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. )
Filed by the Registrant x
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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x
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Definitive Proxy Statement
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o
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Definitive Additional Materials
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o
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Soliciting Material Pursuant to §240.14a-12
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ESSENTIAL
UTILITIES, INC.
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(Name of Registrant
as Specified In Its Charter)
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N/A
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(Name of Person(s)
Filing Proxy Statement, if other than the Registrant)
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Payment of Filing Fee (Check the
appropriate box):
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x
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No fee required.
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o
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class
of securities to which transaction applies:
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(2)
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Aggregate number of
securities to which transaction applies:
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(3)
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Per unit price or other
underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate
value of transaction:
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(5)
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Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration
Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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Christopher
H. Franklin
“We
are steadfast in our commitments – investing in infrastructure, operational excellence, environmental stewardship and rigorous
safety standards – which improve reliability and service for our customers, provide consistent return for shareholders and
contribute to the economic prosperity of communities we serve.”
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To
Our Shareholders
On
behalf of your Board of Directors, I am pleased to invite you to attend the 2020 Annual Meeting of the Shareholders of
Essential Utilities, Inc. to be held on Wednesday, May 6, 2020 in Pittsburgh, Pennsylvania. This will be our first Annual
Meeting of Shareholders following the closing of the acquisition of Peoples Natural Gas, and the changing of our name from
Aqua America, Inc. to Essential Utilities, Inc.
The
combination of these two companies, each of which have been in existence for more than 130 years, will provide an opportunity
to make a substantial contribution to the improvement in our nation’s infrastructure while simultaneously adding shareholder
value. Peoples Natural Gas, the nation’s fifth largest natural gas local distribution company, adds 745,000 new utility
customers to our existing platform, as the second largest publicly traded water utility with one million water and wastewater
customer connections. Together, these two utilities, under Essential Utilities, Inc., are expected to invest nearly $1 billion
a year to improve our nation’s infrastructure.
Importantly,
in the context of the transaction, the Company’s board and management remain optimistic in growing the water business; the
addition of a natural gas utility platform is supplemental to the expected continued growth in our water business. As an example
of the Company’s commitment to expanding the water and wastewater business, in October 2019, we announced an agreement to
purchase the wastewater assets of the Delaware County Regional Water Control Authority (DELCORA), the largest municipal transaction
in the Company’s history. Both the board and management remain confident in the continued growth in the water and wastewater
business.
For
the beginning part of 2019, the Company’s stock price lagged industry stock multiples. We attribute the temporary lag to
the market’s anticipation of the large equity and debt offerings that needed to be undertaken to finance the acquisition
of Peoples Natural Gas. After the successful completion of the debt and equity offerings, the market and stock price reacted positively,
and we finished the year with a total return to shareholders of 40%.
Our
transaction with Peoples Natural Gas has given us an opportunity to revisit our compensation plans and our ESG (Environmental,
Social and Governance) initiatives. Reflected in this proxy statement, you will recognize a marked difference in our approach.
After listening carefully during more than 500 meetings with investors in 2019, we have incorporated much of that feedback
into our approach to compensation and corporate strategy. The 2020 proxy statement includes information regarding matters important
to our shareholders about these efforts.
You
will notice one change immediately - we have enhanced our disclosures and made our proxy statement easier to read and understand.
We are pleased with the results and hope that you are as well.
Thank you for your confidence in
Essential!
Sincerely,
Christopher
H. Franklin
Chairman,
President and Chief Executive Officer
March
27, 2020
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ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 1
Notice
of Annual Meeting of Shareholders
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Essential
Utilities, Inc.
762 W. Lancaster Avenue
Bryn
Mawr, Pennsylvania 19010
The
annual meeting will be held:
Wednesday,
May 6, 2020
8:00 A.M. Local Time
Location
Peoples
Natural Gas Headquarters
375 North Shore Drive
Pittsburgh,
Pennsylvania 15212
Record
Date
March
9, 2020
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Purpose
The
Annual Meeting of Shareholders of Essential Utilities, Inc. (the “Company”) will be held for the following
purposes:
1 To
elect nine nominees for directors;
2 To
ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for
the 2020 fiscal year;
3 To
approve an advisory vote on the compensation paid to the Company’s named executive officers for 2019;
4 To
approve an amendment to the Amended and Restated Articles of Incorporation, as amended, (the “Articles of
Incorporation”) to establish a majority voting standard in uncontested director elections;
5 To
approve an amendment to the Articles of Incorporation to increase the number of authorized shares of common stock from
300 million to 600 million; and
6 To
transact any other business as may properly come before the meeting or any adjournments or postponements thereof.
Who
can vote
Only
shareholders of record at the close of business on March 9, 2020 will be entitled to notice of, and to vote at, the meeting
and at any adjournments or postponements thereof.
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How
to vote
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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 questions and answers about the meeting and the voting section of the proxy statement for information about voting
by telephone or internet, how to revoke a proxy and how to vote your shares in person.
Important
Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May 6, 2020
The
Notice of Annual Meeting, Proxy Statement and 2019 Annual Report to Shareholders are available at: www.essential.co/investor-relations
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By
internet*
www.proxyvote.com
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By
phone*
In
the U.S. or Canada
dial
toll-free
1-800-690-6903
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In
person
At
the 2020 Annual Shareholders’ Meeting
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By
mail
Return
your proxy card in the postage-paid envelope provided
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*
You have until 11:59 p.m. (ET) on May 5, 2020 to vote through the internet or by phone, and if you are a plan participant
you have until 11:59 p.m. (ET) on May 3, 2020 to vote through the internet or by phone. If you vote by Internet or by Phone,
you do not need to mail back your proxy card.
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As
part of our precautions with respect to the coronavirus or COVID-19 outbreak, we may consider alternative arrangements for
the 2020 Annual Meeting, which may include a change in date, time, or location of the meeting, including holding the meeting
solely by means of remote communication. If we make any such changes, we will announce the decision in advance through all
appropriate means, and provide details on our website.
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By
Order of the Board of Directors,
Christopher
P. Luning
Secretary
March
27, 2020
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2 ESSENTIAL UTILITIES, INC. 2020 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”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Forward-looking statements are based on management’s beliefs and assumptions. Various factors may cause
actual results to be materially different than the suggested outcomes within forward-looking statements. Accordingly, there
is no assurance that such results will be realized. For details on the uncertainties that may cause the Company’s
actual future results to be materially different than those expressed in our forward-looking statements, see our Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (“SEC”)
and available on the SEC’s website at www.sec.gov. In light of these risks, uncertainties, and assumptions, the events
described in the forward-looking statements might not occur or might occur to a different extent or at a different time than
described. Forward-looking statements speak only as of the date they are made. 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 PROXY STATEMENT 3
Proxy Summary
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 2019 performance, please review the Company’s Annual Report on Form 10-K for the year ended December
31, 2019.
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 2020 Annual Meeting:
Proposal
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Description
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Vote
Recommendation
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Page
Reference
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Proposal
1
Election
of Directors
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The
Board of Directors of the Company (the “Board of Directors” or the “Board”) and the Corporate Governance
Committee believe that the nine director nominees possess the necessary qualifications, attributes, skills, and experience
to provide advice and counsel to the Company’s management and effectively oversee the business and
the long-term interests of our shareholders.
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FOR
each Director Nominee
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10
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Proposal
2
Ratification
of Independent Accounting Firm
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The
Board believes the retention of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting
firm for the 2020 fiscal year is in the best interests of the Company and its shareholders. As a matter of good corporate
governance, shareholders are being asked to ratify the Audit Committee’s selection of PricewaterhouseCoopers
LLP.
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FOR
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37
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Proposal
3
Advisory
Vote to Approve Named Executive Officers’ Compensation
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The
Company seeks a non-binding advisory vote to approve the compensation of its named executive officers for 2019
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.
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FOR
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39
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Proposal
4
Approval
of an Amendment to the Articles of Incorporation to establish a majority voting standard in uncontested director elections
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The
Board believes that amending the Company’s Amended and Restated Articles of Incorporation, as amended, (the
“Articles of Incorporation”) to establish a majority voting standard in all uncontested director elections
directly aligns the directors with the shareholders and allows for greater accountability of the directors.
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FOR
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83
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Proposal
5
Approval
of an Amendment to the Articles of Incorporation to increase the number of authorized shares of common stock from 300 million
to 600 million
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The
Board believes that amending the Company’s Articles of Incorporation to increase the authorized shares of common stock
is in the best interests of the Company and its shareholders by allowing the Company to have flexibility for acquisitions and
other business combinations, public or private financing, and other various corporate programs or purposes.
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FOR
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85
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What’s New
· We
enhanced our disclosures and made our proxy statement easier to read and understand.
· We
closed the acquisition of Peoples Natural Gas, and changed our name from Aqua America, Inc. to Essential Utilities, Inc.
· The
Executive Compensation Committee held in-depth discussions on the Company’s strategy and compensation program with our largest
investors, assessing the peer group, and evaluating each component of the package
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including
base salaries, short term incentives, and long-term incentives.
· Our
new 2020 compensation program’s performance measures align the interests of our stakeholders and our named executive officers
by correlating the amount of the named executive officer’s pay with the short-term and long-term performance of the Company
and its stock price. See pages 48 through 49 for a summary of the extensive new compensation program changes.
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4 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Proxy Summary
Director Nominees
Director Nominees (page 10)
The
following table provides summary information about each of the Company’s nine director nominees. Each director will serve
a one-year term if elected.
All
directors are independent except for Mr. Franklin and Mr. DeBenedictis.
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Current Committee Memberships
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Director
Nominee
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Age
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Director
Since
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Principal
Occupation
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Other
Public
Company
Boards
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Executive
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Executive
Compensation
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Audit
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Risk
Mitigation
& Investment
Policy
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Corporate
Governance
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Elizabeth
B. Amato
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63
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2018
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Executive
Vice President and Chief Human Resources Officer
United
Technologies Corporation
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—
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●
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●
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Nicholas
DeBenedictis
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74
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1992
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Chairman
Emeritus and Former Chief Executive Officer Essential Utilities, Inc.
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3
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CHAIR
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Christopher
H. Franklin
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54
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2015
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Chairman,
President and Chief Executive Officer
Essential
Utilities, Inc.
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—
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●
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●
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Wendy
A. Franks
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45
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2020
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Senior
Principal, Canada Pension Plan Investment Board
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—
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●
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●
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Daniel
J. Hilferty
Lead
Independent Director
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63
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2017
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President
and Chief Executive Officer Independence Health Group
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—
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●
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●
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CHAIR
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Francis
O. Idehen
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42
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2019
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Chief
Operating Officer GCM Grosvenor
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—
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●
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Ellen
T. Ruff
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71
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2006
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Former
President Duke Energy
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—
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CHAIR
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Lee
C. Stewart
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71
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2018
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Private
Financial Consultant
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2
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CHAIR
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Christopher
C. Womack
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62
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2019
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President,
External Affairs Southern Company
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—
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●
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●
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Committee
Meetings held in 2019
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0
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7
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10
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6
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6
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Board
Nominees
from left to right
Christopher
H.
Franklin
Ellen
T. Ruff
Francis
O. Idehen
Wendy
A. Franks
Lee
C. Stewart
Christopher
C. Womack
Daniel
J. Hilferty
Elizabeth
B. Amato
Nicholas
DeBenedictis
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ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 5
Proxy Summary
Board Composition
Board
Composition
Diversity
of Skills and Experience
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”
section beginning on page 18 describes our corporate governance framework.
Board
Accountability
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· Annual
election of directors
· 15
year term limit for directors who were elected after 2015
· Mandatory
retirement age of 75 for directors
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Board
Independence
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· Seven
out of nine director nominees are independent
· Independent
audit, compensation, and governance committees
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Lead
Independent Director
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· Lead
Independent Director with clearly defined and robust responsibilities
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Board
and Committee Evaluations
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· Peer
evaluations of the Board and its committees
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Board
Diversity
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· Over
55% of the Board is diverse
· 33%
of the Board is comprised of female directors
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Board
Refreshment
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· Since
2015, 66% of the directors are newly appointed or elected
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Board
Oversight
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· Risk
oversight by full Board and all committees
· Robust
oversight of cybersecurity measures by full Board and Risk Mitigation and Investment Policy Committees
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Stock
Ownership Guidelines
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· Robust
director and management stock ownership guidelines
– Directors:
5x annual base cash retainer
– CEO:
5x midpoint of average base salary
– Other
NEOs/EVPs: 3x midpoint of average base salary
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Shareholder
Engagement
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· Comprehensive
shareholder outreach conducted in 2019 with more than 500 meetings held with investors
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6 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Proxy Summary
2019 Performance Highlights
2019 Performance Highlights
During
2019, our leadership team remained focused on growing our customer base through acquisitions, prudently investing capital 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 2006 and its first corporate debt offering, and creating efficiencies across the organization.
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 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.
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.
· In
2019, we
invested $550 million on infrastructure projects,
helping to ensure safe and reliable water for all customers.
· Revenues
were $889.7 million in 2019, an increase
of 6.2 percent over 2018.
· Earnings
per share were $1.04 in 2019, including
items from the Peoples transaction. Excluding these items, adjusted (non-GAAP) earnings per share were $1.47 compared
to earnings per share of $1.41 in 2018.*
· We
added approximately 12,000 customer connections thru acquisition in 2019 and
increased customers served by more than 2 percent, which includes customers from organic growth and acquisitions. Our
acquisitions in 2019 added over $50 million in rate base.
· In
September we announced the DELCORA acquisition,
a $276 million acquisition of a wastewater authority which provides service to over half a million people. DELCORA
has the equivalent of 198,000 retail customers.
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· From
January 1, 2017 to December 31, 2019, the total return to our shareholders, including
share price appreciation and dividends paid, shows 67.75 percent growth. In
2019 alone our total return to shareholders was 40.41 percent.
· In
July 2019, the Board of Directors approved a 7
percent increase in the quarterly dividend to
an annualized rate of $0.9372 per share.
· We
completed the financing for the previously announced agreement
to acquire Peoples Natural Gas, a natural gas distribution utility, that reflects an enterprise value of $4.275 billion.
This included an equity offering which was oversubscribed and a debt offering locking in long-term rates at under 4%.
· We
revisited our ESG program, publishing new tear sheets and disclosures in February 2020 and
submitted our second report to the CDP, receiving an increased grade of B-.
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Revenues
$889.7M
up
6.2%é
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Adjusted
EPS*
$1.47
vs
$1.41
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TSR
68%
Growth,
since
2017
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Dividends
to
Shareholders
7%é
Increase
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*
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See
Appendix B for a reconciliation of non-GAAP financial measures to GAAP financial measures.
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ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 7
Proxy Summary
Compensation Highlights
2017–2019
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)
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EPS
(adjusted
for comp plan)
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STI
Payout %
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3
Year TSR Return
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PSU
Payout %
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2017
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$1.36
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$1.37
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118.44%
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58.08%
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109.19%
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2018
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$1.39
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$1.44
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136.34%
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23.32%
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70.68%
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2019
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$1.47
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$1.50
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126.45%
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67.75%
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159.91%
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Comparison
of Five Year Cumulative Total 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.
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*
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$100
invested on 12/31/14 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
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Compensation Highlights
Highlights
of our executive compensation program include:
· Extensive
shareholder outreach designed to align compensation practices with shareholders
· Compensation
program highly correlated to total shareholder return, adjusted earnings per share, and other financial metrics
· Emphasis
on performance-based compensation
· Significant
portion of compensation is variable and at risk
· Reasonable
change-in-control agreements with double-trigger termination
· Clawback
policies in place
· Anti-hedging
and anti-pledging policy
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· No
tax gross ups
· Shareholding
requirement ensures that executives are aligned with shareholders
· Reasonable
severance arrangements in line with market practices
· Modest
perquisites
· Newly
designed 2020 compensation program aimed at incenting management to drive safety and customer satisfaction following the acquisition
of Peoples Natural Gas and to drive long-term shareholder growth
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8 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Proxy Summary
2019 Pay for Performance Compensation Program
2019 Pay for Performance Compensation Program
Our
goal is to instill a pay-for-performance culture throughout our Company. Our compensation program for named executive officers
is designed to:
·
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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.
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·
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Provide
a total compensation package that is aligned with industry standards and enhances our
ability to:
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–
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Motivate
and reward our named executive officers for contributions to our financial success;
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–
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Attract
and retain talented and experienced named executive officers; and
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–
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Ensure
a significant portion of pay is performance based to better align pay with the successful
achievement of our business objectives.
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·
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Reward
our named executive officers for leadership excellence and contribution to the organization’s
success.
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·
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Maintain
an important focus on environmental, social, and governance issues while building shareholder
value.
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2019
NEO Total Compensation Pay Mix
CEO
25%
Base
Salary
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29%
Compensation
Short-Term
Incentives (Cash)
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32%
Stock
Options
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14%
Restricted
Stock
Units
(RSUs)
Performance
Based
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75%
Performance and/or Stock-Based Compensation
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NEO
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37%
Base Salary
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28%
Compensation
Short-Term
Incentives (Cash)
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25%
Stock
Options
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10%
Restricted
Stock
Units
(RSUs)
Performance
Based
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63%
Performance and/or Stock-Based Compensation
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Shareholder
Outreach and Results of 2019 Advisory Vote to Approve Executive Compensation
At
our 2019 annual meeting of shareholders, fewer shareholders supported our say on pay proposal than the 2013-2018 average of
95%. The Board believes that the shareholder return result lagged the industry due to the impact of the then-pending large
acquisition of Peoples Natural Gas and the overhang of the pending equity and debt issuances rather than the underlying
performance of the Company. However, management and the Board took the resulting shareholder vote seriously and committed to
take several steps to address the executive compensation program in 2020.
Over
the course of 2019, management held more than 500 meetings with investors. Additionally, the Company requested meetings with
the 25 largest shareholders, representing over 45% of our outstanding common stock. 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 25 in this proxy statement.
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 9
Proposal 1:
Election of Directors
All
of the director nominees who are elected, will be elected for a one-year term expiring at the 2021 Annual Meeting of Shareholders,
and until their successors are duly elected and qualified. The 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 of Ms.
Amato, Mr. DeBenedictis, Mr. Franklin, Ms. Franks, Mr. Hilferty, Mr. Idehen, Ms. Ruff, Mr. Stewart, and Mr. Womack for election
as directors at the 2020 Annual Meeting, with each nominee abstaining from the vote with respect to his or her nomination, as
applicable.
Therefore,
nine nominees will stand for election by a plurality of the votes cast at the 2020 Annual Meeting. At the 2020 Annual
Meeting, proxies in the accompanying form, properly executed, will be voted for the election of the nine 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, 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. For more information, see “Governance
Practices & Policies” beginning on page 30 for our Director Independence Standards and Related Persons Transaction Policy.
Age
and Term Limits
The
Board believes that term limits are an important element of good governance. However, it also believes that it must strike
the appropriate balance between the contribution of directors who have developed, over a period, meaningful insight into the
Company and its operations, and therefore can provide an increasing contribution to the Board as a whole. Accordingly, in
2015, the Board established that upon the fifteenth anniversary of a director accepting an initial appointment or election to
the Board of Directors, the director will tender his or her resignation to the Board (the “Term Limit Policy”).
The Term Limit Policy does not apply to directors who were elected on or before December 1, 2015.
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, all directors are required to submit their resignation from the Board effective as of their 75th
birthday.
Information
Regarding Nominees
For
each of the nine nominees for election as directors at 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
opinion of the Corporate Governance Committee and the Board of Directors, make the individual qualified to serve as a director
of the Company.
10 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Proposal 1 Election of Directors
Information Regarding Nominees
Director
Experience, Qualifications, Attributes and Skills Criteria
The
chart below summarizes the experience, qualifications, attributes, and skills of each of the nominees:
Experience,
Qualifications,
Attributes and Skills
|
Utility
Industry
|
Regulatory
|
Financial
|
Legal/
Government
|
Leadership
|
Mergers
&
Acquisitions
|
Geographic
Diversity
|
“C-Suite”
Experience
|
Amato
|
|
|
|
●
|
●
|
●
|
●
|
●
|
DeBenedictis
|
●
|
●
|
●
|
●
|
●
|
●
|
|
●
|
Franklin
|
●
|
●
|
●
|
●
|
●
|
●
|
|
●
|
Franks
|
|
|
●
|
|
●
|
●
|
●
|
●
|
Hilferty
|
|
●
|
●
|
|
●
|
●
|
|
●
|
Idehen
|
●
|
●
|
●
|
|
|
|
|
|
Ruff
|
●
|
●
|
|
●
|
●
|
●
|
●
|
●
|
Stewart
|
●
|
●
|
●
|
|
●
|
●
|
●
|
●
|
Womack
|
●
|
●
|
|
●
|
●
|
●
|
●
|
●
|
Based
upon these qualifications, attributes, and skills, the Board of Directors determined that the following members are best suited
for service on the following Committees:
Committee
|
Chair
|
Other
Members
|
Audit
|
Lee
C. Stewart*
|
Wendy
A. Franks, Francis O. Idehen*
|
Corporate
Governance
|
Daniel
J. Hilferty
|
Ellen
T. Ruff, Elizabeth B. Amato, Christopher C. Womack
|
Executive
Compensation
|
Ellen
T. Ruff
|
Daniel
J. Hilferty, Elizabeth B. Amato, Christopher C. Womack
|
Executive
|
Christopher
H. Franklin
|
Daniel
J. Hilferty, Lee C. Stewart, Ellen T. Ruff
|
Risk
Mitigation and Investment Policy
|
Nicholas
DeBenedictis
|
Wendy
A. Franks, Lee C. Stewart, Francis O. Idehen, Christopher H. Franklin
|
*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.
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 11
Proposal 1 Election of Directors
Nominees for Election at the 2020 Annual Meeting
Nominees for Election at the 2020 Annual Meeting
|
|
|
|
Board
Committees
· Corporate
Governance Committee
· Executive
Compensation Committee
Key
Skills
· Legal/Government
· Leadership
· Mergers
& Acquisitions
· Geographic
Diversity
· “C-Suite”
Experience
|
Elizabeth
B. Amato
Executive
Vice President and Chief Human Resources Officer,
United Technologies Corp.
|
Director
since 2018
Age
63
Independent
Director
|
|
|
|
Experience
· Executive
Vice President & Chief Human Resources Officer of United Technologies Corp. (“UTC”) 2015 to present.
· 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).
|
|
|
|
|
Board
Committees
· Chairman,
Risk Mitigation
and Investment Policy
Committee
Key
Skills
· Utility
Industry
· Regulatory
· Financial
· Legal/Government
· Leadership
· Mergers
& Acquisitions
· “C-Suite”
Experience
|
Nicholas
DeBenedictis
Chairman
Emeritus, Essential Utilities, Inc.
|
Director
since 1992
Age
74
|
|
|
|
Experience
· Chairman
Emeritus of the Board, having retired as Chief Executive Officer of the Company in 2015 and as non-executive Chairman
of the Board in 2017.
· Chief
Executive Officer from 1992 until 2015 and Chairman of the Board from 1993 until 2017.
|
· Senior
Vice President for Corporate Affairs of PECO Energy Company (an Exelon Corporation) 1989
to 1992.
· President
of the Greater Philadelphia Chamber of Commerce 1986 to 1989.
· Secretary
of the Pennsylvania Department of Environmental Resources 1983 to 1986.
|
|
Qualifications:
In
addition to his knowledge and experience as the Company’s previous Chairman of the Board from 1993 to 2017 and Chief
Executive Officer from 1992 to 2015, and his prior experience as a senior executive of a major electric utility, Mr. DeBenedictis
has experience as the head of Pennsylvania’s environmental regulatory agency. He serves as a director of three other
public companies, including, as member of the corporate governance, audit, finance and compensation committees of those
companies. Mr. DeBenedictis has also held leadership positions with various, educational, business, civic and charitable
institutions. The Board of Directors views Mr. DeBenedictis’ experience with various aspects of the utility industry
and his demonstrated leadership roles in business and community activities as important qualifications, skills and experience
supporting the Board of Directors’ conclusion that Mr. DeBenedictis should serve as a director of the Company.
Other
current public company directorships (3):
Exelon
Corporation, P.H. Glatfelter Company and Mistras Group.
Other
current directorships:
Mr.
DeBenedictis serves on the Boards of Pennsylvania area non-profit, civic, and business organizations, including Independence Health
Group.
|
12 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Proposal 1 Election of Directors
Nominees
for Election at the 2020 Annual Meeting
|
|
|
|
Board
Committees
· Audit Committee
· Risk
Mitigation and Investment Policy Committee
Key
Skills
· Financial
· Leadership
· Mergers
& Acquisitions
· Geographic
Diversity
|
Wendy
A. Franks
Senior
Principal, Canada Pension Plan Investment Board
|
Director
since 2020
Age
45
Independent
Director
|
|
|
|
Experience
· Senior
Principal, Canada Pension Plan Investment Board (“CPPIB”) 2012 to present; responsible for sourcing and evaluating potential
relationship investment opportunities, monitoring portfolio Company performance and development of the business network.
|
· Associate
principal at McKinsey & Co., where she helped a number of clients develop business strategies.
|
|
Ms.
Franks has a bachelor’s degree in chemical engineering and a master’s degree in applied science in electrical and
computer engineering from the University of Waterloo. She holds a Ph.D. in Natural Sciences from the Swiss Federal Institute
of Technology, Zurich.
Ms.
Franks joined the Board as a nominee designated by CPPIB under the terms of the Company’s private placement transaction
with CPPIB.
Qualifications:
The
Board has determined, based on her abilities, qualifications, knowledge, judgment, character, leadership skills, education, background
and experience in fields and disciplines relevant to the Company, including her U.S. GAAP financial expertise, that Ms. Franks
is qualified to serve on the Board and will make a positive contribution to the Board. The Board of Directors views Ms. Frank’s
extensive experience with mergers and acquisitions, her auditing and evaluation of financial statements and complex accounting
issues, her capabilities, and her demonstrated leadership roles as important qualifications, skills and experience supporting
the Board of Directors’ conclusion that Ms. Franks should serve as a director of the Company.
Other
current public company directorships (0).
Other current directorships:
ReNew
Power, the largest renewable energy independent power producer in India.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 13
Proposal 1 Election of Directors
Nominees
for Election at the 2020 Annual Meeting
Board
Committees
· Chair,
Executive Committee
· Risk
Mitigation and
Investment Policy
Committee
Key
Skills
· Utility
Industry
· Regulatory
· Financial
· Legal/
Government
· Leadership
· Mergers
& Acquisition
· “C-Suite”
Experience
|
Christopher
H. Franklin
Chairman,
President, and Chief Executive Officer, Essential Utilities, Inc.
|
Director
since 2015
Age
54
|
|
|
|
Experience
Chairman,
President, and Chief Executive Officer of the Company.
|
|
· Mr.
Franklin has worked for the Company for 27 years in a variety of leadership positions: President and Chief Executive Officer
since July 2015; Executive Vice President, and President and Chief Operating Officer, Regulated Operations 2012 to 2015; Regional
President—Midwest and Southern Operations and Senior Vice President, Public Affairs 2010 to 2012; Regional
|
President—Southern
Operations and Senior Vice President, Public Affairs and Customer Relations 2007 to 2010); Vice President, Public Affairs
and Customer Operations 2005 to 2007; Vice President, Corporate and Public Affairs 1997 to 2005); and Manager Corporate &
Public Affairs 1992 to 1997.
|
|
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
50 acquisitions and increased its market capitalization from $4.1 billion to $11 billion at the end of 2019. During the
same period, total shareholder return has been in excess of 70%. 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 PROXY STATEMENT
Proposal 1 Election of Directors
Nominees
for Election at the 2020 Annual Meeting
|
|
|
|
Lead
Independent Director
Board
Committees
· Chair,
Corporate Governance Committee
· Executive Committee
· Executive
Compensation Committee
Key
Skills
· Regulatory
· Financial
· Leadership
· Mergers
& Acquisitions
· “C-Suite”
Experience
|
Daniel
J. Hilferty
Lead
Independent Director, Essential Utilities, Inc. President and CEO,
Independence Health Group
|
Director
since 2017
Age
63
Independent
Director
|
|
|
|
Experience
· President
and Chief Executive Officer of Independence Health Group (“IHG”), one of the nation’s leading health
insurers serving nine million customers in 25 states and Washington D.C., since 2010.
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 University
|
|
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 as Chairperson), and on a fund board of FS Investments.
In 2015, he served as co-chair on the Executive Leadership Cabinet of the World Meeting of Families; and, was the past Chairman
of the Board of Directors for the Blue Cross and Blue Shield Association.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 15
Proposal 1 Election of Directors
Nominees
for Election at the 2020 Annual Meeting
|
|
|
|
Board
Committees
· Audit
Committee
· Risk
Mitigation and Investment Policy Committee
Key
Skills
· Utility
Industry
· Regulatory
· Financial
· Leadership
· Mergers
& Acquisitions
· Geographic
Diversity
· “C-Suite”
Experience
|
Francis O. Idehen
Chief
Operating Officer, GCM Grosvenor
|
Director
since 2019
Age
42
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).
|
|
|
|
|
Board
Committees
· Chair,
Executive Compensation Committee
· Executive
Committee
· Corporate
Governance Committee
Key
Skills
· Utility
Industry
· Regulatory
· Legal
Government
· Leadership
· Mergers
& Acquisitions
· Geographic
Diversity
· “C-Suite”
Experience
|
Ellen T. Ruff
Former
President, Duke Energy
|
Director
since 2006
Age
71
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
· Chairman,
Audit Committee
· Risk
and Investment Policy
Committee
Key
Skills
· Utility
Industry
· Regulatory
· Financial
· Leadership
· Mergers
& Acquisitions
· Geographic
Diversity
· “C-Suite”
Experience
|
Lee
C. Stewart
Private
Financial Consultant
|
Director
since 2018
Age
71
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 20 years of experience as a director of a public
Company. Mr. Stewart possesses significant experience with financial services, finance and banking, public Company accounting
and financial reporting, strategic planning, operations and risk management, and corporate governance. The Board of Directors
has determined that Mr. Stewart is an independent director. The Board of Directors views Mr. Stewart’s independence and
his experience as important qualifications, skills and experience supporting the Board of Directors’ conclusion that
Mr. Stewart should serve as a director of the Company.
Other
current public company directorships (2):
Currently serves on the boards of P. H.
Glatfelter Company, a New York Stock Exchange-listed global supplier of specialty papers and engineered materials, and Mood Media,
Inc, an international in-store provider of music, digital signage, hold music, on-hold messaging, scent, integrated audio/video,
and interactive mobile marketing products.
|
|
|
|
|
Board Committees
· Corporate
Governance Committee
· Executive
Compensation Committee
Key
Skills
· Utility
Industry
· Regulatory
· Legal/Government
· Mergers
& Acquisitions
· Leadership
· Geographic
Diversity
· C-Suite”
Experience
|
Christopher
C. Womack
President,
External Affairs, Southern Company
|
Director
since 2019
Age
62
Independent
Director
|
|
|
|
Experience
· President,
External Affairs, Southern Company, a leading American gas and electric utility holding company based in Atlanta, Georgia,
2008 to present.
· He
has worked in various executive leadership positions at Southern Company since 1988, including 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 (0).
|
|
|
|
The
Board of Directors unanimously recommends a vote FOR the election of each of these nominees as director.
|
|
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 17
Corporate Governance
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
Corporate
Governance Guidelines provide 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.
Board
Committee Charters Each of the standing
Committees of the Board of Directors operates under a written Committee Charter.
Code
of Ethical Business Conduct applies
to our directors, officers, and employees and covers a number of important subjects, including: conflicts of interest;
corporate opportunities; fair dealing; confidentiality; protection and proper use of Company assets; compliance with laws,
rules and regulations (including insider trading laws); and encouraging the reporting of illegal or unethical behavior.
In 2019, it was updated to reflect changes in our leadership structure and to stress our Core Values of Respect, Integrity,
and the pursuit of Excellence. The Company intends to post amendments to or waivers from the Code of Ethical Business
Conduct (to the extent applicable to the Company’s executive officers, senior financial officer, or directors) on its
website.
Copies
of our Corporate Guidelines, Code of Ethical Business Conduct, Committee Charters and other governance materials can be
obtained free of charge from the Corporate Governance portion of the Investor Relations section of the Company’s
website: www.essential.co.
Our
Corporate Social Responsibility Report is
available at www.csr.aquaamerica.com. For additional
information see pages 26 through 29 in this proxy statement.
|
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 chairman 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:
· Presides
at all meetings of the Board at which the Chairman of the Board is not present, including
executive sessions of the independent directors;
· Serves
as liaison between the independent directors and the Chairman of the Board;
· Consults
with the Chairman of the Board, reviewing and approving meeting agendas and information provided to the Board for meetings,
including the authority to add items to the agendas for any Board meeting;
· Reviews
and approves meeting schedules to assure there is sufficient time for discussion of all agenda items;
· Possesses
the authority to call executive sessions of the independent directors and to prepare the agendas for the executive sessions;
|
|
· If
requested by major shareholders, ensures that he is available for consultation and direct
communications;
· Serves
as a member of the Executive Committee;
· In
the event of the death or incapacity of the Chairman, becomes the acting Chairman of the Board until a new Chairman is
selected; and
· Has
the authority (with the approval of at least the majority of the directors) to engage legal, financial or other advisors as the
independent directors deem appropriate at the Company’s expense and without consultation or the need to obtain approval
from any officer of the Company.
|
18 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
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 12 meetings in 2019
·
|
In
2019, each director attended at least 75% of the aggregate of all meetings of the Board
and the Committees on which each director served.
|
·
|
All
of the directors who were elected at the 2019 Annual Meeting of Shareholders attended
the 2019 Annual Meeting of Shareholders.
|
Board
Committees
|
|
|
Chair
Lee
C. Stewart
Members
Wendy A. Franks
Francis O. Idehen
All
members are independent under NYSE listing requirements and SEC rules
All
members are financially literate and two members of the Committee are financial experts within the meaning of applicable
SEC rules.
|
Audit
|
Meetings
Required: 4
2019
Meetings Held: 10
|
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.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 19
Corporate Governance
Board
Committee Membership, Meetings and Director Attendance
|
|
|
Chair
Ellen
T. Ruff
Members
Elizabeth B. Amato
Daniel J. Hilferty
Christopher
C. Womack
All
members are independent under NYSE listing requirements
|
Executive
Compensation
|
2019
Meetings Held: 7
|
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.
The
Committee has the power to delegate aspects of its work to subcommittees, with the approval of the Board of Directors.
|
|
|
|
Chair
Daniel
J. Hilferty
Members
Elizabeth B. Amato
Ellen T. Ruff
Christopher
C. Womack
All
members are independent under NYSE listing requirements
|
Corporate
Governance
|
2019
Meetings Held: 6
|
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 also reviews and approves, ratifies
or rejects related person transactions under the Company’s
written policy.
|
20 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Corporate Governance
Board
Committee Membership, Meetings and Director Attendance
|
|
|
Chair
Nicholas
DeBenedictis
Members
Christopher
H. Franklin
Wendy A. Franks
Francis O. Idehen
Lee
C. Stewart
|
Risk
Mitigation and Investment Policy
|
2019
Meetings Held: 6
|
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.
|
|
|
|
Chair
Christopher
H. Franklin
Members
Daniel J. Hilferty Ellen
T. Ruff
Lee
C. Stewart
|
Executive
Committee
|
2019
Meetings Held: 0
|
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, or at a time when convening a meeting of the entire Board is not practical, and to make recommendations
to the entire Board with respect to various matters.
· The
Chairman of the Board of Directors serves as Chairman of the Committee.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 21
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, 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
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 with CPPIB in March 2020, the Company
appointed Ms. Franks as a director. In addition to informal meetings with the existing directors, and in conjunction with their
appointment, Messrs. Womack and Idehen and Ms. Franks participated in an onboarding process that included in-depth meetings with
the executive officers focused on items such as:
·
|
merger
and acquisition strategy;
|
·
|
utility
accounting and financing;
|
·
|
water
and wastewater operations;
|
·
|
Board
governance functions;
|
·
|
the
Company’s Articles of Incorporation, its Bylaws, and its Corporate Governance Guidelines.
|
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 PROXY STATEMENT
Corporate Governance
Oversight
of Risk Management
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
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:
·
|
environmental
matters by our Chief Environmental Officer;
|
·
|
the
Company’s proposed capital spending plans by our Vice President, Corporate Engineering;
and
|
·
|
the
Company’s Enterprise Risk Management program by our Executive Vice President, General
Counsel, and Secretary.
|
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 the Company’s risk management practices, the Company’s compliance with legal and regulatory
requirements, the Company’s potential investments in acquisitions and growth vehicles, and to review and approve the Company’s
risk management framework.
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.
Spotlight
on Cybersecurity Management
|
In
2019, the Board of Directors oversaw the Company’s cybersecurity risk assessment and security measures. By receiving
at least quarterly reports, the Board of Directors and the Risk Mitigation and Investment Policy Committee ensure that
the Company
is devoting the appropriate amount of resources to ensure that the risk of a cybersecurity breach is mitigated and that there
is a clear response plan in the event of a breach.
|
The
Board of Directors annually reviews and approves the capital and operating budgets, ultimately reviewing and approving the
amount of spending that the Company is to spend on cyber security measures.
|
Enterprise Risk Management
The
Corporation maintains a Company-wide Enterprise Risk Management process 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 Mitigation 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.
·
|
Each
risk that is tracked as part of the enterprise risk management process has a member of
the Company’s management who serves as the owner and monitor for that risk. The
risk owners and monitors report on the status of their respective risks at the quarterly
meeting of management’s Compliance Committee.
|
·
|
The
information discussed at 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.
|
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’s significant
financial risk exposures and the steps management has taken to monitor, control and report such exposures.
·
|
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.
|
·
|
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.
|
·
|
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 such plans.
The
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.
Consideration
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.
Consideration
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, 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
Succession
Planning
Succession
Planning
Under
the Company’s Corporate Governance Guidelines, the Board of Directors is responsible for the development and periodic review
of a management succession plan for the Chief Executive Officer and other executives. At least annually, including in 2019, 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 developmental candidates
so that the Company is well-prepared for the future.
Shareholder
Outreach
At
our 2019 annual meeting of shareholders, fewer shareholders supported our say on pay proposal than the 2013-2018 average of 95%.
The Board believes that the shareholder return result lagged the industry due to the impact of the large acquisition of Peoples
Natural Gas and the overhang of the pending equity and debt issuance rather than the underlying performance of the Company. However,
management and the Board took the resulting shareholder vote seriously and committed to take several steps to address the executive
compensation plan in 2020.
Over
the course of 2019, management held more than 500 meetings with investors. Additionally, the Company requested meetings with
the 25 largest shareholders, representing over 45% of our outstanding common stock. 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.
2019
Shareholder Feedback and Actions Taken
Board
Response to
Shareholder Feedback
|
2019
Actions Taken
|
Conducted
an analysis of our
executive compensation program
|
New
Peer Group and New Compensation Methodologies
Using
the expertise of its compensation consultant, Pay Governance, the Executive Compensation Committee completed an evaluation
of the Company’s short-term incentive plan and its long-term incentive plan.
In
doing so, the Executive Compensation Committee re-evaluated the peer group used to determine relative total return to
shareholders and its methodology for establishing pay for performance compensation.
As
a result, and as more fully discussed in the CD&A, the Company established a markedly smaller new peer group of fifteen
companies and new methodologies aimed to ensure that the Company’s executive compensation program is in line with
the market and shareholder expectations.
|
Reviewed
our governance
programs and shareholder rights
policies
|
Voting
Resolution for Majority Voting
As
a direct result, the Board of Directors voted to endorse a change to the voting standard in director elections from plurality
voting to majority voting so that each of the directors is more fully aligned with the shareholders. This change is being
presented to shareholders for approval at the 2020 Annual Meeting.
|
Completed
a review of our
environmental and social programs
and disclosures.
|
Expanded
ESG Disclosure
As
a direct result, we have committed to expanding the disclosures of our environmental and social policies in a renewed
CSR report, and by making it easier to locate these policies. Our CSR report can be found
at: www.csr.aquaamerica.com and other relevant policies can be found at www.essential.co/investor-relations.
|
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”) report and reinforced its commitment
to environmental stewardship by joining the CDP, an international not-for-profit organization that runs a global disclosure system
for companies to manage their environmental impacts. For 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.
2020
Update
|
In
February 2020, the Company published summaries of our ESG policies (“Tear Sheets”) that contain additional
disclosure of relevant metrics to Essential’s business, as well as those included in the Sustainability Accounting
Standards Board (SASB) standards for the infrastructure sector and the United Nations Sustainable Development Goals (UN
SDGs). The Company is committed to supporting environmental, social and governance (ESG) initiatives that are integrated into
our strategy and culture and continue to drive our corporate responsibility. These Tear Sheets cover ESG disclosures for
Essential Utilities Inc., formerly Aqua America, Inc. for the period January 1, 2019 through December 31, 2019, unless
otherwise noted, and can be found at essential.co/investor-relations.
|
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:
· conservation
and stewardship of water, including compliance with federal and state regulations, delivering safe water, implementing
programs to manage water resources and reducing water loss, and consistently assessing and updating our water treatment
technology;
· focusing
on proper treatment of wastewater;
· reducing
solid waste production;
· aiming
for efficient and responsible energy usage in the Company’s facilities, its fleet of vehicles, and its construction
|
|
equipment,
including a commitment to the use of renewable energy;
· reducing
greenhouse gas emissions and energy consumption;
· responding
to natural disasters, such as hurricanes and floods; and
· rebuilding
water and wastewater infrastructure from our position as a national leader in infrastructure investment.
|
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
Water
as a Human Right
In 2019,
the Board of Directors considered the Company’s responsibility to its customers and its ongoing commitment to the betterment
of the societies in which we serve. It reviewed various policies and objectives. Following a review and recommendation by its
Corporate Governance Committee, the Board of Directors unanimously adopted the following resolution:
Right
to Water Resolution
In
November 2002, the United Nations Committee on Economic, Social and Cultural Rights adopted a resolution on the right to water.
The resolution states that “the human right to water is indispensable for leading a life in human dignity. It is a prerequisite
for the realization of other human rights.” Further, the right to water was defined as the right of everyone to sufficient,
safe, acceptable and physically accessible and affordable water for personal and domestic uses.
Essential
Utilities, Inc. recognizes and agrees with the United Nations Resolutions. Essential’s mission is to deliver exceptional
quality water and service to customers and communities while protecting the environment and providing a fair return to shareholders;
It
is the policy of all Essential’s water utilities to provide a reliable supply of safe, clean, affordable, and accessible
water adequate for human consumption, cooking, and sanitary purposes in accordance with State and Federal statutes, laws and regulations
at rates established by our governing Public Utility Commissions.
Diversity
and Inclusion
Essential
is dedicated to creating a sustainable working atmosphere for its employees to attract and retain the best employees. We are committed
to diversity, building a culture of inclusion, supporting employee wellness and facilitating a strong corporate culture where
safety is paramount.
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 customers. In 2019, unconscious bias workshops and action planning sessions were
held across the Company’s footprint in order to improve the dialogue and build on an inclusive culture. These workshops
explored the perspectives and pre-conceived notions individuals bring to work each day that impact others. These engagement
sessions will continue in 2020 to further build a more inclusive workforce.
Diversifying
the workforce continues to be a focus at all levels of the Company. Since 2015, the minority population of the workforce has grown
from 17% to 22%. Diversity at the management team has also grown with 29% of the management team comprised of minorities and women.
At
the Board of Director’s level, in 2019 the Company was named as a winning “W” Company by 2020 Women on Boards
and received the Forum of Executive Women’s Advancing Women Company Award. Over 55% of the Board is diverse including 33%
female directors.
|
|
Our
commitments to
renewable energy
reduce the Company’s
overall absolute
green house
gas
emissions by nearly
60%
from
a 2018 baseline*
Since
2015, the
minority population
of the workforce has
grown from
17%–22%
Minorities
and
women now
make up
29%
of
the
management
team
|
*2018
baseline is based on the Company’s water and wastewater operations only.
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 27
Corporate Governance
Environmental
Stewardship and Corporate Responsibility
In
2019, the Board
adopted our Human
Rights Policy and
an updated Equal
Employment
Opportunity
and
Anti-Harassment
Policy
|
|
In
2019 the Board amended the Company’s Equal Employment Opportunity and Anti-Harassment
Policy to
provide 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.
The
policy states that the Company will not tolerate any form of harassment on the job by managers, other employees, or by
non-employees, such as customers, vendors or contractors and 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:
· 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.
Together,
these policies ensure that 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.
Employee
and Customer Wellness
Growth
and Development
We
invest significant resources to develop the talent needed to keep the Company at the forefront of quality, delivering multi-modes
of training throughout the year. providing rotational or temporary assignment development opportunities. Through our new “Inclusion
and Bias” workshops, we are training every employee in the Company on inclusive practices to ensure a respectful workforce.
Communication
and Engagement
We
believe that our success depends on employees understanding how their work contributes to the Company’s overall strategy.
We use a variety of communications channels to facilitate open and direct communication, including open forums with our executives,
quarterly Town Halls, regular engagement surveys, and employee resource groups. In 2019, we conducted a survey of our employees’
satisfaction and, in 2020, plan on semi-annual “pulse” surveys so that management can be closely in tune with the
Company’s employees.
|
28 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Corporate Governance
Environmental
Stewardship and Corporate Responsibility
Safety
& Wellness
Safety
is not just a topic we talk about — it is our top priority, the foundation of our business and what guides all our
employees’ actions. We continue to invest in safety improvements, implement policies and procedures, develop technical
training and guidelines for our employees, and leverage new tools and technology to improve our maps, records and infrastructure
performance. We are focused on identifying and mitigating risk and safeguarding our plants and distribution lines.
Our
employees take actions each day to keep themselves, one another, our customers and our communities safe. Our teams make
safety a focus on the job, in meetings, and our surrounding work environments to ensure employees and our customers safety
is treated with the highest level of concern.
In
fact, our workplace is safer. Since 2015, our safety record has improved significantly. Our lost time incidents are down
76% and our responsible vehicle accidents have declined by 23%. To incentivize managers to promote a safe environment,
these metrics, among others, are incorporated in management’s incentive compensation plans and are further discussed
in the CD&A.
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. We proactively conduct communications outreach to our employees
and their family members on health topics that are relevant to them. With the focus on mental health becoming more of
a central part of an employee’s well-being, we have added additional resources and counseling access for employees
to utilize to ensure they are taking care of themselves and their families.
Customer
Satisfaction
We
are focused on improving the customer experience. Our capital investments are designed to enhance our customers’
experience and ensure smooth interaction with our utilities. In 2019, we made numerous enhancements to our website and
billing platforms in order to provide timely information on usage and billing for our customers. We expanded our payment
methods and e-billing efforts to enable more convenience for customers as well as promote environmentally focused paper
reduction.
We
continue to learn by monitoring industry best practices and gathering customer feedback following service interactions
and through external surveys to address pain points, streamlining the customer experience and anticipating future customer
needs.
In
2019, we embarked on a customer engagement project to better understand how our customers would like to be served. Our
project is an investment in measuring customer experience at every touchpoint along the customer journey to establish
baselines for measuring future performance. Our research will help predict and prioritize customer needs and trends, identify
key engagement and experience drivers, and enable us to build a customer service program that ensures a consistent,
high-quality experience with Essential.
In
conjunction with our customer engagement project, we participated in several J.D. Power customer satisfaction reports
which provide industry standards in customer satisfaction. During 2019, the Company performed in the top 25th
percentile in the Northeast and South regions and in the top 30th percentile in the Midwest Region in the 2019
J.D. Power customer satisfaction study. In addition, the Company was awarded Top Brands across all of its operating regions
for maintaining infrastructure and was awarded Top Brands in customer notifications and alerts in the Southern region.
|
|
Since
2015 our lost
time incidents are
down
76%
and
our responsible
vehicle
accidents have
declined by
23%
2019
J.D. Power
customer satisfaction
study:
Top
25th
percentile
in
the Northeast and
South regions
Top
30th
percentile
in
the Midwest Region
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 29
Corporate Governance
Governance Policies and Practices
Governance
Policies and Practices
Anti-Hedging
and Anti-Pledging Policy
We
believe that issuance of incentive and compensatory equity awards to our directors and named executive officers along with our
stock ownership guidelines help to align 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.
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 not be deemed independent if:
·
|
the
director is, or has been within the last three years, an employee of the Company, or
an immediate family member is, or has been within the last three years, an executive
officer of the Company;
|
·
|
the
director (A) or an immediate family member is a current partner of a firm that is the
Company’s internal or external auditor, (B)
is a current employee of such a firm, (C) has an immediate family member who is a current employee of such a firm and personally
works on the Company’s audit, or (D) or an immediate family member was within the last three years (but is no longer) a
partner or employee of such firm and personally worked on the Company’s audit within that time;
|
·
|
the
director or an immediate family member is, or has been within the last three years, employed
as an executive officer of another Company where any of the Company’s present executive
officers at the same time serves or served on that Company’s compensation committee;
|
·
|
the
director has received, or has an immediate family member who has received, during any
twelve month period within the last three years, more than $120,000 in direct compensation
from the Company, other than director and committee fees and pension or other forms of
deferred compensation for prior service (provided such compensation is not contingent
in any way on continued service) and, in the case of an immediate family member who is
not an executive officer, other than compensation for service as an employee of the Company;
|
·
|
the
director is an executive officer or employee, or someone in her/his immediate family
is an executive officer, of another Company that, during any of the other Company’s
past three fiscal years made payments to, or received payments from, the Company for
property or services in an amount which, in any single fiscal year of the other Company,
exceeded the greater of $1 million or 2% of the other Company’s consolidated gross
revenues; or
|
·
|
the
director serves as an executive officer of a charitable organization and, during any
of the charitable organization’s past three fiscal years, the Company made charitable
contributions to the charitable organization in any single fiscal year of the charitable
organization that exceeded the greater of $1 million or two percent of the charitable
organization’s consolidated gross revenues.
|
For
purposes of the categorical standards above:
|
(a)
|
a
person’s immediate family includes a person’s spouse, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers- and
sisters-in-law and anyone (other than domestic employees) who shares such person’s
home,
|
|
(b)
|
the
term “executive officer” has the same meaning specified for the term “officer”
in Rule 16a-1(f) under the Exchange Act, and
|
|
(c)
|
the
“Company” includes Essential and its consolidated subsidiaries.
|
In
addition to these categorical standards, no director will be considered independent unless the Board of Directors affirmatively
determines that the director has no material relationship with the Company (either directly, or as a partner, shareholder, director
or officer, of an organization that has a relationship with the Company). When making independence determinations, the Board of
Directors broadly considers all relevant facts and circumstances surrounding any relationship between a director or nominee and
the Company. Transactions, relationships and arrangements between directors or members of their immediate family and the Company
that are not addressed by the categorical standards may be material depending on the relevant facts and circumstances of such
transactions, relationships and arrangements.
30 ESSENTIAL UTILITIES, INC. 2020 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
2019, the Company made contributions to charitable or civic organizations for which the
following directors serve as directors, trustees or executive officers: Mr. DeBenedictis,
Mr. Franklin, and Mr. Hilferty. None of the Company’s contributions exceeded the
greater of $1 million or 2% of the recipient organization’s consolidated gross
revenues.
|
2.
|
During
2019, the Company provided water service at normal tariff rates to IHG or its affiliates,
and Exelon Corporation (“Exelon”) or its affiliates. Mr. Hilferty serves
as President and Chief Executive Officer of IHG, and Mr. DeBenedictis serves as a member
of the Board of Directors of Exelon. Exelon or its affiliates provides electric service
at tariff rates to the Company. Southern Company or its affiliates provides electric
service at tariff rates to the Company. Mr. Womack serves as President, External Affairs
of Southern Company. United Technologies Corp. or its affiliates sold elevators and related
services to the Company
under contractually negotiated terms and conditions. Ms. Amato serves as the Executive Vice President, Chief Human Resources Officer
of United Technologies. The amounts paid to the Company by these other entities, and paid by the Company to Exelon and Southern
Company are pursuant to tariff rates and are not material to these entities or the Company.
|
3.
|
The
Company has insurance arrangements with IHG or its affiliates. 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
|
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%
|
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
|
2017
|
$12,763,289
|
2018
|
$14,303,630
|
2019
|
$13,711,289
|
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.
4.
|
Ms.
Franks’ role as Senior Principal of CPPIB.
|
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.
|
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
nature of the related person’s interest in the transaction;
|
·
|
The
material terms of the transaction, including, without limitation the amount and type
of transaction;
|
·
|
The
importance of the transaction to the related person;
|
·
|
The
importance of the transaction to the Company;
|
·
|
Whether
the transaction would impair the judgment of a director or executive officer to act in
the best interests of the Company; and
|
·
|
Any
other matters the Corporate Governance Committee deems appropriate.
|
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.
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 Officer, and Mr.
DeBenedictis, the Company’s Chairman Emeritus and former Chief Executive Officer.
|
32 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Director
Compensation
In
late 2018, as part of its annual review, the Executive Compensation Committee retained Pay Governance, LLC (“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 2019 and voted that its compensation remain the same:
2019
Director Compensation Program
Role
|
Annual
Cash Compensation
|
Annual
Equity Compensation
|
Each
Non-Employee Director
|
$90,000
|
Stock
grant equal to $90,000 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
|
—
|
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
|
+
$25,000
|
—
|
Ms.
Franks has elected to designate CPPIB as the recipient of the annual cash compensation and to waive the annual equity compensation
awarded to directors.
All
directors are reimbursed for reasonable expenses incurred in connection with attendance at Board or Committee meetings.
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 33
Director
Compensation
Director
Stock Ownership Guidelines
Director
Stock Ownership Guidelines
The
Board of Directors approved stock ownership guidelines for each director to own shares of Company common stock having a value
equal to five times the annual base cash retainer for directors. Directors have up to three years from appointment to attain the
stock ownership requirement. The Board of Directors also prohibits a director from selling Company common stock until the director
has attained the required stock ownership. Once the required stock ownership level is attained, the director must maintain the
level of stock ownership for the duration of the director’s service. Ms. Franks was not a director in 2019.
2019
Director Stock Ownership
The
chart below shows the shareholdings of the directors as of December 31, 2019:
(1)
|
Mr.
Franklin is a management Director and his stock ownership guidelines and current shareholdings
are detailed on pages 67 and 68.
|
(2)
|
Because
Ms. Franks elected to waive the annual equity compensation awarded to directors, the
Board of Directors exempted Ms. Franks from the director stock ownership guidelines.
|
(3)
|
These
directors have up to three years to attain the required stock ownership level.
|
34 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Director
Compensation
Total
2019 Director Compensation
Total
2019 Director Compensation
Name
|
Fees
Paid in
Cash ($)
|
Stock
Awards ($)(1)
|
Option
Awards ($)
|
Non-Equity
Incentive
Plan
Compensation ($)
|
Change
in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings ($)
|
All
Other
Compensation ($)
|
Total
($)
|
Amato
|
87,500
|
87,535
|
—
|
—
|
—
|
—
|
175,035
|
Burke(3)
|
65,000
|
65,018
|
—
|
—
|
—
|
—
|
130,018
|
DeBenedictis
|
87,500
|
87,535
|
—
|
—
|
—
|
—
|
175,035
|
Franklin(2)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
Hankowsky(3)
|
74,375
|
65,018
|
—
|
—
|
—
|
—
|
139,393
|
Hilferty
|
122,500
|
87,535
|
—
|
—
|
—
|
—
|
210,035
|
Holland(3)
|
20,000
|
42,528
|
—
|
—
|
—
|
—
|
62,528
|
Idehen
|
45,000
|
45,007
|
—
|
—
|
—
|
—
|
90,007
|
Ruff
|
100,000
|
87,535
|
—
|
—
|
—
|
—
|
187,535
|
Stewart
|
93,750
|
87,535
|
—
|
—
|
—
|
—
|
181,285
|
Womack
|
45,000
|
45,007
|
—
|
—
|
—
|
—
|
90,007
|
(1)
|
The
grant date fair value per share of the stock awards, which are paid quarterly, were:
January 2, 2019 - $33.92; March 30, 2019 – $36.730; June 30, 2019 – $40.890;
and September 30, 2019 – $44.855. The directors were issued their stock awards
for the fourth quarter of 2018 in January 2019.
|
(2)
|
As
an officer of the Company, Mr. Franklin does not receive any compensation for his service
on the Board of Directors.
|
(3)
|
Messrs.
Hankowsky and Holland and Ms. Burke did not stand for re-election at the 2019 Annual
Meeting.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 35
Ownership
of Common Stock
The
table below shows the number of shares of our common stock beneficially owned (as of the close of business on March 9, 2020. 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
|
|
1
|
Includes
shares held under the Company 401(k) plan.
|
2
|
Percentage
of ownership for each person or group based on 223,307,879 shares of Common Stock outstanding
as of March 9, 2020 and all shares issuable to such person or group upon exercise of
outstanding stock options exercisable within 60 days of that date.
|
3
|
The
information from BlackRock, Inc. was obtained from the Schedule 13G/A filed by BlackRock,
Inc. with the SEC on February 10, 2020.
|
4
|
The
information from The Vanguard Group was obtained from the Schedule 13G/A filed by The
Vanguard Group with the SEC on February 12, 2020.
|
5
|
The
information from State Street Corporation was obtained from the Schedule 13G/A filed
by State Street Corporation with the SEC on February 13, 2020.
|
6
|
The
shareholdings indicated include 27,430 shares (i) held in joint ownership with spouses,
(ii) held as custodian for minor children, (iii) owned by family members, or (iv) in
trusts for adult children.
|
36 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Proposal 2:
Ratification
of the Appointment of
PricewaterhouseCoopers
LLP as Independent
Registered
Public Accounting Firm for Fiscal 2020
The
Audit Committee of the Board of Directors appointed PricewaterhouseCoopers LLP (“PwC”) as the independent registered
public accounting firm for the Company for the 2020 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, 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 2020 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 “Services and 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 2019 fiscal year.
Services
and Fees
The
following table presents the fees paid to PwC for professional services rendered with respect to the 2019 fiscal year and
2018 fiscal years:
|
Fiscal
Year
|
|
2019
|
2018
|
Audit
Fees(1)
|
$ 2,032,000
|
$1,690,000
|
Audit-Related
Fees(2)
|
$ 50,000
|
$ 77,000
|
Tax
Fees(3)
|
$ 35,752
|
$ 34,546
|
All
Other Fees(4)
|
$ 5,000
|
$ 14,484
|
TOTAL
|
$2,122,752
|
$1,816,030
|
(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),
reviews of the Company’s interim financial statements included in Form 10-Qs, audits
of the Company’s subsidiaries, issuance of consents, and comfort letter procedures.
|
(2)
|
Represents
fees for services in connection with 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, disclosure checklist, a utility
and technical accounting seminar, and an accretion/dilution analysis.
|
|
|
|
The
Board of Directors unanimously recommends a vote FOR ratifying the appointment of PricewaterhouseCoopers LLP as the
Company’s Independent Registered Public Accounting Firm for the 2020 fiscal year.
|
|
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 37
Proposal
2 Ratify Appointment of PricewaterhouseCoopers LLP as Independent Registered Public
Accounting Firm for Fiscal 2020
Audit
Committee Report
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 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, 2019 for filing with the SEC.
Respectfully
submitted,
Lee
C. Stewart, Chairman
Daniel J. Hilferty
Francis
O. Idehen
February 27, 2020
38 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Proposal
3:
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.
|
|
|
The
Board of Directors unanimously recommends a vote FOR the approval, on an advisory basis, of the 2019 compensation of
the Company’s named executive officers.
|
|
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 39
Executive
Compensation
Contents
Compensation
Discussion and Analysis
|
40
|
Executive
Summary
|
41
|
Introduction
|
41
|
Impact
of Peoples Natural Gas Acquisition
|
|
and
Shareholder Feedback on Executive
|
|
Compensation
|
41
|
Our
2019 Performance Highlights
|
42
|
Our
Pay for Performance Compensation Program
|
43
|
Pay
for Performance and Results of the 2019
|
|
Advisory
Vote to Approve Executive Compensation
|
44
|
Section
1. Our Compensation Philosophy
|
45
|
Components
of Compensation for Named
|
|
Executive
Officers
|
45
|
Competitive
Pay Positioning
|
46
|
Section
2. How We Determine Executive
Compensation
|
47
|
The
Role of the Compensation Committee
|
47
|
The
Role of Management
|
47
|
The
Role of the Compensation Committee’s
|
|
Independent
Consultant
|
47
|
Our
2019 Benchmarking for Competitive Pay
|
47
|
Our
2020 Benchmarking for Competitive Pay
|
48
|
Shareholder
Advisory Vote Impact on
|
|
Compensation
Committee Actions
|
49
|
Section
3. 2019 Executive Compensation
|
|
Program
|
50
|
Overview
|
50
|
Base
Salary
|
51
|
Short-Term
Incentive Awards
|
52
|
Long-Term
Equity Incentive Awards
|
55
|
Other
Benefits
|
59
|
Section
4. 2019 NEO Compensation
|
|
and
Performance Summaries
|
61
|
Section
5. Our New 2020 Short-
|
|
and
Long-Term Incentive Programs
|
64
|
Section
6. Compensation Governance
|
|
Policies
and Practices
|
67
|
Stock
Ownership Guidelines
|
67
|
Executive
Compensation Committee Report
|
68
|
Executive
Compensation Tables
|
69
|
Summary
Compensation Table
|
69
|
Grants
of Plan-Based Awards
|
70
|
Outstanding
Equity Awards at Fiscal Year-End
|
71
|
Options
Exercised and Stock Vested
|
72
|
CEO
to Median Employee Pay Ratio
|
73
|
Retirement
Plans and Other
|
|
Post-Employment
Benefits
|
73
|
Pension
Benefits
|
73
|
Retirement
Income Plan (the “Retirement Plan”)
|
74
|
Non-Qualified
Retirement Plan
|
74
|
Actuarial
Assumptions used to Determine Values
|
|
in
the Pension Benefits Table
|
75
|
Non-Qualified
Deferred Compensation
|
76
|
Potential
Payments Upon Termination or
|
|
Change-In-Control
|
76
|
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
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 compensation,” is referred to as the total of base salary and annual cash
incentive compensation; and
|
·
|
“Total
direct compensation.” is referred to as the total of base salary, annual cash incentive
compensation and equity incentive compensation
|
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
Executive
Compensation
Executive
Summary
Executive Summary
Introduction
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 our work, 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.
Impact
of Peoples Natural Gas Acquisition and Shareholder Feedback on Executive Compensation
In
2019, the Compensation Committee spent significant time on the review and design of the executive compensation plans for 2020.
Every element of the program was analyzed using industry best practices to evaluate and modify the plans accordingly. Pay Governance
LLC (“Pay Governance” or the “consultant”), the independent compensation consultant retained by the Compensation
Committee, provided advice and guidance throughout the process.
A
review of 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 incorporate investor feedback on the compensation program design to ensure alignment with the market’s
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 of the package including
short term incentives, long-term incentives, and base salaries.
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
new 2020 compensation program’s performance measures align the interests of our stakeholders and our named executive
officers by correlating the amount of the named executive officer’s pay with the short-term and long-term performance
of the Company and its stock price.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 41
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.
·
|
In
2019, we
invested $550 million on infrastructure projects,
helping to ensure safe and reliable water for all customers.
|
·
|
Revenues
were $889.7 million in 2019,
an increase of 6.2
percent over 2018.
|
·
|
Earnings
per share were $1.04 in 2019, including items from the Peoples transaction. Excluding
these items, adjusted (non- GAAP) earnings
per share were $1.47 compared to earnings per share of $1.41 in 2018.*
|
·
|
We
added approximately 12,000 customer connections through acquisition in 2019 and
increased customers served by more than 2 percent, which includes customers from organic
growth and acquisitions. Our acquisitions in 2019 added over $50 million in rate base.
|
·
|
In
September we announced the DELCORA acquisition, a $276 million acquisition of
a wastewater authority which provides service to over half a million people. DELCORA
has the equivalent of 198,000 retail customers.
|
·
|
From
January 1, 2017 to December 31, 2019, the total return to our shareholders, including
share price appreciation and dividends paid, shows 67.75 percent growth. In
2019 alone our total return to shareholders was 40.41 percent.
|
·
|
In
July 2019, the Board of Directors approved a 7
percent increase in the quarterly dividend to
an annualized rate of $0.9372 per share.
|
·
|
We
completed the financing for the previously announced
agreement to acquire Peoples Natural Gas, a natural gas distribution utility, that reflects
an enterprise value of $4.275 billion. This
included an equity offering which was over-subscribed and a debt offering locking in
long-term rates at under 4%.
|
·
|
We
revisited our ESG program by publishing new Tear Sheets and disclosures in February 2020
and
submitted our second report to the CDP, receiving an increased grade of B-.
|
Revenues
$889.7M
up
6.2%é
|
Adjusted
EPS*
$1.47
vs
$1.41
|
TSR
68%
Growth,
since
2017
|
Dividends
to
Shareholders
7%é
Increase
|
*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
2017-2019
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%
|
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
What
We Do
· Tie
a high ratio of our executives’ pay to Company performance
· Require
significant stock ownership for Directors and NEOs
· Tie
incentive compensation to a clawback polity
· Use
an independent compensation consultant
|
What
We Don’t Do
· Provide
golden parachute tax gross ups
· Permit
pledging or hedging of Company securities
· Provide
a single trigger vesting cash and equity severance upon a change of control
· Provide
employment agreements to a broad group
· Encourage
excessive or inappropriate risk taking through our compensation programs
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 43
Executive
Compensation
Executive
Summary
Pay
for Performance and Results of the 2019 Advisory Vote to
Approve
Executive Compensation
Our
goal is to instill a “pay for performance” culture throughout the Company. At our 2019 Annual Meeting, we submitted
a proposal to our shareholders for a non-binding advisory vote on our 2018 compensation awarded to our named executive officers.
Our shareholders approved the proposal at a lower than expected approval rate. This approval level further propelled the Committee
to take an in depth look at 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.
Aligning
Interests of NEOs and Shareholders
In
2019, we solicited the opinions of our top shareholders on several items, including our executive compensation program design.
We did this to ensure that the pay balance and alignment was 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.
Compensation
Committee Actions for 2020
· Approved
a highly competitive peer group based on Essential’s post-acquisition revenue and market cap scope as well as
business mix. The industry peer group was substantially modified. The number of peer group companies was reduced to 15 and
encompass both the gas and water utility industry to reflect the Peoples acquisition. The revised peer group provides a more
representative comparison between Essential, the relative utility industry, and those companies used as comparators by
institutional investors.
· Redesigned
short-term incentive metrics to include both water and gas lines of business. Environmental compliance and stewardship
goals are incorporated into the plan to emphasize our commitment to environmental sustainability. Payout leverage (thresholds
and maximums) was validated at the peer group level by the Compensation Committee’s independent consultant, Pay
Governance.
· Revamped
long-term incentives to focus on driving Company value through performance share units and promoting retention of key employees
through RSUs. For 2020, our long-term incentive mix will weight heavier on PSUs at 65% and RSUs at 35%. Once the peer group and
incentive plan recommendations were drafted, shareholder meetings were conducted with the top 10 shareholders including Vanguard,
State Street, BNY Mellon, Jennison Associates, Pictet, T. Rowe Price, Northern Trust, Invesco and Impax Asset Management to solicit
feedback before Executive Compensation Committee approval.
|
|
The shareholders provided
input on the compensation changes being proposed for 2020 including our revised peer group and incentive plan designs. There
was strong support to increase disclosures in the proxy as well as include environmental measures in the STI plan elements,
which you will see as you review our 2019 compensation performance summaries and our 2020 compensation program
designs.
· Sought
shareholder approval of the Amended and Restated Omnibus Equity Compensation Plan during the 2019 annual shareholders
meeting. The changes to the plan included:
– establishing
minimum vesting or forfeiture periods for all awards;
– revising
the plan to reflect elimination of certain requirements, on a going forward basis, related to performance-based compensation
to reflect the changes to 162(m) of the IRS code;
– clarifying
and including in the plan the standard impact of various termination of service events on outstanding awards;
– adding
an automatic exercise feature for expiring in-the-money stock options; and
– providing
each of the Board and the Compensation Committee with the authority to amend or terminate the plan.
|
44 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Executive
Compensation
Section 1 Our
Compensation Philosophy
Section
1
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.
|
Components
of Compensation for Named Executive Officers
The
following chart provides a brief summary of the principal elements of our executive compensation program for 2019. We describe
these elements, as well as retirement, severance and other benefits, in more detail on pages 50 through 61.
|
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
Stock-Based Compensation
|
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.
|
|
Performance-Based
Stock Options*
|
Aligns
executive interests with shareholder interests; through financial performance- based nature, provides strong incentives to
achieve core Company goals.
|
The
named executive officers receive options only if the pre-established performance goals are achieved. Stock options only have
value if the Company’s share price has increased since the grant date.
|
*
|
In
light of the anticipated acquisition of Peoples Natural Gas, the long-term incentive
program was modified for 2019 to provide time-based RSU awards and performance stock
options, but no PSUs. This action was taken because the Compensation Committee recognized
the difficulty in establishing performance-based measures given the uncertainty in the
timing of the closing. Because the timing became more certain in the fourth quarter of
2019, the Compensation Committee included performance share units in the 2020 program.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 45
Executive
Compensation
Section 1 Our
Compensation Philosophy
Competitive
Pay Positioning
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, 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.
46 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Executive
Compensation
Section 2 How
We Determine Executive Compensation
Section
2
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, which are risk- based
incentives based upon achieving company 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 determines the actual amount of each element of annual compensation to award to the Company’s named
executive officers with the goal of having the target total direct compensation opportunity for each named executive officer generally
within a range of 15% above or below the market median rate for his or her position over time.
The
Role of Management
·
|
Our
Senior Vice President, Chief Human Resources Officer assists
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 Officer compiles
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 goals (the “Individual
Factor”) under the Annual Plan. He also provides the Compensation Committee with
his recommendations for annual salary increases, any changes in target annual cash incentive
percentages and equity incentive awards for the other executive officers, but the ultimate
decisions with respect to compensation for the named executive officers is made by the
Compensation Committee.
|
·
|
Our
Chief Financial Officer provides
the Compensation Committee with certifications as to our financial performance for purposes
of the Compensation Committee’s determination of the achievement of the Company-specific
goals (the “Company Factor”) for the Annual Plan, our performance against
the criteria established by the Compensation Committee for the vesting of restricted
share grants and the earning of performance shares. These financial measures are also
certified by our Director of Internal Audit.
|
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
2019 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 the 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 2 How
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.
The
combination of salary, short-term incentives, and long-term incentives is intended to compensate executives at approximately the
50th 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.
In
2019, 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
2020 Benchmarking for Competitive Pay
In
July 2019, Pay Governance worked with the Compensation Committee to review and recommend a simplified 15 Company peer group based
on the anticipated post-Peoples Natural Gas acquisition. Our primary rationale for developing a custom peer group was to address
concerns with the historical practice of using the entire utility-Company industry and size adjusting the data to the Company
revenues.
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
Executive
Compensation
Section 2 How
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, the 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 2019 incentive plan results.
|
|
|
Highlights
of 2020 Compensation Plan Changes
During
2019, the Compensation Committee made the following key decisions for the 2020 compensation plan designs:
|
· Redesigned
the Company’s 2020 peer group to be a select group of fifteen companies with revenues,
market capitalization and industry focus comparable to Essential’s expansion from
water to a combined water and gas Company;
· Underscored
the Company’s commitment to gas safety and environmental protection by altering the 2020 short-term incentive program
to incorporate specific measures focused on gas safety and gas environmentalism;
· Eliminated
stock options and replaced them with performance stock units (“PSUs”) in the long-term incentive program to align
with industry norms and the company’s strategic plan;
|
|
·
Retained the Company’s focus on retention
of key employees, by continuing to issue restricted stock units (“RSUs”);
· Refined the 2020 Total Shareholder
Return (TSR) portion of the PSUs from two measures to one TSR measure based on the new fifteen Company peer group; and
· Revised the balance between cash compensation
and long-term incentives for Mr. Franklin to a heavier weighting (53%) on long-term incentives in the total compensation package
to further underscore the drive for long-term value creation for shareholders.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 49
Executive
Compensation
Section 3 2019
Executive Compensation Program
Section
3
2019
Executive Compensation Program
Overview
Peoples
Natural Gas Transaction Impact on 2019 Compensation
|
The
acquisition of Peoples Natural Gas was anticipated to close in 2019. Because of this projected closing date, the Compensation
Committee reviewed several different alternatives for addressing the uncertainty associated with the acquisition. Among other
items, the Compensation Committee considered various performance metrics with a goal of aligning management’s interests
with the Company’s shareholders. In the end, the Compensation Committee determined that keeping management engaged and
aligned with the Company’s shareholders was paramount and that granting performance-based stock options, with performance
based on stock price, and continuing to award service-based restricted stock units would be the best way to align the interests
for 2019.
|
|
Accordingly,
the Compensation Committee determined that the 2019 executive long-term incentive (LTI) compensation plan consisted of 70%
performance-based stock options with the ROE goal described on pages 52 through 53, with a three-year pro- rata vesting cycle
and 30% service-based restricted stock units with a three-year cliff vesting cycle. The Compensation Committee believes this
LTI program closely aligned the interests of management with the shareholders for this transition year. For management to
be rewarded, the Company’s share price must increase.
|
|
Similarly,
the grant of restricted stock units, when coupled with our stock ownership requirements, further aligns interests of management
with the shareholders by increasing the number of shares each member of management holds.
|
|
The
2019 strategy for LTI did indeed support growth. The management team worked diligently throughout the year to ensure
successful equity and debt offerings and conducted active outreach to investors to promote the merits of the acquisition and
focus on integration efforts.
|
|
As
detailed in Our 2019 Performance Highlights on page 42, we saw an increase in total return to shareholders of 40.41% in 2019.
|
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 awards
|
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 3 Overview
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.
|
Base
Salary
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, 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. The Compensation Committee annually reviews the base salaries of the 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 changes for the named executive
officers based on a combination of factors including competitive peer market pay, level of responsibility, experience, and internal
pay equity. Additionally, the Compensation Committee 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 with the final recommendation 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.
NEO
2019 Base Salary
For
2019, the annual increases to the salaries for the named executive officers reflected these assessments and averaged 4.8%.
The
base salaries approved by the Compensation Committee for 2019, effective April 1, 2019, were as follows: Mr. Franklin,
$805,000; Mr. Fox, $400,790; Mr. Schuller, $432,526; Mr. Rhodes, $402,730; and Mr. Luning, $360,451.
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 51
Executive
Compensation
Section 3 Overview
Short-Term
Incentive Awards
The
2019 Annual Cash Incentive Awards
The
Annual Cash Incentive Award Plan is a non-equity Incentive 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 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 Definition Target Performance Range: 50% - 150% of Target
|
50%
Financial
|
|
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.
|
|
|
|
|
|
|
· Adjusted
Earnings Per Share* 35%
|
|
|
· Return
on Equity 15%
|
|
|
15%
Safety
|
|
From
the employee perspective, Essential has a strong commitment to safety with an additional 15% of the award based on the ability
of the Company to manage OSHA defined lost time incidents and recordable incidents as well as responsible vehicle accident
rates, defined as the number of responsible vehicle accident (RVA) during which the driver failed to do everything reasonable
to avoid the accident per million miles driven. The determination of the preventability is based on criteria similar to that
found in the National Safety Council’s Guide to Determine Motor Vehicle Accident Preventability Report.
|
|
|
|
|
|
|
· Lost
Time Incidents
|
|
· Responsible
Vehicle Accident Rate
|
|
· Recordable
Incidents
|
|
15%
Compliance
|
|
|
Environmental
stewardship as measured by water and wastewater compliance rates accounts for another 15% of the overall funding. Compliance
is defined as a Water or Wastewater event causing the operating system to be out of compliance for at least 1 day out of the
available days of the year (365 days in 2019).
|
|
|
|
|
|
|
· Water
|
|
· Wastewater
|
|
10%
Customer Satisfaction
|
|
The
customer satisfaction metric (10%) ensures that we balance financial, safety and environmental concerns with our customer
service levels. This metric measures the “service level” in terms of timeliness to answer calls within 30 seconds
of receiving a customer call.
|
|
|
|
|
|
|
·
Service Level
|
|
10%
Individual Performance
|
|
Individual
performance based on specific goals that align with broader Company goals represent 10% of the formula. At the beginning of
2019, two individual goals were identified for each named executive officer that aligned with the broader Company goals. Each
named executive officer was rated on the achievement of each goal.
|
|
|
|
|
|
|
·
Two individual goals set
|
|
*
|
Adjusted
EPS is a non-GAAP financial measure. See Appendix B for reconciliation to the GAAP financial
measure and adjustments made for purposes of the compensation metric attainment.
|
52 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Executive
Compensation
Section 3 Overview
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%
|
|
|
|
|
|
|
*
|
See Appendix
B for a reconciliation of non-GAAP financial measures to GAAP financial measures.
|
2019
Performance
Based
on the factors described above, the following table shows the 2019 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%. 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 2019 for the named executive officers.
2019
Company Performance Metric Scorecard
Metric
|
Metric
Component
|
Target
-
50%
|
Target
-
100%
|
Target
-
150%
|
Actual
|
Actual
Attainment
|
Weight
|
Final
Achievement
|
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%
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 53
Executive
Compensation
Section 3 Overview
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
|
Goals
|
Results
|
Christopher
H. Franklin
|
Peoples
Natural Gas Transaction: Obtain regulatory approvals, achieve all necessary financing, and close transaction
|
Regulatory
approval complete, financing complete in accelerated timing, March 16, 2020 acquisition close
|
|
Accomplish
detailed implementation plan for installing SAP across the combined company organization
|
Extensive
SAP and supporting technologies plan completed and reviewed by Board in December 2019
|
|
Rename
holding company and consider changing ticker symbol
|
Completed
creation of new name and ticker symbol in 2019. New name and ticker launched February 2020
|
Daniel
J. Schuller
|
Raise
equity and debt capital to complete the Peoples Natural Gas acquisition
|
Completed
public equity and debt issuances for Peoples in April 2019 which included raising nearly $2B in common equity and tangible
equity units, and raising $436M in acquisition debt as part of a $900M public debt offering
|
|
Ready
Peoples Natural Gas for SOX compliance and Company close processes
|
Reduced
monthly close from 20 days to 7 days; aligning accounting policies; substantially completed two-phase SOX
initiative
|
Richard
S. Fox
|
Drive
state operation metrics
|
Achieved
operational metrics for a total of 90% completion
|
|
Complete
rate cases in PA, NJ and champion fair market value legislation in key states
|
Achieved
rate cases in PA and NJ
|
Matthew
Rhodes
|
Close
municipal transactions and deliver >$100M in rate base in 2019
|
Closed
and progressed municipal transactions that will add in excess of $100 million in rate base.
|
|
Sign
municipal acquisitions that will close and add over $200M of additional rate base in 2020
|
Signed
deals with ~$290M in rate base in 2019 (including DELCORA), that have closed or will likely close in 2020
|
Christopher
P. Luning
|
Negotiate
and close debt and equity offering for Peoples Natural Gas acquisition
|
Completed
public equity and debt issuances for Peoples Natural Gas in April 2019 which included raising nearly $2B in common equity
and tangible equity units and raising $436M in acquisition debt as part of a $900M public debt offering
|
|
Negotiate
closing issues to bring Peoples Natural Gas transaction ready for closing
|
Completed
main negotiation for Peoples Natural Gas close.
|
2019
Named Executive Officer Short Term Incentive Award
Name
|
2019
Salary
Rate* ($)
|
2019
Target
Bonus %
|
2019
Company
Metric Excluding
Individual Metric
|
2019
Individual
Metric
|
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 3 Overview
Long-Term
Equity Incentive Awards
Our
use of equity incentive awards is intended to reward our named executive officers for:
·
|
enhancing
the Company’s 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 shareholder value, as well as helping to
retain these executives due to the longer- term nature of these awards.
|
We
make these equity incentive awards under our Amended and Restated Omnibus Equity Compensation Plan (the “Plan”). Under
the Plan, the Compensation Committee and the Board of Directors may grant stock options, dividend equivalents, performance- based
or service-based stock units and stock awards, stock appreciation rights and other stock-based awards to officers, directors,
key employees and key consultants of the Company and its subsidiaries who are in a position to contribute materially to the successful
operation of our business.
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.
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, seventy percent of the equity grant is performance-based, and thirty percent is in the form
of service-based restricted stock units.
|
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 units payouts for 2017-2020:
Performance
Goals for 2017-2020 PSUs
Award
Year
|
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%
|
2019
|
2016-2018
|
2022
|
N/A
|
70%
|
30%
|
2020
|
2017-2019
|
2023
|
65%
|
N/A
|
35%
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 55
Executive
Compensation
Section 3 Overview
As
a result of the Compensation Committee’s analysis, it established the target percentages of base salary for each named
executive officer:
|
|
2019
Target LTI (%)
|
Christopher
H. Franklin
|
185
|
Daniel
J. Schuller
|
100
|
Richard
S. Fox
|
110
|
Matthew
Rhodes
|
85
|
Christopher
P. Luning
|
85
|
Vested
Performance Share Awards and Status of Outstanding Performance Share Awards
Performance
share or performance share unit grants (“PSU”) (together referred to as performance shares) provide the named
executive officer with the opportunity to earn awards of shares based on Company performance against 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.
|
|
Metric
1: Essential TSR vs
Large Investor-owned Water Companies TSR
|
Our
total shareholder return ordinal ranking at the end of the performance period as compared
to the TSR of the other large investor-owned water companies (defined as “Metric
1”)
· American
Water Works Company
· American
States Water Company
· Connecticut
Water Service, Inc.
· California
Water Service Group
· Middlesex
Water Company
· SJW
Corporation
|
Payout
as a Percent of Target Award (7 companies)
|
56 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Executive
Compensation
Section 3 Overview
|
|
|
Metric
2: Essential TSR vs
S&P Midcap Utility Index TSR
|
Our TSR ordinal ranking compared to the TSR for the
companies in the S&P Midcap Utility Index
(defined as “Metric 2”)
|
Payout as a Percent of Target Award (18 companies)
|
· Pnm
Resources Inc.
· Aqua
America Inc.
· Atmos
Energy Corp.
· Hawaiian
Electric Industries, Inc.
· One
Gas Inc.
· Oge
Energy Corp.
· Idacorp
Inc.
· Black
Hills Corp.
· Northwestern
Corp.
|
· New
Jersey Resources Corp.
· Vectren
Corp.
· Mdu
Resources Group Inc.
· Southwest
Gas Holdings Inc.
· Great
Plains Energy
· WGL
Holdings Inc.
· National
Fuel Gas Co.
· Ugi
Corp.
· Westar
Energy Inc.
|
|
|
Metric
3: Operating and Maintenance
Expense
|
The
achievement of maintaining Operating and Maintenance (“O&M”) expenses
within the Company’s regulated operations over the performance period.
|
Payout
Scale
|
|
|
Metric
4: Rate Base Growth
|
The
achievement of targeted cumulative level of rate base growth as a result of acquisitions.
|
Payout
as a percent of Target Award
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 57
Executive
Compensation
Section 3 Overview
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 similar performance goals to the 2017 PSU awards, with different percentile rankings and scales,
and performance period that began on January 1, 2018 and will end on December 31, 2020.
Please
see the disclosure under the heading “Outstanding Equity Awards at Fiscal Year-End” for a description of the status
of the 2018 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
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:
58 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Executive
Compensation
Section 3 Overview
|
|
|
|
|
|
Net
Income
|
|
|
|
(excluding
net income or loss from acquisitions which have not yet been
|
|
|
|
incorporated
into a rate application as of the last year end)
|
|
Return
on Equity =
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
(excluding
equity applicable to acquisitions which are not yet incorporated
|
|
|
|
in
a rate application during the award period) all as adjusted in accordance with the Omnibus Equity Compensation Plan
|
|
|
|
|
|
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.
Restricted
Share Awards
Annual
restricted share or restricted stock unit grants (together referred to as “restricted shares”) entitle the named executive
officer to receive the number of shares granted at the end of a given period of time, or in increments over a period of years
on the anniversaries of the grant date, provided the named executive officer remains an employee of the Company. 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.
|
Other
Benefits
Retirement
Plans
Our
retirement plans are intended to provide competitive retirement benefits to help attract and retain employees. Some of our
named executive officers are participants in our qualified pension plan (benefits frozen as of December 31, 2014) (the
“Retirement Plan”), and in our non-qualified pension benefit plan (the “Non-Qualified Pension Benefit
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 Revenue Service
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 “Executive Deferral Plan”) that allows eligible
members of management to defer all or a portion of their salary and annual cash incentives, which enables participants to save
for retirement and other life events in 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 3 Overview
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), 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.
|
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, Mr. Franklin and the Company entered into an Employment Agreement (“Mr. Franklin’s
Employment 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.
If
the Company terminates Mr. Franklin’s employment for cause or if he terminates his employment without good reason, or
for death or disability, Mr. Franklin (or his estate) will receive any accrued but unpaid salary and accrued vacation. Mr.
Franklin’s Employment Agreement expires July 1, 2021 and may be extended for successive one-year terms upon mutual
agreement of the Company and Mr. Franklin. Mr. Franklin’s Employment Agreement is filed with our SEC
filings.
“Double
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 “Potential Payments Upon Termination or Change-in-Control” on pages 76 through
82.
These
change-in-control agreements are referred to as “double trigger” agreements because they only provide a benefit to
executives whose employment is terminated, or who have good reason to resign, following 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”).
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 76 through 77 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
Executive Compensation
Section 4 2019 NEO Compensation and Performance Summaries
Section
4
2019
NEO Compensation and Performance Summaries
Linking
Pay and Performance
Here
we provide a summary of each of our NEOs 2019 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.
Mr. Franklin leads the Company’s work with legislators,
regulators, customers, and communities to create solutions that support economic development and strong communities while preserving
and protecting natural resources.
|
|
2019
Total Compensation Pay Mix
|
|
|
|
2019
Key Accomplishments
· Increased
Revenues by 6.2% at $889.7 million.
· Delivered
earnings per share at $1.04.
· Added
approximately 12,000 customer connections through acquisition in 2019 and increased customers served by more than 2 percent,
which includes customers from organic growth and acquisitions. Led management team in the Company’s largest municipal
wastewater acquisition in Pennsylvania and in the company with acquisition of DELCORA, a $276 million wastewater operation
authority which provides service to over half a million people. DELCORA has the equivalent of 198,000 retail customers.
Acquisitions in 2019 added over $50 million in rate base.
|
|
· Led
the company through its largest debt offering and financing for the acquisition of Peoples Natural Gas.
· Championed
expanding the diversity of the board and senior management to go beyond industry benchmarks
on gender and race diversity, with the board being over 50% diverse.
· Drove
the shrinking of the Company’s environmental footprint. By 2022, the Company’s water and wastewater business unit
expects to be purchasing 65% of its energy from renewable sources, which meets the Paris Accord nearly 8 years
early.
· Championed
Fair Market Value legislation to be instituted in the Company’s footprint with legislation passing in Texas; secured
first fair market value acquisition in Ohio.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 61
Executive Compensation
Section 4 2019 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, and expense discipline.
He
is also responsible for overseeing all corporate finance functions, including financial planning, forecasting, cash flow planning,
investment strategies, capital structure, regulatory and rate strategies.
|
|
2019
Total Compensation Pay Mix
|
|
|
|
2019
Key Accomplishments
· Completed
financing for the previously announced agreement to acquire Peoples Natural Gas that reflects
an enterprise value of
$4.275 billion. This included
an equity offering which was over-subscribed and a debt offering locking in long-term rates at under 4%.
· In
anticipation of the Peoples’ Natural Gas integration, drove the alignment of accounting practices, closing schedules,
and internal controls at Peoples Natural Gas to ensure efficient consolidation of financials and SOX compliance as the entity
transitions from a private company.
· As
part of the regulatory process for the Peoples Natural Gas acquisition, played a meaningful role in both settlement
|
|
discussions and commission hearings in Pennsylvania, Kentucky, and West Virginia.
· Led state finance teams responsible for securing an additional $58.2 million in annualized water revenue from rate cases or surcharges in Pennsylvania, New Jersey, North Carolina, and Ohio.
· Provided guidance to Peoples Natural Gas team responsible for securing nearly $60 million of additional annualized revenue from its Pennsylvania rate case.
· Led the financial planning initiative which culminated in the Company providing its first ever multi-year earnings guidance.
|
|
|
|
Richard
S. Fox
Executive
Vice President and Chief Operating Officer
|
|
|
|
|
|
Responsibilities
As
COO, Mr. Fox is responsible for responsible for the leadership, management and vision to ensure that the company has the
proper operational controls, administrative and reporting procedures, and people systems in place to operate effectively
and efficiently, grow the business, and ensure financial strength of the company.
Mr.
Fox directs the company’s focus on the key operational metrics and performance indicators across all our states.
|
|
2019
Total Compensation Pay Mix
|
|
|
|
2019
Key Accomplishments
· Delivered
record results in annual OSHA defined safety metrics in
the company’s history.
· Managed
the investment of $550
million on infrastructure projects,
helping to ensure safe and reliable water for all customers.
· Achieved
successful rate cases in
Pennsylvania and New Jersey.
· Attained
settlement in Peoples acquisition case including
resolution of Goodwin-Tombaugh strategy.
|
|
· Led
the development of voluntarily changing Aqua’s companywide PFAS
standards to the lowest in the industry.
· Continued
annual Improved in wastewater
environmental compliance rate metrics.
· Prepared
for operational integration
of Peoples Natural Gas
into Essential.
· Passed
Fair Market Value legislation
in Texas; secured
first fair market value acquisition
in Ohio.
|
62 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Executive Compensation
Section 4 2019 NEO Compensation and Performance Summaries
Matthew
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.
|
|
2019
Total Compensation Pay Mix
|
|
|
|
2019
Key Accomplishments
· Spearheaded
the acquisition team for DELCORA,
a $276.5 million pending acquisition of a wastewater authority which provides service to a half million people.
· Helped
lead the numerous equity
and debt financing transactions to
fund the Peoples acquisition.
|
|
· Closed
several municipal transactions adding
~$53M of rate base, and helped move two deals with an additional ~$50M of rate base into
the final regulatory approval stage.
|
|
|
|
Christopher
P. Luning
Executive
Vice President, General Counsel and Secretary
|
|
|
|
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, this position is responsible for the Corporation’s Legal, Internal Audit, and Records Department,
is the Company’s designated SEC Compliance Officer, and is responsible for the Corporation’s risk management
including its Enterprise Risk Management program and its Insurance policies and programs.
|
|
2019
Total Compensation Pay Mix
|
|
|
|
2019
Key Accomplishments
· Led
the legal team in the financing for the previously announced agreement to acquire Peoples Natural Gas,
that reflects an enterprise value of $4.275 billion. The financing included an equity offering which was over-subscribed
and a debt offering locking in long-term rates at under 4%.
· Led
the legal negotiations for the agreement to acquire DELCORA,
a $276 million acquisition of a wastewater authority which provides service to a half million people.
|
|
· Led
the Company’s strategy in its legal actions, including the development
of company wide PFAS standards.
· Supported
the Company’s municipal acquisition strategy, including supporting
fair market value legislation.
· Led
the negotiations to combine
the Company’s insurance programs following
the anticipated closing of the Peoples Natural Gas acquisition.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 63
Executive Compensation
Section
5 Our New 2020 Short- and Long-Term Incentive Program
Section
5
Our
New 2020 Short- and Long-Term Incentive Program
2020
Short-Term Incentive Program
The
Compensation Committee re-evaluated the Short-Term Incentive (STI) metrics associated with the Company following the Peoples Natural
Gas transaction. The goal is to properly incent management to focus on core issues associated with driving long-term shareholder
growth, while motivating management. Among other considerations, the Compensation Committee reviewed the Peoples Natural Gas STI
plan, and sought to incorporate industry-wide standards and incentives for both the water/wastewater industries and the natural
gas industries.
Below
is the 2020 STI Plan that the Compensation Committee adopted for all named executive officers:
Proposed
2020 Essential Short-Term Incentive Plan
Each
metric associated with the 2020 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:
2020
Essential Short-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 PROXY STATEMENT
Executive Compensation
Section
5 Our New 2020 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
35%
RSU
|
20%
Performance
3 Yr O&M
|
20%
Performance
Rate Base
|
25%
Performance,
TSR Peer Group
|
2020
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:
· Maximum
(200% payout): 90th percentile (or greater)
· Target
(100% payout): 50th percentile
· Threshold
(50% payout): 30th percentile
|
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:
2020
PSU Performance Target Payout Percentage
The
charts below illustrate the performance that will be required for the 2020 PSUs to be paid out, and at what percentage:
PSU
Metric: Relative TSR
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 65
Executive Compensation
Section
5 Our 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
Rate
Base Growth – Payout
|
|
Operating
& Maintenance Budget Attainment
|
|
|
|
Rate
Base Growth: Rate base acquired through transactions: approved rate base at time of acquisition + subsequent capital invested
in the following three years.
|
|
O&M
Budget + First 2 years in the plan for the regulated businesses only.
|
66 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Executive Compensation
Section 6 Compensation
Governance Policies and Practices
Section
6
Compensation
Governance Policies and Practices
Anti-Hedging
and Anti-Pledging Policy
We
believe that issuance of incentive and compensatory equity awards to our directors and named executive officers along with our
stock ownership guidelines help to align the interests of such officers with our shareholders. As part of our insider trading
policy, we prohibit 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.
Clawback
of Incentive Compensation
In
the event of a significant restatement of our financial results caused by executive fraud or willful misconduct, the
Compensation Committee reserves the right to review the cash incentive compensation received by the named executive officers
with respect to the period to which the restatement relates, recalculate 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.
Stock
Ownership Guidelines
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
|
Chief
Executive Officer
|
5
|
85,700
|
Executive
Vice President
|
3
|
25,500
|
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 PROXY STATEMENT 67
Executive Compensation
Executive Compensation Committee Report
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:
Officer
Shareholdings as of December 31, 2019
Name
|
Position
|
Shares,
PSUs(1), and RSUs Held
|
Franklin
|
Chief
Executive Officer
|
212,653
|
Schuller
|
Executive
Vice President
|
34,576
|
Fox
|
Executive
Vice President
|
40,501
|
Rhodes
|
Executive
Vice President
|
18,650
|
Luning
|
Executive
Vice President
|
58,407
|
(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.
The
Executive Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis on pages 40 through 68
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 2020 Annual Meeting of Shareholders.
Respectfully
submitted,
Members:
Ellen
T. Ruff, Chairperson
Elizabeth
B. Amato
Daniel J. Hilferty
Christopher C. Womack
68 ESSENTIAL UTILITIES, INC. 2020 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.
Summary
Compensation Table
|
|
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
|
(1)
|
Salary
and Non-Equity Incentive Plan Compensation amounts include amounts deferred by the named
executive officer pursuant to the Executive Deferral Plan described on page 76.
|
(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, “Employee Stock and Incentive Plan”
contained In the Notes to the Consolidated Financial Statements In the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2019. For performance shares, the RSUs, the Grant Date Fair Value of Stock and Options Awards shown Is
based on the target number of the shares underlying the awards granted.
|
(3)
|
Non-Equity
Incentive Plan Compensation is shown for the year in which the compensation is earned
and Is generally paid in the following calendar year. See the description of these annual
cash Incentive awards above under the CD&A section of this Proxy Statement.
|
(4)
|
The
increase from 2018 to 2019 was primarily due to the significant decrease in the discount
rate from 4.30% at December 31, 2018 to 3.35% at December 31, 2019, plus the increase
in benefit accrual for each participant. The change in pension value is based on the
aggregate change In the actuarial present value of the named executive officer’s
accumulated benefit under all defined benefit pension plans (Including non-qualified
pension plans) from the pension plan measurement date used for financial statement reporting
purposes in the Company’s audited statements for the prior completed fiscal year
to the pension plan measurement date used for financial statement reporting purposes
in the Company’s audited financial statements for the covered fiscal year. All
amounts deferred by participants in the Executive Deferral Plan and all prior deferrals
under the Executive Deferral Plan are invested in a variety of mutual funds selected
by each participant under trust-owned life insurance used by the Company to fund the
Executive Deferral Plan; there are no preferential or above-market earnings on this deferred
compensation. Messrs. Rhodes and Schuller are not eligible to participate In the Retirement
Plan since they were hired by the Company after the Retirement Plan was closed to new
entrants.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 69
Executive Compensation
Grants of Plan-Based Awards
(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
|
|
(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 401 (k) and the non-qualified retirement
plan.
|
|
(c)
|
Represents
reimbursement provided under the Company’s relocation policy.
|
|
(d)
|
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.
|
Grants
of Plan-Based Awards
The
following table contains information regarding equity and non-equity awards granted to the named executive officers in 2019:
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
|
(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 52 through 54.
|
(2)
|
The
Threshold Non-Equity Incentive Plan Award is based on the factors described on pages
52 through 54.
|
(3)
|
The
Target Non-Equity Incentive Plan Award is based on the factors described on pages
52 through 54.
|
(4)
|
The
Maximum Non-Equity Incentive Plan Award is based the factors described on pages 52 through
54. The February 28, 2019 Equity Incentive Plan Awards in these columns are composed
of non-qualified stock options and restricted stock units for the CEO, Mr. Franklin,
and for the other named executive officers.
|
(5)
|
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.
|
(6)
|
The
grant date fair value of restricted stock unit awards is based on their fair market value
on the date of grant as determined under FASB ASC Topic 718. The assumptions used in
calculating the fair market value under FASB’s accounting standard for stock compensation
are set forth in Note 14, “Employee Stock and Incentive Plan” contained in
the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form
10-K for the year ended December 31, 2019.
|
70 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Executive Compensation
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
|
|
|
|
|
|
(1)
|
The
performance goals for the PSUs granted for 2017 for the three-year performance period
ended December 31, 2019 and consisted of four metrics. These metrics, and the achievement
determined by the Compensation Committee are described on pages 55 to 58 of this Proxy
Statement.
|
(2)
|
The
PSUs and RSUs in this column that are vested and earned for the named executive officers
as of the date of this proxy statement are:
|
Named
Executive Officer
|
Performance
Period End
|
Date
Vested, Earned and Paid
|
Number
of Shares Issued
|
Franklin
|
12/31/2019
|
2/22/2020
|
51,208
|
Schuller
|
12/31/2019
|
2/22/2020
|
12,851
|
Fox
|
12/31/2019
|
2/22/2020
|
13,171
|
Rhodes
|
12/31/2019
|
2/22/2020
|
3,581
|
Luning
|
12/31/2019
|
2/22/2020
|
10,733
|
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.
(3)
|
For
the PSUs granted in 2018, the Company’s interim performance through December 31, 2019
is 159.91%. Based on such interim performance PSUs are presented at target.
|
|
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
|
(4)
|
All
such PSUs are subject to the achievement of the applicable performance criteria for the
designated performance period, and continued service with the Company on the vesting
date; actual results could vary materially at the end of the performance period. All
RSUs for Mr. Franklin are subject to the achievement of applicable performance criteria
and his continued service with the Company on the vesting date. All RSUs for the NEOs
are subject to the individual’s continued service with the Company on the vesting date.
|
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, 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
|
(1)
|
The
“Number of Shares Acquired on Vesting” column represents the number of shares
of common stock issued upon the earning and vesting of the 2017 PSUs and RSUs in 2019.
|
(2)
|
The
“Value Realized on Vesting” column includes the fair value of the shares paid
on the vesting date plus dividend equivalents paid for PSUs and RSUs vesting in the amount
of $82,712 for Mr. Franklin, $21,797 for Mr. Schuller, $21,797 for Mr. Fox, $4,705 for
Mr. Rhodes, and $19,851 for Mr. Luning.
|
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,
we are providing the following information about the relationship of the annual total compensation of our employees and the annual
total compensation of Mr. Franklin:
For
2019, as is permitted under the rules of the SEC, to determine our median employee, we chose “base salary” as
our consistently applied compensation measure . We annualized this measure of compensation for those who began their
employment during 2018. Using a determination date in December 2019, 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 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 $53,167 In present value of the pension benefit. The annual total compensation for
the median employee and Mr. Franklin were calculated under Item 402(c) of Regulation S-K.
Accordingly,
the ratio of the annual total compensation of Mr. Franklin to the median of the annual total compensation of all employees of
the Company was estimated to be 45 to 1.
This
pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records
and the methodology described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio
based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain
exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices. As such, pay ratios reported
by other companies may not be comparable to the pay ratio reported above.
Retirement
Plans and Other Post-Employment Benefits
Pension
Benefits
The
following table shows: (1) the number of years of credited service for the named executive officers under our various retirement
plans as of December 31, 2019; (2) the actuarial present value of accumulated benefits under those plans as of December 31, 2019;
and, (3) any payments made to the named executive officers during 2019 under those plans.
Pension
Benefits
|
|
Number
of
|
Present
Value
|
Payments
During
|
Name
|
Plan
Name
|
Years
of Credited
Service*(#)
|
of
Accumulated
Benefit ($)
|
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
|
—
|
*
|
For
benefit accrual purposes, credited service in the Retirement 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.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 73
Executive Compensation
Retirement Plans and Other Post-Employment
Benefits
Retirement
Income Plan (the “Retirement Plan”)
The
Company sponsors a qualified defined benefit Retirement Plan to provide retirement income to the Company’s employees hired
prior to certain dates starting in 2003. Effective December 31, 2014, the named executive officers (other than Mr. Schuller, and
Mr. Rhodes who are not participants in the plan) ceased accruing a benefit under the Retirement Plan. Specifically, their plan
compensation and credited service for purposes of determining their benefits were frozen in the Retirement Plan as of December
31, 2014.
For
the portion of the Retirement Plan covering certain of the named executive officers, plan compensation is defined as total compensation
paid, but excludes contributions made by the Company to a plan of deferred compensation, distributions from a deferred compensation
plan, amounts realized from the exercise of stock options or when restricted shares underlying restricted 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”), imposes maximum limitations
on the annual amount of pension benefits that may be paid, and the amount of compensation that may be taken into account in calculating
benefits, under a qualified, funded, defined benefit pension plan such as the Retirement Plan. The Retirement Plan complies with
these ERISA limitations.
Benefits
earned under the final pay formula for the retirement plan are equal to 1.35% of average plan compensation plus 0.45% of average
plan compensation above “Covered Compensation” for each year of credited service up to 25 years, and 0.5% of average
plan compensation for each year of credited service above 25 years. The annual benefit is further subject to a minimum benefit
schedule. Average plan compensation is defined as the average of plan compensation over the highest five consecutive years out
of the last ten years. Covered Compensation is defined as the average of the Social Security Wage Bases (as defined in the Retirement
Plan) in effect for each calendar year during 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.
Non-Qualified
Retirement Plan
Effective
December 1, 1989, the Board of Directors adopted a supplemental benefits plan for salaried employees of the Company. On
December 1, 2014, the Board of Directors adopted an amended benefits plan for salaried employees of the Company (the
“Non-Qualified Pension Benefit 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” 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) the amount of the benefit
actually payable under the Retirement Plan.
Participants
may retire as early as age 55 with 10 years of service under 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. Fox is 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-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.
|
Please
note the following with regard to the “incremental 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.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 75
Executive 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,
2019 for our non-qualified Executive Deferral Plan
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
|
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
|
(1)
|
The
Company’s and the named executive officers’ contributions to this plan are included
in the base salary earned in 2019 in the Summary Compensation Table.
|
(2)
|
In
2019, the deferred amounts were invested in mutual funds chosen by the participant under
a trust-owned life insurance policy maintained by the Company to fund the Executive Deferral
Plan. The earnings shown in this column include the earnings on those mutual funds.
|
(3)
|
Prior
year contributions were reflected in the Summary Compensation Table for prior years.
|
Employees
with total projected W-2 compensation for 2019 in excess of $150,000 were eligible to participate in the Company’s
Executive Deferral Plan for 2019. Participants may defer up to 100% of their salary and 100% 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
|
76 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Executive Compensation
Potential Payments Upon Termination
or Change-In-Control
For
purposes of the change-in-control agreements, “Base Compensation” is defined as current base annual salary, plus
the greater of the named executive officer’s target bonus for the year in which the executive incurs a termination of
employment, or the last actual bonus paid to the named executive officer under the Annual Cash Incentive Compensation Plan
(or any successor plan maintained by 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
officer 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 officer is also entitled to receive a lump sum payment in lieu of the continuation of
certain health benefits for a period of 2 years and outplacement services.
The
payment of the multiple of Base Compensation would be made in a lump sum within 60 days after the executive’s termination
as defined under the agreement, although 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, 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, 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,
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.
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 77
Executive Compensation
Potential Payments Upon Termination or
Change-In-Control
Retirement
and other Benefits
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. The pension benefit values included in the tables on pages 73 through 75 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 79 through 82 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, 2019 for purposes of the tables on
pages 73 through 75. Participants not eligible to receive benefits if leaving under a triggering event as of December 31, 2019
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, subject to the restrictions under
the Executive Deferral Plan described on page 76. The values of these account balances are not included in the tables on pages
73 through 75. 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 73 through 75.
Under
the terms of the Amended and Restated Omnibus Equity Compensation Plan (the “Plan”):
·
|
if
the employment of the named executive officer terminates, 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, 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 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, 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, 2019 are included in the tables on pages 73 through 75.
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 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
are
included in the tables on pages 73 through 75. 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 73 through 75.
Termination
With
respect to 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, 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 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. Fox is 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, 2019 in the tables on pages 73
through 75), 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, 2019 in the tables on pages 73 through 75), 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, 2019 and assuming a value for our Common Stock as of December
31, 2019 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
|
80 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Executive Compensation
Potential Payments Upon Termination
or Change-In-Control
Richard
S. Fox
|
Payments
and Benefits Upon Separation
|
Change-in-Control
$
|
Termination
$
|
Retirement
$
|
Death
$
|
Disability
$
|
Triggered
Payments and Benefits
|
Severance
Payment
|
801,580
|
400,790
|
—
|
—
|
—
|
Prorated
current year bonus
|
260,514
|
260,514
|
260,514
|
260,514
|
260,514
|
Payment
of accrued dividend equivalents
|
49,582
|
—
|
39,799
|
49,582
|
49,582
|
Vesting
of restricted stock
|
—
|
—
|
—
|
—
|
—
|
Vesting
of restricted share units
|
491,133
|
—
|
298,416
|
491,133
|
491,133
|
Vesting
of performance share units
|
785,396
|
—
|
630,413
|
785,396
|
785,396
|
Vesting
of stock options
|
3,387,707
|
—
|
1,298,650
|
3,387,707
|
3,387,707
|
Continuation
of welfare benefits
|
40,798
|
9,951
|
—
|
—
|
—
|
Outplacement
services
|
20,000
|
—
|
—
|
—
|
—
|
Vested
Retirement Benefits
|
Incremental
pension value above that included in the Pension Benefits Table
|
—
|
—
|
380,047
|
—
|
1,468,490
|
Present
value of retiree medical benefits
|
220,416
|
220,416
|
220,416
|
—
|
220,416
|
Total
|
6,057,126
|
891,671
|
3,128,255
|
4,974,332
|
6,663,238
|
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
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 81
Executive Compensation
Potential Payments Upon Termination or
Change-In-Control
Christopher
P. Luning
|
Payments
and Benefits Upon Separation
|
Change-in-Control
$
|
Termination
$
|
Retirement
$
|
Death
$
|
Disability
$
|
Triggered
Payments and Benefits
|
Severance
Payment
|
720,902
|
360,451
|
—
|
—
|
—
|
Prorated
current year bonus
|
198,248
|
198,248
|
198,248
|
198,248
|
198,248
|
Payment
of accrued dividend equivalents
|
39,974
|
—
|
29,303
|
39,974
|
39,974
|
Vesting
of restricted stock
|
—
|
—
|
—
|
—
|
—
|
Vesting
of restricted share units
|
378,383
|
—
|
236,695
|
378,383
|
378,383
|
Vesting
of performance share units
|
637,361
|
—
|
512,100
|
637,361
|
637,361
|
Vesting
of stock options
|
2,440,504
|
—
|
968,242
|
2,440,504
|
2,440,504
|
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
|
206,792
|
206,792
|
—
|
—
|
1,024,365
|
Present
value of retiree medical benefits
|
—
|
—
|
—
|
—
|
—
|
Total
|
4,694,550
|
778,268
|
1,944,588
|
3,694,470
|
4,718,835
|
82 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Proposal
4:
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.
Background
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.
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 83
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.
|
|
|
The
Board of Directors unanimously recommends a vote FOR the approval of this amendment to the Company’s Articles
of Incorporation to establish a majority voting standard.
|
|
|
84 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Proposal
5:
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:
·
|
223,307,879
shares were issued and outstanding;
|
·
|
33,868,081
shares were reserved for issuance under stock incentive plans, the Employee Stock Purchase Plan, the Direct Stock and
Dividend Reinvestment Plan, the Company’s 401(k) plan, and for the conversion of outstanding 6% Tangible Equity
Units;
|
·
|
21,661,095
shares were reserved to be issued under the private placement transaction with CPPIB; and,
|
·
|
Approximately
7,000,000 shares in the aggregate are currently estimated to be issued in the Company’s
pending acquisition of DELCORA.
|
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:
·
|
avoid
the possible delays and significant expense of calling and holding a special meeting
of shareholders to increase the authorized shares of common stock at a later date; and
|
·
|
enhance
its ability to respond promptly to opportunities for acquisitions, mergers, stock splits, and additional financings.
|
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.
|
|
|
The
Board of Directors unanimously recommends a vote FOR the approval of this amendment to the Company’s Articles
of Incorporation to increase the number of authorized shares of common stock.
|
|
|
86 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Annual Meeting Information
Questions
and Answers About the 2020 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, 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
(“Notice”) by mail, you will not receive a printed copy of the proxy materials unless you request one. Instead, the
Notice will instruct you as to how you may access and review the proxy materials on the Internet. If you received a Notice by
mail and would like to receive a printed copy of our proxy materials, please follow the instructions included in the Notice.
The
Notice is being sent to shareholders of record as of March 9, 2020 on or about March 27, 2020. Proxy materials, which include
the Notice of Annual Meeting of Shareholders, this proxy statement and the Annual Report to Shareholders for the year ended
December 31, 2019, including financial statements and other information about the Company and its subsidiaries (the
“Annual Report”), are first being made available to shareholders of record as of March 9, 2020, on or about March
27, 2020.
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 “NYSE”) of brokerage houses, nominees, custodians and fiduciaries for the forwarding
|
|
of proxy materials to the beneficial
owners of shares held of record. In addition, the Company has retained Alliance Advisors
LLC to assist in the solicitation of proxies from (i) brokers, bank nominees and other
institutional holders, and (ii) individual holders of record. The fee paid to Alliance
Advisors LLC for normal proxy solicitation does not exceed $8,000 plus expenses, which
will be paid by the Company. Directors, officers and regular employees of the Company
may solicit proxies, although no compensation will be paid by the Company for such efforts.
Who
is entitled to vote?
Holders
of shares of the Company’s common stock (the “Common Stock”) of record at the close of business on March 9,
2020 are entitled to vote at the meeting. Each shareholder entitled to vote shall have the right to one vote on each matter presented
at the meeting for each share of Common Stock outstanding in such shareholder’s name.
How
many shares can vote?
As
of March 9, 2020, there were 223,307,879 shares of Common Stock outstanding and entitled to be voted at the meeting. Shares can
be voted in the following four ways:
· In
person at the meeting;
· By
proxy at the meeting;
· Electronically
via the Internet, according to the instructions set out on the proxy card; or
· By
telephone, according to the instructions set out on the proxy card.
What
is the deadline for voting?
If
you vote by proxy, we must receive the proxy by 11:59 P.M. May 5, 2020 in order for your vote to count. If you vote by proxy and
are a Plan participant, we must receive the proxy by 11:59 P.M. ET on May 3 for your vote count. If you vote electronically over
the Internet or by telephone, you must do so by 11:59 p.m. ET on May 5, 2020.
|
|
As
part of our precautions with respect to the coronavirus or COVID-19 outbreak, we may consider alternative arrangements for
the 2020 Annual Meeting, which may include a change in date, time, or location of the meeting, including holding the meeting
solely by means of remote communication. If we make any such changes, we will announce the decision in advance through all
appropriate means, and provide details on our website.
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 87
Annual
Meeting Information
Questions and Answers About the 2020 Annual
Meeting
If
a proxy is executed, can a shareholder still attend the meeting in person?
Yes,
execution of the accompanying proxy or voting through an electronic proxy or voting by telephone will not affect a shareholder’s
right to attend the meeting and, if desired, vote in person. You can submit a proxy and still attend the meeting without
voting in person.
Can
a shareholder revoke or change his or her vote?
Yes.
Any shareholder giving a proxy card or voting by electronic proxy or voting by telephone has the right to revoke the proxy
or the electronic or telephonic vote by giving written notice of revocation to the Secretary of the Company at any time
before the proxy is voted, by executing a proxy bearing a later date, by making a later-dated vote electronically or by
telephone, or by attending the meeting and voting in person. Attendance at the meeting will not, by itself, revoke a previously
granted proxy.
|
|
What
is “Householding”?
We
have adopted a procedure approved by the SEC called “householding.” Under this procedure, multiple shareholders
who share the same last name and address and do not participate in electronic delivery will receive only one copy of the
Proxy Materials or the Notice. We have undertaken householding to reduce our printing costs and postage fees. Shareholders
may elect to receive individual copies of the Proxy Materials or Notice at the same address by contacting Broadridge Financial
Solutions, Inc. By telephone at 1-800-540- 7095, or by mail at 51 Mercedes Way, Edgewood, New York 11717. Shareholders
who are receiving individual copies of such materials, and who would like to receive single copies at a shared address,
may contact Broadridge Financial Solutions, Inc. with this request by using the contact information provided above. Shareholders
who are receiving individual copies of such materials, and who would like to receive single copies at a shared address,
may contact Broadridge Financial Solutions, Inc. with this request by using the contact information provided above.
|
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
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
|
Proposal
3
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
4
Approval
of the Majority Voting 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
5
Approval
of the Authorized Shares 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
|
*
|
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
Company’s Articles of Incorporation also provide that the affirmative vote of a majority of the votes cast by those
shareholders present in person or represented by proxy at the meeting is required to take action with respect to any matter properly
brought before the meeting, other than the election of directors, on the recommendation of a vote of a majority of the entire
Board of Directors. The Company’s Articles of Incorporation also provide that the affirmative vote of at least three quarters
of the votes which all voting shareholders, voting as a single class, are entitled to cast is required to take action with respect
to any other matter properly brought before the meeting, other than the election of directors, without the recommendation of a
vote of a majority of the entire Board of Directors.
What
is a quorum?
A
quorum of shareholders is necessary to hold a valid meeting of shareholders for the transaction of business. The holders of
a majority of the shares entitled to vote, present in person or represented by proxy at the meeting, constitute a quorum.
Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining a
quorum.
What
is a broker non-vote?
A
“broker non-vote” occurs when a bank, broker or other holder of record holding shares for a beneficial owner
does not vote on a particular proposal because that holder does not have discretionary voting power under NYSE rules for that
particular item and has not received instructions from the beneficial owner. If you are a beneficial owner, your bank, broker
or other holder of record is permitted under NYSE rules to vote your shares on the ratification of PricewaterhouseCoopers LLP
as our independent registered public accounting firm for the 2020 fiscal year, even if the record holder does not receive
voting instructions from you. The record holder may not vote on the election of directors, the advisory vote on the
compensation paid to the Company’s named executive officers for 2019, the approval of the Majority Voting Amendment, or
the approval of the Authorized Shares Amendment. Without your voting
instructions on these matters, a broker non-vote will occur.
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?
Under
the Company’s current Articles of Incorporation and Bylaws, 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
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 2020 Annual Meeting will
be elected for one year terms expiring at the 2021 Annual Meeting of Shareholders and
until their successors are duly elected and qualified.
What
if an incumbent director receives more WITHHOLD votes than FOR votes in an uncontested election?
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 “Say
on Pay” vote?
The
Board of Directors and the Executive Compensation Committee, which is comprised of independent directors, value the opinions of
the Company’s shareholders and expect to take
|
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.
What
if the proposed amendments to the Company’s Articles of Incorporation do not receive a majority of the votes that
are cast?
If
the Majority Voting Amendment is not approved by our shareholders, then the current plurality voting standard will continue
to apply in contested and uncontested director elections. If the Authorized Shares Amendment is not approved by our
shareholders, the number of authorized shares of common stock will remain at 300,000,000. The approval of each of the
Majority Voting Amendment and the Authorized Shares Amendment is not conditional on the other. If shareholders approve the
Majority Voting Amendment but not the Authorized Shares Amendment, or vice versa, we may proceed with the filing of the
approved amendment with the Department of State of the Commonwealth of Pennsylvania.
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 2021 Annual Meeting of Shareholders,
proposals must be submitted in writing and received by the Company at the address below no later than November 27,
2020.
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 2021 Annual Meeting of Shareholders (other than matters included in the Company’s proxy materials)
not earlier than January 6, 2021 or later than February 5, 2021. The notice must meet certain other requirements set forth in
the Company’s Bylaws. Copies of the Company’s Bylaws can be obtained by submitting a written request to the
Secretary of the Company.
Proposals,
notices and requests for a copy of our Bylaws should be addressed as follows:
Corporate
Secretary
Essential Utilities, Inc.
762 W. Lancaster Avenue
Bryn Mawr, PA 19010
|
90 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
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 Annual Meeting in accordance with provisions of the Company’s Articles of Incorporation
and Bylaws.
Section
4.14 of the Company’s Bylaws requires the Nomination Notice to be received by the Secretary of the Company not less than
14 days nor more than 50 days prior to any meeting of the shareholders called for the election of directors, with certain exceptions.
These notice requirements do not apply to nominations for which proxies are solicited under applicable regulations of the SEC.
The Nomination Notice must contain or be accompanied by the following information:
1.
|
Residence
of the shareholder who intends to make the nomination;
|
2.
|
A
representation that the shareholder is a holder of record of voting stock and intends
to appear in person or by proxy at the meeting to nominate the person or persons specified
in the Nomination Notice;
|
3.
|
Such
information regarding each nominee as would have been required to be included in a proxy
statement filed pursuant to the SEC’s proxy rules had each nominee been nominated,
or intended to be nominated, by the management or the Board of Directors of the Company;
|
4.
|
A
description of all arrangements or understandings among the shareholder and each nominee
and any other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; and
|
5.
|
The
consent of each nominee to serve as a director of the Company if so elected.
|
What
is the deadline for submitting a Nomination Notice for the 2020 Annual Meeting?
Under
the requirements above, a Nomination Notice for the 2020 Annual Meeting must be received by the Secretary of the Company no later
than April 22, 2020.
Who
chooses the director candidates?
The
Corporate Governance Committee identifies, evaluates and recommends director candidates to our Board of Directors for nomination.
The process followed by our Corporate Governance Committee to identify and evaluate director candidates includes requests to current
directors and others for recommendations, consideration of candidates proposed by shareholders, meetings from time to time to
evaluate potential candidates and interviews of potential candidates.
How
are director candidates evaluated?
In
considering candidates for director, the Corporate Governance Committee will consider the candidate’s personal abilities,
qualifications, independence, knowledge, judgment, character, leadership skills, education, background and their expertise and
experience in fields and disciplines relevant to the Company, including financial expertise or financial literacy. When assessing
a candidate, consideration will be given to the effect such candidate will have on the diversity of the Board. Diversity of the
Board is evaluated by considering a broad range of attributes, including, without limitation, race, gender and national origin,
background, demographics, expertise and experience.
Due
consideration will also be given to the position the candidate holds at the time of his or her nomination and his or her capabilities
to advance the Company’s interests with its various constituencies. The Corporate Governance Committee considers all of
these qualities when selecting, subject to ratification by our Board of Directors, candidates for director. The Corporate Governance
Committee will evaluate shareholder-recommended candidates in the same manner as it evaluates candidates recommended by others.
What
is the deadline for submitting a shareholder recommendation for a director candidate at the 2021 Annual Meeting of Shareholders?
If
you would like a director candidate considered by the Corporate Governance Committee for selection as a nominee at the 2021
Annual Meeting of Shareholders, the recommendation should be submitted to the Chairperson of the Corporate Governance
Committee at least 120 days before the date on which the Company first mailed its proxy materials for the prior year’s
Annual Meeting of Shareholders—that is, for nominee recommendations for the 2021 Annual Meeting, no later than November
27, 2020.
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT 91
Annual
Meeting Information
Communications with the Company or Independent
Directors
Communications
with the Company or Independent Directors
The
Company receives shareholder suggestions which are not in the form of proposals. All are given careful consideration. We welcome
and encourage your comments and suggestions. Your correspondence should be addressed as follows:
Corporate
Secretary
Essential Utilities, Inc.
762
W. Lancaster Avenue
Bryn
Mawr, PA 19010
In
addition, shareholders or other interested parties may communicate directly with the independent directors or the lead independent
director by writing to the address below. The Company will review all correspondence and provide any comments along with the full
text of the shareholder’s or other interested party’s communication to the independent directors or the lead independent
director.
The
Independent Directors or Lead Independent Director of Essential Utilities, Inc.
C/O Corporate Secretary
762 W. Lancaster
Avenue
Bryn Mawr, PA 19010
Additional
Information
The
Company will provide without charge, upon written request, a copy of the Company’s Annual Report on Form 10-K for 2019 and
2019 Annual Report to Shareholders. Please direct your request to Investor Relations Department, Essential Utilities, Inc., 762
W. Lancaster Ave., Bryn Mawr, PA 19010. Copies of our Corporate Governance Guidelines, Committee Charters and Code
of Ethical Business Conduct can be obtained free of charge from the Corporate Governance portion of the Investor Relations section
of the Company’s website: www.Essential.co.
Other
Matters
The
Board of Directors is not aware of any other matters which may come before the meeting. However, if any further business should
properly come before the meeting, the persons named in the enclosed proxy will vote upon such business in accordance with their
judgment.
By
Order of the Board of Directors,
CHRISTOPHER P. LUNING
Secretary
March
27, 2020
92 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Appendix
A
Utility
Companies Included in the Utility Industry Database used by the Executive Compensation Committee’s Compensation Consultant
Pay Governance for 2019:
Investor-Owned Utilities
1.
|
AES
|
30.
NiSource
|
2.
|
Allete
|
31.
NorthWestern Energy
|
3.
|
Alliant
Energy
|
32.
NW Natural
|
4.
|
Ameren
|
33.
OGE Energy
|
5.
|
American
Electric Power
|
34.
Oncor Electric Delivery
|
6.
|
Atmos
Energy
|
35.
ONE Gas
|
7.
|
AVANGRID
|
36.
Otter Tail
|
8.
|
Avista
|
37.
Pacific Gas & Electric
|
9.
|
Berkshire
Hathaway Energy
|
38.
Peoples Natural Gas
|
10.
|
Black Hills
|
39.
Pinnacle West Capital
|
11.
|
CenterPoint
Energy
|
40.
PNM Resources
|
12.
|
CH
Energy Group
|
41.
Portland General Electric
|
13.
|
Chesapeake
Utilities
|
42.
PPL
|
14.
|
Cleco
|
43.
Public Service Enterprise Group
|
15.
|
CMS
Energy
|
44.
Puget Sound Energy
|
16.
|
Dominion
Energy
|
45.
SCANA
|
17.
|
Duke
Energy
|
46.
Sempra Energy
|
18.
|
Duquesne
Light Company
|
47.
South Jersey Industries
|
19.
|
Edison
International
|
48.
Southern Company Services
|
20.
|
El
Paso Electric Co.
|
49.
Southwest Gas
|
21.
|
Entergy
|
50.
Spire Group
|
22.
|
Eversource
Energy
|
51.
TECO Energy
|
23.
|
Exelon
|
52.
Tennessee Valley Authority
|
24.
|
FirstEnergy
|
53.
UGI
|
25.
|
Idaho
Power
|
54.
Unitil
|
26.
|
ITC
Holdings Corp.
|
55.
UNS Energy
|
27.
|
LG&E
and KU Energy Services
|
56.
Vectren
|
28.
|
MDU
Resources
|
57.
Westar Energy
|
29.
|
NextEra
Energy
|
58.
Wisconsin Energy
|
|
|
59. Xcel
Energy
|
ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT A-1
Appendix
B
Reconciliation
of Non-GAAP Financial Metrics
The
EPS financial Metric actual result represents an adjusted income per share (non-GAAP financial measure) that is derived from the
following GAAP financial measure:
|
|
Quarter Ended
December 31,
|
|
Year Ended
December 31,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net income (loss) (GAAP financial measure)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
$
|
64,227
|
|
|
$
|
(3,657
|
)
|
|
$
|
224,543
|
|
|
$
|
191,988
|
|
(1) Transaction-related expenses for the Peoples transaction
|
|
|
613
|
|
|
|
73,963
|
|
|
|
66,066
|
|
|
|
73,963
|
|
(2) Pre- acquisition interest expense for funds borrowed for acquisition of Peoples, net
|
|
|
2,643
|
|
|
|
—
|
|
|
|
5,961
|
|
|
|
—
|
|
(3) Overlapping net interest expense on refinanced debt
|
|
|
—
|
|
|
|
—
|
|
|
|
452
|
|
|
|
—
|
|
(4) Interest income earned on proceeds from April 2019
equity offerings
|
|
|
(6,898
|
)
|
|
|
—
|
|
|
|
(23,377
|
)
|
|
|
—
|
|
(5) Income tax effect of non-GAAP adjustments
|
|
|
777
|
|
|
|
(15,127
|
)
|
|
|
(10,149
|
)
|
|
|
(15,127
|
)
|
Adjusted income (Non-GAAP financial measure)
|
|
$
|
61,362
|
|
|
$
|
55,179
|
|
|
$
|
263,496
|
|
|
$
|
250,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share (GAAP financial measure):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.28
|
|
|
$
|
(0.02
|
)
|
|
$
|
1.04
|
|
|
$
|
1.08
|
|
Diluted
|
|
$
|
0.28
|
|
|
$
|
(0.02
|
)
|
|
$
|
1.04
|
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income per common share (Non-GAAP financial measure):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.34
|
|
|
$
|
0.31
|
|
|
$
|
1.47
|
|
|
$
|
1.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
232,107
|
|
|
|
177,987
|
|
|
|
215,550
|
|
|
|
177,904
|
|
Diluted
|
|
|
232.581
|
|
|
|
178,431
|
|
|
|
215,931
|
|
|
|
178,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in calculating diluted net income per common share
|
|
|
232,581
|
|
|
|
178,431
|
|
|
|
215,931
|
|
|
|
178,399
|
|
(6) Adjustment for effects of April 2019 common share issuance
|
|
|
(37,370
|
)
|
|
|
—
|
|
|
|
(25,903
|
)
|
|
|
—
|
|
(6) Adjustment for effects of April 2019 tangible equity unit issuance
|
|
|
(16,271
|
)
|
|
|
—
|
|
|
|
(11,278
|
)
|
|
|
—
|
|
Shares used in calculating adjusted diluted income per common share
(Non-GAAP financial measure)
|
|
|
178,940
|
|
|
|
178,431
|
|
|
|
178,750
|
|
|
|
178,399
|
|
Adjusted
income per share is a key measure of our financial and operational results
B-1 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
Appendix C
Articles
of Amendment of
Essential Utilities, Inc.
(Majority
Voting Amendment)
Paragraph
5.01(a) of Article V of the Amended and Restated Articles of Incorporation of the Corporation, as amended, is hereby amended to
read as follows:(1)
“5.01(a) (1) Number; Term. The Board of Directors of the Corporation shall consist of such number of directors as shall be fixed from time
to time by resolution of the Board adopted by a vote of three-quarters of the entire Board of Directors. Cumulative voting for
directors shall not be permitted. Directors shall be elected at each annual meeting of shareholders, each elected director
to serve for a term of one-year and until his or her successor is duly elected and qualified, in the manner provided in the
Bylaws or, in order to fill any vacancy on the Board of Directors, in the manner provided in the Bylaws.
(2) Election of Directors.
(i) In an
election of directors that is not a contested election, each director shall be elected by the vote of the majority of the votes
cast with respect to that director. For the purposes of this Article V, a majority of the votes cast means that the number of
votes cast “for” a nominee must exceed the number of votes cast “against” that nominee.
(ii) In a contested election of directors, the candidates receiving the highest number of votes, up to the number of directors to be
elected in such election, shall be elected. Shareholders shall not have the right to vote against a nominee in a contested election
of directors.
(iii) For purposes of this Article V, a contested election is one in which the number of candidates exceeds the number of directors
to be elected. The number of candidates for an election shall be determined in accordance with these Articles of
Incorporation, the Bylaws, including any advance notice provisions of each, and applicable law.
(iv) If an incumbent director who is a candidate for re-election is not elected, the director shall be deemed to have tendered his
or her resignation to the Board.”
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(1)
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The
markings in this text are made to show the changes to be made to the existing Amended and Restated Articles of Incorporation of
the Company. Bracketed language indicates text that is being deleted. Double underlined language indicates text that is being
added.
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ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT C-1
Appendix
D
Articles
of Amendment of
Essential Utilities, Inc.
(Authorized
Shares Amendment)
Paragraph
4.01 of Article IV of the Amended and Restated Articles of Incorporation, as amended, of the Corporation is hereby amended to
read as follows:(1)
“4.01
The aggregate number of shares which the Corporation shall have authority to issue is [301,770,819] 601,770,819 shares,
divided into [300,000,000] 600,000,000 shares of Common Stock, par value $.50 per share, and 1,770,819 shares of Series
Preferred Stock, par value $1.00 per share. The Board of Directors shall have the full authority permitted by law to fix by resolution
full, limited, multiple or fractional, or no voting rights, and such designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights, and other special or relative rights of any class or any series of any class that may
be desired. Any or all classes and series of shares of the Corporation, or any part thereof, may be represented by uncertificated
shares to the extent determined by the Board of Directors, except that shares represented by a certificate that is issued and
outstanding shall continue to be represented thereby until the certificate is surrendered to the Corporation. Within a reasonable
time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a written
notice containing the information required to be set forth or stated on certificates. The rights and obligations of the holders
of shares represented by certificates and the rights and obligations of the holders of uncertificated shares of the same class
and series shall be identical.”
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(1)
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The
markings in this text are made to show the changes to be made to the existing Amended and Restated Articles of Incorporation of
the Company. Bracketed language indicates text that is being deleted. Double underlined language indicates text that is being
added.
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D-1 ESSENTIAL UTILITIES, INC. 2020 PROXY STATEMENT
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ESSENTIAL UTILITIES, INC.
762 WEST LANCASTER AVENUE
BRYN MAWR, PA 19010
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VOTE BY INTERNET - www.proxyvote.com
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Use the Internet to transmit your voting instructions and for
electronic delivery of information. Vote by 11:59 p.m. Eastern Time on May 5, 2020 for shares held directly and by 11:59 p.m. Eastern Time on May
3, 2020 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an
electronic voting instruction form.
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ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
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If
you would like
to reduce the
costs incurred by
our company in
mailing proxy materials, you
can consent to
receiving all future
proxy statements, proxy
cards and annual
reports electronically
via e-mail
or the
Internet. To
sign up
for electronic
delivery, please follow
the instructions above
to vote using
the Internet and, when
prompted, indicate that
you agree to
receive or access
proxy materials electronically in future years.
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VOTE BY PHONE - 1-800-690-6903
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Use any touch-tone telephone to
transmit your voting instructions. Vote by 11:59 p.m. Eastern Time on May 5, 2020 for shares held directly and by 11:59 p.m.
Eastern Time on May 3, 2020 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions.
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VOTE BY MAIL
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Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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E99109-P37945
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KEEP THIS PORTION
FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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ESSENTIAL
UTILITIES, INC.
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For
All
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Withhold
All
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For All
Except
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To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
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The Board of Directors recommends
you vote FOR all of the nominees listed:
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1.
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To elect nine nominees
for directors:
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o
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o
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Nominees:
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01)
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Elizabeth B. Amato
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06)
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Francis O. Idehen
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02)
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Nicholas DeBenedictis
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07)
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Ellen T. Ruff
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03)
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Christopher H. Franklin
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08)
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Lee C. Stewart
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04)
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Wendy A. Franks
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09)
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Christopher C. Womack
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05)
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Daniel J. Hilferty
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The Board of Directors recommends you vote FOR the following
proposals:
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For
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Against
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Abstain
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2.
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To ratify the
appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2020 fiscal year:
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o
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o
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o
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3.
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To approve an advisory vote
on the compensation paid to the Company's named executive officers for 2019:
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o
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o
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o
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4.
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To approve an amendment to the Articles of Incorporation to establish a majority voting standard in uncontested director elections:
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o
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o
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o
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5.
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To approve an amendment to the Articles
of Incorporation to increase the number of authorized shares of common stock from 300 million to 600 million:
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o
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o
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o
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NOTE: To transact such other business as may properly
come before the meeting or any adjournments or postponements thereof.
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Yes
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No
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Please indicate if you plan to attend this meeting.
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o
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o
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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ADMISSION TICKET
This is your admission ticket to the Essential
Utilities, Inc. Annual Meeting of Shareholders to be held May 6, 2020 at 8:00 a.m., Local Time, at the Peoples Natural
Gas Headquarters, 375 North Shore Drive, Pittsburgh, PA 15212. Please present this original ticket for admission at the registration
table.
Important Notice Regarding the Availability
of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at http://essential.co/investor-relations
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E99110-P37945
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Proxy
Essential Utilities, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF ESSENTIAL UTILITIES, INC.
Proxy for Annual Meeting of Shareholders
on May 6, 2020.
The undersigned hereby appoints
Christopher P. Luning and Daniel J. Schuller, or a majority of them or any one of them acting singly in absence of the others,
with full power of substitution, the proxy or proxies of the undersigned, to attend the Annual Meeting of Shareholders of Essential
Utilities, Inc., to be held at the Peoples Natural Gas Headquarters, 375 North Shore Drive, Pittsburgh, PA 15212, at 8:00 a.m., local
time on Wednesday, May 6, 2020 and any adjournments or postponements thereof, and, with all powers the undersigned would possess, if present,
to vote all shares of Common Stock of the undersigned in Essential Utilities, Inc. including any shares held in the Dividend Reinvestment and
Direct Stock Purchase Plan of Essential Utilities, Inc. as designated on the reverse side.
The proxy when properly executed
will be voted in the manner directed herein by the undersigned. If the proxy is signed, but no vote is specified, this proxy
will be voted: FOR ALL the director nominees listed in Proposal No. 1 on the reverse side; FOR the ratification of
PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2020 fiscal year in
Proposal No. 2; FOR the compensation paid to the Company's named executive officers for 2019 in Proposal No. 3; FOR the
approval of an amendment to the Amended and Restated Articles of Incorporation, as amended (the “Articles of
Incorporation”) to establish a majority voting standard in uncontested director elections in Proposal No. 4; FOR the
approval of an amendment to the Articles of Incorporation to increase the number of authorized shares of common stock in
Proposal No. 5; and in accordance with the proxies' discretion upon other matters properly coming before the meeting and any
adjournments or postponements thereof.
PLEASE MARK, SIGN, DATE AND PROPERLY
RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE, OR VOTE ELECTRONICALLY THROUGH THE INTERNET OR BY TELEPHONE BY FOLLOWING THE
INSTRUCTIONS SET OUT ON THE PROXY CARD.
Continued and to be signed on reverse
side
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