Exhibit 10.34
PHILADELPHIA SUBURBAN CORPORATION
PHILADELPHIA SUBURBAN WATER COMPANY
1999 ANNUAL CASH INCENTIVE COMPENSATION PLAN
BACKGROUND
o During the first quarter of 1989, the Company and its compensation consultant
conducted a feasibility study to determine whether the Company should
implement an incentive compensation plan. The study was prompted by the
positive experience of other investor-owned water companies and PSC's
experience with incentive compensation.
o The study included interviews with PSWC and PSC executives and an analysis of
competitive compensation levels. Based on the results, the compensation
consultant recommended that the Company's objectives and competitive practice
supported the adoption of an annual incentive plan (the "Plan"). The Company
has had a cash incentive compensation plan in place since 1990 and management
and the Board of Directors feel it has had a positive effect on the Company's
operations, aiding employees, shareholders (higher earnings) and customers
(better service and controlling expenses).
o The Plan has two components - a Management Incentive Program and an Employee
Recognition ("Chairman's Award") Program.
o The Plan is designed to provide an appropriate incentive to the officers and
managers of the Company. The 1999 Management Incentive Program will cover all
officers and managers of Philadelphia Suburban Corporation, and its
subsidiaries, other than those employees covered under the Consumers Water
Company Incentive Compensation Plan.
o The plan is periodically reviewed by the Company's outside compensation
consultant and the target bonus percentages are reviewed and approved each
year as part of the compensation consultant's annual review of the Company's
total compensation plan.
MANAGEMENT INCENTIVE PROGRAM
o Performance Measures
-- Annual incentive bonus awards are calculated by multiplying an
individual's Target Bonus by a Company Rating factor based on the
Company's performance and an Individual Rating factor based on the
individual employee's performance.
The approach of having a plan tied to the Company's income performance is
appropriate as the participants' assume some of the same risks and rewards
as the shareholders who are investing in the Company and making its
capital construction and acquisition programs possible. Customers also
benefit from the Company's employees' objectives being met as improvements
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in performance are accomplished by controlling costs, improving
efficiencies and enhancing customer service. For these reasons, future
rate relief should be lessened and less frequent, which directly benefits
all customers.
-- The Company's actual after-tax net income from continuing operations
relative to the annual budget will be the primary measure for the
Company's performance. Each year a "Target Net Income" level will be
established. For purposes of the Plan, the Target Net Income may differ
from the budgeted net income level. For 1999, the Target Net Income will
include the impact of the merger with Consumers Water Company, but exclude
the impact of any unbudgeted extraordinary gains or losses, changes in
accounting principles, changes in tax rates or assessments, any gains or
losses related to the discontinued operations and transaction costs
related to the PSC/Consumers merger.
-- Based on a review of historic performance, the minimum or threshold level
of performance is set at 90 percent of the Target Net Income. That is, no
bonus awards will be made if actual net income is less than 90 percent of
the Target Net Income for the year. No additional bonus will be earned for
results exceeding 110 percent of the Target Net Income.
-- Each individual's performance and achievement of his or her objectives
will also be evaluated and factored into the bonus calculation.
Performance objectives for each participant are established at the
beginning of the year and are primarily directed toward controlling costs,
improving efficiencies and productivity and enhancing customer service.
Each objective has specific performance measures that are used to
determine the level of achievement for each objective.
o Participation
-- Participation in the Management Incentive Program will be determined each
year. Each participant will be assigned a "Target Bonus Percentage"
ranging from 5 to 50 percent of salary depending on duties and
responsibilities.
-- Actual bonuses may range from 0, if the Company's financial results fall
below the minimum threshold or the participant does not make sufficient
progress toward achieving his or her objectives (i.e. performance measure
points totaling less than 70 points), to 187.5 percent if performance --
both Company and individual -- is rated at the maximum.
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Company Performance
-- Company performance will be measured on the following schedule:
Percent of Company
1999 Plan Rating
---------- --------
Threshold..........................<90% 0%
90 50
92 65
95 80
96 85
97 90
98 94
99 97
Plan...............................100 100
105 110
<110 125
-- The actual Company Rating should be calculated by interpolation between
the points shown in the table above.
-- Regardless of the Company rating resulting from this Schedule, the
Executive Compensation and Employee Benefits Committee retains the
authority to determine the final Company Rating for purposes of this Plan.
o Individual Performance
-- Individual performance will be measured on the following scale:
Performance Measure Individual
Points Rating
------ ------
0 - 69 0%
70 70%
80 80%
90 90%
100 100%
110 110%
-- In addition, up to 40 additional points and additional percentage points
may be awarded to a participant at the discretion of the Chief Executive
Officer for exemplary performance. Individual Performance points for the
Chief Executive Officer are determined by the Executive Compensation and
Employee Benefits Committee.
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Sample Calculations
- -------------------
o Example 1
Salary $70,000
Target Bonus 10 percent ($7,000)
Company Rating 100 percent
Individual Rating 90 percent
Calculation:
Company Individual
Target Bonus x Rating x Rating = Bonus Earned
------------ ------- ---------- ------------
$7,000 x 100% x 90% = $6,300
======
o Example 2
-- Using the same salary and target bonus, but assuming Company performance
was less than 90 percent of Target Net Income, there would be no bonus
earned.
Calculation:
$7,000 x 0 x 90% = 0
o Example 3
-- Similarly, if individual Performance is rated below 70 points, no bonus
would be earned regardless of the Company Rating.
Calculation:
$7,000 x 100% x 0 = 0
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EMPLOYEE RECOGNITION ("CHAIRMAN'S AWARD") PROGRAM
o In addition to the Management Incentive Program, the Company maintains an
Employee Recognition Program known as the Chairman's Award program to reward
employees not eligible for the management bonus plan for general superior
performance that contains costs, improves efficiency and productivity of the
workforce and better serves our customers. Awards may also be made for a
special action, or heroic deed, or for a project that positively impacts the
performance or image of the Company.
o Awards will be made from an annual pool, not to exceed $175,000 (which
represents approximately 2% of the base payroll for the non-union employees
who do not participate in the Management Incentive Program), established at
the beginning of the year. Unused funds will not be carried over to the next
year. If financial performance warrants, management may request permission
from the Executive Compensation and Employee Benefits Committee for special
awards under the program.
o Awards will be made throughout the year and through the first quarter of the
following year with payment as close to the timing of the event being
rewarded as possible.
o Department Heads may nominate individuals in their unit to the applicable
Vice President and document the reasons for the recommendations. The
applicable Vice President will review the nominations and forward their
recommendations to the Chief Executive Officer.
o The Chief Executive Officer will determine the individuals to actually
receive a bonus and the amount.