UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No. )

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ESSENTIAL UTILITIES, INC.

(Name of Registrant as Specified In Its Charter)

 

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March 21, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Christopher H. Franklin

 

“We are steadfast in our commitments to strengthen our communities, deliver excellent service, act as responsible environmental stewards, enhance economic development and provide equitable opportunities for all employees. Together, we will ensure safe and reliable access to the Earth’s most essential resources for generations to come.”

 
 

To Our Shareholders

 

On behalf of your Board of Directors, I am pleased to invite you to attend the 2022 Annual Meeting of the Shareholders of Essential Utilities, Inc. to be held virtually on May 4, 2022.

 

While COVID-19 has been disruptive to most areas of life, it underscored the importance of our mission to deliver Earth’s most essential resources safely and reliably to our customers, especially during a time of so much uncertainty. 2021 marked our first full year under the name Essential Utilities, 50 years as a listed company on the New York Stock Exchange and 135 years of history at both our water and gas companies. This long history of success reminds us of our incredible responsibility as the current stewards of the Company’s assets and reputation. The important milestones achieved this year exemplify our long-term dedication to the Company’s core mission.

 

Remarkably, in 2021 we invested a record amount of capital-more than $1 billion to strengthen our 32,000+ miles of water, wastewater and natural gas. We also opened our state-of-the-art environmental lab in July, enabling us to continue advanced testing to provide safe water to our communities.

 

We are proud of our Company’s philanthropic culture and our history as a strong corporate partner in the communities we serve. Our work through the Essential Foundation is focused on enriching the lives of those in our communities. In 2021, the Essential Foundation contributed more than $4.6 million to organizations that are making a difference in the lives of our customers.

 

Throughout the year, we continued our ambitious growth strategy, closing two transactions and adding approximately $36.3 million in rate base and approximately 7,700 new customers. We also signed six purchase agreements, totaling $141.5 million in purchase price, which are expected to add more than 25,800 customer equivalents.

 

In June, we safely welcomed our employees back into the office, taking important measures to ensure they remained healthy and safe. We also navigated changing government mandates and procedures with agility, while deploying measures to protect the health of our valued customers.

 

We remain dedicated to creating a corporate culture that celebrates diversity and empowers employees, where all feel welcomed, respected and recognized for their contributions. At year end, 15% of our employees were people of color, toward our multi-year goal of 17%. We also purchased nearly 11% of our goods and services from diverse suppliers, on our way toward our multi-year target of 15%.

 

I continue to be impressed by the dedication of our Essential team and their ongoing commitment to our customers, shareholders and communities. Given our success this year, even during a global pandemic, I am more optimistic than ever that our future is bright. We hope you will join us in May to hear more about our aspirations for the future.

 

Thank you for your confidence in Essential.

 

Sincerely,

 

Christopher H. Franklin

Chairman, Chief Executive Officer and President

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   1

 
 

Notice of Annual Meeting of Shareholders

 

Essential Utilities, Inc.
762 W. Lancaster Avenue

Bryn Mawr, Pennsylvania 19010

 

 

           

Virtual Annual Meeting of Shareholders

 

Wednesday, May 4, 2022
8:00am Local Time

 

Record Date

March 7, 2022

 

Due to public health concerns about COVID-19 and to support the health and safety of our shareholders and employees, this year’s Annual Meeting will be conducted virtually, entirely by live audio broadcast.

 

To attend, go to: www.virtualshareholdermeeting.com/ WTRG2022 and log in using the control number on your Notice of Internet Availability, proxy card or voting instruction form.

 

The list of shareholders will be available for inspection upon request by any shareholder for any purpose germane to the Annual Meeting for a period of 10 days prior to the Annual Meeting at our principal office located at 762 W. Lancaster Avenue Bryn Mawr, PA 19010, by contacting us at www.essential.co/investor-relations

 

Shareholders will have the same opportunities to participate as they would at an in-person meeting, with the opportunity to vote and ask questions on the matters discussed in this proxy statement.

 

 

Purpose

1  To elect eight nominees for directors;

2  To approve an advisory vote on the compensation paid to the Company’s named executive officers for 2021;

3  To ratify an Amendment to the Company’s Amended and Restated Bylaws (the Bylaws) to require disclosure of derivative securities holdings when a shareholder makes a nomination for a director or presents a proposal to be considered by shareholders at an annual meeting of shareholders;

4  To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2022 fiscal year; and

5  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 7, 2022 will be entitled to notice of, and to vote at, the meeting.

 

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 Annual 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 at the virtual annual meeting.

 

  How to vote

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May 4, 2022.

 

The Notice of Annual Meeting, Proxy Statement and 2021 Annual Report to Shareholders are available at: www.proxyvote.com.

 

If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the Virtual Shareholder Meeting login page.

 

 

 

Online before the meeting*

www.proxyvote.com

 

Online at the meeting

Attend the Annual Meeting virtually at
www.virtualshareholdermeeting.com/WTRG2022
and follow the instructions for voting

 

By phone*

In the U.S. or Canada
dial toll-free
1-800-690-6903

 

 

By mail

Return your proxy card
in the postage-paid
envelope provided

         
         
  *   You have until 11:59 p.m. (ET) on May 3, 2022 to vote through the internet or by phone, for shares held directly and if you are a plan participant you have until 11:59 p.m. (ET) on May 1, 2022 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.
         
 
         
 

By Order of the Board of Directors,

 

Christopher P. Luning

Secretary

March 21, 2022

 

 

 

2   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Contents

 

Proxy Summary 4
Proposal 1 Election of Directors 10
Corporate Governance 19
Shareholder Outreach 27
Environmental, Social, and Governance Program 28
Governance Policies and Practices 34
Director Compensation 37
Ownership of Common Stock 40
Proposal 2 Advisory Vote to Approve Named Executive Officers’ 2021 Compensation 41
Proposal 3 Ratification of an Amendment to the Bylaws Establishing Requirements for Shareholders to Disclose Derivative Securities Holdings when Making a Nomination or Presenting a Proposal 42
Proposal 4 Ratification of the Appointment of PricewaterhouseCoopers LLP as Independent Registered Public Accounting Firm for Fiscal 2022 44
Audit Committee Report 45
Executive Compensation (see separate table of contents) 46
Annual Meeting Information 88
Questions and Answers about the 2022 Annual Meeting 88
Nominating Candidates for Director 92
Communications with the Company or Independent Directors 93
Additional Information 93
Other Matters 93
Appendix A Reconciliation of GAAP to Non-GAAP Financial Measures A-1
Appendix B Amended and Restated Bylaws of Essential Utilities, Inc. B-1

 

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. 2022 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 2021 performance, please review the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

Summary of Matters to be Voted upon at the Annual Meeting

The following table summarizes the items that shareholders are being asked to vote on at the 2022 Annual Meeting:

 

 

Proposal

 

Description

Vote
Recommendation
Page
Reference

Proposal 1

Election of Directors

The Board of Directors of the Company (the Board of Directors or the Board) and the Corporate Governance Committee believe that the eight 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. FOR each Director Nominee 10

Proposal 2

Advisory Vote to Approve Named Executive Officers’ Compensation

The Company seeks a non-binding advisory vote to approve the compensation of its named executive officers for 2021 as described in the Compensation Discussion and Analysis (CD&A) and the compensation tables and narrative discussion. The Board values shareholders’ opinions, and the Compensation Committee will take into account the outcome of the advisory vote when considering future executive compensation decisions. FOR 41

Proposal 3

Ratification of an Amendment to the Bylaws to require derivative securities holdings disclosure

The Board amended the Bylaws to add a requirement for disclosure of derivative securities holdings by any shareholder nominating a candidate for director or presenting a proposal for consideration by shareholders at an annual meeting. The Board believes full disclosure of all stock holdings, including derivative securities holdings, provides

important information to other shareholders in evaluating any such nomination or proposal. As a matter of good corporate governance, shareholders are being asked to ratify this Amendment.

FOR 42

Proposal 4

Ratification of Independent Accounting Firm

The Board believes the retention of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the 2022 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.

FOR 44

 

What’s New

·    We continued to enhance our disclosures to make our proxy statement easier to read and understand.

·    We responded to COVID-19 challenges. See disclosures throughout this proxy statement.

·    We focused on our employees’ health, safety, diversity and inclusion programs.

·    The Executive Compensation Committee held in-depth discussions on the Company’s strategy and compensation program, assessing the peer group, and evaluating each

 

 

 

 

component of the package, including base salaries, short-term incentives, and long-term incentives.

·    Metrics in our 2021 compensation program are aimed at incenting management to support diversity, equity, and inclusion in our organization. See pages 45 through 50 for a summary of our compensation program for 2021.

 

 

 

4   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Proxy Summary

 

Director Nominees

 

Director Nominees

The following table provides summary information about each of the Company’s eight director nominees. Each director will serve a one-year term if elected.

All directors are independent except for Mr. Franklin.   Current and Proposed Committee Memberships

 

 

Director Nominee

 

 

Age

 

Director
Since

 

 

Principal Occupation

Other Public
Company
Boards

 

 

Executive

 

Executive
Compensation

 

 

Audit

Risk Mitigation &
Investment
Policy**

 

Corporate
Governance

Elizabeth B. Amato 65 2018

Former Executive Vice President and Chief Human Resources Officer, United Technologies Corporation

0

   

CHAIR

David A. Ciesinski 55 2021 President, Chief Executive Officer, and Director, Lancaster Colony Corporation, and President, T. Marzetti Company 1     ·   ·
Christopher H. Franklin
Chairman
56 2015

Chairman, President and Chief Executive Officer,

Essential Utilities, Inc.

0

CHAIR

Daniel J. Hilferty

Lead Independent Director

65 2017 Chairman and Chief Executive Officer, Dune View Strategies, and Executive Advisor, Independence Health Group

0

CHAIR

Edwina Kelly 35 2021 Managing Director Canada Pension Plan Investment Board, Sustainable Energies Group

0

 

 
Ellen T. Ruff 73 2006 Former President, Office of Nuclear Development, Duke Energy Corporation

0

 

   

Lee C. Stewart 73 2018 Private Financial Consultant 1 CHAIR    
Christopher C. Womack 64 2019 Chairman, President and Chief Executive Officer, Georgia Power

1

 

Committee Meetings held in 2021       0 9 8 6 4
                     

 

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   5

 
 

Proxy Summary

 

Corporate Governance Highlights

 

Board Composition as of December 31, 2021

 

 

Corporate Governance Highlights

We are committed to maintaining strong standards of corporate governance, which promote the long-term interests of our shareholders, strengthen Board and management accountability, and help build public trust in our Company. The Corporate Governance section beginning on page 19 describes our corporate governance framework.

 

Board Accountability

   Annual election of directors

   15 year term limit for directors who were elected after 2015

   Mandatory retirement age of 75 for directors

Board Independence

   Seven out of eight director nominees are independent

   Independent audit, compensation, and governance committees

Lead Independent Director    Lead Independent Director with clearly defined and robust responsibilities
Board and Committee Evaluations    Peer evaluations of the Directors, the Board, and its committees
Board Diversity*

   Over 55% of the Board is diverse

   33% of the Board is comprised of female directors

Board Refreshment    Since 2015, 88.9% of the directors are newly appointed or elected
Board Oversight

   Risk oversight by full Board and all committees

   Robust oversight of cybersecurity measures by full Board and Risk Mitigation & Investment Policy Committee

   Board oversight of ESG program

Stock  Ownership Guidelines

   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

Shareholder  Engagement    Comprehensive shareholder outreach conducted in 2021 with approximately 300 meetings held with investors

* As of December 31, 2021

 

 

6   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Proxy Summary

 

2021 Performance Highlights

 

2021 Performance Highlights

Despite the many challenges during 2021, our leadership team remained focused on growing our customer base through acquisitions, prudently invested a record amount of over $1 billion in infrastructure, maintained operational excellence and demonstrated the resiliency of our water and natural gas platforms. As of year-end 2021, we had a total of eight signed purchase agreements to acquire water and wastewater systems, totaling over $471 million in purchase price and expected to serve approximately 235,000 equivalent retail customers or equivalent dwelling units. We see great opportunities ahead and remain focused on investing in infrastructure and delivering sustainable growth for our investors. We do this while building on our core values of respect, integrity, and the pursuit of excellence and remaining dedicated to our mission of safely and reliably delivering Earth’s most essential natural resources to our customers and communities.

 

·  In 2021, we invested a record amount of over $1 billion in infrastructure projects across the water and gas utilities, helping to ensure safe and reliable service for all customers.

 

·  Revenues were $1.88 billion in 2021, an increase of 28.4 percent over 2020.

 

·  Earnings per share were $1.67 in 2021, in line with expectations.

 

·  We added approximately 7,700 water and wastewater customer equivalents through acquisition in 2021 and increased water and wastewater customers served by 2 percent, which includes customers from organic growth and acquisitions. Our acquisitions in 2021 added approximately $36.3 million in rate base.

 

·  We signed purchase agreements to acquire 6 water and wastewater systems in 2021. These systems are expected to add over 25,000 equivalent retail customers or equivalent dwelling units.

 

·  From January 1, 2019 to December 31, 2021, the total return to our shareholders, including share price appreciation and dividends paid, shows 65.56 percent growth.

 

·  In July 2021, the Board of Directors approved a 7 percent increase in the quarterly dividend to an annualized rate of $1.0728 per share.

 

·  Since making the greenhouse gas emissions reduction commitment in early 2021, the Company has achieved an estimated 7% Scope 1 and 2 emissions reduction from our 2019 baseline towards our 60% reduction target by 2035.

 

·  As of year-end 2021, the Company reached 15% people of color in our employee base towards our multi- year target of 17%.

 

·  Additionally, in controllable spending, we purchased nearly 11% of goods and services from diverse supplies towards our multi-year target of 15%.

     

 

 

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   7

 
 

Proxy Summary

 

Compensation Highlights

 

2019–2021 Pay for Performance Alignment

Our pay programs are designed to reflect the Company’s performance. The following table shows the relationship between financial performance goals and executive performance-based payouts over the past three years:

 

Target EPS
(adjusted for comp plan)*

EPS

(adjusted for comp plan)*

 

STI Payout %

 

3 Year TSR Return

 

PSU Payout %

2019 $1.47 Achieved 126.45% 67.75% 159.91%
2020 $1.55 Achieved 137.10% 29.08% 175.00%
2021 $1.66 Achieved 129.70% 65.56% N/A

 

*Target EPS is a non-GAAP financial measure. See Appendix A.

 

Comparison of Five Year Cumulative Total Return*

Below is a chart showing our Total Return to our shareholders over the past five years as compared to the S&P 500 Index and the S&P MidCap 400 Utilities Index.

 

 

 

Compensation Highlights

Highlights of our executive compensation program include:

•   Shareholder outreach designed to align compensation practices with shareholder interests

 

•   Compensation program highly correlated to total shareholder return, adjusted earnings per share, and other financial metrics

 

•   Continued 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 continued

 

•   No tax gross ups

 

•   Shareholding requirements ensure that executives are aligned with shareholders

 

•   Reasonable severance arrangements in line with market practices

 

•   Modest perquisites

 

•   New elements to the 2021 compensation program aimed at incenting management to support diversity, equity, and inclusion in the organization

     

 

 

8   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Proxy Summary

 

2021 Pay for Performance Compensation Program

 

2021 Pay for Performance Compensation Program

Our goal is to continue our pay-for-performance culture throughout our Company. 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.
Maintain an important focus on environmental, social, and governance issues while building shareholder value.

 

2021 NEO Total Compensation Pay Mix

 

 

Shareholder Outreach and Results of 2021 Advisory Vote to Approve Executive Compensation

At our 2021 annual meeting of shareholders, our shareholders overwhelmingly supported our compensation program, with 96% of shareholders voting in agreement with the Company’s compensation design. We believe the high level of support recognized the thoughtfulness and consideration the Executive Compensation Committee and the management team spent in redesigning the program to more closely align with driving shareholder value.

Over the course of 2021, management held approximately 300 meetings with investors. Additionally, as part of our governance focused outreach, we offered to meet with our top 25 shareholders. For this effort, we engaged with every shareholder who accepted our offer to meet. During these meetings and calls, we discussed numerous topics, including strategic, executive compensation, and environmental, social and governance issues.

For more information on our shareholder engagement program, investor feedback and the actions taken in response to that feedback, please see page 54 in this proxy statement.

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   9

 
 

Proposal 1:

Election of Directors

 

Our Board has nominated eight directors for election at this year’s Annual meeting for a one year term upon the recommendation of our Corporate Governance Committee. Ms. Amato, Mr. Ciesinski, Mr. Franklin, Mr. Hilferty, Ms. Kelly, Ms. Ruff, Mr. Stewart, and Mr. Womack for election as directors at the 2022 Annual Meeting, with each nominee abstaining from the vote with respect to his or her nomination, as applicable. Mr. Idehen recently informed us that he is not able to stand for re-election. We have included his information, including his biography, below, as he served on our Board during all of 2021. We thank Mr. Idehen for his service on our Board.

Eight nominees will stand for election by a plurality of the votes cast at the 2022 Annual Meeting. At the Annual Meeting, proxies in the accompanying form, properly executed, will be voted for the election of the eight 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

The Board of Directors has determined that each director and nominee for director is independent, other than Mr. Franklin, the Company’s Chairman, President, and Chief Executive Officer. For more information, see Governance Practices & Policies beginning on page 34 for our Director Independence Standards and Related Persons Transaction Policy.

 

Age and Term Limits

Term Limits: The Board believes term limits are an important element of good governance, helping create an appropriate balance between the contribution of directors who have developed, over a period, meaningful insight into the Company and its operations, and new directors who bring a fresh perspective to our Board. Any director, upon reaching the fifteenth anniversary of their accepting an initial appointment or election to the Board of Directors, must tender his or her resignation to the Board. The Term Limit Policy does not apply to directors who were elected on or before December 1, 2015. As of the date of this proxy statement, only two directors, including our CEO, were first elected prior to or in 2015.

Age Limits: All directors are now required to submit their resignation from the Board effective as of their 75th birthday.

 

Board Diversity

When assessing a director nominee candidate, consideration is given to the effect the candidate will have on the diversity of the board. Diversity of the board is evaluated by considering a broad range of attributes, including, without limitation, race, gender and national origin, background, demographics, expertise and experience. Each year, the directors complete a targeted questionnaire that is administered by a neutral, non-affiliated entity to assess the performance of the board and each of the standing committees. Every second year, directors complete a targeted questionnaire to assess the performance of the directors individually.

 

 

10   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Proposal 1: Election of Directors

 

Board Diversity

 

Director Nominee Experience, Qualifications, Attributes and Skills Criteria

The chart below summarizes the experience, qualifications, attributes, and skills of each of these nominees:

 

Key Skills Amato Ciesinski Franklin Hilferty Kelly Ruff Stewart Womack
Utility Industry      
Regulatory      
Financial      
Legal/Government        
Leadership
Mergers & Acquisitions
Geographic Diversity    
“C-Suite” Experience

 

Based upon these qualifications, attributes, and skills, the Board of Directors determined that the following director nominees are best suited for service on the following Committees:

 

Committee Chair Other Members
Audit Lee C. Stewart Edwina Kelly, David A. Ciesinski
Corporate Governance Elizabeth B. Amato Ellen T. Ruff, Christopher C. Womack, David A. Ciesinski
Executive Compensation Daniel J. Hilferty Elizabeth B. Amato, Ellen T. Ruff, Lee C. Stewart
Executive Christopher H. Franklin Daniel J. Hilferty, Lee C. Stewart, Elizabeth B. Amato
Risk Mitigation and Investment Policy TBD* Christopher H. Franklin, Edwina Kelly, Christopher C. Womack

 

*Mr. Idehen is not standing for election in 2022. He served as chair of the Risk Mitigation and Investment Policy Committee in 2021. The Board will elect a new Chair of that Committee.

Audit Committee Financial Expert

 

Annually, the Corporate Governance Committee and the Board of Directors review the membership of the individuals on the Committees and re-organize the Committees, if necessary.

 

Information About Our Director Nominees

For each of the eight nominees for election as directors at the 2022 Annual Meeting, we have included biographical information on the following pages that highlights their experience, qualifications, attributes and skills that led the Board to determine the individual is qualified to serve as a director of the Company. At the end, we have included Mr. Idehen’s biography.

 

   
  The Board of Directors unanimously recommends a vote FOR the election of
each of these nominees as director.
   

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   11

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2022 Annual Meeting

 

Nominees for Election at the 2022 Annual Meeting

 

       

 

Board Committees

·  Chair, Corporate
Governance Committee

·  Executive Compensation
Committee

·  Executive
Committee

 

Key Skills

·  Legal/Government

·  Leadership

·  Mergers & Acquisitions

·  Geographic Diversity

·  C-Suite Experience

 

Elizabeth B. Amato

Former Executive Vice President and Chief Human Resources Officer, United Technologies Corp.

Director since 2018

Age 65

Independent Director

     

Experience

·  Executive Vice President & Chief Human Resources Officer of United Technologies Corp. (UTC) 2015 to 2020.

·  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

·  Audit Committee

·  Corporate Governance Committee

 

Key Skills

·  Financial

·  Leadership

·  Mergers & Acquisitions

·  Geographic Diversity

·  C-Suite Experience

David A. Ciesinski

President, CEO and Director of Lancaster Colony Corporation and President of its subsidiary, T. Marzetti Company

Director since 2021

Age 55

Independent Director

     

Experience

·  President of Krafts Meal Solutions 2014-2016.

·  Group Vice President and Chief Marketing Officer, H.J. Heinz Company, U.S. Retail Division 2001-2013.

 

Mr. Ciesinski is a graduate of West Point and a veteran of the U.S. Army, with service during the first Gulf War in Iraq, where he earned a Bronze Star Medal. Mr. Ciesinski holds a master’s degree in marketing and finance from the Tepper School of Business at Carnegie Mellon University. 

 

Qualifications:

Mr. Ciesinski has over 20 years of experience in various roles with responsibilities ranging from manufacturing to finance to mergers and acquisitions. The Board of Directors views Mr. Ciesinski’s independence, his broad experience, and his leadership roles as important qualifications, skills and experience that support the Board of Directors’ conclusion that Mr. Ciesinski should serve as a director of the Company.

 

Other current public company directorships (1).

Mr. Ciesinski currently serves on the board of Lancaster Colony Corporation, for which he is the Chief Executive Officer, traded on the Nasdaq, which produces and markets consumer products with a focus on specialty food products for the retail and foodservice markets.

 

 

12   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2022 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 56

     

Experience

Chairman, President, and Chief Executive Officer of the Company.

 

 
·  Mr. Franklin has worked for the Company for 29 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. ·  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 65 acquisitions and increased its market capitalization from $4.4 billion to $13.6 billion at the end of 2021. During the same period, total shareholder return has been in excess of 130%.

 

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.

       

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   13

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2022 Annual Meeting

 

       

 

Board Committees

·  Chair, Executive Compensation Committee

·  Executive Committee

 

Key Skills

·  Regulatory

·  Financial

·  Leadership

·  Mergers & Acquisitions

·  C-Suite Experience

Daniel J. Hilferty

Lead Independent Director, Essential Utilities, Inc.

Chairman and CEO, Dune View Strategies Executive
Advisor, Independence Health Group

Director since 2017

Age 65

Independent Director

   

Experience

·  Former President and Chief Executive Officer of, and current Executive Advisor to Independence Health Group (IHG), one of the nation's leading health insurers serving nine million customers in 25 states and Washington D.C. 2010 - 2020.

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 on the Executive Committee), 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.

 

 

14   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2022 Annual Meeting

 

       
 

 

Board Nominee

 

·  Audit Committee

·  Risk Mitigation and Investment Policy Committee

 

Key Skills

·  Utility Industry

·  Financial

·  Leadership

·  Mergers & Acquisitions

·  Geographic Diversity

·  C-Suite Experience

 

Edwina Kelly

Managing Director, Canada Pension Plan Investment Board, Sustainable
Energies Group.

Nominee

Age 35

Independent Director

     

Experience

·  Managing Director, Canada Pension Plan Investment Board (CPPIB) 2019 to present; responsible for originating new investments, transaction management and asset management for investments in the CPPIB's global Power & Renewables group.

·  Director at EFG Hermes UAE, where she helped manage the renewable energy platform, led solar portfolio acquisitions, and equity restructuring of wind farm investments.

Ms. Kelly has a bachelor’s degree in philosophy, politics and economics from the University of Oxford and is an associated chartered accountant member of the Institute of Chartered Accountants in England and Wales.

Ms. Kelly is nominated to the Board as 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 financial expertise, that Ms. Kelly is qualified to serve on the Board and will make a positive contribution to the Board. The Board of Directors views Ms. Kelly’s extensive experience with US renewable energy, 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. Kelly should serve as a director of the Company.

 

Other current public company directorships (0).

Other current directorships:

Canterra, a Canadian farmland portfolio.
VTRM Energia, a joint venture between CPPIB and Votorantim investing in renewable energy in Brazil.

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   15

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2022 Annual Meeting

 

       

 

Board Committees

·  Corporate Governance Committee

·  Executive Committee

 

Key Skills

·  Utility Industry

·  Regulatory

·  Legal Government

·  Leadership

·  Mergers & Acquisitions

·  Geographic Diversity

·  C-Suite Experience

Ellen T. Ruff

Former President, Office of Nuclear Development Duke Energy Corporation

Director since 2006

Age 73

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).



 

       

 

Board Committees

·  Chair, Audit Committee

·  Executive Committee

·  Executive Compensation 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 73

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 25 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 (1).

Currently serves on the board of P. H. Glatfelter Company, a New York Stock Exchange-listed global supplier of specialty papers and engineered materials.

 

 

16   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2022 Annual Meeting

 

       

 

Board Committees

·  Corporate Governance Committee

·  Risk Mitigation and
Investment Policy Committee

 

Key Skills

·  Utility Industry

·  Regulatory

·  Legal/Government

·  Mergers & Acquisitions

·  Leadership

·  Geographic Diversity

·  C-Suite Experience

Christopher C. Womack

Chairman, President and Chief Executive Officer, Georgia Power

Director since 2019

Age 64

Independent Director

     

Experience

·  Chairman, President and Chief Executive Officer, Georgia Power, a leading American gas and electric utility holding company based in Atlanta, Georgia, 2020 to present.

·  He worked in various executive leadership positions at Southern Company since 1988, including President of External Affairs and

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 (1).

Currently serves on the board of Invesco Ltd., a New York Stock Exchange-listed global independent investment management firm.

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   17

 
 

Director in 2021 Not Standing for Re-Election

 

Not Standing for Re-Election

 

Director Not Standing For Re-Election at the 2022 Annual Meeting

Mr. Idehen served as a director on December 31, 2021 and is included for selected statistics in this proxy statement.

 

       

 

Board Committees

·  Chair, Risk Mitigation and
Investment Policy Committee

·  Audit Committee

·  Executive Committee

 

Key Skills

·  Utility Industry

·  Regulatory

·  Financial

·  Leadership

·  Mergers & Acquisitions

·  Geographic Diversity

·  C-Suite Experience

Francis O. Idehen

Former Chief Operating Officer, GCM Grosvenor

Director since 2019

Age 44

Independent Director 

     

Experience

·  Chief Operating Officer for GCM Grosvenor, an independent alternative asset management firm since May 2017.

·  Served in senior roles at Exelon Corporation from 2011 to 2017, serving as its treasurer, head of investor relations, and managing director of its investment office.

 

Mr. Idehen has a bachelor’s degree in economics from Yale University and an MBA from Harvard Business School.

 

Qualifications:

Mr. Idehen has extensive experience with large and complex businesses, including a major utility Company, in various management and financial positions. Mr. Idehen has lived and worked in Illinois, an important area of the Company’s operations, for many years. The Board of Directors views Mr. Idehen’s independence, his experience with various aspects of the utility industry, and his experience as a chief operating officer charged with making prudent financial investments as important qualifications, skills and experience supporting the Board of Directors’ conclusion that Mr. Idehen should serve as a director of the Company.

 

Other current public company directorships (0).

 

 

18   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Corporate Governance

 

Board Leadership Structure

 

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

The following materials are available on our corporate website at https://www.essential.co/corporate-governance/documents

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. Includes The Board has adopted Corporate Governance Guidelines that contain categorical standards of director independence that are consistent with the listing standards of the NYSE.

Board Committee 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: 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.

Our ESG Report is available ESG.Essential.co. For additional information see pages 28 through 33 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:

     

•    Preside at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors;

 

  Serve as liaison between the independent directors and the Chairman of the Board;

 

  Consult 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;

 

  Review and approve meeting schedules to assure there is sufficient time for discussion of all agenda items;

 

  Possess the authority to call executive sessions of the independent directors and to prepare the agendas for the executive sessions;

 

  If requested by major shareholders, ensure that he is available for consultation and direct communications;

 

  Serve as a member of the Executive Committee;

 

  In the event of the death or incapacity of the Chairman, become 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.

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   19

 
 

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 6 meetings in 2021

In 2021, each director attended at least 95% of the aggregate of all meetings of the Board and the Committees on which each director served except for Mr. Ciesinski who was appointed to serve as a director on July 7, 2021.
All of the directors who were elected at the 2021 Annual Meeting of Shareholders attended the 2021 Annual Meeting of Shareholders.

 

Board Committees as of December 31, 2021

 

     

Chair

Lee C. Stewart

 

Members

David A. Ciesinski

Edwina Kelly

Francis O. Idehen

All members are independent under NYSE listing requirements and SEC rules.

All members are financially literate and all members of the Committee are financial experts within the meaning of applicable SEC rules.

.

Audit

Meetings Required 4

2020 Meetings Held 8

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.


 

 

 

20   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Corporate Governance

 

Board Committee Membership, Meetings and Director Attendance

 

     

Chair

Daniel J. Hilferty

 

Members

Elizabeth B. Amato

Ellen T. Ruff

Lee C. Stewart

All members are independent under NYSE listing requirements

Executive Compensation

2021 Meetings Held 9

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

Elizabeth B. Amato

 

Members

David A. Ciesinski

Ellen T. Ruff

Christopher C. Womack

All members are independent under NYSE listing requirements

 

Corporate Governance

2021 Meetings Held 4

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 reviews and approves, ratifies or rejects related person transactions under the Company’s written policy.

 

The Committee also has direct oversight over most ESG matters and provides guidance on ESG decisions.

 

At each committee meeting, updates on ESG projects, trends and developments are presented. Additionally, each meeting features presentations on a key area of ESG, allowing for the Committee to study each area in-depth over the course of a year.

 

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   21

 
 

Corporate Governance

 

Board Committee Membership, Meetings and Director Attendance

 

     

Chair*

Francis O. Idehen

 

Members

Edwina Kelly

Christopher H. Franklin

Christopher C. Womack

Risk Mitigation and Investment Policy

2021 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

Elizabeth B. Amato 

Daniel J. Hilferty

Francis O. Idehen

Lee C. Stewart

Executive Committee

2021 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 and when convening a meeting of the entire Board is not practical, or 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.

 

 

 

22   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

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 2021, the Lead Independent Director and the Chairman met with each director, provided the results of the evaluations to each director, and discussed the director’s participation, preparation, and performance.

 

Board Refreshment as of December 31, 2021

In 2015, the Board of Directors undertook a multi-year program aimed at refreshing the Board to encourage new ideas, expertise, and oversight while maintaining the institutional experience of the then-current directors. As of December 31, 2021, the Board of Directors consisted of nine directors, with eight of those directors having been newly appointed or elected since 2015. Each of these directors brings his or her own level of expertise and experience.

 

 

Director Onboarding and Continuing Education

As part of the 2021 equity investment by CPPIB, Ms. Kelly was nominated by CPPIB to serve as a director of the Company. Mr. Ciesinski also joined the Board as director in July 2021. In addition to informal meetings with the existing directors, and in conjunction with their appointment, Ms. Kelly and Mr. Ciesinski participated in an onboarding process that includes in-depth meetings with the executive officers focused on items such as:

 

•   merger and acquisition strategy;

•   regulatory matters;

•   utility accounting and financing;

•   water, wastewater, and natural gas operations;

•   ESG;

•   board governance functions;

•   Pennsylvania law with respect to the Directors fiduciary duties; and

•   a review of the Company’s Articles of Incorporation, its Bylaws, its Corporate Governance Guidelines, and other policies.

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   23

 
 

Corporate Governance

 

Board Oversight of Risk Management

 

Board Oversight of Risk Management

 

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.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: o environmental matters by our Chief Environmental Officer; o the Company’s proposed capital spending plans by our Vice President, Corporate Engineering; and o the Company’s Enterprise Risk Management program by our Executive Vice President, General Counsel, and Secretary. 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 its significant financial risk exposures and the steps management has taken to monitor, control and report such exposures. o The Audit Committee meets in executive session with the Director of Internal Audit and with the independent registered public accountants at the end of each Audit Committee meeting. o The Company’s General Counsel reports to the Audit Committee quarterly regarding any significant litigation involving the Company and his opinion of the adequacy of the Company’s reserves for such litigation. o The Company’s Internal Audit department reports directly to the Chair of the Audit Committee. Corporate Governance Committee The Committee leads an annual discussion by the Board of Directors regarding the Company’s strategic plans and management’s performance with respect to these plans. The Committee also has direct oversight over most ESG matters and provides guidance on ESG decisions. Executive Compensation Committee The Committee reviews the Company’s overall compensation program in the context of the various behaviors that the program may encourage and the risks to the Company as a result of the program. At least annually, the Executive Compensation Committee considers the risks that may be presented by the structure of the Company’s compensation programs and the metrics used to determine individual compensation under that program. Risk Mitigation and Investment Policy Committee The Committee’s primary purpose is to assist the Board of Directors in fulfilling its oversight responsibilities for the Company’s: o risk management practices; o compliance with legal and regulatory requirements; o potential investments in acquisitions and growth vehicles; o cybersecurity risks; and to o review and approve the Company’s risk management framework. Management receives approval from the Risk Management and Investment Policy Committee on all potential acquisitions valued in excess of $20 million, and the Board approves every acquisition valued in excess of $50 million or which involves the issuance of the Company’s common stock as part of the consideration. A company-wide Enterprise Risk Management (ERM ) process is used to identify, prioritize and monitor key risks that may affect the Company. The Committee regularly reviews the results of the Company’s ERM process, and management presents to the Board a report on the status of the risks and the metrics used to monitor those risks. o Each risk tracked as part of the ERM process has a member of the Company’s management who serves as the owner and monitor for that risk. The risk owners and monitors report on the status of their respective risks at the quarterly meeting of management’s Compliance Committee. o The Information discussed at the Compliance Committee meeting is then reviewed by the Disclosure Committee composed of the Company’s Chief Executive Officer, Chief Financial Officer, General Counsel, Chief Accounting Officer and Director of Internal Audit. The results of the Disclosure Committee’s meetings are presented to the Risk Mitigation and Investment Policy Committee or the Audit Committee each quarter, as appropriate.

 

 

24   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Corporate Governance

 

Board Oversight of Risk Management

 

Board Oversight of Cybersecurity Management

The Board oversees the Company’s cybersecurity risk assessment and security measures. By receiving at least quarterly reports, the Board of Directors and the Risk Mitigation and Investment Policy Committee ensure that the Company is devoting the appropriate amount of time and resources to ensure that the risk of a cybersecurity breach is mitigated and that there is a clear response plan in the event of a breach.

The Board of Directors annually reviews and approves the capital and operating budgets, ultimately reviewing and approving the amount spent on cybersecurity measures.

 

 

Spotlight on Data Security and Privacy

 

Essential has a robust and long-standing cybersecurity program, which is aligned to the National Institute of Standards and Technology (NIST) Cybersecurity Framework.

Management Committee: The information security and cybersecurity program is overseen by a cross-functional committee of senior business leaders. This committee meets bimonthly and is charged with ensuring that cyber risk is managed and that the program is aligned to business goals and objectives. Updates are provided to the board’s risk committee quarterly and the full board once a year.

Risk Management: The information security organization is responsible for ongoing vulnerability assessments and threat analysis to essential assets such as customer and employee data, critical business systems, and industrial control environments.

Controls, Policy & Compliance: Essential has implemented enterprise-wide security policies, standards and controls that incorporate best practices in security engineering, technology architecture and data protection, which support regulatory compliance. An annual review of Essential’s security framework controls is conducted in conjunction with a third party to promote objectivity.

 

Awareness, Training & Assessment: Specialized programs have been implemented, such as enterprise-wide communications, presentations, phishing simulations and focused training for specific roles. We have developed and implemented a general cybersecurity training program required for all employees.

 

 

Board Oversight of ESG

 

 

BOARD OF DIRECTORS

The Full Board receives written reports and updates from Company executives at all regularly scheduled meetings on ESG matters including safety, sustainability, environmental stewardship, diversity and human capital management.

The Corporate Governance Committee has direct oversight of most ESG matters. At each committee meeting, updates on ESG initiatives, trends and developments are presented. Additionally, each meeting features presentations on a key area of ESG, allowing for the Committee to study each area in-depth over the course of a year.

MANAGEMENT

CEO and Executive Management Team

Management is responsible for designing, implementing, and executing our comprehensive ESG program as well as reporting to stakeholders on our ESG performance and progress. Additionally, half of our short-term incentive executive compensation goals focus on these important ESG issues.

The ESG Oversight Committee meets at least quarterly to discuss ESG matters, strategy, and technical planning to achieve various goals. This committee is comprised of nearly a dozen senior leaders from different functional areas and backgrounds who offer diverse perspectives. Essential’s CEO is also involved in the issues discussed and initiatives planned.

 

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   25

 
 

Corporate Governance

 

Board Oversight of Risk Management

 

Board Oversight of Compensation Risk

In administering the executive compensation program, the Executive Compensation Committee aims to strike an appropriate balance among the elements of our compensation program to achieve the program’s objectives. 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 the risks the Company faces are materially increased by the Company’s compensation programs.

Therefore, the Executive Compensation Committee believes the compensation program does not create the reasonable likelihood of a material adverse effect on the Company.

 

Board Oversight of Human Rights Risk Management

The Board of Directors is responsible for overseeing human rights risk management. In 2019, it enacted a Human Rights Policy that underscores the Company’s commitment to conducting business in a way that minimizes the adverse effects our operations may have on people and the communities that we serve. As more fully described on page 34, at a minimum, the Company and its vendors will:

 

•   make efforts to avoid causing or contributing to human rights violations;

•   mitigate and/or remediate adverse human rights impacts of our operations where possible;

 

•   prohibit the use of child labor, forced labor, or human trafficking; and

•   be transparent in our efforts, successes and challenges.

 

Board Oversight of Succession Planning

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. The Board and management recognizes the importance of human capital beginning with internal development initiatives and talent reviews, culminating in an annual review on succession planning with the Board of Directors. At least annually and at a special meeting held to only discuss succession planning, including in 2021, the Board of Directors reviews the Company’s succession planning process for the Chief Executive Officer and the named executive officers. During this review, the directors review succession candidates on an immediate basis and longer term candidates as well as their development plans so that the Company is well-prepared for the future.

 

 

26   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Corporate Governance

 

Shareholder Outreach

 

Shareholder Outreach

At our 2021 annual meeting of shareholders, our shareholders overwhelmingly agreed with the Company’s compensation program, with 96% of the shareholders voting in agreement with our compensation design. We believe the high level of support recognized the thoughtfulness and consideration the management team spent in redesigning the program to more closely align with driving shareholder value.

Over the course of 2021, management held approximately 300 meetings with investors. Additionally, as part of our governance focused outreach, we offered to meet with our top 25 shareholders. For this effort, we engaged with every shareholder who accepted our offer to meet. During these meetings and calls, we discussed numerous topics, including strategic, executive compensation, and environmental, social and governance issues.

 

2021 Shareholder Feedback and Actions Taken

 

Board Response to
Shareholder Feedback

 

2021 Actions Taken

Continued Performance-driven executive compensation

Focus on performance

Following 2021 shareholder outreach, we continued our focus on creating performance-driven compensation opportunities for our named executive officers. We are continuing the use of our peer group developed for 2020. 79% of our CEO’s compensation is performance-based and/or stock-based.

Added new diversity metrics

For 2021, we added a new supplier and employee diversity metric (10% weighting). Our diversity goals incentivize and encourage management to continue to build a diverse and inclusive workplace.

The Company’s commitment to ensuring diversity and inclusion in the workplace continues to evolve with the continuation of diversity metrics in the Company’s short-term incentive plan in 2022.

Reviewed our disclosure of derivative securities holdings standard when making a nomination or presenting a proposal

Ratification of Shareholder Disclosure of Holdings

 

In early 2022, the Board of Directors voted to amend the Company’s Amended and Restated Bylaws, as amended (the Bylaws), to require derivative securities holdings disclosure when a shareholder uses the procedures in the Bylaws to nominate a candidate for election as a director or presents a proposal for consideration by shareholders at an annual meeting of shareholders. This change is being presented to shareholders for ratification at the 2022 Annual Meeting.

Completed a review of our
environmental and social programs
and disclosures

Expanded ESG Disclosure

Based upon our review and shareholder feedback, we have committed to expanding the disclosures of our environmental and social policies in a renewed ESG report, and make it easier to locate these policies. Our ESG report can be found at: www.ESG.Essential.co and other relevant policies can be found at www. Essential.co/investor-relations.

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   27

 
 

Corporate Governance

 

Environmental, Social, and Governance Program

 

Environmental, Social, and Governance Program

Essential is not a newcomer to the notion that ESG is a critical aspect of business operations. We have successfully delivered resources for life since the 19th century because we have woven environmental, social, and governance inextricably into our DNA. Successive generations of corporate management have built upon our legacy of excellence in water and wastewater treatment, stewardship of our waterways, provision of reliable and affordable energy, and trust in the communities where we serve, live, and work.

We encourage you to explore our innovative microsite ESG.Essential.co for full details of our initiatives and commitments or download our 2020 ESG report at https://ESG.Essential.co/pdfs/essential-esg20.pdf

Board Oversight of ESG

 

Board of Directors

The Full Board receives written reports and formal updates from Company executives at regularly scheduled meetings on ESG matters including safety, sustainability, environmental stewardship, diversity and human capital management. The Corporate Governance Committee has direct oversight of ESG matters. At each committee meeting, management present updates about ESG projects, trends and developments. Management’s ESG Oversight Committee is comprised of senior leaders from different functional areas and backgrounds. They meet at least quarterly to discuss ESG matters, strategy, and technical planning to achieve goals, with input from our CEO.

 

 

Governance Policies

These policy documents are available on the corporate governance section of our website at https://www.Essential.co/corporate-governance/documents:

     

  Sustainability and Environmental Policy

  Human Rights Policy

  Human Rights to Water Policy

  Political Spending Policy

  Code of Ethical Business Conduct

  Conflict of Interest Policy

•   Equal Employment Opportunity and Anti-Harassment Policy

  Position on Unions

  Corporate Governance Guidelines

     

ESG Reporting

Essential’s ESG reporting includes the following components, which are available at ESG.Essential.co:

 

•    2020 ESG Report- Our flagship report that provides detail on all relevant ESG topics

  SASB and ESG Metrics Index- A concise document containing key ESG metrics, primarily of the SASB framework

  2020 TCFD Report- Concise climate reporting as outlined by the Task Force on Climate-Related Financial Disclosures

  2020 CDP Report- Detailed climate reporting via the CDP questionnaire

  2020 AGA Sustainability Template- Technical emissions data via the American Gas Association’s common industry template

Alignment with UN SDGs:

Essential is committed to supporting the achievement of the United Nations’ Sustainable Development Goals (SDGs), which aim to address global challenges and achieve peace and prosperity for all. Of the SDGs, our business can most significantly positively impact:

 

 

 

28   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Corporate Governance

 

Environmental, Social, and Governance Program

 

Environment

Essential’s mission is to sustain life and improve economic prosperity by safely and reliably delivering Earth’s most essential resources to our customers and communities.

 

Climate Change and Greenhouse Gas Emissions

In January of 2021, Essential announced an enterprise-wide commitment to substantially reduce its Scope 1 and 2 greenhouse gas (GHG) emissions. By 2035, we will reduce our emissions by 60% from our 2019 baseline. Our water and wastewater operations as well as our gas operations will each be contributing roughly 60% reduced emissions. Essential has estimated that as of December 31, 2021, it has achieved a 7% emissions reduction from its 2019 baseline. Upon formal calculation of its 2021 greenhouse gas inventory later in 2022, the Company will adjust and finalize this achievement figure, communicating this through its annual ESG reporting.

The two most significant actions that will lead to these deep reductions are:

Gas Operations: Fulfilling our aggressive Long-Term Infrastructure Improvement Plan, which has a stated goal to replace 3,000 miles of leak- prone bare steel and cast-iron pipe through 2034.
Water and Wastewater Operations: Beginning January 1, 2022, total energy derived from renewables has moved from less than 10% of our annual usage to nearly 60% across our entire water and wastewater operations.

 

 

Board Oversight and Climate Risk Management

 

  We have significant board-level oversight of climate-related issues, including the risk factors associated with climate change. The Governance Committee’s October 2021 meeting featured an in-depth and full review of these matters.

 

  Essential’s ESG Oversight Committee, a group of senior leaders from across the organization as well as the CEO, meet at least once each quarter to discuss these topics.

 

 

*Please refer to ESG.Essential.co for more detailed climate change disclosure, including illustrative graphics depicting our progress towards our emissions reduction target.

 

Investing in Our Nation’s Infrastructure

Essential is committed to renewing and improving water and wastewater infrastructure through thoughtful and continuous capital investment. We have invested over $3.5 billion in infrastructure improvements and replaced more than 1,300 miles of aging water main since 2012. We are also making critical and robust investments in gas infrastructure. In 2013, Peoples Gas launched its Long-Term Infrastructure Improvement Plan (LTIIP), an aggressive 20-year effort to replace and upgrade more than 3,000 miles of distribution main with modern resilient materials.

 

Excellence in Providing Safe Drinking Water

Essential consistently and widely outperforms the national average for percentage of community water systems with health-based violations, typically smaller by a factor about 6 to 8 times. Cutting edge technology has enabled us to increase our detection levels from parts per million to parts per trillion in many cases. In 2021, we opened a brand new, state-of-the-art environmental laboratory at our Bryn Mawr headquarters, employing a staff of 20 scientists and featuring an annual capacity of approximately 300,000 tests on water samples across 240 water quality parameters.

 

 

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   29

 
 

Corporate Governance

 

Environmental, Social, and Governance Program

 

Human Capital Management

At Essential, we recognize our 3,000+ employees are our greatest assets in delivering life’s most essential resources. Our goal is to build a talented, skilled and diverse workforce that values teamwork as well as a steadfast commitment to our customers and to the environment. Essential offers our employees a wide array of challenging and exciting careers and jobs that support our mission to provide natural resources for life in a safe and reliable manner. Essential is committed to providing professional opportunities for career growth, competitive benefits packages and a respectful workplace to every employee across the communities we serve in our 10 states. We’re dedicated to creating a culture that empowers employees and where all feel welcomed, respected and recognized for their contributions.

 

 

Board Oversight of Human Capital Management

 

Essential’s board of directors recognizes that our ability to attract, retain, and develop exceptional talent is a key strategic driver of long-term growth and success for all our stakeholders. The Chief Human Resources Officer regularly presents updates to the board, engaging in strategic discussion with the group regarding the topics outlined below.

 

 

Engaging our Employees

Our success depends on employees understanding how their work contributes to Essential’s overall strategy. We use a variety of communication channels to facilitate open and direct dialogue, including open forums with our executives, monthly town halls, regular engagement surveys, and employee resource groups. Efforts to foster an inclusive culture include:

Regular pulse survey data is used to implement action plans to continuously improve our culture, encourage leadership behaviors that support employee engagement and belonging, and address any specific concerns; and
Formal employee engagement surveys are used for the entire Essential organization with thoughtful action plans for leadership based on their specific feedback. Essential cultural strengths, identified by direct employee surveys, included sense of purpose, safety, integrity, customer focus, respect and relationship building.

Flexible Work Location Program. Essential Utilities values our employees and recognizes a flexible work environment is critical in attracting, motivating and retaining high performing employees, particularly in the post-pandemic environment. In June 2021, Essential introduced the Work Location Flexibility Program allowing eligible employees to work remotely up to two scheduled days a week.

 

Talent Management – Training and Development

At Essential, we believe in an integrated talent development approach and understand that a balanced and holistic approach to learning will allow for greater sustainability of changed workplace behaviors.

We align our development model to support our vision, mission, and competencies, with a balanced approach to developing our workforce and creating a confident, committed and high-performance culture.

 

Vision, Mission, Values, Strategies & Competencies

 

Selecting and On-boarding

   Recruit & sourcing

   Skills selection assessments

   Competency based behavioral interviewing

   On-boarding

Foundational Skills & Capability

   New hire orientation to company, department & position

   Job level core curriculums

Performance Management & Development

   Corporate culture assessment

   Performance management program and processes

   Targeted assessment for performance improvement

   Individual development planning

Organizational Workforce Planning

   Culture change and development initiatives

   Succession planning

   Mentoring

 

 

30   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Corporate Governance

 

Succession Planning

 

Succession Planning

Our succession planning strategy identifies leaders at different stages in their career and customizes their development approach. The Essential Utilities executive leadership development strategy for future executives is a combination of development experiences to include: 360 performance assessments and coaching, executive presentation skills and formal learning programs.

 

Diversity, Equity and Inclusion

Diversity of backgrounds, ideas, thoughts, and experiences is essential to our culture and the way we do business. Creating an environment where our differences are valued and where every person feels a sense of belonging and engagement supports a thriving organization that cares about our employees and customers. We believe it is important that all employees are supported by an environment where people of all backgrounds, ages, races, abilities, and sexual orientations feel engaged and safe to collaborate and learn from one another.

 

Leadership Commitments

In 2021, we announced a multi-year plan to increase employee diversity to 17% and added an employee diversity metric (5% weighting) to our short-term executive compensation incentive plan. The percentage of employees of color at Essential rose from 14% at the end of 2020 to 15% at the end of 2021.

 

To strengthen our DE&I efforts, we took the following actions:

Formed a DE&I Advisory Council, led by senior executives; and committed to diverse candidate searches for leadership roles within the organization
Built a DE&I dashboard to provide daily diversity data to leadership to track progress towards building and promoting a diverse workforce
We review our customer demographics across our footprint in order to develop meaningful and reflective employee diversity goals that align with the demographics found in communities we serve.

From monthly discussions and metric reviews with our leaders, to community partnerships, we encourage conversations that elevate diversity and inclusion as a key strategic priority.

 

Building a Diverse and Inclusive Culture

To help us achieve our goals, we have been building and expanding our program and actions in this area to create an environment where our differences are valued, every person feels a sense of belonging, and engagement supports a thriving organization.

 

Essential Employee Programs

 

Education

   We hold educational workshops and action planning sessions for employees across our Company footprint to improve the dialogue and build on an inclusive culture.

   Essential regularly conducts education and unconscious bias workshops to foster better understanding of points of view and how pre-conceived notions impact relationships at work.

   We partner with industry experts to lead discussions.

Diverse New Talent Recruitment

Our diversity recruitment is supported through:

   Diversity associations and job boards for employees of color, veterans and women;

   Recruitment of new talent from local community colleges and city-based universities; and

   Partnerships with technical and training facilities that focus on a diverse student population.

Employee Resource Groups

We host several employee resource groups across the organization to help ensure our employees feel supported in their professional growth at all levels, including:

   Black Resource Group                     LGBTQ+ Pride Resource Group,

   Women’s Resource Group               Peoples’ Diversity Council, and

   Veteran’s Resource Group              Essential Diversity, Equity and Inclusion Advisory Council

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   31

 
 

Corporate Governance

 

Succession Planning

 

Board Diversity As of December 31, 2021 More than 55% of the board is diverse. Three of our nine board members are female and two of our male board members are people of color. Employee Diversity o Diversity hiring for the organization grew by more than 8%. o Diversity at the management level also grew, with 10% of management comprised of minorities and 22% comprised of women by the end of 2021. * Please refer to ESG.Essential.Co. for more detailed work force composition data in line with EEO-1 standards.

 

Supplier Diversity

Supplier diversity is critical for our communities as well as for our business. We want to source from and partner with businesses owned by individuals representing the diverse communities where we live, work, and operate each day. This also enriches and strengthens local economies, increases sourcing options, and fosters collaboration and innovation.

Essential is committed to increasing our work with qualified and certified diverse suppliers, which are measured by majority of ownership and control, and include one or more of the following classifications:

   Minority-ownedWomen-owned       Veteran-owned         LGBTQ+-owned

Essential has taken steps to increase our work with diverse suppliers. Essential spent $108 million with diverse suppliers. This diverse spend resulted in a 31% increase of diverse spend year-over-year, from 8.3% of controllable spend in 2020 to nearly 11% of controllable spend in 2021.

 

Leadership Commitments

In 2021, we announced a multi-year plan to increase diverse supplier spend to 15% of controllable spend and added a supplier diversity component (5% weighting) to our short-term executive compensation incentive plan metrics. As of year-end 2021, nearly 11% of Essential’s controllable spend was with diverse suppliers.

 

Safety And Wellness

The Essential Safety program focuses on identifying hazards, training our employees on the best practices to remain safe and providing them with the equipment and facilities to face these hazards in the safest way possible. We rigorously follow OSHA reporting guidelines to identify, report and investigate any injuries to our employees.

The health of our employees is just as important to us as is their safety. We provide access to a variety of innovative, flexible, and convenient employee health and wellness programs. With mental health becoming more of a central part of an employee’s well- being, we have added additional resources and counseling access for employees and their families.

 

Leadership Commitments

To incentivize managers to promote a safe environment, we incorporated safety metrics for Lost Time/Restricted Time Incidents, Responsible Vehicle Accident Rate and Peoples Gas Safety Rate into our executive compensation incentive plans for 2021.

 

 

32   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Corporate Governance

 

Succession Planning

 

Safety Culture Survey

This survey was conducted by a third party in 2020 and provided us an opportunity to obtain feedback on safety from our employees, which have assisted us in obtaining clear insight into our strengths and opportunities for improvement.

Subsequent Action:

Results of Essential’s company-wide Safety Culture Survey were to be shared with Operations leaders and employees. The 89% favorable score in survey results affirmed that the majority of employees perceive Essential’s safety culture as strong.

Our follow-up actions continue to be monitored and tracked through the Essential Strategic Safety process.

 

 

Pandemic Safety Measures

 

During 2021, Essential continued to implement protective measures in customer homes, our offices and within our field crews. Essential Office employees began to return to the workplace safely in 2021 and remained working in a hybrid flex schedule as positions allowed.

 

A workgroup of human resource, legal and safety representatives met weekly to guide our responses and policy development, drive continuous safety improvement and communicate the impact of new regulations and CDC guidance related to the pandemic. Our increased reliance on social distancing, protective face masks, hand and sneeze hygiene and vaccination worked to protect the workforce, which saw minimal workplace-related infection spread and high employee satisfaction rates for safety.

 

 

Strengthening Our Community

Essential operates in ten states across America, but our presence is felt locally. We primarily source water and gas nearby our customers, we do business with many local suppliers and our employees often live in the communities they serve. Our services enable households to grow, commerce to bustle with life, and the health of our towns and cities to flourish. Simply put, we thrive when our communities thrive. For these reasons, our organization and team members enthusiastically contribute time and resources to strengthen these community bonds.

In 2021, we purchased $993 million in controllable spend, over half of which was with suppliers from within the states we operate and much of this from local small-to-medium size businesses with which we have long-standing relationships.
In 2021, Essential employees tracked more than 1,800 hours of paid volunteer time.
In 2021, Essential’s charitable giving to 501(c)(3) organizations totaled $4.6 million. We also matched employee donations to contribute a combined $800,000 to the United Way.

 

 

Resilience and Reliability in the Midst of Natural Disasters and the Pandemic

2021 was a testament to the resilience, dedication and reliability of the employees at Essential. In February, Texas employees rallied around the clock to ensure that water and sewer service continued in the aftermath of winter storm Uri. In September, Hurricane Ida impacted several of our largest water treatment plants where crews jumped in to work around the clock to get things running at full capacity after the storm caused remarkable damage. Kentucky employees stepped up to help neighboring communities impacted by a violent tornado in December 2021. All employees have continued to work the front lines during the pandemic to ensure our customers are receiving their resources in a safe and reliable manner – reliable for life.

 

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   33

 
 

Corporate Governance

 

Governance Policies and Practices

 

Governance Policies and Practices

Anti-Hedging and Anti-Pledging Policy

We believe issuing incentive and compensatory equity awards to our directors and named executive officers along with our stock ownership guidelines help 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 2021.

 

Equal Employment Opportunity and Anti-Harassment Policy

This policy provides that all employees are entitled to a work environment in which they are treated with dignity and respect and which is free of harassment and discrimination of any kind, including discriminatory, emotional, physical and sexual.

Essential Utilities will not tolerate any form of harassment on the job by managers, other employees, or by non-employees, such as customers, vendors or contractors. The policy clearly defines harassment as including verbal comments that are offensive or unwelcome regarding a person’s national origin, race, color, religion, gender, sexual orientation, age, body, disability or appearance, including epithets, slurs and negative stereotyping and nonverbal harassment to include distribution, display or discussion of any written or graphic material that ridicules, denigrates, insults, belittles or shows hostility, aversion or disrespect toward an individual or group because of national origin, race, color, religion, age, gender, sexual orientation, pregnancy, appearance, disability, sexual identity, marital status or other protected status.

 

Human Rights Policy

The Board of Directors is responsible for overseeing human rights risk management. In 2019, it enacted a Human Rights Policy that underscores the Company’s commitment to conducting business in a way that minimizes the adverse effects our operations may have on people and the communities that we serve. At a minimum, the Company and its vendors will:

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 the Company is committed to providing all of its employees with a work environment in which they are treated with dignity and respect and which is free of harassment of any kind, and affirmatively commits the Company to making efforts to avoid causing or contributing to human rights violations. Copies of these policies can be found at www.Essential.co/investor-relations or at ESG.Essential.co.

 

Director Independence Standards

The Board of Directors is responsible for determining whether each of the directors is independent. The Board has adopted Corporate Governance Guidelines that contain categorical standards of director independence that are consistent with the listing standards of the NYSE. In 2021, all directors were determined to be independent, except our Chairman, President and CEO Mr. Franklin.

 

 

34   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT

 
 

Corporate Governance

 

Governance Policies and Practices

 

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 2021, the Company made contributions to charitable or civic organizations for which the following directors serve as directors, trustees or executive officers: 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.Ms. Kelly’s role as Senior Principal of CPPIB.
3.The Company has insurance arrangements with Independence Health Group IHG or its affiliates. During 2021, Mr. Hilferty served as Executive Advisor to IHG. The Company contracts with IHG to serve as the administrator of the Company’s self-insured medical plans for the Company’s employees. As a benefit of employment, the Company offers its employees medical insurance benefits through plans established by IHG. The Company is self-insured for all of these plans, and has contracted with IHG to serve as the administrator of the Company’s medical plans. As compensation for these administrative services, the Company paid fees to IHG. For each of the last three fiscal years, the fees paid to IHG, IHG’s gross revenues, and the fees as a percentage of IHG’s gross revenues were as follows:

 

 

Fiscal Year

 

Fees Paid to IHG

 

IHG Gross Revenues

Fees Paid as a Percentage of IHG Gross Revenues
2019 $2,205,381 $19,200,000,000 0.011%
2020 $2,499,580 $21,000,000,000 0.012%
2021 $2,919,728 $24,700,000,000 0.012%

 

Under the self-insured nature of the medical plans, the Company also submitted payments to IHG to maintain the necessary insurance reserves and to pay medical claims made for such years. As administrator, these payments were “pass through” payments and do not represent compensation to, or revenue of, IHG. The following “pass through” payments were made to IHG in the last three fiscal years:

 

Fiscal Year Pass Through Payments
2019 $13,711,289
2020 $14,557,659
2021 $19,308,118

 

The amounts paid by the Company to IHG are not material to IHG or to the Company.

 

Related Person Transactions

Additionally, the Board has a written policy for related person transactions to document procedures for reviewing, approving or ratifying these transactions. The policy applies to any transaction in which: (1) the Company is a participant, (2) any related person has a direct or indirect material interest, and the annual amount involved exceeds $120,000, but excludes certain types of transactions in which the related person is deemed not to have a material interest.

Under this policy, a related person means:

 

(a)any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director, an executive officer or a director nominee;
(b)any person known to be the beneficial owner of more than 5% of any class of the Company’s voting securities;
(c)any immediate family member of a person identified in items (a) or (b) above, meaning such person’s spouse, parent, stepparent, child, stepchild, sibling, mother- or father-in-law, son- or daughter-in-law, brother- or sister-in-law or any other individual (other than a tenant or employee) who shares the person’s household; or
(d)any entity that employs any person identified in (a), (b) or (c) or in which any person identified in (a), (b) or (c) directly or indirectly owns or otherwise has a material interest.

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   35

 
 

Corporate Governance

 

Governance Policies and Practices

 

The Corporate Governance Committee, with assistance from the Company’s General Counsel, is responsible for reviewing and approving any related person transaction. In its review and approval of related person transactions (including its determination as to whether the related person has a material interest in a transaction), the Corporate Governance Committee will consider, among other factors:

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;
any person known to be the beneficial owner of more than 5% of any class of the Company’s voting securities;
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
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 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 2021.

Based on a review applying the standards in the Company’s Corporate Governance Guidelines, including a review of the applicable NYSE, SEC, and Company standards, and considering the relevant facts and circumstances of the transactions, relationships, and arrangements between the directors and the Company described above, the Board of Directors has affirmatively determined that each director and nominee for director is independent, other than Mr. Franklin, the Company’s Chairman, President, and Chief Executive Officer.

 

 

Director Independence Determination

All directors are independent except Mr. Franklin, the Company’s Chairman, President, and Chief Executive Officer.

 

 

 

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Director Compensation

 

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 2021 and voted that its compensation remain the same:

 

2021 Director Compensation Program

 

Role Annual Cash Compensation Annual Equity Compensation
Each Non-Employee Director $100,000 Stock grant equal to $100,000 in value
Chair, Audit Committee + $12,500
Chair, Executive Compensation Committee + $12,500
Chair, Corporate Governance Committee + $10,000
Chair, Risk Mitigation and Investment Policy Committee + $10,000
Lead Independent Director + $25,000

 

In late 2021, the Executive Compensation Committee again retained Pay Governance to review and benchmark the Board of Directors’ compensation. Pay Governance compared the directors’ compensation to the Company’s peers, including the impact of COVID-19 on the economy, and made certain suggestions and recommendations to the Executive Compensation Committee and to the Company’s Corporate Governance Committee.

 

As a result, upon the recommendation of its Executive Compensation Committee and the Corporate Governance Committee, the Board of Directors agreed to increase the Directors’ compensation program for 2022 as follows:

 

Role Annual Cash Compensation Annual Equity Compensation
Each Non-Employee Director $105,000 Stock grant equal to $110,000 in value
Chair, Audit Committee + $20,000
Chair, Executive Compensation Committee + $15,000
Chair, Corporate Governance Committee + $15,000
Chair, Risk Mitigation and Investment Policy Committee + $15,000
Lead Independent Director + $30,000

 

Ms. Kelly, nominee for CPPIB, has elected to designate CPPIB as the recipient of the annual cash compensation and to waive the annual equity compensation awarded to directors should she be elected in 2022 to serve as a Director for the Company.

 

All directors are reimbursed for reasonable expenses incurred in connection with attendance at Board or Committee meetings.

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   37
 
 

Director Compensation

 

Director Stock Ownership Guidelines

 

Director Stock Ownership Guidelines

 

Each director is required to own shares of Company common stock having a value equal to five times the annual base cash retainer for directors. Directors have up to five 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.

 

Director Stock Ownership As of December 31, 2021

 

 

 

(1)Mr. Franklin is a management Director and his Stock ownership guidelines and current shareholdings are detailed on pages 69 through 72.
(2)Because Ms. Kelly elected to waive the annual equity compensation awarded to directors, the Board of Directors exempted Ms. Kelly from the director stock ownership guidelines.
(3)These directors have up to five years to attain the required stock ownership level.

 

38   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
 
 

Director Compensation

 

Total 2021 Director Compensation

 

Total 2021 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 110,000 100,006 210,006
Ciesinski 50,000 50,022 100,022
DeBenedictis(2) 55,000 49,984         104,984
Franklin(3)
Hilferty 137,500 100,006 237,506
Idehen 105,000 100,006 205,006
Kelly(4) 50,000 50,000
Ruff 100,000 100,006 200,006
Stewart 112,500 100,006 212,506
Womack 100,000 100,006 200,006

 

(1)The grant date fair value per share of the stock awards, which are paid quarterly, were: March 31, 2021 – $44.54; June 30, 2021 – $46.035; September 30, 2021 – $46.595; and December 31, 2021 – $53.65. The grant date fair value was calculated in accordance with FASB ASC topic 718.
(2)Pursuant to the Board’s retirement policy, Nicholas DeBenedictis retired from the Board of Directors on May 5, 2021.
(3)As an officer of the Company, Mr. Franklin does not receive any compensation for his service on the Board of Directors.
(4)As a designate of CPPIB, Ms. Kelly directed her cash compensation be paid to CPPIB and does not receive any stock awards.

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   39
 
 

Ownership of Common Stock as of March 7, 2022

 

The table below shows the number of shares of our common stock beneficially owned as of the close of business on March 7, 2022. by: (1) each person known to the Company to be the beneficial owner of more than 5% of the Common Stock of the Company; (2) each director, nominee for director and executive officer named in the Summary Compensation Table; and (3) all directors, nominees and executive officers of the Company as a group. This information has been provided by each of the directors, executive officers and nominees at the request of the Company or derived from statements filed with the SEC under Section 13(d) or 13(g) of the Exchange Act. Beneficial ownership of securities as shown below has been determined in accordance with applicable guidelines issued by the SEC. Beneficial ownership includes the possession, directly or indirectly, through any formal or informal arrangement, either individually or in a group, of voting power (which includes the power to vote, or to direct the voting of, such security) and/or investment power (which includes the power to dispose of, or to direct the disposition of, such security). Unless otherwise indicated, the address of the beneficial owners is Essential Utilities, Inc., 762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania 19010.

 

 

Certain Beneficial Owners

Sole Voting and/or
Sole Investment Power(1)
Shared Voting and/or
Investment Power
Amount and Nature of
Beneficial  Ownership
Percentage of
Class Outstanding(2)
 

BlackRock, Inc.(3)

55 East 52nd Street, New York, NY 10055

26,705,089   26,705,089 10.55%  

The Vanguard Group(4)

100 Vanguard Blvd., Malvern, PA 19355

24,035,688 417,755 24,453,443 9.66%  

Canada Pension Plan Investment Board(5)

One Queen Street East, Suite 2500 Toronto, Ontario M5C 2W5 Canada

  21,661,095 21,661,095 8.56%  

State Street Corporation(6)

One Lincoln Street, Boston, MA 02111

  12,918,178 12,918,178 5.11%  
Directors, Nominees and Named Executive Officers  
Elizabeth B. Amato 7,749 7,749 *  
David A. Ciesinski 1,013 1,013 *  
Richard S. Fox 25,366 25,366 *  
Christopher H. Franklin 138,591 138,591 *  
Daniel J. Hilferty 22,224 22,224 *  
Francis O. Idehen 6,002 6,002 *  
Edwina Kelly(7) *  
Christopher P. Luning 44,245 44,245 *  
Matthew R. Rhodes 14,743 14,743 *  
Ellen T. Ruff 33,744 33,744 *  
Daniel J. Schuller 32,309 32,309 *  
Lee C. Stewart 17,749 17,749 *  
Christopher C. Womack 6,002 6,002 *  
All Directors, Nominees and Named Executive Officers as a Group (14 persons)  
  408,867 26,995(8) 435,862    
*less than one percent.
(1)Includes shares held under the Company 401(k) plan.
(2)Percentage of ownership for each person or group based on 253,013,691 shares of Common Stock outstanding as of March 7, 2022 and includes all shares issuable to such person or group upon exercise of outstanding stock options exercisable, or other equity awards vesting, 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 January 26, 2022.
(4)The information from The Vanguard Group was obtained from the Schedule 13G/A filed by The Vanguard Group with the SEC on February 9, 2022.
(5)The information from Canada Pension Plan Investment Board (CPPIB) was obtained from the Schedule 13D filed by CPPIB with the SEC on March 24, 2020.
(6)The information from State Street Corporation was obtained from the Schedule 13G/A filed by State Street Corporation with the SEC on February 11, 2022.
(7)Ms. Kelly is nominated to the Board as designated by CPPIB under the terms of the Company’s private placement transaction with CPPIB.
(8)The shareholdings indicated consist of 26,995 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.

 

40   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
 
 

Proposal 2:

Advisory Vote to Approve Named Executive Officers’ 2021 Compensation

 

Shareholders are entitled to an advisory (non-binding) vote on the executive compensation as described in this proxy statement for our named executive officers (sometimes referred to as Say on Pay). Currently, this vote is conducted every year. Accordingly, the following resolution is being presented by the Board of Directors at the 2022 Annual Meeting:

 

RESOLVED, that the compensation paid to the Company’s named executive officers for 2021, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.

 

This vote is non-binding. The Board of Directors and the Executive Compensation Committee, which is comprised of independent directors, expect to take into account the outcome of the vote when considering future executive compensation decisions to the extent they can determine the cause or causes of any significant negative voting results.

 

Before you vote

Shareholders are encouraged to read the Compensation Discussion and Analysis, the accompanying compensation tables and the related narrative disclosure.

 

As described in detail under our Compensation Discussion and Analysis on pages 46 through 70 of this proxy statement, our executive compensation program is designed to motivate our executives to achieve our primary goals of providing our customers with quality, cost-effective and reliable water and wastewater services and providing our shareholders with a long-term, positive return on their investment.

 

We believe that our executive compensation program, with its balance of short-term incentives and long-term incentives and share ownership guidelines, reward sustained performance that is aligned with the interests of our customers, employees and long-term shareholders.

 

   
  The Board of Directors unanimously recommends a vote FOR the approval, on an advisory basis, of the 2021 compensation of the Company’s named executive officers.
   

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   41
 
 

Proposal 3:

Ratification of an Amendment to the Bylaws

Establishing Requirements for Shareholders to

Disclose Derivative Securities Holdings when Making

a Nomination or Presenting a Proposal.

 

At the 2022 Annual Meeting, shareholders are being asked to ratify the Board of Directors’ approval of an amendment to the Company’s Bylaws requiring derivative securities holdings disclosure when a shareholder uses the procedures in the Bylaws to nominate a candidate for election as a director or presents a proposal for consideration by shareholders at an annual meeting.

 

Why you should vote to ratify this Amendment

On February 16, 2022, upon the recommendation of the Corporate Governance Committee, the Board of Directors amended and restated the Company’s Bylaws to add provisions that require any shareholder making a nomination of a candidate for election as a director, or presenting a proposal for consideration by shareholders at an annual meeting to provide full disclosure of all Company securities holdings, including derivative securities (the Bylaw Amendment). The Board recommends ratifying this Bylaw Amendment which is designed to provide shareholders with full disclosure about the ownership interests held by the proposing shareholder.

 

Because this Proposal 3 provides only a summary of the Bylaw Amendment, it may not contain all of the information that is important to you. You should read Appendix B containing the Bylaws, as amended and restated, carefully before you decide how to vote.

 

Background

Our Board of Directors regularly reviews our corporate governance practices to ensure that these practices, including the procedures for nominating director candidates or submitting a proposal to shareholders for consideration at an annual meeting, remain in the best interests of the Company and its shareholders. After carefully and thoroughly considering the issue, the Board of Directors amended the Bylaws to add these disclosure requirements.

 

Summary of Amendment for Ratification

The Bylaws Amendment modifies Section 3.17 of the Bylaws to add additional disclosure requirements of all securities holdings. The Company’s Bylaws always had requirements in order for any notice provided by a shareholder under the Bylaws to be in proper form. The requirements are designed to provide other shareholders with disclosure information regarding the proposing shareholder when considering the nominated candidate for director or shareholder proposal for consideration at an annual meeting.

 

The additions to the notice requirement now add the following with respect to the proposing shareholder’s ownership of Company securities:

 

·any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Company or with a value derived in whole or in part from the value of any class or series of shares of the Company, whether or not such instrument or right is subject to settlement in the underlying class or series of capital stock of the Company or otherwise (a “Derivative Instrument”) owned beneficially by such shareholder, and any other opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Company;
·any proxy, contract, arrangement, understanding, or relationship pursuant to which such shareholder has a right to vote any shares of the Company;
·any short interest of such shareholder in any security of the Company (for purposes of the Bylaws, a person shall be deemed to have a “short interest” in a security if such person has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security;
·any rights to dividends on the shares of the Company owned beneficially by such shareholder that are separated or separable from the underlying shares of the Company;

 

42   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
 
 

Proposal 3: Ratification of an Amendment to the Bylaws Establishing Requirements for Shareholders to Disclose Derivative Securities Holdings when Making a Nomination or Presenting a Proposal

 

 

·any proportionate interest in shares of the Company or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such shareholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner; and
·any performance-related fees (other than an asset-based fee) that such shareholder is entitled to based on any increase or decrease in the value of shares of the Company or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by members of such shareholder’s immediate family sharing the same household.

 

The proposing shareholder also has an obligation to update this disclosure if there are any changes before the nomination or the proposal are considered at an annual meeting.

 

This disclosure requirement captures all of the possible voting or economic interests in the Company’s securities held by the proposing shareholder. The Board believes this disclosure provides information that its shareholders would use in considering any such director nomination or shareholder proposal.

 

The amendments impact Section 3.17 (Business Transaction at Shareholder Meetings), Section 4.14 (Nomination of Directors) and Section 4.15 (Proxy Access) of the Bylaws. A marked version of the Bylaws, as amended and restated, is attached as Appendix B to this proxy statement.

 

   
  The Board of Directors unanimously recommends a vote FOR the ratification of this Bylaw Amendment to require derivative securities holdings disclosure by any shareholder nominating a director or presenting a proposal at the Annual Meeting of Shareholders.
   

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   43
 
 

Proposal 4:

Ratification of the Appointment of PricewaterhouseCoopers LLP as Independent Registered Public Accounting Firm for Fiscal 2022

 

The Audit Committee of the Board of Directors appointed PricewaterhouseCoopers LLP (PwC) as the independent registered public accounting firm for the Company for the 2022 fiscal year. PwC has been the Company’s independent registered public accountants since 2000. The Board of Directors recommends that shareholders ratify the appointment.

 

Although shareholder ratification of the appointment of PwC is not required by law or the Company’s Bylaws, the Board of Directors believes that it is desirable to give our shareholders the opportunity to ratify the appointment. If the shareholders do not ratify the appointment of PwC, then the Audit Committee will take this into consideration and may or may not consider the appointment of another independent registered public accounting firm for the Company for future years. Even if the appointment of PwC is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm during the year if the Audit Committee determines such a change would be in the best interests of the Company. Representatives of PwC are expected to be present at the 2022 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 2021 fiscal year.

 

Services and Fees

The following table presents the fees paid to PwC for professional services rendered with respect to the 2021 fiscal year and 2020 fiscal years:

 

Fiscal Year 2021 2020
Audit Fees(1) $2,836,500 $2,911,500
Audit-Related Fees(2) $   200,000 $     25,000
Tax Fees(3) $   110,000 $     70,000
All Other Fees(4) $     45,000 $     10,000
TOTAL $3,191,500 $3,016,500

 

(1)Represents fees for any professional services provided in connection with the audit of the Company’s annual financial statements (including the audit of internal control over financial reporting), non-recurring audit fees, reviews of the Company’s interim financial statements included in Form 10-Qs, audits of the Company’s subsidiaries, issuance of consents, review of comment letter, and comfort letter procedures.
(2)Represents fees for services in connection with pre-implementation work for enterprise computer system implementations, accounting consultations of acquisitions, consultation concerning implementation of auditing standards and regulator required workpaper reviews.
(3)Represents fees for any professional services in connection with the review of the Company’s federal and state tax returns.
(4)Represents fees for software licensing for accounting research, an utility and technical accounting seminar, and out-of-pocket expenses

 

   
  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 2022 fiscal year.
   

 

44   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
 
 

Proposal 4: Ratification of the Appointment of PricewaterhouseCoopers LLP as Independent Registered Public Accounting Firm for Fiscal 2022

 

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, 2021 for filing with the SEC.

 

Respectfully submitted,

 

Lee C. Stewart, Chairman
David A. Ciesinski

Francis O. Idehen
Edwina Kelly

 

February 15, 2022

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   45
 
 

Executive Compensation

 

Contents

 

Compensation Discussion and Analysis 46
Executive Summary 47
Introduction 47
Navigating Disruption 47
Our 2021 Performance Highlights 48
Our Pay for Performance Compensation Program 49
Pay for Performance and Results of the 2021 Advisory Vote to Approve Executive Compensation 50
Section 1. Our Compensation Philosophy 51
Elements of Compensation for Named Executive Officers 51
Competitive Pay Positioning 51
Section 2. How We Determine Executive Compensation 52
The Role of the Compensation Committee 52
The Role of Management 52
The Role of the Compensation Committee’s  Independent Consultant 52
Our 2021 Benchmarking for Competitive Pay 52
Our 2021 Benchmarking Peer Group 53
Shareholder Advisory Vote Impact on  Compensation Committee Actions 54
Section 3. 2021 Executive Compensation Program 55
Overview 55
Base Salary 56
Short-Term Incentive Awards 56
Long-Term Equity Incentive Awards 59
Other Benefits 61
Section 4. 2021 NEO Compensation and Performance Summaries 63
Section 5. Our 2022 Short- and Long-Term  Incentive Program 66
Section 6. Compensation Governance Policies and Practices 69
Stock Ownership Guidelines 69
Executive Compensation Committee Report 70
Executive Compensation Tables 71
Summary Compensation Table 71
Grants of Plan-Based Awards 73
Outstanding Equity Awards at Fiscal Year-End 74
Options Exercised and Stock Vested 76
CEO to Median Employee Pay Ratio 76
Retirement Plans and Other Post-Employment  Benefits 77
Pension Benefits 77
Retirement Income Plan (the Retirement Plan) 78
Non-Qualified Retirement Plan 78
Actuarial Assumptions used to Determine Values in the Pension Benefits Table 79
Non-Qualified Deferred Compensation 81
Potential Payments Upon Termination or Change-In-Control 81
Retirement and other Benefits 83

Compensation
Discussion and
Analysis

 

In this Compensation Discussion and Analysis (“CD&A”), we address our compensation philosophy and program, and compensation paid or earned by the following executive officers:

 

 
Christopher H. Franklin
Chairman, President and Chief Executive Officer
 
Daniel J. Schuller
Executive Vice President and Chief Financial Officer
 
Richard S. Fox
Executive Vice President and Chief Operating Officer
 
Matthew R. Rhodes
Executive Vice President and Chief Strategy &
Corporate Development Officer
 
Christopher P. Luning
Executive Vice President, General Counsel, and Secretary
 

 

We refer to these executive officers as our “named executive officers” or “NEOs”.

 

As used in this CD&A,

 

·“Total cash 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.


 

46   ESSENTIAL UTILITIES, INC. 2022 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 the work of more than 3,000 employees across ten states, we help strengthen communities, improve service and enhance economic development, enabling people to live better lives. This vital work empowers us to grow as an organization and as individuals. We believe that, together, we will make a difference for generations to come.

 

Our executive compensation program is designed to promote this mission and strategy. Our compensation program does so by providing market-based pay and by rewarding the achievement of our strategic objectives. The principles and components of our compensation strategy are regularly reviewed by our Executive Compensation Committee, our Chief Executive Officer, and the Executive Compensation Committee’s independent compensation consultant, Pay Governance, to ensure that they meet the objectives of the program, the Company, and its stakeholders.

 

Navigating Disruption

2021 began with the continuing challenges of the global pandemic. The health and safety of our employees was a priority for the Company. Our cross-functional COVID task force supported the Company and employees in managing safely through another year of the pandemic. A range of measures were put in place to ensure employee well-being including strict safety protocols, restricting non-essential travel and large gatherings, a gradual return to the workplace plan for our workforce that had been working remotely, and encouraging employees to be vaccinated.

 

As well, Essential experienced some significant weather-related events impacting our service territories – particularly in Texas and Pennsylvania. Hurricane Ida had a major impact with the historical flooding in the southeastern part of Pennsylvania, which led to unprecedented weather-related damage to our Pickering plant. Our operations team swiftly mobilized to ensure our customers had access to safe water while they addressed the damages to the plant. Mr. Franklin and Essential’s executive team led the Company to another year of strong financial performance, while successfully adapting to quickly changing circumstances and demonstrating the resilience needed to ensure our customers have access to their natural resources.

 

Staying the Course

In 2020, we introduced a revised compensation program design for our Essential executives based on an extensive study of industry best practices which was validated by a high Say on Pay performance rating of 96.2% at the 2020 Shareholders Meeting as well as 96.4% at the 2021 Shareholders meeting. We continue to adhere to those executive compensation design principles in 2021 and beyond.

 

While the utilities industry was not as severely affected as most public companies by the pandemic, we are more susceptible to flooding and other natural disasters. We are proud to say that we did not make any pandemic-related changes to the executive compensation plan. In fact, we raised the bar on our executives by including equity, diversity and inclusion measures in our short- term incentive plans in 2021 as well as becoming an environmental leader with aggressive environmental standards. In February 2020, we announced that we will, over several years, install mitigation technology at water treatment facilities where source water exceeds 13 parts per trillion (ppt) for any Poly-fluoro alkyl substances (PFAS). This is well below the EPA’s non-enforceable health advisory level of 70 ppt. These initiatives are reflected in our incentive plan goals. Pay Governance LLC (Pay Governance or the consultant), the independent compensation consultant retained by the Compensation Committee, provides advice, guidance and expertise in compensation design for utilities executives.

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   47
 
 

Executive Compensation

 

Executive Summary

 

Annually, the Committee incorporates investor feedback on the compensation program design into their review of the plans to ensure alignment with market expectations about our compensation and performance. The peer group adopted by the Committee in 2020 was unchanged in 2021. The performance measures for each element of the program were examined to ensure they aligned with the interests of our shareholders, customers, and employees as well as being competitive with the compensation practices of our industry peer group. The 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 2021 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.
   

 

2021 Performance Highlights

 

Despite the many challenges during 2021, our leadership team remained focused on growing our customer base through acquisitions, prudently invested a record amount of over $1 billion in infrastructure, maintained operational excellence and demonstrated the resiliency of our water and natural gas platforms. As of year-end 2021, we had a total of eight signed purchase agreements to acquire water and wastewater systems, totaling over $471 million in purchase price and expected to serve approximately 235,000 equivalent retail customers or equivalent dwelling units. We see great opportunities ahead and remain focused on investing in infrastructure and delivering sustainable growth for our investors. We do this while building on our core values of respect, integrity, and the pursuit of excellence and remaining dedicated to our mission of safely and reliably delivering Earth’s most essential natural resources to our customers and communities.

 

·In 2021, we invested a record amount of over $1 billion in infrastructure projects across the water and gas utilities, helping to ensure safe and reliable service for all customers.
·Revenues were $1.88 billion in 2021, an increase of 28.4 percent over 2020.
·Earnings per share were $1.67 in 2021, in line with expectations.
·We added approximately 7,700 water and wastewater customer equivalents through acquisition in 2021 and increased water and wastewater customers served by 2 percent, which includes customers from organic growth and acquisitions. Our acquisitions in 2021 added approximately $36.3 million in rate base.
·We signed purchase agreements to acquire 6 water and wastewater systems in 2021. These systems are expected to add over 25,000 equivalent retail customers or equivalent dwelling units.
·From January 1, 2019 to December 31, 2021, the total return to our shareholders, including share price appreciation and dividends paid, shows 65.56 percent growth.
·In July 2021, the Board of Directors approved a 7 percent increase in the quarterly dividend to an annualized rate of $1.0728 per share.
·Since making the greenhouse gas emissions reduction commitment in early 2021, the Company has achieved an estimated 7% Scope 1 and 2 emissions reduction from our 2019 baseline towards our 60% reduction target by 2035.
·As of year-end 2021, the Company reached 15% people of color in our employee base towards our multi- year target of 17%.
·Additionally, in controllable spending, we purchased nearly 11% of goods and services from diverse supplies towards our multi-year target of 15%.


 

 

48   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
 
 

Executive Compensation

 

Executive Summary

 

2018-2021 Pay for Performance Alignment

Our pay programs are designed to reflect the Company’s performance. The following table shows the relationship between financial performance goals and executive performance-based payouts over the past three years:

 

Target EPS*
(adjusted for comp plan)

EPS

(adjusted for comp plan)

 

STI Payout %

 

3 Year TSR Return

 

PSU Payout %

2019 $1.47 Achieved 126.45% 67.75% 159.91%
2020 $1.55 Achieved 137.10% 29.08% 175.00%
2021 $1.66 Achieved 129.70% 65.56% N/A
*Target EPS is a non-GAAP financial measure. See Appendix A.

 

Our Pay for Performance Compensation Program

 

Our compensation program for named executive officers is designed to:

 

·Provide compensation that is competitive with our industry peers and appropriately correlates incentive compensation to the achievement of the Company’s short- and long-term performance for customers and shareholders;
·Provide a total compensation package that is aligned with industry standards and enhances our ability to:
Motivate and reward our named executive officers for contributions to our financial success;
Attract and retain talented and experienced named executive officers; and
Ensure a significant portion of pay is performance based to better align pay with the successful achievement of our business objectives;
·Reward our named executive officers for leadership excellence and contribution to the organization’s success; and
·Maintain an important focus on environmental, social, and governance issues while building shareholder value.

 

Highlights of our Compensation Policies

 

 

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   49
 
 

Executive Compensation

 

Executive Summary

 

Pay for Performance and Results of the 2021 Advisory Vote to Approve Executive Compensation

 

Our goal is to instill a pay for performance culture throughout the Company. At our 2021 Annual Meeting, we submitted a proposal to our shareholders for a non-binding advisory vote on our 2020 compensation awarded to our named executive officers. Our shareholders approved the proposal at a 96.4% approval rate. This approval level validated the compensation design structure which we believe will propel us into the future.

 

Aligning Interests of NEOs and Shareholders

Annually, we solicit the opinions of our top shareholders on several items, including our executive compensation program design. We do this to ensure that the pay balance and alignment is 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 Compensation Committee has taken the following actions.

 

     
  Compensation Committee Actions for 2021  
 

·   Maintained a highly competitive peer group based on Essential’s post-acquisition revenue and market cap scope as well as business mix. Since the industry peer group was substantially modified in 2020, no changes were made for 2021. For 2020, the number of peer group companies was reduced to 15 and encompass both the gas and water utilities 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

·   Eliminated the individual performance portion of our short-term incentive plan and changed our metrics to focus on diversity, equity and inclusion metrics for 2021 as Essential seeks to strengthen its talent, enhance its workplace environment and support the supply chain. Essential is taking a leadership role relative to the utilities industry who focus mainly on environmental measures for their plans out of the ESG areas.

 

·   Maintained long-term incentives to drive Company Value through performance share units and promote retention of key employees through RSUs. For 2021, our long-term incentive mix continued to weigh heavier on PSUs at 65% and RSUs at 35%.

·   No Covid-19 compensation changes in 2021. Our Compensation Committee did not make any adjustments to our compensation program in relation to COVID-19 (or for any other reason).

·   Talent acquisition and succession planning were at the forefront of our human resources agenda for this year, which includes developing plans for key executive roles to ensure a strong internal talent pipeline for the future.

 
         

 

50   ESSENTIAL UTILITIES, INC. 2022 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.

 

Elements of Compensation for Named Executive Officers

The following chart provides a brief summary of the principal elements of our executive compensation program for 2021. We describe these elements, as well as retirement, severance and other benefits, in more detail on pages 55 through 62.

 

  Compensation Element Form Compensation Objective Relation to Objective

Fixed

 

Base Salary Fixed annual cash paid
bi-weekly
Compensate executives for their level of responsibility and sustained individual performance based on market data. Merit salary increases are based on subjective performance evaluations as well as actual performance against defined objectives.

Variable

 

Performance- and/or
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.

 

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.

 

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 Pay Governance, the total target direct compensation for each of our named executive officers was within the competitive range of the benchmark market data for each of their positions during 2021.

 

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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 and long-term equity incentives, both of 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, composed entirely of independent directors, determines the actual amount of each element of annual compensation to award to the Company’s named executive officers. The goal is for the target total direct compensation opportunity for each named executive officer to be generally within a range of 15% above or below the market median rate for his or her position over time.

 

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. 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 regarding 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 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 2021 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 our 15 utility peer group companies.

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.

 

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Executive Compensation

 

Section 2 How We Determine Executive Compensation

 

In 2021, Pay Governance also analyzed the Company’s executive compensation program to ensure that it remained competitive. Pay Governance uses the median to show the market rate for base salary, total cash compensation and total direct compensation, including the allocation between cash compensation and equity incentives. Pay Governance provides no other services to the Company other than serving as the Compensation Committee’s compensation consultant for executive and director compensation decisions.

 

Our 2021 Benchmarking Peer Group

A simplified fifteen company peer group is used to benchmark executive pay. This custom peer group was first used in 2020 and will continue to be the foundation of our benchmarking approach.

 

How We Selected our Peer Group

A multi-step screening process was used to determine the final comparator companies.

 

 

 

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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. The Company is committed to providing shareholders with more transparency in metrics and measurements, which you will see as you review our 2021 incentive plan results.

 

     
 

Highlights of 2021 Compensation Plan Changes

During 2021, the Compensation Committee made the following key decisions for the compensation plan designs:

 
 

·   Used the Company’s select peer 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 diversity by including 10% of the short-term incentive with goals on growing our supplier and employee diversity;

 

·   Retained the Company’s focus on retention of key employees, by continuing to issue restricted stock units (RSUs);

·   Continued with heavier weighting of Mr. Franklin’s long-term incentives in the total compensation package to further underscore the drive for long-term value creation for shareholders.

 
         

 

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Executive Compensation

 

Section 3 2021 Executive Compensation Program

 

Section 3

2021 Executive Compensation Program

 

Overview

 

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.

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.

 

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Executive Compensation

 

Section 3 2021 Executive Compensation Program

 

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 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 2021, no turnover of the top executive team is indicative of our success in attracting and retaining the executives throughout a significant acquisition and growth process.

 

How We Determine Base Pay – Market Medians and Internal Pay Equity

 

The Compensation Committee annually reviews the base salaries of our named executive officers, as well as all our senior executives, to evaluate whether they are competitive with our industry peers. Base salaries are considered for adjustment annually and are based on a combination of factors including general movement in external salary levels, changes in the market median rate for their positions; individual performance; internal pay equity; and changes in individual duties and responsibilities.

 

NEO Salary Determinations: The Compensation Committee determines both the market median rate for their positions and internal equity with both the other named executive officers and other employees of the Company. For NEOs other than our CEO, the Committee also considers recommendations from our CEO, Mr. Franklin, reflecting his assessment of the individual’s performance and their contributions to the achievement of business objectives. Mr. Franklin’s pay is evaluated separately by the Compensation Committee under the same criteria, with the final recommendation determined and approved by all the independent members of the Board of Directors.

 

NEO 2021 Base Salary

 

For 2021, the annual increases to the salaries for the named executive officers reflected these assessments and averaged 4% which reflected normal market driven increases. The base salaries approved by the Compensation Committee for 2021, effective April 1, 2021, were as follows: Mr. Franklin, $910,000; Mr. Fox, $450,167; Mr. Schuller, $463,332; Mr. Rhodes, $448,157; and Mr. Luning, $401,110.

 

Short-Term Incentive Awards

 

The 2021 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
   

Half of the total award funding is based on the financial performance of the overall Company with the majority (35%) based on Essential Earnings Per Share and 15% based on Return on Equity.

This award measure aligns the executive to results for the shareholders.

   

Essential has a strong commitment to safety with an additional 20% 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. Peoples Gas Safety measures compliance with key measures including inspections completed, e.g. regulating station inspections, critical valve inspections, corrosion test station reads, and leak surveys.

 

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Executive Compensation

 

Section 3 2021 Executive Compensation Program

 

    Environmental stewardship as measured by water, wastewater and gas compliance rates accounts for another 10% of the overall plan. 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 2021). Reduction in gas leaks outstanding includes the number of leaks outstanding at year end as reported on DOT reports. The gas LTIIP mileage replacement is measured as percentage completed per the approved plan.
    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.
    The year over year increase in diverse spend with certified suppliers in the following classifications:  Minority-Owned Enterprise (MBE), Women-Owned Enterprise (WBE), Veteran –Owned Enterprise (VBE) and LBTQ-Owned Enterprise.
    The percentage of ethnically diverse employees as of 12/31/2021. Diversity goals are established based on the number of people of color in the geographic labor market where Essential has operations.

 

 

*Adjusted EPS is a non-GAAP financial measure. See Appendix A for reconciliation to the GAAP financial measure and adjustments made for purposes of the compensation metric attainment.

 

2021 Annual Cash Incentive Award Metrics and Targets

 

The tables and the narrative below detail the 2021 Annual Cash Incentive Award Metrics.

           
      2021 Target Payout Levels
Metric Metric Components Weight Threshold Target Maximum
           
Financial (50%) Essential Earning Per Share* 35.00% $1.61 $1.66 $1.71
           
           
  Essential ROE 15.00% 4.52% 9.52% 14.52%
           
           
Safety (20%) Essential Lost Time/Restricted Time 5.00% 2.0 1.5 1.0
           
           
  Essential Responsible Vehicle Accident Rate 5.00% 3.2 2.7 2.2
           
           
  Peoples Gas Safety 10.00% 99.98% 99.99% 100.00%
           
           
Customer Satisfaction (10%) Essential Service Level 10.00% 80%/30sec 82%/30sec 84%/30sec
           
           
Environmental Aqua Water Compliance 2.50% 99.30% 99.70% 100.00%
           
           
Stewardship (10%) Aqua Wastewater Compliance 2.50% 93.00% 95.50% 98.00%
           
           
  Peoples Gas Leaks 2.50% 800 700 600
           
           
  Peoples Gas LTIIP 2.50% 97.50% 100.00% 102.50%
           
           
Diversity (10%) Supplier Diversity 5.00% 15.7% 18.1% 20.5%
           
           
  Employee Diversity 5.00% 14.2% 14.5% 14.8%
           
           
    100.00%      
*See Appendix A for a reconciliation of non-GAAP financial measures to GAAP financial measures.

 

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Executive Compensation

 

Section 3 2021 Executive Compensation Program

 

2021 Performance

Based on the factors described above, the following table shows the 2021 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 129.70%. Based on this determination, the table below shows the target annual cash incentive awards and the actual annual cash incentive awards, based on both corporate and individual goals, approved by the Compensation Committee for 2021 for the named executive officers.

 

2021 Company Performance Metric Scorecard

 

 

Metric

 

Metric Component

50%

Threshold

100%

Target

150%

Maximum

Actual*  Total Attainment

 

Weight

Achievement
Financial Essential Earnings Per Share $1.61 $1.66 $1.71 $1.80 150.00% 35.0% 52.50%
  Essential Return on Equity on a Regulated 4.52% 9.52% 14.52% 10.47% 109.50% 15.0% 16.43%
  Basis              
Safety Essential Lost Time/Restricted Time 2.0 1.5 1.0 1.2 130.00% 5.0% 6.50%
  Essential Responsible Vehicle Accident Rate 3.2 2.7 2.2 2.9 80.00% 5.0% 4.00%
  Peoples Gas Safety 99.98% 99.99% 100.00% 100.00% 150.00% 10.0% 15.00%
Customer Satisfaction Essential Service Level 80.00% 82.00% 84.00% 82.19% 75.00% 10.0% 7.50%
Environmental Stewardship Aqua Water Compliance 99.30% 99.70% 100.00% 99.63% 91.25% 2.5% 2.28%
  Aqua Wastewater Compliance 93.00% 95.50% 98.00% 96.47% 119.40% 2.5% 2.99%
  Peoples Gas Leaks 800 700 600 539 150.00% 2.5% 3.75%
  Peoples Gas LTIIP 97.50% 100.00% 102.50% 106.80% 150.00% 2.5% 3.75%
Diversity Supplier Diversity 15.7% 18.1% 20.50% 31.3% 150.00% 5.0% 7.50%
  Employee Diversity 14.2% 14.5% 14.8% 15.0% 150.00% 5.0% 7.50%
Total Achievement               129.70%
*Actual Essential Earnings Per Share is adjusted (Non-GAAP financial measure). Refer to Appendix A for a reconciliation of this Non-GAAP financial measure to net income per share, the closest comparable GAAP financial measure.

 

Additionally, the named executive officers had the following individual goals and achieved the results listed in the table below:

 

2021 Named Executive Officer Short Term Incentive Award

 

 

Name

2021 Salary Rate* ($) 2021 Target
Bonus %

2021 Company

Metric

 

STI Payment ($)

Christopher H. Franklin $910,000 100% 129.70% $1,180,270
Daniel J. Schuller $463,332 65% 129.70% $   390,612
Richard S. Fox $450,167 65% 129.70% $   379,513
Matthew R. Rhodes $448,157 60% 129.70% $   348,756
Christopher P. Luning $401,110 60% 129.70% $   312,144
*The 2021 Salary Rate is an annualized rate

 

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Executive Compensation

 

Section 3 2021 Executive Compensation Program

 

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, the Compensation Committee did not make performance share units awards in 2019 due to the uncertainties associated with the pending Peoples Natural Gas acquisition. In 2020 and continuing in 2021, the long-term incentive program awarded a combination of performance share units and restricted stock units. For 2022, the long-term incentive plan is introducing stock options as part of the program to incentivize management on growing the Company.

 

We aim to strike a balance between the incentive and retention goals of our equity grants:

 

·   All of the equity grants to our Chief Executive Officer are subject to performance goals.   ·   For our other named executive officers, sixty-five percent of the equity grant is performance-based, and thirty-five percent is in the form of service-based restricted stock units for 2021.

 

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 2018-2022:

 

Long-Term Equity Mix for 2018-2022

 

 

Award Year

Performance

Period

Payment

Year

Performance Share Units Performance Based Stock Options Restricted
Stock Units
2018 2018-2020 2021 53% 13% 33%
2019 2019-2021 2022 N/A 70% 30%
2020 2020-2022 2023 65% N/A 35%
2021 2021-2023 2024 65% N/A 35%
2022 2022-2024 2025 65% 10% 25%

 

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Executive Compensation

 

Section 3 2021 Executive Compensation Program

 

As a result of the Compensation Committee’s analysis, it established the target percentages of base salary for each named executive officer:

2021 Target LTI (%)
Christopher H. Franklin   230
Daniel J. Schuller 130
Richard S. Fox 135
Matthew Rhodes 110
Christopher P. Luning 110


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.

 

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 PSU Awards

The PSU awards granted in 2020 were redesigned to incorporate the change to one total shareholder return metric from the previous use of a water and mid-cap utility metrics. The performance period began on January 1, 2020 and will end on December 31, 2023 for the 2020 grant. The performance period for the PSU awards for 2021 began on January 1, 2021 and will end on December 31, 2024.

 

Please see the disclosure on page 74 under the heading Outstanding Equity Awards at Fiscal Year-End for a description of the status of the 2020 and 2021 PSU awards.

 

Adjusted Return on Equity Calculation — 2019 Stock Options

The Company’s adjusted return on equity is calculated annually in accordance with the descriptive formula below and if the adjusted return on equity meets or exceeds 150 basis points below the return of equity of the most current Pennsylvania PUC rate award, the awards will vest:

 

 

 

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Executive Compensation

 

Section 3 2021 Executive Compensation Program

 

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 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, $19,000 for 2019, and $19,500 each year for 2020 and 2021), receive the portion of the Company matching contribution that would otherwise be forfeited by the executive as the Company’s contribution into the Executive Deferral Plan.

 

·Effective January 1, 2009, the Company began to fund the trust holding amounts deferred by the participants in the Executive Deferral Plan using trust-owned life insurance.
·A named executive officer’s deferrals and any earnings on deferrals under our non-qualified deferred compensation plan are not taken into account in determining the named executive officer’s compensation.

 

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Executive Compensation

 

Section 3 2021 Executive Compensation Program

 

Severance Plans

All of the named executive officers are covered by a severance policy. The policy provides the named executive officers with a severance benefit of one full year salary and one full year projected bonus and a minimum of one month of continued medical benefits and a maximum of six months of continued medical benefits following termination, provided that the named executive officer is terminated for any reason other than for cause.

 

Additionally, on July 1, 2021, Mr. Franklin and the Company entered into a Renewed 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.

 

Under his employment agreement, Mr. Franklin agrees that during his employment and for a period of twelve months after termination of his employment, he will not (1) employ, engage or solicit for employment employees of the Company, (2) solicit, entice, broker or encourage any then-current or potential customer, client or vendor of the Company or otherwise alter his, her or its relationship with the Company, and (3) participate in any way, directly or indirectly, in a “competing business”.

 

If the Company terminates Mr. Franklin’s employment for cause or if he terminates his employment without good reason, or for death or disability, Mr. Franklin (or his estate) will receive any accrued but unpaid salary and accrued vacation. Mr. Franklin’s Employment Agreement expires July 1, 2024 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 81 through 84.

 

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 81 through 84 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.

 

62   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
 
 

Executive Compensation

 

Section 4 2021 NEO Compensation and Performance Summaries

 

Section 4

2021 NEO Compensation and Performance Summaries

 

Linking Pay and Performance

 

Here we provide a summary of each of our NEOs 2021 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.

 

2021 Total Compensation Pay Mix

 

 

2021 Key Accomplishments

 

·   Continued to grow the Company with 2 new municipal acquisitions adding $36.3 million in rate base.

·   Set the course for growth in 2022 with over $471 million in pending acquisition purchase price with approximately 235,000 equivalent retail customers or equivalent dwelling units.

·   Invested more than $1 billion in infrastructure improvements across our footprint.

·   Continued the integration of Aqua and Peoples Natural Gas, with over 3,000 employees coming together as Essential Utilities.

·   With a focus on the community, through the Essential Foundation, ensured over $4.6 million in community giving, including supporting organizations impacted by the Covid-19 pandemic.

 

·   Established Essential’s ESG/GHG reduction program to substantially reduce Scope 1 and 2 greenhouse gas emissions, which by 2035, targets a 60% reduction over Essential’s 2019 emission levels, which is consistent with the rate of reduction necessary over the next 15 years to keep on track with the Paris Agreement.

·   Championed a three-year technology transformation projection, investing in upgraded systems for our customers and operations to ensure improved customer experience and operational efficiency.

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   63
 
 

Executive Compensation

 

Section 4 2021 NEO Compensation and Performance Summaries

 

Daniel J. Schuller

 

Executive Vice President and Chief Financial Officer

 

Responsibilities

 

As CFO, Mr. Schuller is responsible for managing Essential’s overall financial condition, including resource and capital allocation, financial and expense discipline.

 

He is also responsible for overseeing all corporate finance functions, including accounting financial planning, forecasting, cash flow planning, investment strategies, capital structure, regulatory and rate strategies, and tax.

 

2021 Total Compensation Pay Mix

 

     

2021 Key Accomplishments

 

•   Partnered with Regulatory and subsidiary management on the Peoples Natural Gas catch-up deduction filing, as well as rate cases at Aqua PA, Aqua OH, Aqua VA, and Delta Gas with total requests of approximately $120 million.

•   Completed searches for a number of management level roles in Finance, adding a diverse pool of high-potential professionals that can be succession candidates within the organization.

 

•   Completed $400 million public debt offering in April and settled the $308 million forward sale of common equity in August.

•   Led the Finance team’s involvement in the SAP design and implementation for Company financials.

•   Developed the “Finance of the Future” plan to fundamentally transform Essential’s Finance function over the next five years.

     
 

 

Richard S. Fox

 

Executive Vice President and Chief Operating Officer

 

Responsibilities

 

As COO, Mr. Fox is 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.

 

2021 Total Compensation Pay Mix

 

 

2021 Key Accomplishments

 

•   Executed record first ever billion dollar capital budget and increased eligible tax repair projects at Peoples by 50%.

•   Between Aqua and Peoples, 470 miles of water and gas pipeline was either replaced, installed, or retired.

•   Reduced outstanding gas leaks by 13%.

•   Through legislative and regulatory efforts, attained “multi-year rate making” in North Carolina, established a comprehensive System Improvement Charge legislation in Texas, and passed referendum reform in Texas.

 

•   Built world-class water quality laboratory in Bryn Mawr and attained all regulatory certifications.

•   Successfully converted Aqua business to SAP for financial and asset management activities.

•   Completed legal and operational merger of all operations in Kentucky and prepared for merger of all gas entities in Pennsylvania including gas cost recovery proceedings.

 

64   ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT
 
 

Executive Compensation

 

Section 4 2021 NEO Compensation and Performance Summaries

 

Matthew R. Rhodes

 

Executive Vice President Strategy & Corporate Development

 

Responsibilities

 

As EVP of Strategy and Corporate Development, Mr. Rhodes is responsible for driving Essential’s overall strategy and corporate development function, as well as leading the state presidents and business development leads in M&A initiatives. Mr. Rhodes is also responsible for leading the Company’s Market-based businesses.

 

Mr. Rhodes guides a team of internal and external professionals responsible for due diligence, underwriting/ valuation, financing, ratings, negotiations, and transaction management, in partnership with other members of the executive team.

 

2021 Total Compensation Pay Mix

 

 

2021 Key Accomplishments

 

•   Closed two municipal acquisitions, signed six purchase agreements for approximately $141.5 million of additional municipal acquisitions and progressed DELCORA toward closing.

•   Worked with the State business development teams to increase the size of the municipal acquisition pipeline.

 

•   Led a three-year strategic planning exercise for all senior leaders of the Company.

•   Continued to optimize Essential’s unregulated businesses and improved profitability significantly. 

•   Developed a strategy for several environmental initiatives at Peoples, including those related to RNG and hydrogen.

 

 

 

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, Mr. Luning is responsible for the Corporation’s Legal, Regulatory, Corporate and Legislative Affairs, Risk and Insurance, and Records Department, and is the Company’s designated SEC Compliance Officer.

 

2021 Total Compensation Pay Mix

 

 

2021 Key Accomplishments

 

•   Completed integration of water and gas legal functions, development of the Company’s Risk and Insurance Department, and integration of the Company’s Regulatory, Corporate and Legislative Affairs departments.

 

•   Supported the growth of the Company with 2 new municipal acquisitions adding $36.3 million in rate base.

•   Completed $400 million public debt offering in April and settled the $308 million formal sale of common equity in August.

 

ESSENTIAL UTILITIES, INC. 2022 PROXY STATEMENT   65
 
 

Executive Compensation