with the 25 largest shareholders, representing over 45%as part of our outstanding common stock. Wegovernance focused outreach, we offered to meet with our top 25 shareholders. For this effort, we engaged with every shareholder who accepted our offer to meet. During these meetings and calls, we discussed numerous topics, including strategic, executive compensation, and environmental, social and governance issues.
As a direct result of these meetings and calls, the Company took a number of actions in 2019 to address shareholder feedback on our executive compensation program and environmental, social, and governance programs.
20192021 Shareholder Feedback and Actions Taken
Board Response to Shareholder Feedback |
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Continued Performance-driven executive compensation |
Following 2021 shareholder outreach, we continued our focus on creating performance-driven compensation opportunities for our named executive officers. We are continuing the use of our peer group developed for 2020. 79% of our CEO’s compensation is performance-based and/or stock-based. |
Added new diversity metrics | For 2021, we added a new supplier and
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Reviewed our |
In early 2022, the Board of Directors voted to |
Completed a review of our environmental and social programs and | Expanded ESG Disclosure
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ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 25
Corporate Governance
Environmental Stewardship and Corporate Responsibility
Environmental Stewardship and Corporate Responsibility
Essential’s ESG Program Objectives
At Essential, looking to the future is ingrained in our corporate responsibility and in how we conduct our business with environmental, social and governance (ESG) initiatives. For over 130 years, it has been our mission to be the best possible provider of essential resources by serving the needs and expectations of our customers, shareholders, employees and the communities we serve both today and for future generations. We are committed to being responsible stewards of our environment, maintaining a safe, diverse, competitive and respectful culture, and overseeing the governance of Essential with the utmost transparency.
We have been in the business of practicing sustainability and corporate social responsibility for more than 130 years. Each year, we deliver 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 environmentally sustainable methods available. We also focus on rebuilding aging infrastructure in the states in which we operate.
In 2018, the Company published its first Corporate Social Responsibility (“CSR”) reportand 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 2019, the Company’s CDP rank improved to a “B-”, ranking it among the top 40 percent of U.S. companies and among the top 25 percent of worldwide companies in terms of its understanding of climate change impact on business and the positioning of senior leadership to oversee key environmental issues.Our CSR Report and additional information can be found at csr.aquaamerica.com.
Oversight Responsibility
The Board of Directors receives reports at regularly scheduled meetings on ESG matters including safety, sustainability, and environmental stewardship matters. These programs are overseen and managed by the Company’s senior leadership. A significant portion of the performance-based goals for our executives focus on these important issues.
Our corporate responsibility and sustainability programs include the following:
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As just one example, in 2019, the Company signed an agreement for our New Jersey, Pennsylvania, Ohio and Illinois water and wastewater subsidiaries to purchase 100% renewable power by 2022. This will put our Company in compliance with the Paris Accord and will allow us to make a significant contribution toward the environment. These commitments to renewable energy reduce the Company’s overall absolute greenhouse gas emissions by nearly 60% from a 2018 baseline*.
26 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Corporate Governance
Environmental Stewardship and Corporate Responsibility
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*2018 baseline is based on the Company’s water and wastewater operations only.
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 27
Corporate Governance
Environmental, StewardshipSocial, and Corporate ResponsibilityGovernance Program
Environmental, Social, and Governance Program
Essential is not a newcomer to the notion that ESG is a critical aspect of business operations. We have successfully delivered resources for life since the 19thcentury because we have woven environmental, social, and governance inextricably into our DNA. Successive generations of corporate management have built upon our legacy of excellence in water and wastewater treatment, stewardship of our waterways, provision of reliable and affordable energy, and trust in the communities where we serve, live, and work.
We encourage you to explore our innovative microsite ESG.Essential.co for full details of our initiatives and commitments or download our 2020 ESG report at https://ESG.Essential.co/pdfs/essential-esg20.pdf
Board Oversight of ESG
Board of Directors The Full Board receives written reports and formal updates from Company executives at regularly scheduled meetings on ESG matters including safety, sustainability, environmental stewardship, diversity and human capital management. |
Governance Policies
These policy documents are available on the corporate governance section of our website at https://www.Essential.co/corporate-governance/documents:
• Human Rights Policy • Human Rights to Water Policy | • Political Spending Policy • Code of Ethical Business Conduct • Conflict of Interest Policy | • Equal Employment Opportunity and Anti-Harassment Policy
•
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ESG Reporting
Essential’s ESG reporting includes the following components, which are available at ESG.Essential.co:
• 2020 ESG Report- Our flagship report that provides detail on all relevant ESG topics
• SASB and ESG Metrics Index- A concise document containing key ESG metrics, primarily of the SASB framework
• 2020 TCFD Report- Concise climate reporting as outlined by the Task Force on Climate-Related Financial Disclosures
• 2020 CDP Report- Detailed climate reporting via the CDP questionnaire
• 2020 AGA Sustainability Template- Technical emissions data via the American Gas Association’s common industry template
Alignment with UN SDGs:
Essential is committed to supporting the achievement of the United Nations’ Sustainable Development Goals (SDGs), which aim to address global challenges and achieve peace and prosperity for all. Of the SDGs, our business can most significantly positively impact:
28 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Corporate Governance
Environmental, StewardshipSocial, and Corporate ResponsibilityGovernance Program
Environment
Essential’s mission is to sustain life and improve economic prosperity by safely and reliably delivering Earth’s most essential resources to our customers and communities.
Climate Change and Greenhouse Gas Emissions
In January of 2021, Essential announced an enterprise-wide commitment to substantially reduce its Scope 1 and 2 greenhouse gas (GHG) emissions. By 2035, we will reduce our emissions by 60% from our 2019 baseline. Our water and wastewater operations as well as our gas operations will each be contributing roughly 60% reduced emissions. Essential has estimated that as of December 31, 2021, it has achieved a 7% emissions reduction from its 2019 baseline. Upon formal calculation of its 2021 greenhouse gas inventory later in 2022, the Company will adjust and finalize this achievement figure, communicating this through its annual ESG reporting.
The two most significant actions that will lead to these deep reductions are:
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Board Oversight and
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* | Please refer to ESG.Essential.co for more detailed climate change disclosure, including illustrative graphics depicting our progress towards our emissions reduction target. |
Investing in Our Nation’s Infrastructure
Essential is committed to renewing and improving water and wastewater infrastructure through thoughtful and continuous capital investment. We have invested over $3.5 billion in infrastructure improvements and replaced more than 1,300 miles of aging water main since 2012. We are also making critical and robust investments in gas infrastructure. In 2013, Peoples Gas launched its Long-Term Infrastructure Improvement Plan (LTIIP), an aggressive 20-year effort to replace and upgrade more than 3,000 miles of distribution main with modern resilient materials.
Excellence in Providing Safe Drinking Water
Essential consistently and widely outperforms the national average for percentage of community water systems with health-based violations, typically smaller by a factor about 6 to 8 times. Cutting edge technology has enabled us to increase our detection levels from parts per million to parts per trillion in many cases. In 2021, we opened a brand new, state-of-the-art environmental laboratory at our Bryn Mawr headquarters, employing a staff of 20 scientists and featuring an annual capacity of approximately 300,000 tests on water samples across 240 water quality parameters.
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 29
Corporate Governance
Environmental, Social, and Governance Program
Human Capital Management
At Essential, we recognize our 3,000+ employees are our greatest assets in delivering life’s most essential resources. Our goal is to build a talented, skilled and diverse workforce that values teamwork as well as a steadfast commitment to our customers and to the environment. Essential offers our employees a wide array of challenging and exciting careers and jobs that support our mission to provide natural resources for life in a safe and reliable manner. Essential is committed to providing professional opportunities for career growth, competitive benefits packages and a respectful workplace to every employee across the communities we serve in our 10 states. We’re dedicated to creating a culture that empowers employees and where all feel welcomed, respected and recognized for their contributions.
Board Oversight of Human Capital Management Essential’s board of directors recognizes that our ability to attract, retain, and develop exceptional talent is a key strategic driver of long-term growth and success for all our stakeholders. The Chief Human Resources Officer regularly presents updates to the board, engaging in strategic discussion with the group regarding the topics outlined below. |
Engaging our Employees
Our success depends on employees understanding how their work contributes to Essential’s overall strategy. We use a variety of communication channels to facilitate open and direct dialogue, including open forums with our executives, monthly town halls, regular engagement surveys, and employee resource groups. Efforts to foster an inclusive culture include:
Flexible Work Location Program. Essential Utilities values our employees and recognizes a flexible work environment is critical in attracting, motivating and retaining high performing employees, particularly in the post-pandemic environment. In June 2021, Essential introduced the Work Location Flexibility Program allowing eligible employees to work remotely up to two scheduled days a week.
Talent Management – Training and Development
At Essential, we believe in an integrated talent development approach and understand that a balanced and holistic approach to learning will allow for greater sustainability of changed workplace behaviors.
We align our development model to support our vision, mission, and competencies, with a balanced approach to developing our workforce and creating a confident, committed and high-performance culture.
Vision, Mission, Values, Strategies & Competencies
Selecting and On-boarding •Recruit & sourcing •Skills selection assessments •Competency based behavioral interviewing •On-boarding | Foundational Skills & Capability •New hire orientation to company, department & position •Job level core curriculums | Performance Management & Development •Corporate culture assessment •Performance management program and processes •Targeted assessment for performance improvement •Individual development planning | Organizational Workforce Planning •Culture change and development initiatives •Succession planning •Mentoring |
30 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Corporate Governance
Succession Planning
Succession Planning
Our succession planning strategy identifies leaders at different stages in their career and customizes their development approach. The Essential Utilities executive leadership development strategy for future executives is a combination of development experiences to include: 360 performance assessments and coaching, executive presentation skills and formal learning programs.
Diversity, Equity and Inclusion
Diversity of backgrounds, ideas, thoughts, and experiences is essential to our culture and the way we do business. Creating an environment where our differences are valued and where every person feels a sense of belonging and engagement supports a thriving organization that cares about our employees and customers. We believe it is important that all employees are supported by an environment where people of all backgrounds, ages, races, abilities, and sexual orientations feel engaged and safe to collaborate and learn from one another.
Leadership Commitments | In 2021, we announced a multi-year plan to increase employee diversity to 17% and added an employee diversity metric (5% weighting) to our short-term executive compensation incentive plan. The percentage of employees of color at Essential rose from 14% at the end of 2020 to 15% at the end of 2021. |
To strengthen our DE&I efforts, we took the following actions:
From monthly discussions and metric reviews with our leaders, to community partnerships, we encourage conversations that elevate diversity and inclusion as a key strategic priority.
Building a Diverse and Inclusive Culture
To help us achieve our goals, we have been building and expanding our program and actions in this area to create an environment where our differences are valued, every person feels a sense of belonging, and engagement supports a thriving organization.
Essential Employee Programs
Education | •We hold educational workshops and action planning sessions for employees across our Company footprint to improve the dialogue and build on an inclusive culture. •Essential regularly conducts education and unconscious bias workshops to foster better understanding of points of view and how pre-conceived notions impact relationships at work. •We partner with industry experts to lead discussions. |
Diverse New Talent Recruitment | Our diversity recruitment is supported through: •Diversity associations and job boards for employees of color, veterans and women; •Recruitment of new talent from local community colleges and city-based universities; and •Partnerships with technical and training facilities that focus on a diverse student population. |
Employee Resource Groups | We host several employee resource groups across the organization to help ensure our employees feel supported in their professional growth at all levels, including: •Black Resource Group • LGBTQ+ Pride Resource Group, •Women’s Resource Group • Peoples’ Diversity Council, and •Veteran’s Resource Group • Essential Diversity, Equity and Inclusion Advisory Council |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 31
Corporate Governance
Succession Planning
Board Diversity As of December 31, 2021 More than 55% of the board is diverse. Three of our nine board members are female and two of our male board members are people of color. Employee Diversity o Diversity hiring for the organization grew by more than 8%. o Diversity at the management level also grew, with 10% of management comprised of minorities and 22% comprised of women by the end of 2021. * Please refer to ESG.Essential.Co. for more detailed work force composition data in line with EEO-1 standards.
Supplier Diversity
Supplier diversity is critical for our communities as well as for our business. We want to source from and partner with businesses owned by individuals representing the diverse communities where we live, work, and operate each day. This also enriches and strengthens local economies, increases sourcing options, and fosters collaboration and innovation.
Essential is committed to increasing our work with qualified and certified diverse suppliers, which are measured by majority of ownership and control, and include one or more of the following classifications:
•Minority-owned | • Women-owned • Veteran-owned • LGBTQ+-owned |
Essential has taken steps to increase our work with diverse suppliers. Essential spent $108 million with diverse suppliers. This diverse spend resulted in a 31% increase of diverse spend year-over-year, from 8.3% of controllable spend in 2020 to nearly 11% of controllable spend in 2021.
Leadership Commitments | In 2021, we announced a multi-year plan to increase diverse supplier spend to 15% of controllable spend and added a supplier diversity component (5% weighting) to our short-term executive compensation incentive plan metrics. As of year-end 2021, nearly 11% of Essential’s controllable spend was with diverse suppliers. |
Safety And Wellness
The Essential Safety program focuses on identifying hazards, training our employees on the best practices to remain safe and providing them with the equipment and facilities to face these hazards in the safest way possible. We rigorously follow OSHA reporting guidelines to identify, report and investigate any injuries to our employees.
The health of our employees is just as important to us as is their safety. We provide access to a variety of innovative, flexible, and convenient employee health and wellness programs. With mental health becoming more of a central part of an employee’s well- being, we have added additional resources and counseling access for employees and their families.
Leadership Commitments | To incentivize managers to promote a safe environment, we incorporated safety metrics for Lost Time/Restricted Time Incidents, Responsible Vehicle Accident Rate and Peoples Gas Safety Rate into our executive compensation incentive plans for 2021. |
32 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Corporate Governance
Succession Planning
Safety Culture Survey
This survey was conducted by a third party in 2020 and provided us an opportunity to obtain feedback on safety from our employees, which have assisted us in obtaining clear insight into our strengths and opportunities for improvement.
Subsequent Action:
Results of Essential’s company-wide Safety Culture Survey were to be shared with Operations leaders and employees. The 89% favorable score in survey results affirmed that the majority of employees perceive Essential’s safety culture as strong.
Our follow-up actions continue to be monitored and tracked through the Essential Strategic Safety process.
Pandemic Safety Measures During 2021, Essential continued to implement protective measures in customer homes, our offices and within our field crews. Essential Office employees began to return to the workplace safely in 2021 and remained working in a hybrid flex schedule as positions allowed. A workgroup of human resource, legal and safety representatives met weekly to guide our responses and policy development, drive continuous safety improvement and communicate the impact of new regulations and CDC guidance related to the pandemic. Our increased reliance on social distancing, protective face masks, hand and sneeze hygiene and vaccination worked to protect the workforce, which saw minimal workplace-related infection spread and high employee satisfaction rates for safety. |
Strengthening Our Community
Essential operates in ten states across America, but our presence is felt locally. We primarily source water and gas nearby our customers, we do business with many local suppliers and our employees often live in the communities they serve. Our services enable households to grow, commerce to bustle with life, and the health of our towns and cities to flourish. Simply put, we thrive when our communities thrive. For these reasons, our organization and team members enthusiastically contribute time and resources to strengthen these community bonds.
Resilience and Reliability in the Midst of Natural Disasters and the Pandemic 2021 was a testament to the resilience, dedication and reliability of the employees at Essential. In February, Texas employees rallied around the clock to ensure that water and sewer service continued in the aftermath of winter storm Uri. In September, Hurricane Ida impacted several of our largest water treatment plants where crews jumped in to work around the clock to get things running at full capacity after the storm caused remarkable damage. Kentucky employees stepped up to help neighboring communities impacted by a violent tornado in December 2021. All employees have continued to work the front lines during the pandemic to ensure our customers are receiving their resources in a safe and reliable manner – reliable for life. |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 33
Corporate Governance
Governance Policies and Practices
Governance Policies and Practices
Anti-Hedging and Anti-Pledging Policy
We believe that issuance ofissuing incentive and compensatory equity awards to our directors and named executive officers along with our stock ownership guidelines help to align their interests with our shareholders. As part of our insider trading policy, we prohibit all directors and employees from engaging in hedging or pledging activities with respect to any owned shares or outstanding equity awards. The policy specifically prohibits all insiders from engaging in any short sales of the Company’s securities, buying or selling puts, calls or other derivative securities relating to the Company’s securities, or pledging the Company’s securities as collateral for a loan.None of our directors nor any of our named executive officers engaged in any hedging or pledging activities with respect to the Company stock during 2019.2021.
Equal Employment Opportunity and Anti-Harassment Policy
This policy provides that all employees are entitled to a work environment in which they are treated with dignity and respect and which is free of harassment and discrimination of any kind, including discriminatory, emotional, physical and sexual.
Essential Utilities will not tolerate any form of harassment on the job by managers, other employees, or by non-employees, such as customers, vendors or contractors. The policy clearly defines harassment as including verbal comments that are offensive or unwelcome regarding a person’s national origin, race, color, religion, gender, sexual orientation, age, body, disability or appearance, including epithets, slurs and negative stereotyping and nonverbal harassment to include distribution, display or discussion of any written or graphic material that ridicules, denigrates, insults, belittles or shows hostility, aversion or disrespect toward an individual or group because of national origin, race, color, religion, age, gender, sexual orientation, pregnancy, appearance, disability, sexual identity, marital status or other protected status.
Human Rights Policy
The Board of Directors is responsible for overseeing human rights risk management. In 2019, it enacted a Human Rights Policy that underscores the Company’s commitment to conducting business in a way that minimizes the adverse effects our operations may have on people and the communities that we serve. At a minimum, the Company and its vendors will:
Together, these policies ensure that the Company is committed to providing all of its employees with a work environment in which they are treated with dignity and respect and which is free of harassment of any kind, and affirmatively commits the Company to making efforts to avoid causing or contributing to human rights violations. Copies of these policies can be found at www.Essential.co/investor-relations or at ESG.Essential.co.
Director Independence Standards
The Board of Directors is responsible for determining whether each of the directors is independent. 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 notIn 2021, all directors were determined to be deemed independent, if:
For purposes of the categorical standards above:
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, 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 factsexcept our Chairman, President 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.CEO Mr. Franklin.
3034 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Corporate Governance
Governance Policies and Practices
Policies and Procedures for Approval of Related Person Transactions and Determination of Director Independence
Review of Transactions for Director Independence Determination
The Board of Directors considered the following transactions, relationships and arrangements in connection with making the independence determinations for the current Board of Directors:
1. | During |
2. |
3. | The Company has insurance arrangements with Independence Health Group IHG or its affiliates. During 2021, Mr. Hilferty served as Executive Advisor to IHG. The Company contracts with IHG to serve as the administrator of the Company’s self-insured medical plans for the Company’s employees. As a benefit of employment, the Company offers its employees medical insurance benefits through plans established by IHG. The Company is self-insured for all of these plans, and has contracted with IHG to serve as the administrator of the Company’s medical plans. As compensation for these administrative services, the Company paid fees to IHG. For each of the last three fiscal years, the fees paid to IHG, IHG’s gross revenues, and the fees as a percentage of IHG’s gross revenues were as follows: |
Fiscal Year | Fees Paid to IHG | IHG Gross Revenues | Fees Paid as a Percentage of IHG Gross Revenues |
Fees Paid to IHG |
IHG Gross Revenues | Fees Paid as a Percentage of IHG Gross Revenues |
2017 | $2,313,302 | $16,500,000,000 | 0.014% | |||
2018 | $2,125,045 | $17,000,000,000 | 0.013% | |||
2019 | $2,205,381 | $19,200,000,000 | 0.011% | $2,205,381 | $19,200,000,000 | 0.011% |
2020 | $2,499,580 | $21,000,000,000 | 0.012% | |||
2021 | $2,919,728 | $24,700,000,000 | 0.012% |
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 | Pass Through Payments |
2017 | $12,763,289 | |
2018 | $14,303,630 | |
2019 | $13,711,289 | $13,711,289 |
2020 | $14,557,659 | |
2021 | $19,308,118 |
Mr. Hilferty is President and Chief Executive Officer of IHG. Mr. DeBenedictis is a member of the Board of Directors of IHG. The amounts paid by the Company to IHG are not material to IHG or to the Company.
Related Person Transactions
Additionally, the Board has a written policy for related person transactions to document procedures for reviewing, approving or ratifying these transactions. 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.
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 31
Corporate Governance
Governance Policies and Practices
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- or father-in-law, son- or daughter-in-law, brother- or sister-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. |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 35
Corporate Governance
Governance Policies and Practices
The Corporate Governance Committee, with assistance from the Company’s General Counsel, is responsible for reviewing and approving any related person transaction. In its review and approval of related person transactions (including its determination as to whether the related person has a material interest in a transaction), the Corporate Governance Committee will consider, among other factors:
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.
There were no related person transactions in 2019.2021.
Based on a review applying the standards 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 is independent, 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.
Director Independence Determination |
All directors are independent except Mr. Franklin, the Company’s Chairman, President, and Chief Executive |
3236 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
In late 2018, asAs part of its annual review, the Executive Compensation Committee retained Pay Governance, LLC (“Pay Governance”)(Pay Governance) to review and benchmark the Board of Directors’ compensation. As a result of this review, the Board of Directors did not change its compensation for 20192021 and voted that its compensation remain the same:
20192021 Director Compensation Program
Similarly, in late 2019, the Executive Compensation Committee retained Pay Governance to review and benchmark the Board of Directors’ compensation. Pay Governance compared the directors’ compensation to the Company’s peers and made certain suggestions and recommendations to the Executive Compensation Committee and to the Company’s Corporate Governance Committee. As a result, upon the recommendation of its Executive Compensation Committee and the Corporate Governance Committee, the Board of Directors approved the following revised directors’ compensation program effective April 1, 2020:
2020 Director Compensation Program
(effective April 1, 2020)
Role | Annual Cash Compensation | Annual Equity Compensation |
Each Non-Employee Director | $100,000 | Stock grant equal to $100,000 in value |
Chair, Audit Committee | + $12,500 | — |
Chair, Executive Compensation Committee | + $12,500 | — |
Chair, Corporate Governance Committee | + $10,000 | — |
Chair, Risk Mitigation and Investment Policy Committee | + $10,000 | — |
Lead Independent Director | + $25,000 | — |
In late 2021, the Executive Compensation Committee again retained Pay Governance to review and benchmark the Board of Directors’ compensation. Pay Governance compared the directors’ compensation to the Company’s peers, including the impact of COVID-19 on the economy, and made certain suggestions and recommendations to the Executive Compensation Committee and to the Company’s Corporate Governance Committee.
As a result, upon the recommendation of its Executive Compensation Committee and the Corporate Governance Committee, the Board of Directors agreed to increase the Directors’ compensation program for 2022 as follows:
Role | Annual Cash Compensation | Annual Equity Compensation |
Each Non-Employee Director | $105,000 | Stock grant equal to $110,000 in value |
Chair, Audit Committee | + $20,000 | — |
Chair, Executive Compensation Committee | + $15,000 | — |
Chair, Corporate Governance Committee | + $15,000 | — |
Chair, Risk Mitigation and Investment Policy Committee | + $15,000 | — |
Lead Independent Director | + $30,000 | — |
Ms. FranksKelly, nominee for CPPIB, has elected to designate CPPIB as the recipient of the annual cash compensation and to waive the annual equity compensation awarded to directors.directors should she be elected in 2022 to serve as a Director for the Company.
All directors are reimbursed for reasonable expenses incurred in connection with attendance at Board or Committee meetings.
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 33
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 37 |
Director Compensation
Director Stock Ownership Guidelines
Director Stock Ownership Guidelines
The Board of Directors approved stock ownership guidelines for eachEach director is required to own shares of Company common stock having a value equal to five times the annual base cash retainer for directors. Directors have up to threefive years from appointment to attain the stock ownership requirement. The Board of Directors also prohibits a director from selling Company common stock until the director has attained the required stock ownership. Once the required stock ownership level is attained, the director must maintain the level of stock ownership for the duration of the director’s service. Ms. Franks was not a director in 2019.
Director Stock Ownership As of December 31, 2021
2019 Director Stock Ownership
The chart below shows the shareholdings of the directors as of December 31, 2019:
(1) | Mr. Franklin is a management Director and his |
(2) | Because Ms. |
(3) | These directors have up to |
34 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
38ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Director Compensation
Total 20192021 Director Compensation
Total 20192021 Director Compensation
Name | Fees Paid in Cash ($) | Stock Awards ($)(1) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
Fees Paid in |
Stock |
Option | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) |
All Other |
Total ($) |
Amato | 87,500 | 87,535 | — | — | 175,035 | 110,000 | 100,006 | — | 210,006 | |||||
Burke(3) | 65,000 | 65,018 | — | — | 130,018 | |||||||||
Ciesinski | 50,000 | 50,022 | — | 100,022 | ||||||||||
DeBenedictis | 87,500 | 87,535 | — | — | 175,035 | 55,000 | 49,984 | 104,984 | ||||||
Franklin | — | — | — | — | — | — | ||||||||
Hankowsky(3) | 74,375 | 65,018 | — | — | 139,393 | |||||||||
Hilferty | 122,500 | 87,535 | — | — | 210,035 | 137,500 | 100,006 | — | 237,506 | |||||
Holland(3) | 20,000 | 42,528 | — | — | 62,528 | |||||||||
Idehen | 45,000 | 45,007 | — | — | 90,007 | 105,000 | 100,006 | — | 205,006 | |||||
Kelly(4) | 50,000 | — | 50,000 | |||||||||||
Ruff | 100,000 | 87,535 | — | — | 187,535 | 100,000 | 100,006 | — | 200,006 | |||||
Stewart | 93,750 | 87,535 | — | — | 181,285 | 112,500 | 100,006 | — | 212,506 | |||||
Womack | 45,000 | 45,007 | — | — | 90,007 | 100,000 | 100,006 | — | 200,006 |
(1) | The grant date fair value per share of the stock awards, which are paid quarterly, were: |
(2) | Pursuant to the Board’s retirement policy, Nicholas DeBenedictis retired from the Board of Directors on May 5, 2021. |
(3) | As an officer of the Company, Mr. Franklin does not receive any compensation for his service on the Board of Directors. |
As a designate of CPPIB, Ms. Kelly directed her cash compensation be paid to CPPIB and |
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 35
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 39 |
Ownership of Common Stock as of March 7, 2022
The table below shows the number of shares of our common stock beneficially owned (asas of the close of business on March 9, 2020.7, 2022. by: (1) each person known to the Company to be the beneficial owner of more than 5% of the Common Stock of the Company; (2) each director, nominee for director and executive officer named in the Summary Compensation Table; and (3) all directors, nominees and executive officers of the Company as a group. This information has been provided by each of the directors, executive officers and nominees at the request of the Company or derived from statements filed with the SEC under Section 13(d) or 13(g) of the Exchange Act. Beneficial ownership of securities as shown below has been determined in accordance with applicable guidelines issued by the SEC. Beneficial ownership includes the possession, directly or indirectly, through any formal or informal arrangement, either individually or in a group, of voting power (which includes the power to vote, or to direct the voting of, such security) and/or investment power (which includes the power to dispose of, or to direct the disposition of, such security). Unless otherwise indicated, the address of the beneficial owners is Essential Utilities, Inc., 762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania 19010.
Certain Beneficial Owners | Sole Voting and/or Sole Investment Power(1) | Shared Voting and/or Investment Power | Total | Percentage of Class Outstanding(2) |
BlackRock, Inc.(3) 55 East 52nd Street, New York, NY 10055 | 23,368,775 | 23,368,775 | 10.46% | |
The Vanguard Group(4) 100 Vanguard Blvd., Malvern, PA 19355 | 23,103,947 | 209,016 | 23,312,963 | 10.44% |
State Street Corporation(5) One Lincoln Street, Boston, MA 02111 | 11,248,979 | 11,248,979 | 5.04% | |
Directors, Nominees and Named Executive Officers | ||||
Elizabeth B. Amato | 3,277 | — | 3,277 | * |
Nicholas DeBenedictis | 23,452 | — | 23,452 | * |
Richard S. Fox | 26,270 | — | 26,270 | * |
Wendy A. Franks | — | — | — | * |
Christopher H. Franklin | 161,215 | — | 161,215 | * |
Daniel J. Hilferty | 10,852 | — | 10,852 | * |
Francis O. Idehen | 1,530 | — | 1,530 | * |
Christopher P. Luning | 35,441 | — | 35,441 | * |
Matthew R. Rhodes | 6,907 | — | 6,907 | * |
Ellen T. Ruff | 29,272 | — | 29,272 | * |
Daniel J. Schuller | 21,064 | — | 21,064 | * |
Lee C. Stewart | 13,277 | — | 13,277 | * |
Christopher C. Womack | 1,530 | — | 1,530 | * |
All Directors, Nominees and Named Executive Officers as a Group (14 persons) | ||||
395,719 | 27,430(6) | 423,149 |
Certain Beneficial Owners | Sole Voting and/or Sole Investment Power(1) | Shared Voting and/or Investment Power | Amount and Nature of Beneficial Ownership | Percentage of Class Outstanding(2) | |
BlackRock, Inc.(3) 55 East 52nd Street, New York, NY 10055 | 26,705,089 | 26,705,089 | 10.55% | ||
The Vanguard Group(4) 100 Vanguard Blvd., Malvern, PA 19355 | 24,035,688 | 417,755 | 24,453,443 | 9.66% | |
Canada Pension Plan Investment Board(5) One Queen Street East, Suite 2500 Toronto, Ontario M5C 2W5 Canada | 21,661,095 | 21,661,095 | 8.56% | ||
State Street Corporation(6) One Lincoln Street, Boston, MA 02111 | 12,918,178 | 12,918,178 | 5.11% | ||
Directors, Nominees and Named Executive Officers | |||||
Elizabeth B. Amato | 7,749 | — | 7,749 | * | |
David A. Ciesinski | 1,013 | — | 1,013 | * | |
Richard S. Fox | 25,366 | — | 25,366 | * | |
Christopher H. Franklin | 138,591 | — | 138,591 | * | |
Daniel J. Hilferty | 22,224 | — | 22,224 | * | |
Francis O. Idehen | 6,002 | — | 6,002 | * | |
Edwina Kelly(7) | — | — | — | * | |
Christopher P. Luning | 44,245 | — | 44,245 | * | |
Matthew R. Rhodes | 14,743 | — | 14,743 | * | |
Ellen T. Ruff | 33,744 | — | 33,744 | * | |
Daniel J. Schuller | 32,309 | — | 32,309 | * | |
Lee C. Stewart | 17,749 | — | 17,749 | * | |
Christopher C. Womack | 6,002 | — | 6,002 | * | |
All Directors, Nominees and Named Executive Officers as a Group (14 persons) | |||||
408,867 | 26,995(8) | 435,862 |
* | less than one percent. |
(1) | Includes shares held under the Company 401(k) plan. |
(2) | Percentage of ownership for each person or group based on |
(3) | The information from BlackRock, Inc. was obtained from the Schedule 13G/A filed by BlackRock, Inc. with the SEC on |
(4) | The information from The Vanguard Group was obtained from the Schedule 13G/A filed by The Vanguard Group with the SEC on February |
(5) | The information from Canada Pension Plan Investment Board (CPPIB) was obtained from the Schedule 13D filed by CPPIB with the SEC on March 24, 2020. |
(6) | The information from State Street Corporation was obtained from the Schedule 13G/A filed by State Street Corporation with the SEC on February |
(7) | Ms. Kelly is nominated to the Board as designated by CPPIB under the terms of the Company’s private placement transaction with CPPIB. |
(8) | The shareholdings indicated |
36 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
40ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Advisory Vote to Approve Named Executive Officers’ 2021 Compensation
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 2022 Annual Meeting:
RESOLVED, that the compensation paid to the Company’s named executive officers for 2021, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.
This vote is non-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.
Before you vote
Shareholders are encouraged to read the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure.
As described in detail under our Compensation Discussion and Analysis on pages 46 through 70 of this proxy statement, our executive compensation program is designed to motivate our executives to achieve our primary goals of providing our customers with quality, cost-effective and reliable water and wastewater services and providing our shareholders with a long-term, positive return on their investment.
We believe that our executive compensation program, with its balance of short-term incentives and long-term incentives and share ownership guidelines, reward sustained performance that is aligned with the interests of our customers, employees and long-term shareholders.
The Board of Directors unanimously recommends a vote FOR the approval, on an advisory basis, of the 2021 compensation of the Company’s named executive officers. | |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 41 |
Ratification of an Amendment to the Bylaws
Establishing Requirements for Shareholders to
Disclose Derivative Securities Holdings when Making
a Nomination or Presenting a Proposal.
At the 2022 Annual Meeting, shareholders are being asked to ratify the Board of Directors’ approval of an amendment to the Company’s Bylaws requiring derivative securities holdings disclosure when a shareholder uses the procedures in the Bylaws to nominate a candidate for election as a director or presents a proposal for consideration by shareholders at an annual meeting.
Why you should vote to ratify this Amendment
On February 16, 2022, upon the recommendation of the Corporate Governance Committee, the Board of Directors amended and restated the Company’s Bylaws to add provisions that require any shareholder making a nomination of a candidate for election as a director, or presenting a proposal for consideration by shareholders at an annual meeting to provide full disclosure of all Company securities holdings, including derivative securities (the Bylaw Amendment). The Board recommends ratifying this Bylaw Amendment which is designed to provide shareholders with full disclosure about the ownership interests held by the proposing shareholder.
Because this Proposal 3 provides only a summary of the Bylaw Amendment, it may not contain all of the information that is important to you. You should read Appendix B containing the Bylaws, as amended and restated, carefully before you decide how to vote.
Background
Our Board of Directors regularly reviews our corporate governance practices to ensure that these practices, including the procedures for nominating director candidates or submitting a proposal to shareholders for consideration at an annual meeting, remain in the best interests of the Company and its shareholders. After carefully and thoroughly considering the issue, the Board of Directors amended the Bylaws to add these disclosure requirements.
Summary of Amendment for Ratification
The Bylaws Amendment modifies Section 3.17 of the Bylaws to add additional disclosure requirements of all securities holdings. The Company’s Bylaws always had requirements in order for any notice provided by a shareholder under the Bylaws to be in proper form. The requirements are designed to provide other shareholders with disclosure information regarding the proposing shareholder when considering the nominated candidate for director or shareholder proposal for consideration at an annual meeting.
The additions to the notice requirement now add the following with respect to the proposing shareholder’s ownership of Company securities:
· | any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Company or with a value derived in whole or in part from the value of any class or series of shares of the Company, whether or not such instrument or right is subject to settlement in the underlying class or series of capital stock of the Company or otherwise (a “Derivative Instrument”) owned beneficially by such shareholder, and any other opportunity to profit or share in any profit derived from any increase or decreasein the value of shares of the Company; |
· | any proxy, contract, arrangement, understanding, or relationship pursuant to which such shareholder has a right to vote any shares of the Company; |
· | any short interest of such shareholder in any security of the Company (for purposes of the Bylaws, a person shall be deemed to have a “short interest” in a security if such person has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security; |
· | any rights to dividends on the shares of the Company owned beneficially by such shareholder that are separated or separable from the underlying shares of the Company; |
42ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Proposal 3: Ratification of an Amendment to the Bylaws Establishing Requirements for Shareholders to Disclose Derivative Securities Holdings when Making a Nomination or Presenting a Proposal
· | any proportionate interest in shares of the Company or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such shareholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner; and |
· | any performance-related fees (other than an asset-based fee) that such shareholder is entitled to based on any increase or decrease in the value of shares of the Company or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such shareholder’s immediate family sharing the same household. |
The proposing shareholder also has an obligation to update this disclosure if there are any changes before the nomination or the proposal are considered at an annual meeting.
This disclosure requirement captures all of the possible voting or economic interests in the Company’s securities held by the proposing shareholder. The Board believes this disclosure provides information that its shareholders would use in considering any such director nomination or shareholder proposal.
The amendments impact Section 3.17 (Business Transaction at Shareholder Meetings), Section 4.14 (Nomination of Directors) and Section 4.15 (Proxy Access) of the Bylaws. A marked version of the Bylaws, as amended and restated, is attached as Appendix B to this proxy statement.
The Board of Directors unanimously recommends a vote FOR the ratification of this Bylaw Amendment to require derivative securities holdings disclosure by any shareholder nominating a director or presenting a proposal at the Annual Meeting of Shareholders. | |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 43 |
Ratification of the Appointment of
PricewaterhouseCoopers LLP as Independent
Registered Public Accounting Firm for Fiscal 20202022
The Audit Committee of the Board of Directors appointed PricewaterhouseCoopers LLP (“PwC”)(PwC) as the independent registered public accounting firm for the Company for the 20202022 fiscal year. PwC has been the Company’s independent registered public accountants since 2000. The Board of Directors recommends that shareholders ratify the appointment.
Although shareholder ratification of the appointment of PwC is not required by law or the Company’s Bylaws, the Board of Directors believes that it is desirable to give our shareholders the opportunity to ratify the appointment. If the shareholders do not ratify the appointment of PwC, then the Audit Committee will take this into consideration and may or may not consider the appointment of another independent registered public accounting firm for the Company for future years. Even if the appointment of PwC is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm during the year if the Audit Committee determines such a change would be in the best interests of the Company. Representatives of PwC are expected to be present at the 20202022 Annual Meeting, will have the opportunity to make a statement at the meeting if they desire to do so, and will be available to respond to appropriate questions.
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 “ServicesServices and Fees”Fees below. 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 to pre-approve the audit and non-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 to pre-approve all auditing and non-auditing fees proposed to be provided by the Company’s independent registered public accounting firm prior to engaging the accountants for that purpose. Consideration and approval of such services occurs at the Audit Committee’s regularly scheduled meetings, or by unanimous consent of all the Audit Committee members between meetings. All fees and services were pre-approved by the Audit Committee for the 20192021 fiscal year.
Services and Fees
The following table presents the fees paid to PwC for professional services rendered with respect to the 20192021 fiscal year and 20182020 fiscal years:
Fiscal Year | ||||
2019 | 2018 | |||
Fiscal Year | 2021 | 2020 | ||
Audit Fees(1) | $ 2,032,000 | $1,690,000 | $2,836,500 | $2,911,500 |
Audit-Related Fees(2) | $ 50,000 | $ 77,000 | $ 200,000 | $ 25,000 |
Tax Fees(3) | $ 35,752 | $ 34,546 | $ 110,000 | $ 70,000 |
All Other Fees(4) | $ 5,000 | $ 14,484 | $ 45,000 | $ 10,000 |
TOTAL | $2,122,752 | $1,816,030 | $3,191,500 | $3,016,500 |
(1) | Represents fees for any professional services provided in connection with the audit of the Company’s annual financial statements (including the audit of internal control over financial reporting), non-recurring audit fees, reviews of the Company’s interim financial statements included in Form 10-Qs, audits of the Company’s subsidiaries, issuance of consents, review of comment letter, and comfort letter procedures. |
(2) | Represents fees for services in connection with pre-implementation work for enterprise computer system implementations, accounting consultations of acquisitions, consultation concerning implementation of auditing standards and regulator required workpaper reviews. |
(3) | Represents fees for any professional services in connection with the review of the Company’s federal and state tax returns. |
(4) | Represents fees for software licensing for accounting research, |
The Board of Directors unanimously recommends a voteFORratifying the appointment of PricewaterhouseCoopers LLP as the Company’s Independent Registered Public Accounting Firm for the | |
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 37
44ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Proposal 2 Ratify4: Ratification of the Appointment of PricewaterhouseCoopers LLP as Independent Registered Public
Accounting Firm for Fiscal 20202022
Audit Committee Report
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, 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 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 applicable requirements of 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 of non-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 Form 10-K for the year ended December 31, 20192021 for filing with the SEC.
Respectfully submitted,
Lee C. Stewart,, Chairman
David A. Ciesinski
Daniel J. Hilferty
Francis O. Idehen
Edwina Kelly
February 27, 202015, 2022
38 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 45 |
Advisory Vote to Approve Named Executive Officers’
2019 Compensation
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 2020 Annual Meeting:
“RESOLVED, that the compensation paid to the Company’s named executive officers for 2019, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”
This vote is non-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.
Before you vote
Shareholders are encouraged to read the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure.
As described in detail under our Compensation Discussion and Analysis on pages 40 through 44 of this proxy statement, our executive compensation program is designed to motivate our executives to achieve our primary goals of providing our customers with quality, cost-effective and reliable water and wastewater services and providing our shareholders with a long-term, positive return on their investment.
We believe that our executive compensation program, with its balance of short-term incentives and long-term incentives and share ownership guidelines, reward sustained performance that is aligned with the interests of our customers, employees and long-term shareholders.Contents
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 39
Contents
Compensation
Discussion and
Analysis
In this Compensation Discussion and Analysis (“CD&A”), we address our compensation philosophy and program, and compensation paid or earned by the following executive officers:
Christopher H. Franklin |
Chairman, President and Chief Executive Officer |
Daniel J. Schuller |
Executive Vice President and Chief Financial Officer |
Richard S. Fox |
Executive Vice President and Chief Operating Officer |
Matthew R. Rhodes |
Executive Vice President and Chief Strategy & Corporate Development Officer |
Christopher P. Luning |
Executive Vice President, General Counsel, and Secretary |
We refer to these executive officers as our “named executive officers” or “NEOs”.
As used in this CD&A,
· | “Total cash |
· | “Total direct |
The purpose of the CD&A is to explain the elements of compensation; why the 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. 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 the recommendation of the Compensation Committee.
40 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
46ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Executive Compensation
Executive Summary
Essential Utilities, Inc.’s mission is to improve quality of life and economic prosperity by safely and reliably delivering life’s most essential resources. We are uniquely positioned to play an important role in solving today’s water and natural gas infrastructure challenges by renewing and improving infrastructure through thoughtful capital investment, operational excellence, environmental stewardship and rigorous safety standards. Through ourthe work of more than 3,000 employees across ten states, we help strengthen communities, improve service and enhance economic development, enabling people to live better lives. This vital work empowers us to grow as an organization and as individuals. We believe that, together, we will make a difference for generations to come.
Our executive compensation program is designed to promote this mission and strategy. Our compensation program does so by providing market-based pay and by rewarding the achievement of our strategic objectives. The principles and components of our compensation strategy are regularly reviewed by our Executive Compensation Committee, our Chief Executive Officer, and the Executive Compensation Committee’s independent compensation consultant, Pay Governance, to ensure that they meet the objectives of the program, the Company, and its stakeholders.
2021 began with the continuing challenges of Peoples Natural Gas Acquisitionthe global pandemic. The health and Shareholder Feedback on Executive Compensationsafety of our employees was a priority for the Company. Our cross-functional COVID task force supported the Company and employees in managing safely through another year of the pandemic. A range of measures were put in place to ensure employee well-being including strict safety protocols, restricting non-essential travel and large gatherings, a gradual return to the workplace plan for our workforce that had been working remotely, and encouraging employees to be vaccinated.
As well, Essential experienced some significant weather-related events impacting our service territories – particularly in Texas and Pennsylvania. Hurricane Ida had a major impact with the historical flooding in the southeastern part of Pennsylvania, which led to unprecedented weather-related damage to our Pickering plant. Our operations team swiftly mobilized to ensure our customers had access to safe water while they addressed the damages to the plant. Mr. Franklin and Essential’s executive team led the Company to another year of strong financial performance, while successfully adapting to quickly changing circumstances and demonstrating the resilience needed to ensure our customers have access to their natural resources.
Staying the Course
In 2019,2020, we introduced a revised compensation program design for our Essential executives based on an extensive study of industry best practices which was validated by a high Say on Pay performance rating of 96.2% at the Compensation Committee spent significant time on2020 Shareholders Meeting as well as 96.4% at the review2021 Shareholders meeting. We continue to adhere to those executive compensation design principles in 2021 and design ofbeyond.
While the utilities industry was not as severely affected as most public companies by the pandemic, we are more susceptible to flooding and other natural disasters. We are proud to say that we did not make any pandemic-related changes to the executive compensation plan. In fact, we raised the bar on our executives by including equity, diversity and inclusion measures in our short- term incentive plans in 2021 as well as becoming an environmental leader with aggressive environmental standards. In February 2020, we announced that we will, over several years, install mitigation technology at water treatment facilities where source water exceeds 13 parts per trillion (ppt) for 2020. Every elementany Poly-fluoro alkyl substances (PFAS). This is well below the EPA’s non-enforceable health advisory level of the program was analyzed using industry best practices to evaluate and modify the plans accordingly.70 ppt. These initiatives are reflected in our incentive plan goals. Pay Governance LLC (“Pay Governance”(Pay Governance or the “consultant”)consultant), the independent compensation consultant retained by the Compensation Committee, providedprovides advice, guidance and guidance throughout the process.expertise in compensation design for utilities executives.
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 47 |
Executive Compensation
Executive Summary
A review ofAnnually, the plan was critical given the pending acquisition of Peoples Natural Gas, which in 2020, will increase the Company’s rate base by 45% and broaden the executive roles to encompass gas and water responsibilities.
The Committee also sought to incorporateincorporates investor feedback on the compensation program design into their review of the plans to ensure alignment with the market’smarket expectations about our compensation and performance. The Committee engaged in in-depth discussions on the Company’s strategy and compensation program with our largest investors, assessing the peer group and evaluating each component ofadopted by the package including short term incentives, long-term incentives, and base salaries.
Committee in 2020 was unchanged in 2021. The performance measures for each element of the program were examined to ensure they aligned with the interests of our shareholders, customers, and employees as well as being competitive with the compensation practices of our industry peer group. The new program design, types of compensation vehicles, and the relative proportion of the named executive officers’ total direct compensation represented by these vehicles is consistent with current competitive compensation practices in the utility industry.
The | |
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 412021 Performance Highlights
Despite the many challenges during 2021, our leadership team remained focused on growing our customer base through acquisitions, prudently invested a record amount of over $1 billion in infrastructure, maintained operational excellence and demonstrated the resiliency of our water and natural gas platforms. As of year-end 2021, we had a total of eight signed purchase agreements to acquire water and wastewater systems, totaling over $471 million in purchase price and expected to serve approximately 235,000 equivalent retail customers or equivalent dwelling units. 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 the pursuit of excellence and remaining dedicated to our mission of safely and reliably delivering Earth’s most essential natural resources to our customers and communities.
· | In 2021, we invested a record amount of over $1 billion in infrastructure projects across the water and gas utilities, helping to ensure safe and reliable service for all customers. |
· | Revenues were $1.88 billion in 2021, an increase of28.4 percent over 2020. |
· | Earnings per share were $1.67 in 2021, in line with expectations. |
· | We added approximately 7,700 water and wastewater customer equivalents through acquisition in 2021 and increased water and wastewater customers served by 2 percent, which includes customers from organic growth and acquisitions. Our acquisitions in 2021 added approximately $36.3 million in rate base. |
· | We signed purchase agreements to acquire 6 water and wastewater systemsin 2021. These systems are expected to add over 25,000 equivalent retail customers or equivalent dwelling units. |
· | From January 1, 2019 to December 31, 2021, the total return to our shareholders, including share price appreciation and dividends paid, shows 65.56 percent growth. |
· | In July 2021, the Board of Directors approved a 7 percent increase in the quarterly dividend to an annualized rate of $1.0728 per share. |
· | Since making the greenhouse gas emissions reduction commitment in early 2021, the Company has achieved an estimated 7% Scope 1 and 2 emissions reduction from our 2019 baseline towards our 60% reduction target by 2035. |
· | As of year-end 2021, the Company reached 15% people of color in our employee base towards our multi- year target of 17%. |
· | Additionally, in controllable spending, we purchased nearly 11% of goods and services from diverse supplies towards our multi-year target of 15%. |
48ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Executive Compensation
Executive Summary
Our 2019 Performance Highlights
Our 2019 performance demonstrates continued execution of our strategic goals and plans. During 2019, by effectively managing costs, strategically growing when it was prudent, maintaining strong regulatory relationships, and focusing on our customers, employees, and shareholders as we continue to create value for all of our stakeholders, we had the following results.
Financial Highlights
During 2019, we remained focused on our mission to be the best possible provider of essential resources by serving the needs and expectations of our customers, shareholders, employees and the communities we serve both today and for future generations. At the same time we continued to focus on growing our customer base through acquisitions, prudently investing capital to renew our aging infrastructure, and creating efficiencies across the organization. This was in addition to working on efforts to integrate and close our Peoples transaction and the announcement of our DELCORA municipal wastewater acquisition, which is the largest in our history. We continue to see great opportunities ahead and remain focused on investing in infrastructure and delivering sustainable growth for our investors.
|
|
|
*See Appendix B for a reconciliation of non-GAAP financial measures to GAAP financial measures
42 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Executive Compensation
Executive Summary
2017-20192018-2021 Pay for Performance Alignment
Our pay programs are designed to reflect the Company’s performance. The following table shows the relationship between financial performance goals and executive performance-based payouts over the past three years:
Target EPS (adjusted for comp plan) | EPS (adjusted for comp plan) |
STI Payout % |
3 Year TSR Return |
PSU Payout % | |
2017 | $1.36 | $1.37 | 118.44% | 58.08% | 109.19% |
2018 | $1.39 | $1.44 | 136.34% | 23.32% | 70.68% |
2019 | $1.47 | $1.50 | 126.45% | 67.75% | 159.91% |
Target EPS* (adjusted for comp plan) | EPS (adjusted for comp plan) |
STI Payout % |
3 Year TSR Return |
PSU Payout % | |
2019 | $1.47 | Achieved | 126.45% | 67.75% | 159.91% |
2020 | $1.55 | Achieved | 137.10% | 29.08% | 175.00% |
2021 | $1.66 | Achieved | 129.70% | 65.56% | N/A |
* | Target EPS is a non-GAAP financial measure. See Appendix A. |
Our Pay for Performance Compensation Program
Our compensation program for named executive officers is designed to:
· | Provide compensation that is competitive with our industry peers and appropriately correlates incentive compensation to the achievement of the Company’s short- and long-term performance for customers and shareholders; |
· | Provide a total compensation package that is aligned with industry standards and enhances our ability to: |
– | Motivate and reward our named executive officers for contributions to our financial success; |
– | Attract and retain talented and experienced named executive officers; and |
Ensure a significant portion of pay is performance based to better align pay with the successful achievement of our business objectives; |
· | Reward our named executive officers for leadership excellence and contribution to the organization’s success; and |
· | Maintain an important focus on environmental, social, and governance issues while building shareholder value. |
Highlights of our Compensation Policies
|
|
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 43
Executive Compensation
Executive Summary
Pay for Performance and Results of the 20192021 Advisory Vote to
Approve Executive Compensation
Our goal is to instill a “paypay for performance”performance culture throughout the Company. At our 20192021 Annual Meeting, we submitted a proposal to our shareholders for a non-binding advisory vote on our 20182020 compensation awarded to our named executive officers. Our shareholders approved the proposal at a lower than expected96.4% approval rate. This approval level further propelledvalidated the Committee to take an in depth look atcompensation design structure which we believe will propel us into the Company’s compensation program for our named executive officers. During our outreach to investors, we received feedback to provide more information on our incentive programs’ metrics and measurements. You will see we have incorporated that feedback in our 2019 compensation information with added detail on incentive programs’ targets and performance.future.
Aligning Interests of NEOs and Shareholders
In 2019,Annually, we solicitedsolicit the opinions of our top shareholders on several items, including our executive compensation program design. We diddo this to ensure that the pay balance and alignment wasis viewed as driving long-term high performance of our named executive officers and other members of management.
As a result of these meetings and conversations, and other analysis, the following actions were taken by the Compensation Committee for 2020.has taken the following actions.
Compensation Committee Actions for | ||||
·
· | · Maintained long-term incentives to drive Company · No Covid-19 compensation changes in 2021. Our Compensation Committee · Talent acquisition and succession planning were at the forefront of our human resources agenda for this year, which includes developing plans for key executive roles to ensure a strong internal talent pipeline for the future. | |||
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44 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
50ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Executive Compensation
Section 1Our Compensation Philosophy
Our Compensation Philosophy
Our compensation program for named executive officers is designed to:
· | Provide compensation that is competitive with our industry peers and appropriately correlates incentive compensation to the achievement of the Company’s short- and long-term performance for customers and shareholders; |
· | Provide a total compensation package that is aligned with industry standards and enhances our ability to: |
– | Motivate and reward our named executive officers for contributions to our financial success; |
– | Attract and retain talented and experienced named executive officers; and |
– | Ensure a significant portion of pay is performance based to better align pay with the successful achievement of our business objectives; |
· | Reward our named executive officers for leadership excellence and contributions to the organization’s success; and |
· | Maintain an important focus on environmental, social, and governance issues while building shareholder value. |
ComponentsElements of Compensation for Named Executive Officers
The following chart provides a brief summary of the principal elements of our executive compensation program for 2019.2021. We describe these elements, as well as retirement, severance and other benefits, in more detail on pages 5055 through 61.62.
Compensation Element | Form | Compensation Objective | Relation to Objective | |
Fixed
| 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 as well as actual performance against defined objectives. |
Variable
Performance- and/or
| 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 | Aligns executive interests with shareholder interests; creates a strong financial incentive for achieving or exceeding long-term performance goals. | The named executive officers receive equity only if the pre-established goals are achieved. | ||
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 45
Executive Compensation
Section 1Our Compensation Philosophy
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 investor owned utilities. Since compensation levels often vary based on the Company’s revenues, we adjust the Company’s revenues in the manner described below to align with the companies in the benchmark group. We then size adjust the market data using revenue-based regression analysis to determine the market medians for our named executive officer positions.
Our goal is to provide total direct compensation that is competitive with the market median for each named executive officer. Based on the information supplied by the consultant,Pay Governance, the total target direct compensation for each of our named executive officers was within the competitive range of the benchmark market data for each of their positions during 2019.2021.
46 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 51 |
Executive Compensation
Section 2How We Determine Executive Compensation
How We Determine Executive Compensation
We emphasize pay for performance, especially for our higher-level executives. Therefore, the named executive officers receive a substantial portion of their total direct compensation from annual cash incentives and long-term equity incentives, both of which are risk- based incentives based upon achieving companyCompany goals. 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 competitive market median benchmark percentages.
The Role of the Compensation Committee
The Compensation Committee, composed entirely of independent directors, determines the actual amount of each element of annual compensation to award to the Company’s named executive officers with theofficers. The goal of havingis for the target total direct compensation opportunity for each named executive officer to be generally within a range of 15% above or below the market median rate for his or her position over time.
· | Our Senior Vice President, Chief Human Resources Officerassists the Compensation Committee by preparing schedules showing the present compensation of executives, 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 Officercompiles and presents the supporting information for the individual executives’ performance against their objectives and his recommendations for any discretionary compensation based on his evaluation of the extent of achievement of individual |
· | Our Chief Financial Officerprovides the Compensation Committee with certifications as to our financial performance for |
The Role of the Compensation Committee’s Independent Consultant
The Compensation Committee retained Pay Governance, a nationally recognized compensation consulting firm, as the Compensation Committee’s independent consultant to assist in designing and assessing the competitiveness of our executive compensation program. The Compensation Committee concluded that Pay Governance is an independent consultant after considering the factors relevant to Pay Governance’s independence from management, and 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.
Our 20192021 Benchmarking for Competitive Pay
In developing the market median for the named executive officers, the Compensation Committee’s consultant, Pay Governance, used compensation data from all 59 investor-owned utilities in theour 15 utility industry database we use to determine the market median for similarly situated executives of utility companies. All 59 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 median, as described in this paragraph.
Because the companies in our peer group vary widely in terms of revenues, Pay Governance applied regression analysis to size-adjust the benchmark data for each named executive officer’s revenue responsibility using the Company’s actual and adjusted revenues to account for the lack of cost of goods sold component for a water utility, where possible, and then averaging the results to determine the market medians 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
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 47
Executive Compensation
Section 2How We Determine Executive Compensation
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 medians for base salary, total cash compensation, and total direct compensation, Pay Governance used regression analysis to determine what our peer group companies would pay at the median for positions comparable to those of our named executive officers.
companies.
The combination of salary, short-term incentives, and long-term incentives is intended to compensate executives at approximately the 50th50th percentile of the market when the Company performs at target level.
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.
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Executive Compensation
Section 2 How We Determine Executive Compensation
In 2019,2021, Pay Governance also analyzed the Company’s executive compensation program to ensure that it remained competitive. Pay Governance uses the median 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 for executive and director compensation decisions.
Our 20202021 Benchmarking for Competitive PayPeer Group
In July 2019, Pay Governance worked with the Compensation Committee to review and recommend aA simplified 15 Companyfifteen company peer group based on the anticipated post-Peoples Natural Gas acquisition. Our primary rationale for developing ais used to benchmark executive pay. This custom peer group was first used in 2020 and will continue to address concerns withbe the historical practicefoundation of using the entire utility-Company industry and size adjusting the data to the Company revenues.our benchmarking approach.
How We Selected our New Peer Group
A multi-step screening process was used to determine the final comparator companies.
48 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 53 |
Executive Compensation
Section 2How We Determine Executive Compensation
Shareholder Advisory Vote Impact on Compensation Committee Actions
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 through 2018, theThe Company is committed to providing shareholders approved the advisory vote on the compensation of our named executive officers by 93% to 94% of the votes cast. In 2019, our approval rate decreased to 67%. The Compensation Committee took immediate action to review and respond to our approval rating drop through an in-depth study on the compensation program with its independent compensation consultant, Pay Governance and accelerated engagement starting in the summer of 2019 with our largest shareholders. Additionally, shareholders asked for more transparency in metrics and measurements, which you will see as you review our 20192021 incentive plan results.
Highlights of During | ||||
· ·Underscored the Company’s commitment to
| ·Retained the Company’s focus on retention of key employees, by continuing to issue restricted stock units ·
| |||
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 49
54ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Executive Compensation
Section 32019 2021 Executive Compensation Program
20192021 Executive Compensation Program
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. We use these elements to achieve our compensation program objectives as follows:
Element of Compensation | Objectives |
Competitively benchmarked base salaries | 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 responsibilities. |
Short-term incentives or annual cash incentive | Intended to reward executives for: ·improving the quality of service to our customers; ·controlling the cost of service to our customers by managing expenses and improving performance; ·achieving economies of scale by the acquisition of additional water and wastewater systems that can benefit from our resources and expertise; ·disposing of under-performing systems where appropriate; and ·enhancing our financial viability and performance by the achievement of annual objectives. |
Long-term equity incentives | Designed to reward named executive officers for: ·enhancing our financial health, which also benefits our customers; ·improving our long-term performance through both revenue increases and cost control; and ·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 incentives. |
50 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Executive Compensation
Section 3Overview
Retirement benefits | Intended to assist named executive officers to provide income for their retirement. |
Non-qualified deferred compensation plan | 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 Company. |
Double-trigger Change-in-control agreements | 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 impartially. |
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 Company. |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 55 |
Executive Compensation
Section 3 2021 Executive Compensation Program
Base salary is designed to provide the named executive officer and all our other employees, with a level of fixed pay that is commensurate with the employee’s role and responsibility. We believe that by delivering base salaries that are reflective of market medians, we are positioned to attract and retain top caliber executives in an increasingly competitive labor market. In 2019,2021, no turnover of the top executive team is indicative of our success in attracting and retaining the executives throughout a significant acquisition and growth process.
How We Determine Base Pay – Market Medians and Internal Pay Equity
The Compensation Committee annually reviews the base salaries of theour named executive officers, as well as all our senior executives, to evaluate whether they are competitive with our Natural Gas industry peers. Multiple reviews were required in 2019 to assess the impact of expanded scopes of responsibility relating to the People’s acquisition.
The Compensation Committee, composed entirely of independent directors, determines any base salary changesBase salaries are considered for the named executive officersadjustment annually and are based on a combination of factors including competitive peergeneral movement in external salary levels, changes in the market median rate for their positions; individual performance; internal pay level of responsibility, experience,equity; and changes in individual duties and responsibilities.
NEO Salary Determinations: The Compensation Committee determines both the market median rate for their positions and internal pay equity. Additionally,equity with both the Compensationother named executive officers and other employees of the Company. For NEOs other than our CEO, the Committee also considers recommendations from our CEO, Mr. Franklin, reflecting his assessment of the individual’s performance and their contributions to the achievement of business objectives. Mr. Franklin’s pay is evaluated separately by the Compensation Committee under the same criteria, with the final recommendation determined and approved by all the independent members of the Board.
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 in 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.
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.Directors.
NEO 20192021 Base Salary
For 2019,2021, the annual increases to the salaries for the named executive officers reflected these assessments and averaged 4.8%.
4% which reflected normal market driven increases. The base salaries approved by the Compensation Committee for 2019,2021, effective April 1, 2019,2021, were as follows: Mr. Franklin, $805,000;$910,000; Mr. Fox, $400,790;$450,167; Mr. Schuller, $432,526;$463,332; Mr. Rhodes, $402,730;$448,157; and Mr. Luning, $360,451.
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 51
Executive Compensation
Section 3Overview$401,110.
The 20192021 Annual Cash Incentive Awards
The Annual Cash Incentive Award Plan is a non-equity Incentive Planincentive plan which provides each named executive officer with the opportunity to earn a cash award tied primarily to Company performance against business objectives with a small Individual Performanceindividual performance element.
A balanced scorecard approach to this cash incentive ensures that all employees work in the best interests of the shareholders, employees, and customers.
Metric/Weighting | Metric Rationale and DefinitionTarget Performance Range: 50% - 150% of Target | |||||
Half of the total award funding is based on the financial performance of the overall Company with the majority (35%) based on Essential Earnings Per Share and 15% based on Return on Equity. This award measure aligns the executive to results for the shareholders. | ||||||
Essential has a strong commitment to safety with an additional |
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Executive Compensation
Section 3 2021 Executive Compensation Program
Environmental stewardship as measured by water, wastewater and | ||||||
The customer satisfaction metric (10%) ensures that we balance financial, safety and environmental concerns with our customer service levels. This metric measures the | ||||||
The year over year increase in diverse spend with certified suppliers in the following classifications: Minority-Owned Enterprise (MBE), Women-Owned Enterprise (WBE), Veteran –Owned Enterprise (VBE) and LBTQ-Owned Enterprise. | ||||||
geographic labor market where Essential has operations. |
* | Adjusted EPS is a non-GAAP financial measure. See Appendix |
52 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT2021 Annual Cash Incentive Award Metrics and Targets
The tables and the narrative below detail the 2021 Annual Cash Incentive Award Metrics.
2021 Target Payout Levels | |||||
Metric | Metric Components | Weight | Threshold | Target | Maximum |
Financial (50%) | Essential Earning Per Share* | 35.00% | $1.61 | $1.66 | $1.71 |
Essential ROE | 15.00% | 4.52% | 9.52% | 14.52% | |
Safety (20%) | Essential Lost Time/Restricted Time | 5.00% | 2.0 | 1.5 | 1.0 |
Essential Responsible Vehicle Accident Rate | 5.00% | 3.2 | 2.7 | 2.2 | |
Peoples Gas Safety | 10.00% | 99.98% | 99.99% | 100.00% | |
Customer Satisfaction (10%) | Essential Service Level | 10.00% | 80%/30sec | 82%/30sec | 84%/30sec |
Environmental | Aqua Water Compliance | 2.50% | 99.30% | 99.70% | 100.00% |
Stewardship (10%) | Aqua Wastewater Compliance | 2.50% | 93.00% | 95.50% | 98.00% |
Peoples Gas Leaks | 2.50% | 800 | 700 | 600 | |
Peoples Gas LTIIP | 2.50% | 97.50% | 100.00% | 102.50% | |
Diversity (10%) | Supplier Diversity | 5.00% | 15.7% | 18.1% | 20.5% |
Employee Diversity | 5.00% | 14.2% | 14.5% | 14.8% | |
100.00% |
* | See Appendix A for a reconciliation of non-GAAP financial measures to GAAP financial measures. |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 57 |
Executive Compensation
Section 3Overview 2021 Executive Compensation Program
2019 Annual Cash Incentive Award Metrics
The tables and the narrative below detail the 2019 Annual Cash Incentive Award Metrics.
Metric Weight | Target Achievement | ||||
Metric | Metric Components & Weights | 50% | 100% | 150% | |
50% | Financial | Adjusted Earnings Per Share* [35%] | $1.42 | 1.47 | 1.52 |
Return on Equity [15%] | –3.75 | 0 | 3.75 | ||
15% | Safety | Lost Time Incidents | 22 | 19 | 16 |
Responsible Vehicle Accident Rate | 4.5 | 4.1 | 3.7 | ||
Recordable Incidents | 78 | 74 | 59 | ||
15% | Compliance | Water | 99.10% | 99.50% | 99.90% |
Wastewater | 91.50% | 94.50% | 96.50% | ||
10% | Customer Satisfaction | Service Level | 80.00% | 82.00% | 84.00% |
10% | Individual Goals | 50% | 100% | 150% | |
20192021 Performance
Based on the factors described above, the following table shows the 20192021 performance of the Company compared to the targets set in the Annual Plan. 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 126.45%129.70%. Based on this determination, the table below 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 20192021 for the named executive officers.
20192021 Company Performance Metric Scorecard
Metric |
Metric Component | 50% Threshold | 100% Target | 150% Maximum | Actual* | Total Attainment |
Weight | Achievement |
Financial | Essential Earnings Per Share | $1.61 | $1.66 | $1.71 | $1.80 | 150.00% | 35.0% | 52.50% |
Essential Return on Equity on a Regulated | 4.52% | 9.52% | 14.52% | 10.47% | 109.50% | 15.0% | 16.43% | |
Basis | ||||||||
Safety | Essential Lost Time/Restricted Time | 2.0 | 1.5 | 1.0 | 1.2 | 130.00% | 5.0% | 6.50% |
Essential Responsible Vehicle Accident Rate | 3.2 | 2.7 | 2.2 | 2.9 | 80.00% | 5.0% | 4.00% | |
Peoples Gas Safety | 99.98% | 99.99% | 100.00% | 100.00% | 150.00% | 10.0% | 15.00% | |
Customer Satisfaction | Essential Service Level | 80.00% | 82.00% | 84.00% | 82.19% | 75.00% | 10.0% | 7.50% |
Environmental Stewardship | Aqua Water Compliance | 99.30% | 99.70% | 100.00% | 99.63% | 91.25% | 2.5% | 2.28% |
Aqua Wastewater Compliance | 93.00% | 95.50% | 98.00% | 96.47% | 119.40% | 2.5% | 2.99% | |
Peoples Gas Leaks | 800 | 700 | 600 | 539 | 150.00% | 2.5% | 3.75% | |
Peoples Gas LTIIP | 97.50% | 100.00% | 102.50% | 106.80% | 150.00% | 2.5% | 3.75% | |
Diversity | Supplier Diversity | 15.7% | 18.1% | 20.50% | 31.3% | 150.00% | 5.0% | 7.50% |
Employee Diversity | 14.2% | 14.5% | 14.8% | 15.0% | 150.00% | 5.0% | 7.50% | |
Total Achievement | 129.70% |
* | Actual Essential Earnings Per Share is adjusted (Non-GAAP financial measure). Refer to Appendix A for a reconciliation of this Non-GAAP financial measure to net income per share, the closest comparable GAAP financial measure. |
Metric |
Metric Component | Target - 50% | Target - 100% | Target - 150% | Actual | Actual Attainment | Weight | Final |
Financial | Aqua Earnings Per Share | $1.42 | $1.47 | $1.52 | $1.50 | 130.00% | 35.0% | 45.50% |
Return on Equity | –3.75% | 0.00% | 3.75% | 1.03% | 113.69% | 15.0% | 17.05% | |
Safety | Lost Time Incidents | 22 | 19 | 16 | 9 | 150.00% | 5.0% | 7.50% |
Recordable Incidents | 78 | 74 | 59 | 59 | 150.00% | 5.0% | 7.50% | |
Responsible Vehicle Accident Rate | 4.5 | 4.1 | 3.7 | 3.0 | 150.00% | 5.0% | 7.50% | |
Compliance | Water | 99.10% | 99.50% | 99.90% | 99.66% | 120.00% | 7.5% | 9.00% |
Wastewater | 91.50% | 94.50% | 96.50% | 95.46% | 124.00% | 7.5% | 9.30% | |
Customer Satisfaction | Service Level | 80.00% | 82.00% | 84.00% | 83.24% | 131.00% | 10.0% | 13.10% |
Individual Goals | Individual Goals | 50.00% | 100.00% | 150.00% | 100.00% | 100.00% | 10.0% | 10.00% |
Total Score | 126.45% |
Additionally, the named executive officers had the following individual goals and achieved the results listed in the table below:
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 532021 Named Executive Officer Short Term Incentive Award
Name | 2021 Salary Rate* ($) | 2021 Target Bonus % | 2021 Company Metric |
STI Payment ($) |
Christopher H. Franklin | $910,000 | 100% | 129.70% | $1,180,270 |
Daniel J. Schuller | $463,332 | 65% | 129.70% | $ 390,612 |
Richard S. Fox | $450,167 | 65% | 129.70% | $ 379,513 |
Matthew R. Rhodes | $448,157 | 60% | 129.70% | $ 348,756 |
Christopher P. Luning | $401,110 | 60% | 129.70% | $ 312,144 |
* | The 2021 Salary Rate is an annualized rate |
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Executive Compensation
Section 3Overview
Additionally, the named executive officers had the following individual goals and achieved the results as listed in the table below:
2019 Individual Metric Objectives in Short Term Incentive
2019 Named 2021 Executive Officer Short Term Incentive Award
Name |
2019 Salary |
2019 Target | 2019 Company Metric Excluding Individual Metric |
2019 Individual |
Total Factor |
STI Payment ($) |
Christopher H. Franklin | 805,000 | 90% | 116.45% | 14% | 130.45% | $945,110 |
Daniel J. Schuller | 432,526 | 60% | 116.45% | 15% | 131.45% | $341,133 |
Richard S. Fox | 400,790 | 65% | 116.45% | 10% | 126.45% | $329,420 |
Matthew Rhodes | 402,730 | 55% | 116.45% | 14% | 130.45% | $288,949 |
Christopher P. Luning | 360,451 | 55% | 116.45% | 13% | 129.45% | $256,632 |
*The ”2019 Salary Rate” is an annualized rate
54 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Executive Compensation
Section 3Overview Program
Long-Term Equity Incentive Awards
Our use of equity incentive awards is intended to reward our named executive officers for:
· |
· |
· |
We make these equity incentive awards under our Amended and Restated Omnibus Equity Compensation Plan (the “Plan”)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.
Starting in 2011, the Compensation Committee began using a combination of performance share units and restricted stock units to better link the named executive officers’ 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. As noted previously, however, the Compensation Committee did not make performance share units awards in 2019 due to the uncertainties associated with the pending Peoples Natural Gas acquisition. In 2020 and continuing in 2021, the long-term incentive program awarded a combination of performance share units and restricted stock units. For 2022, the long-term incentive plan is introducing stock options as part of the program to incentivize management on growing the Company.
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, |
Using the market median rates developed by Pay Governance, the Compensation Committee evaluates 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 Essential’s total shares outstanding.
The number of equity incentive awards granted annually to all employees has been less than 1% of Essential’s total shares outstanding per year for the past several years. It is our equity granting policy to make all equity incentive awards on the same grant date.
Long Term Equity Incentive Awards Mix
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 shareholders. The Compensation Committee is also focused on tying the awards to the appropriate metric. Below are charts describing the balance between the performance share units’ metrics, performance-based options, and restricted stock unitsunits’ payouts for 2017-2020:2018-2022:
Performance GoalsLong-Term Equity Mix for 2017-2020 PSUs2018-2022
Award Year | Performance | Payment Year | Performance Share Units | Performance Based Stock Options |
Restricted Stock Units | Performance Period | Payment Year | Performance Share Units | Performance Based Stock Options | Restricted Stock Units |
2017 | 2014-2016 | 2020 | 57% | 10% | 33% | |||||
2018 | 2015-2017 | 2021 | 53% | 13% | 33% | 2018-2020 | 2021 | 53% | 13% | 33% |
2019 | 2016-2018 | 2022 | N/A | 70% | 30% | 2019-2021 | 2022 | N/A | 70% | 30% |
2020 | 2017-2019 | 2023 | 65% | N/A | 35% | 2020-2022 | 2023 | 65% | N/A | 35% |
2021 | 2021-2023 | 2024 | 65% | N/A | 35% | |||||
2022 | 2022-2024 | 2025 | 65% | 10% | 25% |
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ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 59 |
Executive Compensation
Section 3Overview 2021 Executive Compensation Program
As a result of the Compensation Committee’s analysis, it established the target percentages of base salary for each named executive officer:
Christopher H. Franklin | |||
Daniel J. Schuller | |||
Richard S. Fox | |||
Matthew Rhodes | |||
Christopher P. Luning |
Vested Performance Share Awards and Status of Outstanding Performance Share Awards
Performance share or performance share unit grants (“PSU”)(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 designated pre-determined, objective metrics. Participants are granted a target number of shares or units that 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. Performance shares vest three years after the grant date.
Performance Goals for 2017 PSUs
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.
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56 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Executive Compensation
Section 3Overview
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ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 57
Executive Compensation
Section 3Overview
2017-2019 PSU Awards Achievement The three-year performance period for the PSU awards made by the Compensation Committee in 2017 ended on December 31, 2019. In February 2020, the Compensation Committee determined the achievement of performance goals for the 2017 PSUs.
As a result, the Compensation Committee certified that a 159.91% payout of the 2017 PSU awards was earned in accordance with the following results and weightings:
| 2017 PSU Metrics | Payout | Weight | Product |
Metric 1:TSR Large Investor Owned Water Utilities | 100.00% | 26.5% | 26.47% | |
Metric 2:TSR S&P Mid-Cap Utilities index | 197.22% | 26.5% | 52.20% | |
Metric 3:3 Year O&M Management | 147.86% | 23.5% | 34.79% | |
Metric 4:3 year Rate Base Growth | 197.39% | 23.5% | 46.45% | |
Total | 159.91% |
Applying this performance, the table at right shows the Target PSU award and the Actual PSU award approved by the Compensation Committee for the NEOs. | Target PSUs Awarded in 2017 | Actual 2017 PSUs Paid Out in 2020 | |
Christopher H. Franklin | 23,378 | 37,384 | |
Daniel J. Schuller | 5,867 | 9,382 | |
Richard S. Fox | 6,013 | 9,615 | |
Matthew Rhodes (hired June 2018) | |||
Christopher P. Luning | 4,900 | 7,836 |
As seen by the charts above, 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.
Outstanding 2018-2020 PSU Awards
The PSU awards granted in 2018 have similar2020 were redesigned to incorporate the change to one total shareholder return metric from the previous use of a water and mid-cap utility metrics. The performance goals to the 2017 PSU awards, with different percentile rankings and scales, and performance period that began on January 1, 20182020 and will end on December 31, 2020.2023 for the 2020 grant. The performance period for the PSU awards for 2021 began on January 1, 2021 and will end on December 31, 2024.
Please see the disclosure on page 74 under the heading “OutstandingOutstanding Equity Awards at Fiscal Year-End”Year-End for a description of the status of the 20182020 and 2021 PSU awards.
Stock Options
For 2019 only, in anticipation of the acquisition of Peoples Natural Gas and the ensuing evolving business mix, the Compensation Committee elected to move to a long-term incentive mix for one year of 70% stock options and 30% restricted stock units in order to assess performance capabilities of the combined Company.
Stock options underscore the value creation expected of the named executive officers and aligns those expectations with shareholders as the value of the stock option is a function of the price of the Company’s stock.
The named executive officer’s outstanding performance-based stock options will vest ratably over a three-year period 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 water subsidiary, last rate proceeding.
Adjusted Return on Equity Calculation — 2019 Stock Options
The Company’s adjusted return on equity is calculated annually in accordance with the descriptive formula below and if the adjusted return on equity meets or exceeds 150 basis points below the return of equity of the most current Pennsylvania PUC rate award, the awards will vest:
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Executive Compensation
Section 3Overview
Beginning in 2020, under the redesigned long-term incentive program, stock options have been removed from the program and instead a heavier emphasis is placed on performance share units and restricted share units. 2021 Executive Compensation Program
Restricted Share Awards
Annual restricted share or restricted stock unit grants (together referred to as “restricted shares”)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. However, if separation is due to death, disability, retirement or termination following a Change in Control, then 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 water subsidiary’s last rate proceeding, subjected to adjustments as allowed under the Plan. ·The return on equity will be calculated in the same manner as it is calculated for the purpose of determining the return on equity required for the vesting of stock options. |
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”)Retirement Plan), and in our non-qualified pension benefit plan (the “Non-QualifiedNon-Qualified Pension Benefit Plan”)Plan). Our non-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 RevenueService regulations. Benefits continue to accrue for some of our named executive officers in the Non-Qualified Pension Benefit Plan. Starting in 2009, the Company began to fund the trust for the benefits under the Non-Qualified Pension Benefit Plan using trust- owned life insurance. A named executive officer’s retirement benefits under our qualified and non-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 and their plan compensation and credited service for purposes of determining their benefits was frozen. |
· | 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
We maintain a non-qualified Executive Deferred Compensation Plan (the “ExecutiveExecutive Deferral Plan”)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 a tax-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.
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 the Company’s 401(k) plans, but do not receive
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 59
Executive Compensation
Section 3Overview
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 ($18,000 for 2016, $18,500 for 2017 and 2018, and $19,000 for 2019)2019, and $19,500 each year for 2020 and 2021), receive the portion of the Company matching contribution that would otherwise be forfeited by the executive as the Company’s 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 and any earnings on deferrals under our non-qualified deferred compensation plan are not taken into account in determining the named executive officer’s compensation. |
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Executive Compensation
Section 3 2021 Executive Compensation Program
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, on July 1, 2018,2021, Mr. Franklin and the Company entered into ana Renewed Employment Agreement (“Mr.(Mr. Franklin’s Employment Agreement”)Agreement). Under 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 if 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.
Under his employment agreement, Mr. Franklin agrees that during his employment and for a period of twelve months after termination of his employment, he will not (1) employ, engage or solicit for employment employees of the Company, (2) solicit, entice, broker or encourage any then-current or potential customer, client or vendor of the Company or otherwise alter his, her or its relationship with the Company, and (3) participate in any way, directly or indirectly, in a “competing business”.
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, 20212024 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.
“Double Trigger”Trigger Change-In-Control Agreements
We maintain change-in-control agreements with the named executive officers. These change-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 the Company; |
· | 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 possible change-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 his employment is terminated other than for cause, or in the event the executive resigns for good reason, as defined in the agreements, within two years following a change-in-control of Essential.See the description of “PotentialPotential Payments Upon Termination or Change-in-Control”Change-in-Control on pages 7681 through 82.84.
These change-in-control agreements are referred to as “double trigger”double trigger agreements because they only provide a benefit to executives whose employment is terminated, or who have good reason to resign, following a change-in-control. These change-in-control agreements do not provide any payments or benefits to the covered executives merely as a result of a change-in-control. The normal annual restricted share, stock option and performance share grants to the named executive officers also contain double trigger provisions. Each of the 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”)Code).
The Company has determined that there will be no tax gross-ups in any change-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 the change-in-control agreements, as described on pages 7681 through 7784 are consistent with the multiples in the market. Named executive officers who receive payments under their change-in-control agreements in connection with their separation from employment following a change-in-control will not be entitled to any payments under our normal severance policy.
60 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
62ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Executive Compensation
Section 42019 2021 NEO Compensation and Performance Summaries
20192021 NEO Compensation and Performance Summaries
Linking Pay and Performance
Here we provide a summary of each of our NEOs 20192021 total direct compensation and an overview of their individual performance accomplishments relative to achieving our Company’s annual and long-term performance goals.
Christopher H. Franklin
Chairman, President and Chief Executive Officer
Responsibilities Mr. Franklin leads and guides the Company’s strategic direction which primarily focuses on the high-quality delivery of water, wastewater and natural gas service in a manner that delivers value for shareholders. He sets the tone for the Company’s culture based on a set of corporate values and objectives which incorporate strong environmental, social and governance practices.
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2021 Key Accomplishments
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· Set the course for growth in 2022 with over $471 million in pending acquisition purchase price with approximately 235,000 equivalent retail customers or equivalent dwelling units. · Invested more than $1 billion in infrastructure improvements across our footprint. · Continued the integration of Aqua and Peoples Natural Gas, with over 3,000 employees coming together as Essential Utilities. · With a focus on the community, through the Essential Foundation, ensured over $4.6 million in community giving, including supporting organizations impacted by the Covid-19 pandemic. | · ·Championed
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ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 63 |
Executive Compensation
Section 42019 2021 NEO Compensation and Performance Summaries
Daniel J. Schuller
Executive Vice President and Chief Financial Officer
Responsibilities As CFO, Mr. Schuller is responsible for managing Essential’s overall financial condition, including resource and capital allocation, financial and expense discipline.
He is also responsible for overseeing all corporate finance functions, including accounting financial planning, forecasting, cash flow planning, investment strategies, capital structure, regulatory and rate |
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2021 Key Accomplishments
• Completed searches for a |
• Completed $400 million public debt offering in April and
• Developed the “Finance of the Future” plan to fundamentally transform Essential’s Finance function over the next five years. | |
Richard S. Fox
Executive Vice President and Chief Operating Officer
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Responsibilities As COO, Mr. Fox is
Mr. Fox directs the |
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2021 Key Accomplishments
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62 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
64ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Executive Compensation
Section 42019 2021 NEO Compensation and Performance Summaries
Matthew R. Rhodes
Executive Vice President Strategy & Corporate Development
Responsibilities As EVP of Strategy and Corporate Development, Mr. Rhodes is responsible for driving Essential’s overall strategy and corporate development function, as well as leading the state presidents and business development leads in M&A initiatives. Mr. Rhodes is also responsible for leading the Company’s Market-based businesses.
Mr. Rhodes guides a team of internal and external professionals responsible for due diligence, underwriting/ valuation, financing, ratings, negotiations, and transaction management, in partnership with other members of the executive team. |
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2021 Key Accomplishments
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• Continued to optimize Essential’s unregulated businesses and improved profitability significantly. • Developed a strategy for several | |
Christopher P. Luning
Executive Vice President, General Counsel and Secretary
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Responsibilities Mr. Luning is responsible for acting as a legal and business advisor to the Board of Directors, the CEO, and the senior leadership team. In addition, |
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2021 Key Accomplishments
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ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 65 |
Executive Compensation
Section 5Our New 20202022 Short- and Long-Term Incentive Program
Our New 20202022 Short- and Long-Term Incentive Program
20202022 Short-Term Incentive Program - Metrics, Weighting and Target Payout Levels
Staying the Course
In 2021, we added a new diversity metric (10% weighting) to our short-term incentive plan. The Compensation Committee re-evaluatedgoal tied our diversity targets directly to executive compensation, encouraging our NEOs to recognize and build diversity in our operations. We found the Short-Term Incentive (STI)metric did indeed focus the organization on growing our diversity across our geographic footprint. We saw gains in the diversity of our supplier spend as well as our employee population. These goals are multi-year goals that will continue in the 2022 plan. Our STI metrics, associated withwhich reflect the core areas of Company following the Peoples Natural Gas transaction. performance will continue in 2022 to center on financial performance, water and wastewater compliance, gas leaks and infrastructure improvement, customer satisfaction, and employee safety. We believe this incentive program builds on and supports an already strong foundation of management oversight of ESG.
The goal is to properly incent managementencourage our executive to focus on core issues associated with driving long-term shareholder growth while motivating management. Among other considerations, theand to recognize and build diversity in our operations.
Proposed 2022 Essential Short-Term Incentive Plan
66ESSENTIAL UTILITIES, INC.2022 PROXY STATEMENT |
Executive Compensation Committee reviewed the Peoples Natural Gas STI plan,
Section 5 Our 2022 Short- and sought to incorporate industry-wide standards and incentives for both the water/wastewater industries and the natural gas industries.Long-Term Incentive Program
Below is the 20202022 STI Plan that the Compensation Committee adopted for all named executive officers:
Proposed 2020 Essential Short-Term Incentive Plan
Each metric associated with the 20202022 STI plan was carefully considered and appropriately weighted. The chart below illustrates each metric and shows the targets that are to be met to achieve certain payouts:
2022 Target Payout Levels | |||||
Metric | Metric Component | Weight | Threshold | Target | Maximum |
Financial (50%) | Essential Earnings Per Share | 35.00% | $1.72 | $1.77 | $1.82 |
Essential ROE | 15.00% | 4.45% | 9.45% | 14.45% | |
Safety (20%) | Essential Lost Time/Restricted Time | 5.00% | 1.75 | 1.35 | 0.95 |
Essential Responsible Vehicle Accident Rate | 5.00% | 3.10 | 2.60 | 2.10 | |
Damage Prevention | 10.00% | 3.78% | 3.29% | 3.18% | |
Customer Satisfaction (10%) | Essential Service Level | 10.00% | 82%/30sec | 83%/30sec | 84%/30sec |
Environmental | Aqua Water Compliance | 2.50% | 99.50% | 99.70% | 100.00% |
Stewardship (10%) | Aqua Wastewater Compliance | 2.50% | 93.50% | 95.50% | 99.00% |
People’s Gas Leaks | 2.50% | 510 | 455 | 400 | |
People’s Gas LTIIP | 2.50% | 97.50% | 100.00% | 102.50% | |
Diversity (10%) | Supplier Diversity | 5.00% | 11.76% | 12.00% | 12.24% |
Employee Diversity | 5.00% | 15.20% | 15.50% | 15.80% | |
100.00% |
2022 Long-Term Incentive Program
As shown in the charts below, the program for 2022 will change slightly with the inclusion of 10% stock options along with 65% performance-based incentives and 25% restricted stock units. The Company believes stock options offers a strong motivational incentive to continue growing the Company and shareholder value.
20202022 Essential Short-TermLong-Term Incentive Plan – Metrics, Weighting and Target Payout Levels
2020 Target Payout Levels | |||||
Metric | Metric Component | Weight | Threshold | Target | Maximum |
Financial | Essential Earning Per Share | 35.00% | $1.50 | $1.55 | $1.60 |
Essential ROE | 15.00% | 5.77% | 9.52% | 13.27% | |
Safety | Essential Lost Time/Restricted Time | 5.00% | 2.5 | 2.0 | 1.6 |
Essential Responsible Vehicle Accident Rate | 5.00% | 3.9 | 3.3 | 2.7 | |
Peoples Gas Safety | 10.00% | 99.98% | 99.99% | 100.00% | |
Customer Satisfaction | Essential Service Level | 10.00% | 80%/30sec | 82%/30sec | 84%/30sec |
Environmental Stewardship | Aqua Water | 2.50% | 99.20% | 99.55% | 99.90% |
Aqua Wastewater | 2.50% | 92.50% | 94.50% | 96.50% | |
Peoples Gas Leaks | 2.50% | 905 | 860 | 814 | |
Peoples Gas LTIP | 2.50% | 90.00% | 100.00% | 110.00% | |
Individual Goals | 10.00% | ||||
100.00% |
64 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT67
Executive Compensation
Section 5Our New 20202022 Short- and Long-Term Incentive Program
2020 Long-Term Incentive Program
With the anticipated closing of the Peoples Natural Gas transaction, the Compensation Committee re-examined the Company’s LTI program. Following a year-long study, the Compensation Committee and the Board of Directors determined that our LTI program will return to a mix of performance-and retention-based incentives.
As shown in the charts below, the program is now comprised of 65% performance-based incentives and 35% restricted stock units.
2020 Essential Long-Term Incentive Plan
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20202022 Financial Metrics for PSUs
Relative TSR | The most prevalent long-term incentive metric in the peer group. The performance is based on relative TSR rank against our new 15 company peer group, with the percentile ranking determining the overall payout level (0 - 200%). The payout schedule would be:
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Additionally, two other internal operating measures were chosen to balance internal financial and operational management with external shareholder results. | |
Rate base growth | Defined as the approved rate base at the time of acquisition plus subsequent capital invested in the following three years. Rate base growth is central to the Company’s growth platform. |
Operations and maintenance performance | To ensure cost effective operations, operations and maintenance targets include the budget plus the first two years in the plan for the regulated businesses only. |
The charts below illustrate both of the components and metrics that the Compensation Committee will use to measure the performance of the Company with respect to the award of the shares associated with the PSUs:
20202022 PSU Performance Target Payout Percentage
The charts below illustrate the performance that will be required for the 20202022 PSUs to be paid out, and at what percentage:
PSU Metric: Relative TSR
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 65
Executive Compensation
Section 5Our New 2020 Short- and Long-Term Incentive Program
LTI Metrics – Rate Base Growth and O&M
These charts illustrate both the Rate Base Growth and the Operations and Maintenance metrics that will be used by the Compensation Committee.
LTI Targets – Essential Rate Base Growth & O&M
6668 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Executive Compensation
Section 6Compensation Governance Policies and Practices
Compensation Governance Policies and Practices
Anti-Hedging and Anti-Pledging Policy
We believe that issuance ofIssuing incentive and compensatory equity awards to our directors and named executive officers along with our stock ownership guidelines help to align thetheir interests of such officers with our shareholders. As part of our insider trading policy, we prohibit all directors and employees from engaging in hedging or pledging activities with respect to any owned shares or outstanding equity awards. The policy specifically prohibits all insiders from engaging in any short sales of the Company’s securities, buying or selling puts, calls or other derivative securities, or pledging the Company’s securities as collateral for a loan. None of our directors nor any of our named executive officers engaged in any hedging or pledging activities with respect to the Company stock during 2019.2021.
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,relates. The Committee will recalculate Essential’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 stock 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.
Limited 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.
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 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 uses 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 | Multiple of Midpoint of 2019 Average Base Salary | Approximate Shares, PSUs, and RSUs To Be Held Based upon December 31, 2019 Share Price |
Multiple of Midpoint of 2021 Average | Approximate Shares, PSUs, and RSUs 2021 Share Price |
Chief Executive Officer | 5 | 85,700 | 5 | 84,700 |
Executive Vice President | 3 | 25,500 | 3 | 24,600 |
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.
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 6769
Executive Compensation
ExecutiveSection 6 Compensation Committee ReportGovernance Policies and Practices
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 and restricted shares units and performance share units. |
An executive who has not achieved the guideline within this five-year period is expected to retain 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 chart below shows the shareholdings of the named executive officers as of December 31, 2019:2021:
Officer Shareholdings as of December 31, 20192021
Name | Position | Shares, PSUs(1), and RSUs Held |
Franklin | Chief Executive Officer | |
Schuller | Executive Vice President | |
Fox | Executive Vice President | |
Rhodes | Executive Vice President | |
Luning | Executive Vice President |
(1) PSUs listed at target amount.
Executive Compensation Committee Report
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.essential.co.
www.essential.co.
The Executive Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis on pages 4046 through 6870 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 20202022 Annual Meeting of Shareholders.
Respectfully submitted,
Members:
Ellen T. RuffDaniel J. Hilferty,Chairperson Chair
Elizabeth B. Amato
Ellen T. Ruff
Daniel J. Hilferty
ChristopherLee C. WomackStewart
6870 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Executive Compensation
Executive Compensation Tables
Executive Compensation Tables
The following Summary Compensation Table shows compensation paid to or earned by the named executive officers in 2019.for 2021.
Salary(1) | Bonus | Grant Date Fair Value of PSU and RSU’s(2) | Grant Date Fair Value of Stock Option Awards(2) | Non-Equity Incentive Plan Compensation(1)(3) | Change in Non-qualified Pension Value and Deferred Compensation Earnings(4) | All Other Compensation(5) | Total | ||
Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($)(6) |
Christopher H. Franklin | 2019 | 792,909 | — | 448,884 | 997,962 | 945,110 | 2,610,971 | 15,190 | 5,811,026 |
President and Chief | 2018 | 749,321 | — | 1,158,719 | 178,220 | 913,122 | 535,338 | 17,957 | 3,552,677 |
Executive Officer | 2017 | 705,730 | — | 1,139,644 | 110,106 | 711,103 | 1,632,770 | 14,150 | 4,313,503 |
Daniel J. Schuller | 2019 | 429,134 | — | 130,355 | 289,842 | 341,133 | — | 31,451 | 1,221,915 |
EVP and Chief Financial Officer | 2018 | 392,384 | — | 289,223 | 44,487 | 326,439 | — | 150,121 | 1,202,654 |
Principal Financial Officer | 2017 | 367,984 | — | 285,998 | 27,631 | 252,579 | — | 22,399 | 956,591 |
Richard S. Fox | 2019 | 394,682 | — | 132,893 | 295,433 | 329,420 | 732,586 | 22,747 | 1,907,761 |
EVP and Chief Operating Officer | 2018 | 373,257 | — | 296,461 | 45,594 | 311,572 | 217,073 | 22,794 | 1,266,751 |
2017 | 354,871 | — | 293,136 | 28,319 | 258,061 | 372,738 | 20,312 | 1,327,437 | |
Matthew R. Rhodes | 2019 | 399,572 | — | 103,168 | 229,394 | 288,949 | — | 17,471 | 1,038,554 |
EVP, Strategy & | 2018 | 203,019 | 65,000 | 636,372 | 36,885 | 301,801 | — | 76,605 | 1,319,682 |
Corporate Development | 2017 | — | — | — | — | — | — | — | — |
Christopher P. Luning | 2019 | 355,830 | — | 92,365 | 205,312 | 256,632 | 454,709 | 17,724 | 1,382,572 |
EVP, General Counsel | 2018 | 339,732 | — | 239,251 | 36,797 | 216,796 | 31,811 | 14,562 | 878,949 |
and Secretary | 2017 | 326,831 | — | 238,853 | 23,077 | 177,414 | 276,991 | 10,680 | 1,053,846 |
Principal Position |
Year |
Salary ($)(1) |
Bonus ($) |
Grant Date Fair Value ($)(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 President and Chief Executive Officer | 2021 | 900,173 | — | 2,144,852 | — | 1,180,270 | 1,096,773 | 17,648 | 5,339,716 |
2020 | 858,846 | — | 2,053,175 | — | 1,234,625 | 3,008,515 | 18,198 | 7,173,359 | |
2019 | 792,909 | — | 448,884 | 997,962 | 945,110 | 2,610,971 | 15,190 | 5,811,026 | |
Daniel J. Schuller EVP and Chief Financial Officer Principal Financial Officer | 2021 | 458,329 | — | 567,877 | — | 390,612 | — | 23,322 | 1,440,140 |
2020 | 442,515 | — | 690,876 | — | 408,601 | — | 23,689 | 1,565,681 | |
2019 | 429,134 | — | 130,355 | 289,842 | 341,133 | — | 31,451 | 1,221,915 | |
Richard S. Fox EVP and Chief Operating Officer | 2021 | 440,857 | — | 572,985 | — | 379,513 | 497,021 | 23,302 | 1,913,678 |
2020 | 425,454 | — | 695,083 | — | 396,991 | 821,694 | 15,901 | 2,355,123 | |
2019 | 394,682 | — | 132,893 | 295,433 | 329,420 | 732,586 | 22,747 | 1,907,761 | |
Matthew R. Rhodes EVP, Strategy & Corporate Development | 2021 | 443,318 | — | 464,797 | — | 348,756 | — | 20,020 | 1,276,891 |
2020 | 424,415 | — | 561,603 | — | 364,818 | — | 19,780 | 1,370,616 | |
2019 | 399,572 | — | 103,168 | 229,394 | 288,949 | — | 17,471 | 1,038,554 | |
Christopher P. Luning EVP, General Counsel and Secretary | 2021 | 396,779 | — | 415,986 | — | 312,144 | 179,874 | 17,659 | 1,322,442 |
2020 | 379,860 | — | 513,176 | — | 326,519 | 553,681 | 17,061 | 1,790,297 | |
2019 | 355,830 | — | 92,365 | 205,312 | 256,632 | 454,709 | 17,724 | 1,382,572 |
(1) | Salary and Non-Equity Incentive Plan Compensation amounts include amounts deferred by the named executive officer pursuant to the Executive Deferral Plan described beginning on page |
(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 FASB ASC Topic 718 accounting guidance for stock compensation. The assumptions used in calculating the fair market value are set forth in Note 14, |
(3) | Non-Equity Incentive Plan Compensation is shown for the year in which the compensation is earned and |
(4) |
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 6971
Executive Compensation
Grants of Plan-Based AwardsExecutive Compensation Tables
(5) “All Other Compensation” includes the following components:
401(k) Company | ||||||
Group Life ($)(a) | Match and Company Contribution ($)(b) | Relocation ($)(c) | Car Allowance ($)(d) | Total ($) | ||
Franklin | 2019 | 3,450 | 7,997 | — | 3,743 | 15,190 |
2018 | 3,450 | 8,250 | — | 6,257 | 17,957 | |
2017 | 3,450 | 8,100 | — | 2,600 | 14,150 | |
Schuller | 2019 | 414 | 24,501 | — | 6,536 | 31,451 |
2018 | 270 | 22,040 | 119,867 | 7,944 | 150,121 | |
2017 | 270 | 15,888 | — | 6,241 | 22,399 | |
Fox | 2019 | 3,880 | 8,400 | — | 10,467 | 22,747 |
2018 | 3,648 | 8,250 | — | 10,896 | 22,794 | |
2017 | 3,462 | 8,100 | — | 8,750 | 20,312 | |
Rhodes | 2019 | 180 | 17,291 | — | — | 17,471 |
2018 | — | — | 76,605 | — | 76,605 | |
Luning | 2019 | 1,852 | 8,400 | — | 7,472 | 17,724 |
2018 | 1,758 | 8,250 | — | 4,554 | 14,562 | |
2017 | 1,100 | 7,620 | — | 1,960 | 10,680 |
(5) | All Other Compensation includes the components listed below. |
Group Life ($)(a) | 401(k) Company Match and Company Contribution ($)(b) |
Car Allowance ($)(c) |
Total ($) | ||
Franklin | 2021 | 6,450 | 7,067 | 4,131 | 17,648 |
2020 | 6,450 | 7,594 | 4,154 | 18,198 | |
2019 | 3,450 | 7,997 | 3,743 | 15,190 | |
Schuller | 2021 | 414 | 19,750 | 3,158 | 23,322 |
2020 | 414 | 19,600 | 3,675 | 23,689 | |
2019 | 414 | 24,501 | 6,536 | 31,451 | |
Fox | 2021 | 6,740 | 8,550 | 8,012 | 23,302 |
2020 | 4,211 | 8,550 | 3,140 | 15,901 | |
2019 | 3,880 | 8,400 | 10,467 | 22,747 | |
Rhodes | 2021 | 270 | 19,750 | — | 20,020 |
2020 | 180 | 19,600 | — | 19,780 | |
2019 | 180 | 17,291 | — | 17,471 | |
Luning | 2021 | 2,078 | 9,345 | 6,236 | 17,659 |
2020 | 1,993 | 6,816 | 8,252 | 17,061 | |
2019 | 1,852 | 8,400 | 7,472 | 17,724 |
(a) | Represents the taxable value of group life insurance benefit for the named executive officer. |
(b) | Includes Company match and year end contribution to the |
(c) |
The Company provides the use of Company owned or leased vehicles for several of its named executive officers. |
(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. |
72 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Executive Compensation
Executive Compensation Tables
The following table contains information regarding equity and non-equity awards granted to the named executive officers in 2019:2021:
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 Stock Awards: Number of Shares of Stock or | All Other Option Awards: Number of Securities | Exercise or Base Price of Option | Grant Date Fair Value of Stock and Option | |||||||
Threshold(2) | Target(3) | Maximum(4) | Threshold | Target | Maximum | Units(6) | Underlying | Awards | Awards(7) | |||
Name | Grant | ($) | ($) | ($) | (#) | (#) | (#) | (#) | Options(#) | ($/Sh) | ($) | |
Franklin | 2/28/19 | 362,250 | 724,500 | 1,086,750 | 12,383 | 12,383 | 12,383 | 0 | 190,088 | $35.94 | 1,446,846 | |
Schuller | 2/28/19 | 129,758 | 259,516 | 389,273 | 0 | 0 | 0 | 3,596 | 55,208 | $35.94 | 420,197 | |
Fox | 2/28/19 | 130,257 | 260,514 | 390,770 | 0 | 0 | 0 | 3,666 | 56,273 | $35.94 | 428,326 | |
Rhodes | 2/28/19 | 110,751 | 221,502 | 332,252 | 0 | 0 | 0 | 2,846 | 43,694 | $35.94 | 332,561 | |
Luning | 2/28/19 | 99,124 | 198,248 | 297,372 | 0 | 0 | 0 | 2,548 | 39,107 | $35.94 | 297,677 |
Estimated Future Payouts Under Non- Equity Incentive Plan Awards(1) |
Estimated Future Payouts Under Equity Incentive Plan Awards(5) | All Other Stock Awards: Number of Shares of Stock or Units(6) (#) | All Other Option Awards: Number of Securities Underlying Options (#) |
Exercise or Base Price of Option Awards ($/Sh) |
Grant Date Fair Value of Stock and Option Awards ($)(7) | |||||||
Name(1) |
Grant | Threshold ($)(2) | Target ($)(3) | Maximum ($)(4) | Threshold (#) | Target (#) | Maximum (#) | |||||
Franklin | 2/24/21 | 455,000 | 910,000 | 1,365,000 | 33,456 | 49,127 | 80,469 | — | — | $0.00 | 2,144,852 | |
Schuller | 2/24/21 | 150,583 | 301,166 | 451,749 | 4,149 | 8,298 | 16,596 | 4,709 | — | $0.00 | 567,877 | |
Fox | 2/24/21 | 146,304 | 292,609 | 438,913 | 4,187 | 8,373 | 16,746 | 4,751 | — | $0.00 | 572,985 | |
Rhodes | 2/24/21 | 134,447 | 268,894 | 403,341 | 3,396 | 6,792 | 13,584 | 3,854 | — | $0.00 | 464,797 | |
Luning | 2/24/21 | 120,333 | 240,666 | 360,999 | 3,040 | 6,079 | 12,158 | 3,449 | — | $0.00 | 415,986 |
(1) | The named executive officers’ Non-Equity Incentive Plan Awards are calculated based on the named executive officers’ current annual salary multiplied by the executive’s target incentive compensation percentage times the factors described on pages |
(2) | The Threshold Non-Equity Incentive Plan Award is based on the factors described on pages |
(3) | The Target Non-Equity Incentive Plan Award is based on the factors described on pages |
(4) | The Maximum Non-Equity Incentive Plan Award is based the factors described on pages |
(5) | The February |
Represents one-time restricted stock awards. |
(7) | Represents service-based restricted stock unit grants to the named executive officers other than Mr. Franklin which vest on the third anniversary of the grant date as long as the named executive officer is providing service to the Company. |
70 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT73
Executive Compensation
Executive Compensation Tables
Outstanding Equity Awards at Fiscal Year-End
Equity awards in 2019 consisted of RSUs and Stock Options. The RSU grants to the named executive officers vest at the end of three years from the grant date. Stock Options grants to the named executive officers vest 33.33% in 2020, 33.34% in 2021, and 33.34% in 2022.
If the Company does not achieve the required financial performance to meet the designated performance criteria, the stock options that are subject to such performance criteria that would otherwise vest are forfeited.
Outstanding Equity Awards at Fiscal Year-End
The following table contains information on outstanding stock option and stock awards held by the named executive officers at December 31, 2019.
Option Awards | Stock Awards | ||||||||
Number of Securities Underlying Unexercised Options | Option Exercise Price | Option Expiration | Number of Shares or Units of Stock That Have Not Vested(1)(2)(3) | Market Value of Shares or Units of Stock That Have Not Vested(1)(2)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(1)(3) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(1)(3) | |||
Name | (#) Unexercisable | (#) Exercisable | ($) | Date | (#) | ($) | (#) | ($) | |
Franklin | 9,018 | 18,035 | $ 30.47 | 2/22/2027 | |||||
23,296 | 11,649 | $ 34.51 | 2/27/2028 | 38,875 | $1,885,485 | 42,408 | $2,933,436 | ||
190,088 | — | $ 35.94 | 2/28/2029 | ||||||
Schuller | 2,263 | 4,526 | $ 30.47 | 2/22/2027 | 10,227 | $ 495,595 | 10,617 | $ 750,620 | |
5,815 | 2,908 | $ 34.51 | 2/27/2028 | ||||||
55,208 | — | $ 35.94 | 2/28/2029 | ||||||
Fox | 2,319 | 4,639 | $ 30.47 | 2/22/2027 | 10,463 | $ 507,049 | 10,882 | $ 768,768 | |
5,960 | 2,980 | $ 34.51 | 2/27/2028 | ||||||
56,273 | — | $ 35.94 | 2/28/2029 | ||||||
5,750 | $ 13.72 | 01/22/2020 | |||||||
Rhodes | 4,570 | 2,286 | $ 35.44 | 2/27/2028 | 9,032 | $ 434,237 | 4,583 | $ 489,390 | |
43,694 | — | $ 35.94 | 2/28/2029 | ||||||
Luning | 1,890 | 3,780 | $ 30.47 | 2/22/2027 | 8,061 | $ 391,010 | 8,829 | $ 610,315 | |
4,810 | 2,405 | $ 34.51 | 2/27/2028 | ||||||
39,107 | — | $ 35.94 | 2/28/2029 |
Option Awards | Stock Awards | ||||||||||||||
Number of Securities Underlying Unexercised |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested(1) (2)(3)(#) |
Market Value of Shares or Units of Stock That Have Not Vested(1)(2)(3) ($) |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(1)(3)(#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(1)(3) ($) | |||||||||
Name | (#) Unexercisable | (#) Exercisable | |||||||||||||
Franklin | — | 17,815 | $ 34.51 | 2/27/28 | |||||||||||
63,363 | 126,725 | $ 35.94 | 2/28/29 | 44,135 | $2,441,754 | 55,619 | $ 3,053,909 | ||||||||
Schuller | — | 6,789 | $ 30.47 | 2/22/27 | |||||||||||
— | 8,723 | $ 34.51 | 2/27/28 | 12,325 | $ 682,258 | 15,284 | $ 839,519 | ||||||||
18,403 | 36,805 | $ 35.94 | 2/28/29 | ||||||||||||
Fox | — | 6,958 | $ 30.47 | 2/22/27 | |||||||||||
— | 8,940 | $ 34.51 | 2/27/28 | 12,473 | $ 690,490 | 15,422 | $ 847,099 | ||||||||
18,758 | 37,515 | $ 35.94 | 2/28/29 | ||||||||||||
Rhodes | — | 6,856 | $ 35.44 | 2/27/28 | 9,840 | $ 544,583 | 12,250 | $ 672,728 | |||||||
14,565 | 29,129 | $ 35.94 | 2/28/29 | ||||||||||||
Luning | — | 5,670 | $ 30.47 | 2/22/27 | |||||||||||
— | 7,215 | $ 34.51 | 2/27/28 | 8,808 | $ 487,469 | 10,964 | $ 602,105 | ||||||||
13,036 | 26,071 | $ 35.94 | 2/28/29 |
(1) |
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 71
Executive Compensation
Options Exercised and Stock Vested
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.
Performance Share Units | Restricted Share Units | ||||||
Named Executive Officer | Performance Period Ends | Date to be Vested, Earned and Paid if 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 | 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 | ||
— | — | — | 2/28/2022 | 2/28/2022 | 12,383 | ||
Schuller | 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 | ||
— | — | — | 2/28/2022 | 2/28/2022 | 3,596 | ||
Fox | 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 | ||
— | — | — | 2/28/2022 | 2/28/2022 | 3,666 | ||
Rhodes | 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 | ||
— | — | — | 2/28/2022 | 2/28/2022 | 2,846 | ||
Luning | 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 | ||
— | — | — | 2/28/2022 | 2/28/2022 | 2,548 |
All |
(2) | The market value of the RSU and PSU awards include accrued and unpaid dividend equivalents. The dividend equivalents are accrued based upon the assumption that the PSUs would be issued at target. |
(3) | The PSU grants made in 2020 and 2021 for the three year performance periods ended December 31, 2022 and December 31, 2023 respectively, consisted of three performance goal metrics. These metrics and the associated achievement are determined by the Compensation Committee as described on pages 58 through 59 of this proxy statement. |
74 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Executive Compensation
Executive Compensation Tables
The following table sets forth the number of shares underlying outstanding PSUs and RSUs at December 31, 2021:
Performance Share Units | Restricted Share Units | ||||||
Named Executive Officer |
Performance Period Ends | Date to be Vested, Earned and Paid if Applicable |
Number of Units Issued |
Vesting Period Ends |
Date to be Earned And Paid if Applicable |
Number of Units Issued at Target | |
Franklin | — | — | — | 2/28/22 | 2/28/22 | 12,383 | |
12/31/22 | 2/26/23 | 24,277 | 2/26/23 | 2/26/23 | 13,967 | ||
12/31/23 | 2/24/24 | 31,342 | 2/24/24 | 2/24/24 | 17,785 | ||
Schuller | — | — | — | 2/28/22 | 2/28/22 | 3,596 | |
12/31/22 | 2/26/23 | 6,986 | 2/26/23 | 2/26/23 | 4,020 | ||
12/31/23 | 2/24/24 | 8,298 | 2/24/24 | 2/24/24 | 4,709 | ||
Fox | — | — | — | 2/28/22 | 2/28/22 | 3,666 | |
12/31/22 | 2/26/23 | 7,049 | 2/26/23 | 2/26/23 | 4,056 | ||
12/31/23 | 2/24/24 | 8,373 | 2/24/24 | 2/24/24 | 4,751 | ||
Rhodes | — | — | — | 2/28/22 | 2/28/22 | 2,846 | |
12/31/22 | 2/26/23 | 5,458 | 2/26/23 | 2/26/23 | 3,140 | ||
12/31/23 | 2/24/24 | 6,792 | 2/24/24 | 2/24/24 | 3,854 | ||
Luning | — | — | — | 2/28/22 | 2/28/22 | 2,548 | |
12/31/22 | 2/26/23 | 4,885 | 2/26/23 | 2/26/23 | 2,811 | ||
12/31/23 | 2/24/24 | 6,079 | 2/24/24 | 2/24/24 | 3,449 |
The following table details the number of RSUs that are vested and earned by the named executive officers under the 2019 RSU grants as of the date of this proxy statement:
Named Executive Officer | Performance Period End | Date Vested, Earned and Paid | Number of RSU Shares Issued |
Franklin | 12/31/21 | 2/28/22 | 12,383 |
Schuller | 12/31/21 | 2/28/22 | 3,596 |
Fox | 12/31/21 | 2/28/22 | 3,666 |
Rhodes | 12/31/21 | 2/28/22 | 2,846 |
Luning | 12/31/21 | 2/28/22 | 2,548 |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 75
Executive Compensation
Options Exercised and Stock Vested
Options Exercised and Stock Vested
The following table shows (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 during 2019,2021, 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 | ||||
Value | Number of | ||||
Number of Shares | Realized on | Shares Acquired | Value Realized on | ||
Acquired on Exercise | Exercise | on Vesting | Vesting | ||
Name | (#) | ($) | (#)(1) | ($)(2) | |
Franklin | — | — | 34,193 | 1,300,146 | |
Schuller | — | — | 9,011 | 342,622 | |
Fox | — | — | 9,011 | 342,622 | |
Rhodes | — | — | 7,162 | 259,708 | |
Luning | — | — | 8,206 | 312,034 |
Option Awards | Stock Awards | ||||
Number of Shares Acquired on Exercise | Value Realized on Exercise | Number of on Vesting | Value Realized on Vesting | ||
Name | (#) | ($) | (#)(1) | ($)(2) | |
Franklin | 44,183 | 793,689 | 12,383 | 624,334 | |
Schuller | — | — | 3,596 | 181,305 | |
Fox | — | — | 3,666 | 184,835 | |
Rhodes | — | — | 2,846 | 143,762 | |
Luning | — | — | 2,548 | 128,467 |
(1) | The |
(2) | The |
72 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Executive Compensation
CEO to Median Employee Pay Ratio
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,Here we are providing the followingprovide information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Franklin:
For 2019, as is permitted under the rules of the SEC, toTo determine our median employee, we chose “base salary”base salary as our consistently applied compensation measure .measure. We annualized this measure of compensation for those who began their employment during 2018.2021. Using a determination date in December 2019,2021, 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 $129,309$105,003 and, the annual total compensation of Mr. Franklin was $5,811,026. The annual median employee number was higher than normal due to a gain of $53,167 In present value of the pension benefit.5,339,716. The annual total compensation for the median employee and Mr. Franklin were calculated under Item 402(c) of Regulation S-K.
Accordingly, the ratio of the annual total compensation of Mr. Franklin to the median of the annual total compensation of all employees of the Company was estimated to be 4551 to 1.
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, pay ratios reported by other companies may not be comparable to the pay ratio reported above.
76 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Executive Compensation
Retirement Plans and Other Post-Employment Benefits
Retirement Plans and Other Post-Employment Benefits
The following table shows: (1) the number of years of credited service for the named executive officers under our various retirement plans as of December 31, 2019;2021; (2) the actuarial present value of accumulated benefits under those plans as of December 31, 2019;2021; and, (3) any payments made to the named executive officers during 20192021 under those plans.
Pension Benefits | Number of | Present Value | Payments During | |
Name |
Plan Name | Years of Credited Service*(#) | of Accumulated Benefit ($) | Last Fiscal Year ($) |
Franklin | Retirement Income Plan for Essential Utilities, Inc. and | 22 | 1,137,864 | — |
Subsidiaries Non Qualified Retirement Plan | 27 | 6,623,835 | — | |
Schuller | Retirement Income Plan for Essential Utilities, Inc. and | — | — | — |
Subsidiaries Non Qualified Retirement Plan | — | — | — | |
Fox | Retirement Income Plan for Essential Utilities, Inc. and | 13 | 589,789 | — |
Subsidiaries Non Qualified Retirement Plan | 18 | 1,485,202 | — | |
Rhodes | Retirement Income Plan for Essential Utilities, Inc. and | — | — | — |
Subsidiaries Non Qualified Retirement Plan | — | — | — | |
Luning | Retirement Income Plan for Essential Utilities, Inc. and | 12 | 467,006 | — |
Subsidiaries Non Qualified Retirement Plan | 17 | 1,017,669 | — |
Pension Benefits
Name |
Plan Name | Number of Years of Credited Service*(#) | Present Value of Accumulated Benefit ($) | Payments During Last Fiscal |
Franklin | Retirement Income Plan for Essential Utilities, Inc. and | 22 | 1,299,838 | — |
Subsidiaries Non-Qualified Retirement Plan | 29 | 10,567,149 | — | |
Schuller | Retirement Income Plan for Essential Utilities, Inc. and | — | — | — |
Subsidiaries Non-Qualified Retirement Plan | — | — | — | |
Fox | Retirement Income Plan for Essential Utilities, Inc. and | 13 | 667,491 | — |
Subsidiaries Non-Qualified Retirement Plan | 20 | 2,726,215 | — | |
Rhodes | Retirement Income Plan for Essential Utilities, Inc. and | — | — | — |
Subsidiaries Non-Qualified Retirement Plan | — | — | — | |
Luning | Retirement Income Plan for Essential Utilities, Inc. and | 12 | 543,975 | — |
Subsidiaries Non-Qualified Retirement Plan | 19 | 1,674,255 | — |
* For benefit accrual purposes, credited service in the Qualified Plan is frozen as of December 31, 2014. For early retirement eligibility purposes, service continues to accrue after December 31, 2014 and will equal that shown for the Non-Qualified Retirement Plan.
Assumptions
Discount Rate: 2.91%
Mortality:
For Qualified Plan: blended 40% gender-specific and 60% unisex (blended 50% male and 50% female). Pri-2012 non-disabled annuitant mortality table without collar adjustments projected generationally from 2012 with Scale MP-2020 improvements.
For Non-Qualified Plan: Pri-2012 unisex (blended 50% male and 50% female) non-disabled annuitant mortality tables without collar adjustments projected generationally from 2012 with Scale MP-2020 improvements.
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 7377
Executive Compensation
Retirement Plans and Other Post-Employment Benefits
Retirement Income Plan (the “Retirement Plan”)Retirement Plan)
The CompanyEssential Utilities 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 stock 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”)(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”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 the 35-year period ending with the last day of the calendar year of the benefit determination.
· | 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 the 35-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 was frozen for the named executive 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 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. Married individuals may receive a reduced benefit paid in the form of a qualified joint and survivor annuity. Mr. Fox is currently eligible to retire under the 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-QualifiedNon-Qualified Pension Benefit Plan”)Plan). The Non-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, the Non-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”compensation definition but is included in the calculation of benefits under the Non-Qualified Pension Benefit Plan.
The benefit under the Non-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) 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. |
78 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Executive Compensation
Retirement Plans and Other Post-Employment Benefits
Participants may retire as early as age 55 with 10 years of service under the Non-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 the Non-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 separate distribution accounts under the Company’s Executive Deferral Plan.
74 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Executive Compensation
Retirement Plans and Other Post-Employment Benefits
Messrs. Franklin, Fox, and Luning are earning benefits under the Non-Qualified Pension Benefit Plan and are fully vested in those benefits. Mr.Messrs. Franklin and Fox isare currently eligible to retire under the Non-Qualified Pension Benefit Plan. Messrs. Rhodes and Schuller do not earn any benefits under the Non-Qualified Pension Benefit Plan. In 2009, the Company began to fund the Non-QualifiedNon- Qualified Pension Benefit Plan through the use of trust-owned life insurance.
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, 2019 | December 31, 2018 | |
Discount Rate | 3.35% | 4.30% |
Franklin | 62 | 62 |
Fox | 65 | 65 |
Luning | 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 PRI-2012 gender specific nondisabled annuitant mortality tables projected generationally from 2012 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 PRI-2012 nondisabled annuitant mortality table projected generationally from 2012 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 improvement removed from 2006-2014) 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. |
Retirement Age | ||
December 31, 2021 | December 31, 2020 | |
Discount Rate | 2.91% | 2.57% |
Retirement Age | ||
Franklin | 62 | 62 |
Fox | 65 | 65 |
Luning | 65 | 65 |
Termination, pre-retirement mortality and disability rates | None | None |
Post-Retirement Mortality | 40% of the present value for the Retirement Plan is calculated using the PRI-2012 gender specific nondisabled annuitant mortality tables projected generationally from 2012 with Scale MP-2020 improvements. 60% 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 PRI-2012 nondisabled annuitant mortality table projected generationally from 2012 with Scale MP-2020 improvements. | 50% of the present value for the Retirement Plan is calculated using the PRI-2012 gender specific nondisabled annuitant mortality tables projected generationally from 2012 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 PRI-2012 nondisabled annuitant mortality table projected generationally from 2012 with Scale MP-2018 improvements. |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 79
Executive Compensation
Retirement Plans and Other Post-Employment Benefits
Please note the following with regard to the “incrementalincremental pension value above that included in the Pension Benefits Table upon retirement, termination, death and disability:
* | Upon termination, the benefits for Mr. Franklin and Mr. Luning are assumed to be payable as an immediate lump sum from the qualified pension plan and lump sum payment at age 55 from the nonqualified plan (as required by the plan provisions of the nonqualified pension plan). Benefits Payable from the qualified pension plan are actuarially equivalent to the benefit payable at age 65. Benefits payable from the non-qualified plan have been reduced for early commencement by 3% per year of commencement prior to age 65 to the assumed age 55 commencement date. |
Upon retirement, the benefits for Mr. Fox are payable as an immediate lump sum from the qualified pension plan and the nonqualified pension plan. Benefits have been reduced for early commencement by 3% per year of commencement prior to age 65. Retiree medical plan eligibility is age 55 with 15 years of service. We have not included retiree medical plan values for Mr. Franklin and Mr. Luning since they have not attained retirement eligibility for that plan.
Assumptions
Discount Rate: 2.91%
Mortality:
For Qualified Plan: blended 40% gender-specific and 60% unisex (blended 50% male and 50% female). Pri-2012 non-disabled annuitant mortality table without collar adjustments projected generationally from 2012 with Scale MP-2020 improvements.
For Non-Qualified Plan: Pri-2012 unisex (blended 50% male and 50% female) non-disabled annuitant mortality tables without collar adjustments projected generationally from 2012 with Scale MP-2020 improvements.
80 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT75
Executive Compensation
Non-Qualified Deferred Compensation
Non-Qualified Deferred Compensation
Non-Qualified Deferred Compensation
The following table contains information regarding contributions to, earnings on, withdrawals from and balances as of December 31, 20192021 for our non-qualified Executive Deferral PlanPlan.
Non-Qualified Deferred Compensation | |||||
Name | Registrant Contributions in Last FY ($)(1) | Individual ($)(1) | Aggregate Earnings in Last FY ($)(2) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(3) |
Franklin | 14,230 | — | 15,564 | — | 105,974 |
Schuller | 8,217 | — | 20 | — | 8,237 |
Fox | 2,948 | 94,098 | 55,179 | — | 370,662 |
Rhodes | — | 3,996 | 327 | — | 4,322 |
Luning | 1,942 | — | 5 | — | 1,947 |
Non-Qualified Deferred Compensation
Name | Registrant Contributions in Last FY ($)(1) | Individual Contributions in Last FY ($)(1) | Aggregate Earnings in Last FY ($)(2) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(3) | |
Franklin | 22,031 | — | 15,456 | (20,154 | ) | 153,650 |
Schuller | 39,415 | — | 7,459 | — | 89,906 | |
Fox | 6,169 | 83,846 | 80,337 | (103,029 | ) | 619,501 |
Rhodes | 29,986 | 3,648 | 6,770 | — | 80,058 | |
Luning | 6,907 | — | 1,098 | — | 12,541 |
(1) | The Company’s and the named executive officers’ contributions to this plan are included in the base salary earned in |
(2) | In |
(3) | Prior year contributions were reflected in the Summary Compensation Table for prior years. |
Employees with total projected W-2 compensation for 20192021 in excess of $150,000$175,000 were eligible to participate in the Company’s Executive Deferral Plan for 2019.2021. Participants may defer up to 100%90% of their salary and 100%90% of their non-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
Double-Trigger Change-In-Control
The Company maintains double-trigger change-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 a change-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 the change-in-control agreements.
Payment in Lieu | |||
Name | Multiple of Base Compensation | 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 |
Payment in Lieu
Name |
Multiple of Base | Years of Health Benefit |
Outplacement |
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 |
76 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT81
Executive Compensation
Potential Payments Upon Termination or Change-In-Control
For purposes ofbase compensation under the change-in-control agreements, “Base Compensation”agreements:Base Compensation is defined as current base annual salary, plus the greater of the named executive officer’sofficers 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 the Company), in all capacities with the Company 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 Essential and its subsidiaries or affiliates, or otherwise. The named executive officerNEO is entitled to receive a 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 officerNEO 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 under 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.
For equity incentive awards made under the Plan:(i) for restricted stock units without performance goals, if a change-in-control occurs prior to the vesting date, the restricted stock units would remain outstanding and vest on the vesting 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 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 a change-in-control occurs, performance would be measured at the date of the change-in-control, and the number of performance shares earned to be determined as of the date of the change-in-control as follows:
· | If a change-in-control occurs more than one year after the grant date, then the number of performance shares earned as of the change-in-control date would be the greater of (i) the amount earned based on actual performance, or (ii) the target number of performance shares. |
· | If a change-in-control occurs within one year after the grant date, then the number of performance shares earned as of the change-in-control date would be a pro-rata portion (based on the number of whole months in the applicable performance period worked from the date of grant to the change-in-control) of the greater of (i) the amount earned based on actual performance, or (ii) the target number of performance shares. |
Any performance shares that are not earned at the change-in-control date would be forfeited. The vesting of these equity incentives is applicable to all grantees under the Plan.
The number of shares underlying the performance share awards will be earned and paid out at the end of the performance period, or, if earlier, as a double-trigger payment on the date of termination of employment following or in connection with the change-in-control.
For purposes of the change-in-control agreements and the vesting of unvested equity incentives as described above, a change-in-control,change-in- control, subject to certain exceptions, means:
1. | any person (including any individual, firm, corporation, partnership or other entity except Essential, any subsidiary of Essential, any employee benefit plan of Essential or of any subsidiary, or any person or entity organized, appointed or established by Essential for or pursuant to the terms of any such employee benefit plan), together with all affiliates and associates of such person, shall become the beneficial owner in the aggregate of 20% or more of the common stock of Essential then outstanding; or |
2. | during any 24-month period, individuals who at the beginning of such period constitute the Board of Directors of Essential cease for any reason to constitute a majority thereof, unless the election, or the nomination for election by Essential’s shareholders, of at least seventy-five percent of the directors who were not directors at the beginning of such period was approved by a vote of at least seventy-five percent of the directors in office at the time of such election or nomination who were directors at the beginning of such period; or |
3. | there occurs a sale of 50% or more of the aggregate assets or earning power of Essential and its subsidiaries, or its liquidation is approved by a majority of its shareholders or Essential is merged into or is merged with an unrelated entity such that following the merger the shareholders of Essential no longer own more than 50% of the resultant entity. |
The change-in-control agreement for Mr. Franklin and the form of change-in-control agreement for the other named executive officers have been filed with the SEC as exhibits to the Company’s periodic report filings.
82 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT77
Executive Compensation
Potential Payments Upon Termination or Change-In-Control
Under the terms of our qualified and non-qualified defined benefit retirement plans, eligible salaried employees, including the certain named executive officers, are entitled to certain pension benefits upon their termination, retirement, death or disability. In general, the terms under which benefits are payable upon these triggering events are the same for all participants under the qualified and nonqualified plans. The present value of accumulated pension benefits, assumed payable at the earliest unreduced age (or current age, if later), for the named executive officers is shown in the Pension Benefits Table on page 73.77. The pension benefit values included in the tables on pages 7377 through 7580 reflect the incremental value above the amounts shown in the Pension Benefits Table for benefits payable upon each triggering event from all pension plans in the aggregate.
The Company sponsors postretirement medical plans to subsidize retiree medical benefits for employees hired prior to certain dates starting in 2003. Under the postretirement medical plans, employees are generally eligible to retire upon attainment of age 55 and completion of 15 years of service. Upon retirement, eligible participants are entitled to receive subsidized medical benefits prior to attainment of age 65 where the subsidy provided is based upon age and years of service upon retirement. Upon attainment of age 65, eligible participants are entitled to receive employer contributions into a premium reimbursement account which may be used by the retiree in paying medical and prescription drug benefit premiums. Mr. Fox is eligible for these benefits. The postretirement medical benefits shown in the tables on pages 7985 through 8287 are those which are payable from the Company under each of the triggering events.
Assumptions used to determine the values are the same as those disclosed on the Company’s financial statements. In addition, the Company assumes immediate termination, retirement, death or disability have occurred at December 31, 20192021 for purposes of the tables on pages 7385 through 75.87. Participants not eligible to receive benefits if leaving under a triggering event as of December 31, 20192021 are shown with zero value in the tables.
Upon termination for any reason, the named executive officer in our Executive Deferral Plan, would be entitled to a distribution of their account balances as shown in the Non-qualified Deferred Compensation table on page 76,81, subject to the restrictions under the Executive Deferral Plan described on page 76.pages 81 and 82. The values of these account balances are not included in the tables on pages 7385 through 75.87. The named executive officers are also eligible for the same death and disability benefits of other eligible salaried employees. These common benefits are not included in the tables on pages 7385 through 75.87.
Under the terms of the Amended and Restated Omnibus Equity Compensation Plan (the “Plan”)Plan):
· | if the employment of the named executive officer terminates, then any vested Options will remain exercisable for 90 days following the date of termination, or if shorter, the remaining term of the stock option; |
· | if the named executive officer retires, other than in a change-in-control context, then a prorated portion of the unvested Options will vest if the applicable performance goal is met for the year in which retirement occurs, and the vested Options will remain exercisable for the full term of the Options; |
· | if the named executive officer dies or becomes disabled, then any unvested portion of any outstanding Options will become immediately vested, and will remain exercisable for one year following the termination date; and, |
· | if, in connection with a change-in-control, the named executive officer’s employment is terminated by retirement, termination without cause or disability or death, then all unvested stock options will accelerate and vest on the termination date. The vested Options shall be exercisable for the applicable period. |
Under the terms of the RSUs granted under the Plan, grantees of RSUs will (i) vest in a pro-rata portion of unvested grants upon the grantee’s termination of employment as a result of retirement, or (ii) vest immediately in unvested grants following the grantee’s termination of employment as a result of death or disability. Shares of Company stock equal to the applicable portion of the restricted stock units shall be issued to the grantee within 60 days following the grantee’s retirement, death or disability, subject to applicable tax withholding and the values of these restricted stock units as of December 31, 20192021 are included in the tables on pages 7385 through 75.87.
Under the terms of the performance share unit grants under the Plan, grantees of performance share units will (i) earn a pro- rata portion of unvested grants upon the grantee’s termination of employment as a result of retirement or (ii) earn immediately any unvested grants following the grantee’s termination of employment as a result of death or disability. Shares of Company stock equal to the applicable portion of the performance share units shall be issued to the grantee on the vesting date for such performance share units and the estimated values of these performance share units based on interim performance through December 31, 2019
78 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Executive Compensation
Potential Payments Upon Termination or Change-In-Control
2021 are included in the tables on pages 7385 through 75.87. For purposes of the performance share units tied to the performance goal of cumulative earnings before taxes, the Company’s actual performance is measured against a pro-rata portion of the performance goal as of year-end. Actual performance results for the full performance period may be substantially different from the amounts presented in the tables on pages 7385 through 75.87.
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 83
Executive Compensation
Potential Payments Upon Termination or Change-In-Control
Termination
With respect to
For a termination event other than in connection with a change-in-control, the severance plan applicable to the named executive officers other than Mr. Franklin, and Mr. Franklin’s Employment Agreement as described on pages 79 through 81,page 62, 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 monthup to six months of continued medical benefits if the named executive officer is terminated for any reason other than for cause.
In addition, once vested, participants are eligible to receive qualified benefits under the Retirement Plan and nonqualified benefits from the Non-Qualified Pension Benefit Plan. Benefits vest upon attaining five years of service. Pension benefits for Messrs. Franklin, Fox, and Luning are vested and payable from the Retirement Plan as well as the Non-Qualified Pension Benefit Plan.
The full value of the benefits payable due to termination is determined based on the assumed timing and form of the benefits payable as follows: the benefits for Messrs. Franklin, Fox and Luning are payable as an immediate lump sum payment or life annuity from the Retirement Plan and an immediate lump sum payment at age 55 from the non-qualified plans. Benefits have been reduced for early commencement by 3% per year of commencement prior to age 65.
Retirement
In the case of retirement, the present value of benefits is determined in the same manner as termination. Messrs. Franklin, Rhodes, Schuller, and Luning are not currently eligible for retirement benefits. Mr.Messrs. Franklin and Fox isare eligible for retirement.
Death
Vested benefits under the Retirement Plan are payable to the participant’s surviving spouse as a single life annuity upon the death of the participant. The benefit will be paid to the spouse as early as the deceased participant’s earliest retirement age (age 55 with ten years of service or age 65). The benefit will be equal to 75% of the benefit calculated as if the participant had separated from service on the date of death (assumed to be December 31, 20192021 in the tables on pages 7377 through 75)80), survived to the earliest retirement age and retired with a qualified contingent annuity.
Vested benefits under the Non-Qualified Pension Benefit Plan are payable to the participant’s surviving spouse as a lump sum (or in certain cases transferred to the Company’s Executive Deferral Plan) upon the death of the participant. The benefit will be equal to 75% of the benefit calculated as if the participant had separated from service on the date of death (assumed to be December 31, 20192021 in the tables on pages 7377 through 75)80), survived to the earliest retirement age and retired with a qualified contingent annuity. For each of the participants, the total present value of pension benefits payable upon death is less than the amount shown in the Pension Benefits Table. For purposes of the benefit calculations shown, spouses are assumed to be three years younger than the participant.
Disability
If an individual is terminated as a result of a disability with less than ten years of service, the benefits are payable in the same amount and form as an individual who is terminated. Individuals who terminate employment as a result of a disability with at least ten years of service are entitled to future accruals until age 65 (or earlier date if elected by the participant) assuming level future earnings and continued service. The benefits are not payable until age 65, unless elected by the participant for an earlier age. Upon the attainment of age 65, the individual would be entitled to the same options as an individual who retired from the Retirement Plan.
Messrs. Franklin, Fox, and Luning have each completed ten years of service. Therefore, for purposes of this present value calculation, these participants are assumed to accrue additional service and earnings until age 65, at which time pension payments are assumed to commence. Mr. Schuller and Mr. Rhodes have not completed ten years of service.
Termination Events Compensation
The total estimated value of the payments that would be triggered by a termination following a change-in-control, a termination other than for cause without a change-in-control, retirement, death or disability for the named executive officers calculated assuming that the triggering event for the payments occurred on December 31, 20192021 and assuming a value for our Common Stock as of December 31, 20192021 for purposes of valuing the vesting of the equity incentives are shown on the following page:
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 79
Executive Compensation
Potential Payments Upon Termination or Change-In-Control
Christopher H. Franklin | |||||
Payments and Benefits Upon Separation | Change-in-Control $ | Termination $ | Retirement $ | Death $ | Disability $ |
Triggered Payments and Benefits | |||||
Severance Payment | 4,588,500 | 3,059,000 | — | — | — |
Prorated current year bonus | 724,500 | 724,500 | 724,500 | 724,500 | 724,500 |
Payment of accrued dividend equivalents | 191,814 | — | 154,573 | 191,814 | 191,814 |
Vesting of restricted stock | — | — | — | — | — |
Vesting of restricted share units | 1,824,793 | — | 1,137,698 | 1,824,793 | 1,824,793 |
Vesting of performance share units | 3,060,394 | — | 2,455,172 | 3,060,394 | 3,060,394 |
Vesting of stock options | 11,832,917 | — | 4,680,273 | 11,832,917 | 11,832,917 |
Continuation of welfare benefits | 80,560 | 12,777 | — | — | — |
Outplacement services | 67,500 | — | — | — | — |
Vested Retirement Benefits | |||||
Incremental pension value above that included in the Pension Benefits Table | 119,529 | 119,529 | — | — | 1,590,811 |
Present value of retiree medical benefits | — | — | — | — | — |
Total | 22,490,507 | 3,915,806 | 9,152,216 | 17,634,418 | 19,225,229 |
Daniel J. Schuller | |||||
Payments and Benefits Upon Separation | Change-in-Control $ | Termination $ | Retirement $ | Death $ | Disability $ |
Triggered Payments and Benefits | |||||
Severance Payment | 865,052 | 432,526 | — | — | — |
Prorated current year bonus | 259,516 | 259,516 | 259,516 | 259,516 | 259,516 |
Payment of accrued dividend equivalents | 48,388 | — | 38,833 | 48,388 | 48,388 |
Vesting of restricted stock | — | — | — | — | — |
Vesting of restricted share units | 480,055 | — | 291,380 | 480,055 | 480,055 |
Vesting of performance share units | 766,273 | — | 615,074 | 766,273 | 766,273 |
Vesting of stock options | 3,319,597 | — | 1,271,047 | 3,319,597 | 3,319,597 |
Continuation of welfare benefits | 52,386 | 12,777 | — | — | — |
Outplacement services | 20,000 | — | — | — | — |
Vested Retirement Benefits | |||||
Incremental pension value above that included in the Pension Benefits Table | — | — | — | — | — |
Present value of retiree medical benefits | — | — | — | — | — |
Total | 5,811,267 | 704,819 | 2,475,850 | 4,873,829 | 4,873,829 |
8084 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Executive Compensation
Potential Payments Upon Termination or Change-In-Control
Christopher H. Franklin
Richard S. Fox | ||||||||||
Payments and Benefits Upon Separation | Change-in-Control $ | Termination $ | Retirement $ | Death $ | Disability $ | Change-in-Control $ | Termination $ | Retirement $ | Death $ | Disability $ |
Triggered Payments and Benefits | Triggered Payments and Benefits | Triggered Payments and Benefits | ||||||||
Severance Payment | 801,580 | 400,790 | — | — | 6,270,810 | 3,640,000 | — | — | ||
Prorated current year bonus | 260,514 | 260,514 | 910,000 | |||||||
Payment of accrued dividend equivalents | 49,582 | — | 39,799 | 49,582 | 49,582 | 170,508 | — | 102,437 | 170,508 | |
Vesting of restricted stock | — | — | — | — | — | |||||
Vesting of restricted share units | 491,133 | — | 298,416 | 491,133 | 491,133 | 2,369,608 | — | 1,351,416 | 2,369,608 | |
Vesting of performance share units | 785,396 | — | 630,413 | 785,396 | 785,396 | 3,913,706 | — | 1,830,792 | 3,913,706 | |
Vesting of stock options | 3,387,707 | — | 1,298,650 | 3,387,707 | 3,387,707 | 3,374,062 | — | 2,061,927 | 3,374,062 | |
Continuation of welfare benefits | 40,798 | 9,951 | — | — | 62,027 | 15,129 | — | — | ||
Outplacement services | 20,000 | — | — | 67,500 | — | — | ||||
Vested Retirement Benefits | Vested Retirement Benefits | Vested Retirement Benefits | ||||||||
Incremental pension value above that included in the Pension Benefits Table | — | 380,047 | — | 1,468,490 | — | — | 376,966 | — | 1,274,651 | |
Present value of retiree medical benefits | 220,416 | — | 220,416 | 369,381 | — | 369,381 | ||||
Total | 6,057,126 | 891,671 | 3,128,255 | 4,974,332 | 6,663,238 | 17,507,602 | 4,934,510 | 7,002,919 | 10,737,884 | 12,381,916 |
Matthew R. Rhodes | |||||
Payments and Benefits Upon Separation | Change-in-Control $ | Termination $ | Retirement $ | Death $ | Disability $ |
Triggered Payments and Benefits | |||||
Severance Payment | 805,460 | 402,730 | — | — | — |
Prorated current year bonus | 221,502 | 221,502 | 221,502 | 221,502 | 221,502 |
Payment of accrued dividend equivalents | 20,653 | — | 12,464 | 20,653 | 20,653 |
Vesting of restricted stock | — | — | — | — | — |
Vesting of restricted share units | 423,962 | — | 254,563 | 423,962 | 423,962 |
Vesting of performance share units | 314,428 | — | 172,428 | 314,428 | 314,428 |
Vesting of stock options | 2,372,817 | — | 746,203 | 2,372,817 | 2,372,817 |
Continuation of welfare benefits | — | — | — | — | — |
Outplacement services | 20,000 | — | — | — | — |
Vested Retirement Benefits | |||||
Incremental pension value above that included in the Pension Benefits Table | — | — | — | — | — |
Present value of retiree medical benefits | — | — | — | — | — |
Total | 4,178,822 | 624,232 | 1,407,160 | 3,353,362 | 3,353,362 |
Daniel J. Schuller
Payments and Benefits Upon Separation | Change-in-Control $ | Termination $ | Retirement $ | Death $ | Disability $ |
Triggered Payments and Benefits | |||||
Severance Payment | 1,707,888 | 764,498 | — | — | — |
Prorated current year bonus | 301,166 | 301,166 | 301,166 | 301,166 | 301,166 |
Payment of accrued dividend equivalents | 48,265 | — | 29,314 | 48,265 | 48,265 |
Vesting of restricted stock | — | — | — | — | — |
Vesting of restricted share units | 661,729 | — | 384,471 | 661,729 | 661,729 |
Vesting of performance share units | 1,087,504 | — | 516,079 | 1,087,504 | 1,087,504 |
Vesting of stock options | 979,942 | — | 598,853 | 979,942 | 979,942 |
Continuation of welfare benefits | 62,027 | 15,129 | — | — | — |
Outplacement services | 20,000 | — | — | — | — |
Vested Retirement Benefits | |||||
Incremental pension value above that included in the Pension Benefits Table | — | — | — | — | — |
Present value of retiree medical benefits | — | — | — | — | — |
Total | 4,868,521 | 1,080,793 | 1,829,883 | 3,078,606 | 3,078,606 |
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 8185
Executive Compensation
Potential Payments Upon Termination or Change-In-Control
Richard S. Fox
Christopher P. Luning | ||||||||||
Payments and Benefits Upon Separation | Change-in-Control $ | Termination $ | Retirement $ | Death $ | Disability $ | Change-in-Control $ | Termination $ | Retirement $ | Death $ | Disability $ |
Triggered Payments and Benefits | Triggered Payments and Benefits | Triggered Payments and Benefits | ||||||||
Severance Payment | 720,902 | 360,451 | — | — | 1,659,361 | 742,776 | — | — | ||
Prorated current year bonus | 198,248 | 198,248 | 292,609 | |||||||
Payment of accrued dividend equivalents | 39,974 | — | 29,303 | 39,974 | 39,974 | 48,801 | — | 29,674 | 48,801 | |
Vesting of restricted stock | — | — | — | |||||||
Vesting of restricted share units | 378,383 | — | 236,695 | 378,383 | 378,383 | 669,675 | — | 389,828 | 669,675 | |
Vesting of performance share units | 637,361 | — | 512,100 | 637,361 | 637,361 | 1,097,320 | — | 520,736 | 1,097,320 | |
Vesting of stock options | 2,440,504 | — | 968,242 | 2,440,504 | 2,440,504 | 998,846 | — | 610,406 | 998,846 | |
Continuation of welfare benefits | 52,386 | 12,777 | — | — | 22,555 | — | — | |||
Outplacement services | 20,000 | — | — | 20,000 | — | — | ||||
Vested Retirement Benefits | Vested Retirement Benefits | Vested Retirement Benefits | ||||||||
Incremental pension value above that included in the Pension Benefits Table | 206,792 | — | 1,024,365 | — | — | 523,865 | — | 1,698,580 | ||
Present value of retiree medical benefits | — | — | 199,998 | — | 199,998 | |||||
Total | 4,694,550 | 778,268 | 1,944,588 | 3,694,470 | 4,718,835 | 5,009,164 | 1,235,382 | 2,567,116 | 3,107,251 | 5,005,829 |
Matthew R. Rhodes
Payments and Benefits Upon Separation | Change-in-Control $ | Termination $ | Retirement $ | Death $ | Disability $ |
Triggered Payments and Benefits | |||||
Severance Payment | 1,593,826 | 717,051 | — | — | — |
Prorated current year bonus | 268,894 | 268,894 | 268,894 | 268,894 | 268,894 |
Payment of accrued dividend equivalents | 38,187 | — | 23,101 | 38,187 | 38,187 |
Vesting of restricted stock | — | — | — | — | — |
Vesting of restricted share units | 528,310 | — | 304,816 | 528,310 | 528,310 |
Vesting of performance share units | 866,230 | — | 407,808 | 866,230 | 866,230 |
Vesting of stock options | 775,569 | — | 473,959 | 775,569 | 775,569 |
Continuation of welfare benefits | 61,741 | 15,059 | — | — | — |
Outplacement services | 20,000 | — | — | — | — |
Vested Retirement Benefits | |||||
Incremental pension value above that included in the Pension Benefits Table | — | — | — | — | — |
Present value of retiree medical benefits | — | — | — | — | — |
Total | 4,152,757 | 1,001,004 | 1,478,578 | 2,477,190 | 2,477,190 |
8286 ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT
Proposal 4:Executive Compensation
Approval of an Amendment to the Articles of Incorporation to Adopt a Majority Voting Standard in Uncontested Director Elections
At the 2020 Annual Meeting, shareholders are being asked to approve the Board of Directors’ approval of an amendment to the Company’s Articles of Incorporation to establish a majority voting standard in an uncontested director elections and for the transition to this standard for the 2021 election of directors.
Why you should vote to approve this proposal
Our Board of Directors has approved, subject to shareholder approval, an amendment to the Company’s Articles of Incorporation to provide for a majority voting standard in uncontested director elections. Under the proposed majority voting standard, in an uncontested director election, a candidate must receive the affirmative vote of a majority of the votes cast with respect to the election of that candidate. Appendix C to this proxy statement includes the text of the proposed amendment to the Company’s Articles of Incorporation (the “Majority Voting Amendment”), with text proposed to be deleted from the Articles in brackets and boldface font, and text proposed to be added to the Articles of Incorporation in double-underlined font. Because this Proposal 4 provides only a summary of the proposal to adopt the Majority Voting Amendment, it may not contain all of the information that is important to you. You should read the Majority Voting Amendment carefully before you decide how to vote.
If the Majority Voting Amendment is approved by our shareholders at the Annual Meeting, we expect to file the Majority Voting Amendment and the corresponding articles of amendment with the Department of State of the Commonwealth of Pennsylvania as soon as practicable after the Annual Meeting. If shareholders do not approve the Majority Voting Amendment, the plurality voting standard will continue to apply in contested and uncontested director elections.
Our Board of Directors has also approved changes to our Amended and Restated Bylaws, as amended (the “Existing Bylaws” and, as proposed to be amended as described in this Proposal 4, the “Amended Bylaws”) which will become effective upon the filing of the Majority Voting Amendment with the Department of State of the Commonwealth of Pennsylvania if the Majority Voting Amendment is approved by our shareholders.Potential Payments Upon Termination or Change-In-Control
BackgroundChristopher P. Luning
Under Pennsylvania law, the default voting standard for the election of directors by shareholders is that directors receiving the highest number of affirmative votes are elected. This is called the “plurality voting standard.” As a Pennsylvania corporation, the Company’s directors are currently elected under the plurality voting standard.
Our Board of Directors regularly reviews our corporate governance practices to ensure that such practices, including the procedures for the election of directors, remain in the best interests of the Company and its shareholders. After carefully and thoroughly considering the issue, and based on shareholder feedback, the Board of Directors determined to propose and submit the Majority Voting Amendment to our shareholders for consideration and approval.
Summary of Proposed Amendment
As noted above, the Company’s directors are currently elected under the plurality voting standard. The adoption of the Majority Voting Amendment would provide for a majority voting standard in uncontested director elections. Under the proposed majority voting standard, in an uncontested director election, a candidate must receive the affirmative vote of a majority of the votes cast with respect to the election of that candidate. In a contested director election, a plurality voting standard will continue to apply. Additionally, under Pennsylvania law, if an incumbent director fails to receive a sufficient number of votes for re-election at the end of his or her term, such director continues to serve on the Board until his or her successor is elected and qualified or until earlier resignation or removal (known as the “holdover rule”). In light of the holdover rule and to give appropriate effect to the majority voting standard, the Majority Voting Amendment provides that if an incumbent director who is a candidate for re-election is not elected by a majority vote, the director will be deemed to have tendered his or her resignation to the Board. If the Majority Voting Amendment is approved by shareholders, the Board will amend its Corporate Governance Guidelines to update its existing resignation policy to reflect the majority voting standard.
Payments and Benefits Upon Separation | Change-in-Control $ | Termination $ | Retirement $ | Death $ | Disability $ |
Triggered Payments and Benefits | |||||
Severance Payment | 1,426,508 | 641,776 | — | — | — |
Prorated current year bonus | 240,666 | 240,666 | 240,666 | 240,666 | 240,666 |
Payment of accrued dividend equivalents | 34,182 | — | 20,678 | 34,182 | 34,182 |
Vesting of restricted stock | — | — | — | — | — |
Vesting of restricted share units | 472,902 | — | 272,870 | 472,902 | 472,902 |
Vesting of performance share units | 775,293 | — | 364,996 | 775,293 | 775,293 |
Vesting of stock options | 694,149 | — | 424,202 | 694,149 | 694,149 |
Continuation of welfare benefits | 61,741 | 15,059 | — | — | — |
Outplacement services | 20,000 | — | — | — | — |
Vested Retirement Benefits | |||||
Incremental pension value above that included in the Pension Benefits Table | 301,334 | 301,334 | — | — | 1,346,459 |
Present value of retiree medical benefits | — | — | — | — | — |
Total | 4,026,775 | 1,198,835 | 1,323,412 | 2,217,192 | 3,563,651 |
ESSENTIAL UTILITIES, INC.2020 2022 PROXY STATEMENT 8387
Proposal 4 Approval of an Amendment to the Company’s Articles of Incorporation
The Amended Bylaws will remove the plurality voting standard in director elections contained in the existing Bylaws if the Majority Voting Amendment is approved by our shareholders. If the Majority Voting Amendment is adopted, the voting standard in director elections would be governed by the Articles, as amended by the Majority Voting Amendment, and the Board of Directors will amend and restate the Existing Bylaws and Articles to reflect the Majority Voting Amendment.
84 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Approval of an Amendment to the Articles of Incorporation to Increase the Number of Authorized Shares of Common Stock
The Articles of Incorporation currently authorize the issuance of up to 300,000,000 shares of common stock, par value $.50 per share. As of March 9, 2020, a total of 285,837,055 shares of common stock were issued and outstanding, reserved for issuance and estimated to be issued in pending acquisitions, as described below:
As a result, as of March 9, 2020, approximately 14,162,945 shares of common stock were available for future issuance.
The Board of Directors considered the limited number of available common stock and voted to adopt, subject to the approval of shareholders, an amendment to the Articles of Incorporation increasing the authorized shares of common stock from 300,000,000 to 600,000,000.
Appendix D to this proxy statement includes the text of the proposed amendment to the Company’s Articles (the “Authorized Shares Amendment”), with text proposed to be deleted from the Articles in brackets and boldface font, and text proposed to be added to the Articles in double-underlined font. Because this Proposal 5 provides only a summary of the proposal to adopt the Authorized Shares Amendment, it may not contain all of the information that is important to you. You should read the Authorized Shares Amendment carefully before you decide how to vote.
If the Authorized Shares Amendment is approved by our shareholders at the 2020 Annual Meeting, we expect to file the Authorized Shares Amendment and the corresponding articles of amendment with the Department of State of the Commonwealth of Pennsylvania as soon as practicable after the Annual Meeting. If shareholders do not approve the Authorized Shares Amendment, the number of authorized shares of common stock will remain at 300,000,000.
Why you should vote to approve this proposal
The Board of Directors believes that it is advisable to have a greater number of authorized shares of common stock available for issuance in connection with acquisition and other business combinations, public or private financings, and various corporate programs and purposes. We may consider future acquisitions and other business combinations as opportunities arise, stock splits, and public or private financings to provide us with capital, any and all of which may involve the issuance of additional shares of common stock or securities convertible into shares of common stock.
Additional shares may also be necessary to meet anticipated future obligations of our stock-based compensation and employee- based benefit programs, and our dividend reinvestment plan. We believe that these benefit plans are critical to retaining our current management team and attracting additional management talent. We also believe that the dividend reinvestment plan is critical in continuing to provide long-term shareholder benefit.
The Board of Directors believes that having the authority to issue additional shares of common stock will:
Such a delay may result in our inability to consummate a desired transaction under a required deadline. Simply put, by having additional common shares authorized, we can be prepared to act quickly as opportunities arise
The authorization of additional shares of common stock will not, by itself, have any effect on the rights of present shareholders. The additional 300,000,000 shares to be authorized will be a part of the existing class of common stock and, if and when issued, would have the same rights and privileges as the shares of common stock presently authorized, issued and outstanding.
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 85
Proposal 5: Approval of an Amendment to the Articles of Incorporation
However, the issuance of additional shares of common stock for corporate purposes other than a stock split or stock dividend could have a dilutive effect on the ownership and voting rights of shareholders at the time of issuance.
If the proposed amendment is approved, the number of authorized shares of common stock will be increased to 600,000,000 and the Board of Directors will have the right to issue, without further shareholder approval, up to an additional 300,000,000 shares of common stock. In addition, the Board of Directors will amend and restate the Articles of Incorporation to include this amendment.
86 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Questions and Answers About the 20202022 Annual Meeting
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 Executive Vice President, General Counsel and Secretary, and Daniel J. Schuller, 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, then the proxy holders will vote the proxies (which confer discretionary authority to vote on such matters) in accordance with their judgment.
Why am I receiving a Notice of Availability over the Internet? Under SEC rules, the Company is furnishing proxy materials to many of its shareholders via 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
The Notice is being sent to shareholders of record as of March
Who pays for the cost of soliciting proxies? 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 | 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
Who is entitled to vote? Holders of shares of the Company’s common stock (the
How many shares can vote? As of March
• Electronically via the internet before the meeting at www.proxyvote.com or during the meeting at www.virtualshareholdermeeting.com/WTRG2022;
• By mail.
What is the deadline for voting? If you vote by proxy, we must receive the proxy by 11:59 P.M. ET on May | ||
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 87
Annual Meeting Information
Questions and Answers About the 2020 Annual Meeting3, 2022.
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 |
88 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Annual Meeting Information
Questions and Answers About the 2022 Annual Meeting
How do I participate in All shareholders as of the record date, or their duly appointed proxies, may participate in the virtual 2022 Annual Meeting. • Access to the Audio Webcast of the Annual Meeting. The live audio webcast of the 2022 Annual Meeting will begin promptly at 8:00 a.m., Eastern Time on May 4, 2022. Online access to the audio webcast will open approximately thirty minutes prior to the start of the Annual Meeting to allow time for you to log in and test the computer audio system. We encourage our shareholders to access the meeting prior to the start time. • Log in Instructions. To attend the online Annual Meeting, log in at www.virtualshareholdermeeting.com/WTRG2022. Shareholders will need their unique 16-digit control number, which appears on the Notice or proxy card and the instructions that accompanied the proxy materials. In the event that you do not have a control number, please contact your broker, bank, or other nominee as soon as possible and no later than May 3, 2022, so that you can be provided with a control number and gain access to the meeting. • Submitting Questions at the virtual Annual Meeting. Shareholders can submit their questions during the live event, and there will be a question and answer session in accordance with the Annual Meeting’s Rules of Conduct that are pertinent to the Company and the meeting matters, as time permits. Questions and answers will be grouped by topic and substantially similar questions will be grouped and answered once. To submit a question, once logged in, use the Q&A button to open the panel, enter a question in the field labeled “Submit a question”, and click submit. • The Annual Meeting’s Rules of Conduct will be posted on https://www.Essential.co/investor-relations approximately 2 weeks prior to the date of the Annual Meeting. • Technical Assistance. Beginning 30 minutes prior to the start of and during the virtual Annual Meeting, we will have support team ready to assist shareholders with any technical difficulties they may have accessing or hearing the virtual meeting. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the Virtual Shareholder Meeting log-in page. • Availability of live webcast to team members and other constituents. The live audio webcast will be available to not only our shareholders but also our team members and other constituents. | How do I vote at the virtual Annual Meeting? If you attend the virtual 2022 Annual Meeting and plan to vote at the meeting, you can vote by logging in to the online virtual 2022 Annual Meeting platform. Once logged in, use the Voting button to open the voting and submit your vote. If you are a shareholder of record, you have the right to vote electronically at the 2022 Annual Meeting. If you are the beneficial owner of shares held in street name, you may also vote electronically at the 2022 Annual Meeting if you follow the instructions from your broker, bank or other nominee to vote those shares. Please note, you must get instructions from your broker, bank or other nominee to vote any shares for which you are the beneficial owner, but not the shareholder of record. Do I have to wait to vote at the virtual Annual Meeting? No. We recommend that you vote by proxy so that your vote is recorded and counted prior to the meeting. You can still attend the meeting.
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 is We have adopted a procedure approved by the SEC called |
ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT 89
Annual Meeting Information
Questions and Answers About the 2022 Annual Meeting
What are the voting requirements to approve each proposal? What is the impact of abstentions and broker non-votes on each proposal?
The following table summarizes the vote required for the approval of each proposal and the impact, if any, of abstentions and broker-non votes.
Proposal |
Vote Required for Approval | Impact of Abstentions | Impact of Broker Non-Votes |
Proposal 1 Election of directors | Plurality of the votes cast* | No effect on this proposal | No effect on this proposal |
Proposal 2 Advisory vote on executive compensation | Affirmative vote of a majority of the votes cast by those shareholders present in person or represented by proxy at the meeting | No effect on this proposal | No effect on this proposal |
Proposal 3 Ratification of the Bylaw Amendment | Affirmative vote of a majority of the votes cast by those shareholders present in person or represented by proxy at the meeting | No effect on this proposal | No effect on this proposal |
Proposal 4 Ratification of the appointment of PricewaterhouseCoopers LLP | Affirmative vote of a majority of the votes cast by those shareholders present in person or represented by proxy at the meeting | No effect on this proposal | Not applicable as brokers have discretionary authority to vote on this proposal |
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* | In accordance with the Company’s current resignation policy, in an election where the only nominees are those recommended by the Board of Directors, any incumbent director who is nominated for re-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. |
88 ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT
Annual Meeting Information
Questions and Answers About the 2020 Annual Meeting
The The
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
What is a broker non-vote? A | 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 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
Your proxy vote is important. 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. Information About Proposals Under Consideration at this Annual Meeting How are directors elected?
Directors are elected by a plurality of the votes cast | at the meeting. A description of the Company’s resignation policy is included in the question below. Votes may be cast FOR or WITHHOLD for each nominee. The director nominees |
90 ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
Annual Meeting Information
Questions and Answers About the 2022 Annual Meeting
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
What if an incumbent director receives more WITHHOLD votes than FOR votes in an uncontested election? The Board of Directors adheres to a 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 for re-election and who receives a greater number of WITHHOLD votes than FOR votes for the director’s election must promptly tender his or her resignation to the Board of Directors. The Board will 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 must 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 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.essential.co.
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.
What is the impact of the advisory vote on the compensation paid to the Company’s named executive officers, referred to as 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 |
ESSENTIAL UTILITIES, INC.2020 PROXY STATEMENT 89
Annual Meeting Information
Questions and Answers About the 2020 Annual Meeting
into account the outcome of the non-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.
Process for Submitting Shareholder Proposals at the Next Annual Meeting Who can submit a shareholder proposal at an annual meeting of shareholders? 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 Rule 14I(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
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
Proposals, notices and requests for a copy of our Bylaws should be addressed as follows:
Corporate Secretary |
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Annual Meeting Information
Nominating Candidates for Director
Nominating Candidates for Director
How does a shareholder nominate a director for election to the Board of Directors at the 2020 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 2020