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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. )

       
þ   Filed by the Registrant o   Filed by a Party other than the Registrant

 

Check the appropriate box:
o Preliminary Proxy Statement
o CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Under Rule 14a-12

  

ESSENTIAL UTILITIES, INC.

(Name of Registrant as Specified In Its Charter)

 

 
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)

   
Payment of Filing Fee (Check the appropriate box):
þ No fee required.
o Fee paid previously with preliminary materials.
o Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 

 

 

 
 

 

 
 

March 20, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Christopher H. Franklin

“Our remarkable 136-year
heritage of dependable
service, consistent innovation
and high performance has
been guided by our core
values of integrity, respect
and excellence. We remain
committed to delivering
high-quality water,
wastewater and natural gas
service to our customers,
helping to solve our nation’s
infrastructure challenges,
protecting our natural
environment, and creating a
culture where everyone feels
empowered to do the same.”

 

 

To Our Shareholders

Dear Fellow Shareholders,

On behalf of your Board of Directors, I invite you to attend the 2023 Annual Meeting of the Shareholders of Essential Utilities, Inc. to be held virtually on May 3, 2023.

This past year was foundational for Essential; we reached important milestones that furthered our growth strategy, built on the excellence of our operations, and protected the Earth’s most essential resources. I’m proud of our team and their commitment to our mission. We are guided by our core values of integrity, respect and excellence to deliver critical water, wastewater, and natural gas service to our customers.

An integral part of our commitment is our capital improvement program. In 2022, we invested more than $1 billion in critical infrastructure projects to improve 430 miles of water, wastewater and natural gas pipelines across our service territory. This investment strengthens our systems, improves quality and safety, increases reliability, and enhances compliance for our customers and communities.

We continue to expand our regulated water segment by offering solutions to municipal governments facing the need for significant system improvements. In 2022, we acquired three water and wastewater systems and added approximately $120 million in rate base and over 23,000 new customers or equivalent dwelling units. We also signed two agreements to purchase three water and wastewater systems that collectively are expected to add over 6,700 new customers or equivalent dwelling units for a purchase price of nearly $27 million. With nearly 70,000 water and wastewater systems across the country, we recognize the opportunity for Essential to provide the best solution.

As we continue to focus the growth of our company in states where we have scale, we also announced our plan to sell our West Virginia natural gas assets. The small size of the operation, combined with operational and regulatory challenges, diverted management attention from higher priority strategic initiatives. The strength of our gas segment is an asset to our long-term growth strategy, giving us a solid foundation as we expand our water footprint through acquisition in our gas service territories. We see the value natural gas plays in our growth strategy and the role it will continue to play in America's energy mix long into the future.

We pride ourselves on being innovative leaders, offering solutions to our nation’s infrastructure challenges while ensuring our natural environment is protected. We’ve made incredible progress toward our environmental, social and governance (ESG) goals and look forward to sharing these developments in our updated ESG report, coming later this year. We also continue to accelerate our response regarding treatment of Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS), also known as “forever chemicals,” with dozens of projects in the planning phase or under construction throughout our footprint.

We are a proud community partner, contributing $3.9 million through the Essential Foundation to organizations that enrich the lives of our customers. Just as importantly, our employees demonstrated their support for this key component of our culture, logging more than 3,800 hours of volunteering across the company.

We remain dedicated to the important work of ensuring our corporate culture celebrates diversity, equity and inclusion, and we’re proud of the advancements we’ve made toward these important benchmarks.

I have always been impressed by the commitment of our Essential team and their ongoing dedication to our customers, shareholders and communities, and I look forward to sharing that with you in May. We hope you’ll join us to hear more about our progress and goals for the future.

We are excited about the opportunities for the year ahead—our third as Essential Utilities. Thank you for your continued confidence in Essential and loyalty as a shareholder.

Sincerely,

Christopher H. Franklin

Chairman, Chief Executive Officer and President

 

 

ESSENTIAL UTILITIES, INC. 2023 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 3, 2023 8:00am ET

 

Record Date

March 6, 2023

 

This year’s Annual Meeting will be conducted virtually, entirely by live audio broadcast.

 

To attend, go to:
www.virtualshareholdermeeting. com/WTRG2023 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 2022;

3  To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2023 fiscal year; and

4  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 6, 2023, 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 3, 2023.

 

The Notice of Annual Meeting, Proxy Statement and 2022 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/WTRG2023
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 signed proxy card
in the postage-paid
envelope provided

         
         
  *   If you hold shares directly, you have until 11:59 p.m. (ET) on May 2, 2023, to vote through the internet or by phone. If you are a plan participant, you have until 11:59 p.m. (ET) on April 30, 2023, 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,

 

Kimberly A. Joyce

Secretary

March 20, 2023

 

 

 

2   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Contents

Proxy Summary 4
Proposal 1 Election of Directors 11
Corporate Governance 20
Shareholder Outreach 28
Age and Term Limits 28
Environmental, Social, and Governance Program 29
Other Governance Policies and Practices 35
Communications with the Company or Independent Directors 36
Director Compensation 37
2022 Director Compensation Program 37
Ownership of Common Stock as of March 6, 2023 40
Proposal 2 Advisory Vote to Approve Named Executive Officers’ 2022 Compensation 41
Executive Compensation (see separate table of contents) 42

Proposal 3 Ratification of the Appointment of PricewaterhouseCoopers LLP as

Independent Registered Public Accounting Firm for Fiscal 2023

88

Audit Committee Report 89
Annual Meeting Information 90
Questions and Answers about the 2023 Annual Meeting 90
Nominating Candidates for Director 93
Additional Information 94
Other Matters 94
Appendix A Reconciliation of GAAP to Non-GAAP Financial Measures For Compensation Related Purposes

A-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. 2023 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 2022 performance, please review the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC at www.sec.gov.

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 2023 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 11

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 2022 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 Independent Accounting Firm

The Board believes that retaining PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the 2023 fiscal year is in the best interests of the Company and our shareholders. As a matter of good corporate governance, shareholders are being asked to ratify the Audit Committee’s selection of PricewaterhouseCoopers LLP.

FOR 88

 

 

 

 

4   ESSENTIAL UTILITIES, INC. 2023 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 66 2018 Former Executive Vice President and
Chief Human Resources Officer, United
Technologies Corporation

 

0

 

 

   

 

CHAIR

David A. Ciesinski 56 2021 President, Chief Executive Officer, and
Director, Lancaster Colony Corporation,
and President, T. Marzetti Company

 

1

 

 

 

 

 

 

 

Christopher H. Franklin

Chairman

57 2015

Chairman, President and Chief
Executive Officer,

Essential Utilities, Inc.

 

1

 

CHAIR

   

 

 

Daniel J. Hilferty

Lead Independent Director

66 2017 Chief Executive Officer, Comcast Spectacor and Chairman and Chief Executive Officer, Dune View Strategies

 

0

 

 

CHAIR

     
Edwina Kelly 36 2021 Managing Director, Canada Pension
Plan Investment Board, Sustainable
Energies Group

 

0

   

 

 

 

 

W. Bryan Lewis 47 2022 Vice President and Chief Investment
Officer, United States Steel Corporation

 

0

 

 

 

 

 

 
Ellen T. Ruff 74 2006 Former President, Office of Nuclear
Development, Duke Energy Corporation

 

0

 

 

 

   

 

Lee C. Stewart 74 2018 Private Financial Consultant 1 CHAIR    
Committee Meetings held in 2022     0 5 9 5 5

 

* Mr. Womack is the current Chair of the Risk Mitigation & Investment Policy Committee. He is not standing for re-election in 2023. A new Chair will be appointed after elections to serve in this position.

 

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   5

 
 

Proxy Summary

 

Board Composition

 

Board Composition as of December 31, 2022

 

 

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 20 describes our corporate governance framework.

Board Accountability

  Annual election of directors

  15-year term limit for directors who were elected after 2015

  Peer review of director performance

Board  Independence

  Eight out of nine directors* were 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

  Five of our nine directors* were women or members of underrepresented minorities

  Women make up 33% of the Board

Board  Refreshment

  All of the directors but one joined the Board since 2015

  Mandatory retirement age of 75 for directors (Directors Ruff and Stewart are currently 74 years old)

Risk 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

  Conducted independent auditor RFP

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 2022, including approximately 250 meetings held with investors

 

* As of December 31, 2022

 

 

6   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Proxy Summary

 

2022 Performance Highlights

 

2022 Performance Highlights

Our core values of respect, integrity, and the pursuit of excellence are the underlying foundation to our mission of safely and reliably delivering Earth’s most essential natural resources to our customers and communities while delivering sustainable growth for our investors. During 2022, our leadership team remained focused on our long tradition of operational excellence, strong growth and continued progress on our ESG commitments; prudently invested a record amount of over $1 billion in infrastructure; and demonstrated the resiliency of our water and natural gas platforms. As of year-end 2022, we had a total of seven signed purchase agreements to acquire eight water and wastewater systems, totaling over $377 million in purchase price and expected to serve over 218,000 equivalent retail customers or equivalent dwelling units.

·  In 2022, we invested a record amount of over $1.06 billion in infrastructure projects across the water and gas utilities, helping to ensure safe and reliable service for all customers.

·  Net income was $465.2 million in 2022, an increase of 7.8 percent over 2021.

·  Earnings per share were $1.77 in 2022 compared to $1.67 in 2021, an increase of 6.0%.

·  We added over 23,000 water and wastewater customer equivalents through acquisitions in 2022 and increased water and wastewater customers served by 2.7 percent, which includes customers from organic growth and acquisitions. Our acquisitions in 2022 added approximately $120 million in rate base.

·  We signed purchase agreements to acquire three water and wastewater systems in 2022. These systems are expected to add over 6,700 equivalent retail customers or equivalent dwelling units.

 

·  From January 1, 2018, to December 31, 2022, the total return to our shareholders, including share price appreciation and dividends paid, grew by 36.4 percent.

·  In August 2022, the Board of Directors approved a 7 percent increase in the quarterly dividend, to an annualized rate of $1.1480 per share.

·  Since making a commitment to reduce greenhouse gas emissions in early 2021, the Company has achieved an estimated 23% Scope 1 and 2 emissions reduction from our 2019 baseline towards our 60% reduction target by 2035.

·  As of year-end 2022, people of color represented 16% of our employee base, nearing our multi-year target of 17%.

·  In controllable spending, we purchased over 15% of goods and services from diverse suppliers, achieving our multi-year target of 15%.

 

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   7

 
 

Proxy Summary

 

Compensation Highlights

 

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 and limited number of change-in-control agreements with double-trigger termination clauses

   All incentive compensation is subject to our newly adopted clawback policy

   Anti-hedging and anti-pledging policy in effect

•   No tax gross-ups

•   Share ownership requirements ensure that executives are aligned with shareholders

•   Reasonable severance arrangements in line with market practices

•   Modest perquisites

•   Compensation program aimed at encouraging management to support diversity, equity, and inclusion in the organization

•   Review peer group data, as available, and compensation survey data in establishing executive compensation

 

 

8   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Proxy Summary

 

2022 Pay for Performance Compensation Program

 

2022 Pay for Performance Compensation Program

We have instilled a 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 goals.
·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.

 

2020–2022 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 %

2020 $1.55 Achieved 137.10% 29.08% 175.00%
2021 $1.66 Achieved 129.70% 65.56% N/A
2022 $1.77 Achieved 129.06% 12.37% 171.16%
*Target EPS is a non-GAAP financial measure. See Appendix A.

 

2022 NEO Total Compensation Pay Mix

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   9

 
 

Proxy Summary

 

Shareholder Outreach and Results of 2022 Advisory Vote to Approve Executive Compensation

 

Shareholder Outreach and Results of 2022 Advisory Vote
to Approve Executive Compensation

At our 2022 annual meeting of shareholders, our shareholders strongly supported our compensation program, with 97.1% 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 showed in ensuring the program aligns with shareholder interests.

Over the course of 2022, management held over 250 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 Company strategy, executive compensation, and environmental, social and governance performance.

For more information on our shareholder engagement program, investor feedback and the actions taken in response to that feedback, please see page 28 in this proxy statement.

 

 

 

 

10   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Proposal 1:

Election of Directors

Our Board has nominated Ms. Amato, Mr. Ciesinski, Mr. Franklin, Mr. Hilferty, Ms. Kelly, Mr. Lewis, Ms. Ruff, and Mr. Stewart for election as directors at this year’s Annual Meeting for a one-year term upon the recommendation of our Corporate Governance Committee. Each nominee abstained from the vote with respect to his or her nomination. Mr. Womack recently informed us that he does not intend to stand for re-election due to his assuming a new role with The Southern Company. We have included his information, including his biography, below, as he served on our Board during all of 2022. We thank Mr. Womack for his service on our Board.

The nominees will be elected by a plurality of the votes cast at the 2023 Annual Meeting. Properly executed proxies will be voted for the election of the eight nominees introduced below unless authority to do so has been withheld. Proxies have discretionary authority 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 all the nominees will be available to serve.

Essential’s Corporate Governance Guidelines include a resignation policy for the election of directors in uncontested elections. Specifically, if an incumbent director in an election where the only nominees are those recommended by the Board of Directors receives a greater number of WITHHOLD votes than FOR votes, that director must promptly tender a resignation to the Board. The Board will evaluate the relevant facts and circumstances of the election and resignation, giving due consideration to the best interests of the Company and our shareholders. Within 90 days after the election, the independent directors (other than the director whose resignation is under consideration) will decide whether to accept or reject the tendered resignation. The Board will promptly disclose publicly its decision and the reasons for its decision. The Board of Directors believes the resignation policy enhances accountability to shareholders and responsiveness to shareholder votes, while allowing the Board appropriate discretion in considering a director’s resignation.

Board Refreshment as of December 31, 2022

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, 2022, the Board of Directors consisted of nine directors, eight of whom were newly appointed or elected since 2015. (A ninth director who joined the Board after 2015 will not stand for re-election in 2023.) Each of these directors brings particular expertise and experience to the Board.  

Two directors are 74 years old and will reach mandatory retirement age in 2023. The Board of Directors is considering potential director candidates during 2023.

How We Identify Director Candidates

The Corporate Governance Committee identifies, evaluates and recommends director candidates to our Board of Directors for nomination. The Corporate Governance Committee seeks potential candidates from current directors, management, business partners, and shareholders. From time to time, the Corporate Governance Committee retains a third-party search firm to help identify potential directors. Mr. Lewis, who joined our Board in 2022, came to the committee’s attention through a combination of referrals and following vetting by a third-party employment search firm.

The Corporate Governance Committee holds meetings as needed to evaluate and to conduct interviews with potential candidates. As part of this process, the committee will consider a candidate’s personal abilities, qualifications, independence, knowledge, judgment, character, leadership skills, education, background, and expertise and experience in fields and disciplines relevant to the Company, including financial expertise or financial literacy. In addition, consideration is given to the effect a candidate will have on the diversity of the Board, based on a broad range of attributes, including race, gender and national origin, background, demographics, expertise, geography, and experience. Finally, the Corporate Governance Committee considers the candidate’s existing professional obligations and the candidate’s abilities to advance the Company’s interests with our various constituencies.

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   11

 
 

Proposal 1: Election of Directors

 

Director Nominee Experience, Qualifications, Attributes and Skills Criteria

 

The Corporate Governance Committee will evaluate shareholder-recommended candidates in the same manner as it evaluates candidates recommended by others. Shareholders who would like the committee to consider particular candidates for selection as nominees at the 2024 Annual Meeting of Shareholders should submit their recommendations to the Chairperson of the Corporate Governance Committee no later than December 1, 2023.

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

Director Nominee Experience, Qualifications, Attributes and Skills Criteria

Key Skills Amato Ciesinski Franklin Hilferty Kelly Lewis Ruff Stewart

Utility Industry

Regulatory

 

Financial

Legal/Government

 

Leadership

Mergers & Acquisitions

Geographic Diversity

“C-Suite” Experience

Climate Experience

     

 

Information About Our Director Nominees

For each of the eight nominees for election as directors at the 2023 Annual Meeting, we have included biographical information on the following pages that highlights the experience, qualifications, attributes and skills that led the Board to determine the individual is qualified to serve as a director of the Company. We have also included Mr. Womack’s biography.

 

 

 

12   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2023 Annual Meeting

 

Nominees for Election at the 2023 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 66

Independent Director

     

Experience

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

·  Senior Vice President, Human Resources and Organization of UTC with global responsibility for Human Resources and Communications functions 2012-2015.

·  Ms. Amato joined UTC in 1985 at Pratt & Whitney, and 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. She is currently a member of the Board of Directors for Children’s Healthcare Charity, Inc. and Wake Forest University College Board of Visitors. 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 believes Ms. Amato’s independence, her broad experience, and her leadership roles support the Board’s conclusion that Ms. Amato should serve as a director of the Company.

 

Other current public company directorships

None

 

 

 

 

 

 

 

 

       

 

Board Committees

·  Audit Committee

·  Corporate Governance
Committee

 

Key Skills

  Financial

   Leadership

  Mergers & Acquisition

  Geographic Diversity

  “C-Suite” Experience

 

David A. Ciesinski

President, Chief Executive Officer and Director of Lancaster Colony Corporation and President of its subsidiary, T. Marzetti Company

Director since 2021

Age 56

Independent Director

     

Experience

·  CEO of Lancaster Colony Corporation, a Nasdaq- listed company that produces and markets consumer products with a focus on specialty food products for the retail and foodservice markets, since 2017.

·  President of Kraft 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 believes Mr. Ciesinski’s independence, his broad experience, and his leadership roles support the Board’s conclusion that Mr. Ciesinski should serve as a director of the Company.

 

Other current public company directorships

Lancaster Colony Corporation (since 2016)

 

 

 

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   13

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2023 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 57

     

Experience

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

 

 
·  Mr. Franklin has worked for the Company for 30 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 (2012-2015); Regional President—Midwest and Southern Operations and Senior Vice President, Public Affairs (2010-2012); ·  Regional President—Southern Operations and Senior Vice President, Public Affairs and Customer Relations (2007-2010); Vice President, Public Affairs and Customer Operations (2005-2007); Vice President, Corporate and Public Affairs (1997-2005); and Manager, Corporate & Public Affairs (1992-1997).
 

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. He 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 $12.5 billion at the end of 2022. During the same period, total shareholder return has been in excess of 128%.

 

During his long tenure at the Company, Mr. Franklin has held a series of roles. Among his accomplishments in public affairs was pivotal advocacy for 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 believes Mr. Franklin’s extensive experience with the Company, capabilities, and his demonstrated leadership roles with the Company and in business and community activities support the Board’s conclusion that Mr. Franklin should serve as a director of the Company.

 

Other current public company directorships

Centerpoint Energy Company (2022-present)

       

 

 

14   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2023 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.

 

Chief Executive Officer, Comcast Spectacor
Chairman and Chief Executive Officer, Dune View Strategies

Director since 2017

Age 66

Independent Director

     

Experience

·  Chief Executive Officer, Comcast Spectacor, a Philadelphia-based American sports and entertainment company, since February 2023.

·  Chairman and CEO, Dune View Strategies, an advisory firm focused on healthcare, since 2021.

·  Former President and Chief Executive Officer of, and former 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. (2010-2022).

·  President and Chief Executive Officer of the AmeriHealth Mercy Family of Companies (1996-2009).

·  Executive Director of PennPORTS in the administration of Pennsylvania Governor Robert P. Casey (1990-1991).

·  Assistant Vice President overseeing community and media relations for Saint Joseph’s University (1987-1990).

 

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 believes Mr. Hilferty’s independence, his experience with regulation, his reputation in the healthcare industry, and his leadership roles in business and community activities support the Board’s conclusion that Mr. Hilferty should serve as a director of the Company.

 

Other affiliations

Mr. Hilferty has served on several industry-based and nonprofit boards, including America’s Health Insurance Plans, Greater Philadelphia Chamber of Commerce, 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. In 2015, he served as Chairman of the Board of Directors for the Blue Cross and Blue Shield Association.

 

Other current public company directorships

None

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   15

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2023 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

  Climate Experience

Edwina Kelly

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

Director since 2021

Age 36

Independent Director

     

Experience

·  Managing Director in the Sustainable Energies Group at Canada Pension Plan Investment Board (CPPIB) since 2019; 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, and led solar portfolio acquisitions and equity restructuring of wind farm investments (2015-2018).

·  Board member of Cordelio Power, an independent power producer that develops, owns and manages renewable power facilities across North America.

·  Board member of Redaptive, Inc., a leading energy-as-a-service provider that funds and installs energy-saving and energy- generating equipment.


 

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 and will make a positive contribution to the Board. The Board of Directors believes 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 support the Board’s conclusion that Ms. Kelly should serve as a director of the Company.

 

Other current and past directorships

Canterra GP Ltd., a Canadian farmland portfolio.

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

Cordelio Power, an independent power producer.

Redaptive, Inc., an energy-as-a-service provider.

Other current public company directorships

None

 

 

 

16   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2023 Annual Meeting

 

       

 

Board Committees

·  Audit Committee

·  Risk Mitigation and
Investment Policy Committee

 

Key Skills

  Financial

   Leadership

  Geographic Diversity

W. Bryan Lewis

Vice President and Chief Investment Officer for United States Steel Corporation

Director since 2022

Age 46

Independent Director

     

Experience

·  Vice President and Chief Investment Officer for United States Steel Corporation since 2019; responsible for the company’s global investments for both the defined contribution and defined benefit plans, as well as other related programs.

·  President and Chair, United States Steel Corporation and Carnegie Pension Fund, since 2019.

·  Chief Investment Officer for Pennsylvania State Employees’ Retirement System of Pennsylvania managing a $30 billion pension fund ( 2016-2019).

·  Executive Director for State Universities Retirement System of Illinois managing a$ 20 billion pension fund (2015-2016).

·  Investment Management for North Carolina Department of State Treasurer – Retirement Systems Division (2009-2015).

 

Mr. Lewis holds an MBA from the University of Miami and a bachelor of science degree in economics from the University of Maryland College Park.

 

Qualifications

The Board has determined, based on his abilities, qualifications, knowledge, judgment, character, leadership skills, education, background and experience in fields and disciplines relevant to the Company, including his financial expertise, that Mr. Lewis is qualified to serve on and will make a positive contribution to the Board. The Board of Directors believes Mr. Lewis’ extensive experience with financial services, auditing and evaluation of financial statements and complex accounting issues, his capabilities, and his demonstrated leadership roles support the Board’s conclusion that Mr. Lewis should serve as a director of the Company.

 

Other affiliations

Mr. Lewis serves on several industry-based and nonprofit boards, including Steelworkers Pension Trust (member on Board of Trustees), Virginia Retirement System (advisory member to the Board), Financial Accounting Foundation (Director), Propel Schools (Director), John Rex Endowment (Director), University of North Carolina Health Foundation (Director), Toiga Foundation (Director), and Institute for Private Capital (Director).

 

Other current public company directorships

None

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   17

 
 

Proposal 1: Election of Directors

 

Nominees for Election at the 2023 Annual Meeting

 

       

 

Board Committees

·  Corporate Governance Committee

·  Executive Compensation Committee

 

Key Skills

  Utility Industry

  Regulatory

  Financial

  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 74

Independent Director

     

Experience

·  President, Office of Nuclear Development, for Duke Energy Corporation, from 2008 until her retirement in January 2011.

·  Partner at the law firm of McGuire Woods LLP (2011-2018).

·  President of Duke Energy Carolinas, an electric utility that provides electricity and other services to customers in North Carolina and South Carolina (2006-2008).

 

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 believes Ms. Ruff’s independence, her experience with various aspects of the utility industry, her knowledge of North Carolina, and her significant leadership roles in business and community activities support the Board’s conclusion that Ms. Ruff should serve as a director of the Company.

 

Other current public company directorships

None



 

       

 

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 74

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 - 2002).
 

Qualifications

Mr. Stewart has over 25 years of experience as an investment banker and as a director of a public company. Mr. Stewart has 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 believes Mr. Stewart’s independence and his experience supports the Board’s conclusion that Mr. Stewart should serve as a director of the Company.

 

Other current public company directorships

P. H. Glatfelter Company, a New York Stock Exchange-listed global supplier of specialty papers and engineered materials (since 2002).

 

 

 

 

 

 

 

 

18   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Proposal 1: Election of Directors

 

DIRECTOR NOT STANDING FOR RE–ELECTION AT THE 2023 ANNUAL MEETING

 

DIRECTOR NOT STANDING FOR RE–ELECTION AT THE 2023 ANNUAL MEETING

Mr. Womack served as a Director in 2022 and is included for selected statistics in this proxy statement.

       

 

Board Committees

·  Chair, Risk Mitigation and Investment Policy Committee

·  Corporate Governance Committee

 

Key Skills

   Utility Industry

  Regulatory

  Legal/Government

  Mergers & Acquisitions

   Leadership

  Geographic Diversity

  C-Suite Experience

Christopher C. Womack

President and Chief Executive Officer, Southern Company (appointed in March 2023)

Director since 2019

Age 65

Independent Director

     

Experience

·  President and Chief Executive Officer of Southern Company, a leading American gas and electric utility holding company based in Atlanta, Georgia, since March 2023.

·  Chairman, President and Chief Executive Officer, Georgia Power, a subsidiary of Southern Company, 2020 to March 2023.

·  Mr. Womack worked in various executive leadership positions at Southern Company since

1988, including President of External Affairs and Executive Vice President, Georgia Power Company (2006-2008); Senior Vice President, Fossil & Hydro Power, Georgia Power Company (2001-2006); and Senior Vice President, Human Resources (1998-2001).

·  Legislative aide in the U.S. House of Representatives (1979-1987).

 

Qualifications

Mr. Womack has over 20 years of experience as an executive of a gas and electric utility. He has significant experience with utility operations, human resources and governmental affairs.

 

Other current public company directorships

Invesco Ltd., a New York Stock Exchange-listed global independent investment management firm (since 2021).

 

 

 

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   19

 
 

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.

 

 

Board Leadership Structure

     

 

Christopher H. Franklin
Chairman of the Board and
Chief Executive Officer

  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.

 

 

20   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Corporate Governance

 

Board Leadership Structure

 

     

 

Daniel J. Hilferty

Lead Independent Director                

 

    

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, with the authority to add items to the agendas for any Board meeting;

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

 

      

·  Call executive sessions of the independent directors and prepare the agendas for the executive sessions;

·  If requested by major shareholders, participate in consultation and direct communications;

·  Serve as a member of the Executive Committee; and

·  In the event of the death or incapacity of the Chairman, become the acting Chairman of the Board until a new Chairman is selected.

 

 

The Lead Independent Director routinely meets in executive session with the other independent directors and without Mr. Franklin present.

 

The Lead Independent Director 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.

 

Director Independence

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 NYSE listing standards. In 2022, all directors were determined to be independent, except our Chairman, President and CEO, Mr. Franklin.

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 2022, the Company made contributions to charitable or civic organizations for which Mr. Franklin and Mr. Hilferty serve as directors, trustees or executive officers. 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 is a Managing Director of CPPIB, which is a significant shareholder of the Company.

 

3.The Company has insurance arrangements with Independence Health Group (IHG) or its affiliates. During 2022, Mr. Hilferty served as Executive Advisor to IHG. As a benefit for employees, the Company offers medical insurance benefits through plans established by IHG. The Company is self-insured for all of these plans, but IHG serves as the administrator. For each of the last three fiscal years, the fees paid to IHG for serving as administrator, 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
2020 $2,499,580 $21,000,000,000 0.012%
2021 $2,919,728 $24,700,000,000 0.012%
2022 $3,454,017 $27,400,000,000 0.013%

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   21

 
 

Corporate Governance

 

Board Committee Membership, Meetings and Director Attendance

 

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 employees’ medical claims. Because IHG is an administrator, these were “pass through” payments; they 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
2020 $14,557,659
2021 $19,308,118
2022 $19,818,919

 

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

4.Mr. Lewis is a Vice President at United States Steel Corporation. The Company sells energy to United States Steel pursuant to an agreement that has been duly filed with the Pennsylvania Public Utility Commission. The amounts received by the Company are not material to the Company or United States Steel Corporation.

 

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 assigns members to 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 made up of senior management of the Company, reports periodically to the Board of Directors.

Based upon their respective qualifications, attributes, and skills, the Board of Directors determined that the following directors are best suited for service on the following committees:

Committee Chair Other Members
Audit Lee C. Stewart Edwina Kelly, David A. Ciesinski, W. Bryan Lewis
Corporate Governance Elizabeth B. Amato Ellen T. Ruff, 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, W. Bryan Lewis

 

*Mr. Womack served as chair of the Risk Mitigation and Investment Policy Committee in 2022, but he is not standing for election in 2023. Mr. Womack will continue to Chair this Committee until the end of his term, at which time 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 Committees and make changes, if necessary.

The Board of Directors held 12 meetings in 2022

·In 2022, each director attended 100% of the aggregate of all meetings of the Board and the Committees on which each director served and was eligible to attend.
·All of the directors who were elected at the 2022 Annual Meeting of Shareholders attended that meeting.

 

 

22   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Corporate Governance

 

Board Committees as of December 31, 2022

 

Board Committees as of December 31, 2022

     

Chair

Lee C. Stewart

 

Members

David A. Ciesinski

Edwina Kelly

W. Bryan Lewis

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

All members are financially literate as defined in the NYSE listing standards and are audit committee financial experts within the meaning of applicable SEC rules.

Audit

2022 Meetings Held 9

 

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.

 

In 2023, the Committee ran a process requesting proposals for bids to determine if the Company’s independent registered public accounting firm is the appropriate auditor and to determine if the firm charges the appropriate fee structure. The Committee also 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 that firm’s independence.


 

 

 

 

 

 

 

     

Chair

Daniel J. Hilferty

 

Members

Elizabeth B. Amato

Ellen T. Ruff

Lee C. Stewart

All members are independent under NYSE listing standards

Executive Compensation

2022 Meetings Held 5

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.

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   23

 
 

Corporate Governance

 

Board Committees as of December 31, 2022

 

     
 

Chair

Elizabeth B. Amato

 

Members

David A. Ciesinski

Ellen T. Ruff

Christopher C. Womack

All members are independent under NYSE listing standards

 

Corporate Governance

2022 Meetings Held 5

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. To that end, 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.

 

 

     

Chair*

Christopher C. Womack

 

Members

Edwina Kelly

Christopher H. Franklin

*Mr. Womack is not seeking reelection. The Board will appoint a new Committee Chair after the Annual Meeting.

Risk Mitigation and
Investment Policy

2022 Meetings Held 5

The Committee’s primary responsibilities include:

 

·  Overseeing the Company’s risk management process, policies, and procedures for identifying, managing and monitoring critical risks, including cyber-related risks, and compliance with legal and regulatory requirements; and

·  Overseeing the Company’s acquisition process, including being briefed on all potential transactions in excess of $10 million, and reviewing all acquisitions valued in excess of$ 20 million and all transactions that involve the Company’s stock.

 

The Committee’s Chairperson communicates with other Board 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

Lee C. Stewart

Executive Committee

2022 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.

 

 

 

24   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Corporate Governance

 

Board Oversight Responsibilities

 

Board Oversight Responsibilities

Board Oversight of Risk Management

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   25

 
 

Corporate Governance

 

Board Oversight Responsibilities

 

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 mitigate the risk of a cybersecurity breach 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 Risk Mitigation and Investment Policy Committee quarterly and to 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: We have implemented specialized programs, such as enterprise-wide communications, presentations, phishing simulations and focused training for specific roles, as well as 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 and discussed. 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. Half of the weighting in the executives’ short-term incentive compensation program focuses 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 made up 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.

 

 

26   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Corporate Governance

 

Board and Committee Evaluations

 

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, the Board 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 35, 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 recognize 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 only to discuss succession planning, 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 immediate succession candidates and prospective succession candidates, as well as their development plans, so the Company is well-prepared for the future.

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, and all responses are kept confidential. Each director also responds to questions to evaluate how well the committees on which he or she serves are functioning and to provide suggestions for improvement.

In 2022, the directors completed both the targeted questionnaires to asset the performance of the Board and each Committee and the peer review questionnaires. Both questionnaires were administered by a neutral third party, all responses were kept confidential, and all responses were aggregated for presentation. The Lead Independent Director, the Chair of the Corporate Governance Committee, 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.

Director Onboarding and Continuing Education

Mr. Lewis joined the Board as director in November 2022. In addition to informal meetings with the existing directors, Mr. Lewis participated in an onboarding process that included 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, Bylaws, Corporate Governance Guidelines, and other policies.

 

The directors also participate in various educational programs related to finance, corporate governance, and industry issues during committee and board meetings throughout the year.

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   27

 
 

Corporate Governance

 

Shareholder Outreach

 

Shareholder Outreach

At our 2022 annual meeting of shareholders, our shareholders strongly supported our compensation program, with 97.1% 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 showed in ensuring the program aligns with shareholder interests.

Over the course of 2022, management held over 250 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 company strategy, executive compensation, and environmental, social and governance performance.

Shareholder Feedback Taken

Board Response to
Shareholder Feedback

 

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. 79% of our CEO’s compensation is performance-based and/or stock-based.

Diversity metrics

In 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 2023.

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 was ratified by shareholders for ratification at the 2022 Annual Meeting.

Environmental and social
programs and disclosures

ESG Disclosure

 

Based upon our review and shareholder feedback, we remain committed to expanding the disclosures of our environmental and social policies in a renewed ESG report, and providing easier access 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. In 2022, we provided updates on the progress on our ESG commitments and in 2023 we expect to publish a new ESG report.

 

Age and Term Limits

Term Limits: The Board believes term limits are an important element of good governance, helping to create an appropriate balance between the contributions of seasoned directors who have developed meaningful insight into the Company and its operations and those of new directors who bring a fresh perspective to our Board. Every director, after fifteen years of serving on the Board of Directors, must tender his or her resignation to the Board. This 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 on or before that date.

Age Limits: All directors are required to submit their resignation from the Board effective as of their 75th birthday. The Board’s policy does not intend that a director must immediately resign from the Board in the event of retirement. The director should meet with the Chairman of the Board and the Chair of the Corporate Governance Committee to discuss the situation. The Corporate Governance Committee, in consultation with the Chairman of the Board, will then determine if the director’s continued service is appropriate and make a recommendation with respect thereto to the Board. Ms. Ruff and Mr. Stewart will attain the age of 75 in 2023.

 

 

28   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Corporate Governance

 

Environmental, Social, and Governance Program

 

Environmental, Social, and Governance Program

Essential has long understood that ESG is a critical aspect of business operations. We have successfully delivered resources for life since the 19th century because we have woven ESG inextricably into our DNA. Successive generations of organizational leaders have built upon our legacy of excellence in water and wastewater treatment, stewardship of our waterways, and provision of reliable and affordable energy.

We encourage you to explore our ESG microsite, ESG.Essential.co, for full details of our initiatives and commitments.

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, environmental stewardship, DEI (diversity, equity, and inclusion), and human capital management. The Corporate Governance Committee has direct oversight of most ESG matters. At each committee meeting, management present updates about progress towards goals and targets.

Management Committee

Management’s ESG Oversight Committee is made up 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.

 

ESG 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

·  Positions 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. This report is expected to be updated in 2023.
2021 SASB and ESG Metrics Index–A concise document containing key ESG metrics, primarily using the SASB framework
2021 TCFD Report–Concise climate reporting as outlined by the Task Force on Climate-Related Financial Disclosures
2021 CDP Climate Report–Detailed climate reporting via the CDP questionnaire
2021 AGA Sustainability Template–Technical emissions data via the American Gas Association’s common industry template

 

Alignment with UN SDGs

In 2023, we expect to publish a new ESG report. 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. Our business can most significantly positively impact the following eight SDGs:

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   29

 
 

Corporate Governance

 

Environmental, Social, and Governance Program

 

Environment

Climate Change and Greenhouse Gas Emissions

 

 

The two most significant actions that are contributing to achievement of the 60% emissions reduction target are:

Gas Operations: Fulfilling our aggressive Long-Term Infrastructure Improvement Plan, which has a stated goal of replacing 3,000 miles of leak-prone bare steel and cast-iron pipe through 2034.
Water and Wastewater Operations: Beginning January 1, 2022, we began procuring nearly 100% renewable electricity for our water and wastewater operations in Illinois, New Jersey, Ohio, and Pennsylvania. This greatly accelerated Essential’s emissions reduction progress in 2022, and we expect this procurement also enabled our water and wastewater operations to achieve materially all of its 60% Scope 1 and 2 emissions reduction target.

 

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 2022 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's community water systems, with their low rates of health-based violations, consistently and significantly outperform the national average. 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. This facility and technology greatly aid in promoting excellent water quality.

 

 

30   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

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 and embodies a steadfast commitment to our customers and to the environment. Essential is committed to providing professional opportunities for career growth and competitive benefits packages to every employee. Similarly, we are 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 full Board as well as to the Governance Committee, 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 help them stay informed, including open forums with our executives, monthly town halls, regular engagement surveys, and employee resource groups. In addition, we use formal engagement surveys across the entire organization and implement thoughtful action plans for leadership based on specific feedback.

 

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   31

 
 

Corporate Governance

 

Environmental, Social, and Governance Program

 

Talent Management – Training and Development

We believe in an integrated talent development approach and understand that a balanced and holistic approach to learning makes it more likely that employees will learn and retain the workplace behaviors we expect. We use the “70/20/10 model” for development, which holds that 70% of learning happens on the job through stretch goals and critical assignments, 20% of learning occurs through mentoring and coaching and involvement in professional and industry-related involvement, and 10% of learning occurs within a virtual or live learning environment.

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.

 

 

Succession Planning

Our succession planning strategy identifies leaders at different stages in their careers and customizes a development approach. The Essential Utilities executive leadership development strategy for future executives is a combination of experiences that includes 360 assessments and coaching, executive presentation skills, and formal learning programs. In 2022, we formalized three distinct new leadership programs targeted at Executive, Senior and Emerging leaders.

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. 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. We believe it is important that all employees are supported by an environment where people of all backgrounds, ages, races, abilities, gender identities, and sexual orientations feel engaged and safe so they can collaborate and learn from one another. Essential is an equal opportunity employer.

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 15% at the end of 2021 to 16% at the end of 2022.

 

 

32   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Corporate Governance

 

Environmental, Social, and Governance Program

 

Board Diversity as of December 31, 2022

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

•   Diversity hiring for the organization grew by more than 16%.

   Diversity at the management level also grew, with 11% of management comprised of minorities and 22% comprised of women by the end of 2022.

*   Please refer to ESG.Essential.co for more detailed workforce composition data in line with EEO-1 standards. of 2022.

 

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

Diversity, Equity, and Inclusion

•   We are committed to diverse candidate searches for leadership roles within the organization

   We built a DE&I dashboard to provide diversity data to leadership to track progress towards building and promoting a diverse workforce

   We regularly review our customer demographics to develop meaningful and reflective employee diversity goals to make our workforce more representative of the communities we serve.

     
Education

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

   Leadership convenes monthly meetings on diversity efforts in specific areas as well as trends and action items

     
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

•   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
     Veteran’s Resource Group  

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, including businesses that are:

   Minority-owned •   Women-owned •   Veteran-owned •   LGBTQ+-owned

 

Essential has taken steps to increase our work with diverse suppliers. In 2022, we spent $156 million with diverse suppliers—a 44% increase year-over-year. Diverse vendors accounted for 10.9% of controllable spend in 2021 and grew to 15.1% of controllable spend in 2022.

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   33

 
 

Corporate Governance

 

Environmental, Social, and Governance Program

 

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 2022, we achieved our target, as 15.1% 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 necessary to face 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 their safety. We provide access to a variety of innovative, flexible, and convenient employee health and wellness programs. Recognizing mental health as a central part of each employee’s well-being, we have added additional resources and counseling access for employees and their families.

To incentivize managers to promote a safe environment, we are including safety metrics for Lost Time/Restricted Time Incidents, Responsible Vehicle Accident Rate, and Gas Damage Prevention Rate (20% collective weighting) into our executive compensation incentive plans for 2023.

 

Introduction of Near Miss Program

Essential implemented a leading indicator program in 2022 to formalize the reporting of near misses and measure the correction of identified safety concerns within 30 days of a report. During the program's first year, 94% of reports were corrected within 30 days, exceeding Essential’s goal of 90%.

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.

 

 

 

34   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Corporate Governance

 

Other Governance Policies and Practices

 

Other Governance Policies and Practices

Clawback Policy

In accordance with recent Securities and Exchange Commission and New York Stock Exchange announcements, on February 22, 2023, the Company’s Board of Directors unanimously adopted a Compensation Recoupment Policy. Among other items, this Clawback Policy covers the Company’s ability to recoup compensation in the event of a restatement, regardless of whether the Section 16 Officer was at fault or not, and is intended to be fully compliant with all requirements of the Securities and Exchange Commission and the New York Stock Exchange.

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 or named executive officers engaged in any hedging or pledging activities with respect to the Company stock during 2022.

Equal Employment Opportunity and Anti-Harassment Policy

The Equal Employment Opportunity and Anti-Harassment Policy provides that all employees are entitled to a work environment in which they are treated with dignity and respect and that is free of harassment and discrimination of any kind, including emotional, physical and sexual harassment.

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.

 

The Human Rights Policy and the Equal Employment Opportunity and Anti-Harassment Policy demonstrate 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 that is free of harassment of any kind, and affirmatively commit 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.

Related Person Transactions

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

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   35

 
 

Corporate Governance

 

Communications with the Company or Independent Directors

 

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 that any person identified in (a), (b) or (c) directly or indirectly owns or in which any such person otherwise has a material interest.

 

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

There were no related person transactions in 2022.

Communications with the Company or Independent Directors

The Company welcomes shareholder comments and suggestions. All are given careful consideration. Your correspondence should be addressed as follows:

Corporate Secretary
Essential Utilities, Inc.
762 W. Lancaster Avenue
Bryn Mawr, PA 19010

In addition, shareholders or other interested parties may communicate directly with the independent directors or the lead independent director by writing to the address below. The Corporate Secretary will review all correspondence and provide any comments, along with the full text of the communication, to the independent directors or the lead independent director.

The Independent Directors or Lead Independent Director of Essential Utilities, Inc.

C/O Corporate Secretary

762 W. Lancaster Avenue
Bryn Mawr, PA 19010

 

 

36   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Director Compensation

As part of its annual review, the Executive Compensation Committee retained Pay Governance, LLC 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 2022. The elements of director compensation for 2022 are shown below.

2022 Director Compensation Program

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

 

In late 2022, the Executive Compensation Committee again retained Pay Governance to review and benchmark the Board of Directors’ compensation. Pay Governance compared the directors’ compensation to director compensation paid by the Company’s peers and made suggestions and recommendations to the Executive Compensation Committee and the Corporate Governance Committee.

Upon the recommendation of the Executive Compensation Committee and the Corporate Governance Committee, the Board of Directors agreed to revise the director compensation program for 2023 as follows:

Role Annual Cash Compensation Annual Equity Compensation
Each Non-Employee Director $105,000

Stock grant equal to
$120,000 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 her annual cash compensation and to waive the annual equity compensation awarded to directors should she be reelected in 2023 to serve on the Board.

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

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   37

 
 

Director Compensation

 

Director Compensation

 

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 required ownership level, and may not sell Company common stock until the required ownership has been reached. Once the required stock ownership level is attained, a director must maintain those stock holdings for the duration of the director’s service.

Director Stock Ownership As of December 31, 2022

 

 

 

(1)Mr. Franklin is a management director. His stock ownership guidelines and current shareholdings are detailed on pages 66 through 69.
(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 been on the Board for less than five years.

 

 

38   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Director Compensation

 

Total 2022 Director Compensation

 

Total 2022 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 120,000 110,007 230,007
Ciesinski 105,000 110,007 215,007
Franklin(2)
Hilferty 150,000 110,007 260,007
Idehen(3) 30,000 27,483 57,483
Kelly(4) 105,000 105,000
Lewis 26,250 27,517 53,767
Ruff 105,000 110,007 215,007
Stewart 125,000 110,007 235,007
Womack 116,250 110,007 226,257

 

(1)The grant date fair values per share of the stock awards, which are paid quarterly, were: March 31, 2022 – $51.66; June 21, 2022 – $41.92; September 20, 2022 – $45.845; and December 20, 2022 – $46.56. These values were calculated in accordance with FASB ASC topic 718.
(2)As an officer of the Company, Mr. Franklin does not receive any compensation for his service on the Board of Directors.
(3)Mr. Idehen resigned from the Board of Directors effective April 2022 in connection with beginning a new employment opportunity.
(4)Ms. Kelly directed her cash compensation be paid to CPPIB and she does not receive any stock awards.

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   39

 
 

Ownership of Common Stock as of March 6, 2023

The table below shows the number of shares of our common stock beneficially owned as of the close of business on March 6, 2023, 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

29,552,454   29,552,454 11.18%

The Vanguard Group(4)

100 Vanguard Blvd. Malvern, PA 19355

26,365,976 435,694 26,801,670 10.14%
Canada  Pension  Plan  Investment  Board(5)
One Queen Street East, Suite 2500 Toronto, Ontario M5C 2W5 Canada
  21,661,095 21,661,095 8.19%

State Street Corporation(6)

One Lincoln Street Boston, MA 02111

  14,797,801 14,797,801 5.60%
Directors, Nominees and Named Executive Officers
Elizabeth B. Amato 10,128 10,128 *
Colleen M. Arnold 5,882 5,882 *
David A. Ciesinski 3,392 3,392 *
Christopher H. Franklin 169,746 169,746 *
Daniel J. Hilferty 24,603 24,603 *
Edwina Kelly(7) *
W. Bryan Lewis 591 591 *
Christopher P. Luning 50,632 50,632 *
Matthew R. Rhodes 21,842 21,842 *
Ellen T. Ruff 27,563 27,563 *
Daniel J. Schuller 41,302 41,302 *
Lee C. Stewart 20,128 20,128 *
Christopher C. Womack 8,381 8,381 *
All Directors, Nominees and Executive Officers as a Group (15 persons)
  450,737 26,540(8) 477,276  

 

*less than one percent
1Includes shares held under the Company 401(k) plan.
2Percentage of ownership for each person or group based on 264,369,387 shares of Common Stock outstanding as of March 6, 2023 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.
3The information from BlackRock, Inc. was obtained from the Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 26, 2023.
4The information from The Vanguard Group was obtained from the Schedule 13G/A filed by The Vanguard Group with the SEC on February 9, 2023.
5The information from Canada Pension Plan Investment Board (CPPIB) was obtained from the Schedule 13D filed by CPPIB with the SEC on March 24, 2020.
6The information from State Street Corporation was obtained from the Schedule 13G/A filed by State Street Corporation with the SEC on February 6, 2023.
7Ms. Kelly is nominated to the Board as designated by CPPIB under the terms of the Company's private placement transaction with CPPIB.
8The shareholdings indicated include 26,540 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. 2023 PROXY STATEMENT

 
 

Proposal 2:

Advisory Vote to Approve Named Executive Officers’

2022 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 2023 Annual Meeting:

RESOLVED, that the compensation paid to the Company’s named executive officers for 2022, 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 made up 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 42 through 67 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 our executive compensation program, with its balance of short-term incentives, long-term incentives and share ownership guidelines, rewards 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 2022 compensation of the Company’s named executive officers.

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   41

 
 

Executive Compensation

Contents  
 
Compensation Discussion and Analysis 42
Executive Summary 43
Introduction 43
2022 Performance Highlights 44
Our Pay for Performance Compensation Program 45
Highlights of our Compensation Policies 45
Pay for Performance and Results of the 2022 Advisory Vote to Approve Executive Compensation 46
Section 1: Our Compensation Philosophy 47
Elements of Compensation for Named Executive Officers 47
Section 2: How We Determine Executive Compensation 48
The Role of the Compensation Committee 48
The Role of Management 48
The Role of the Compensation Committee’s Independent Consultant 48
Competitive Pay Positioning 48
Our 2022 Benchmarking for Competitive Pay 49
Our 2022 Benchmarking Peer Group 49
Shareholder Advisory Vote Impact on Compensation Committee Actions 50
Section 3: 2022 Executive Compensation Program 51
Overview 51
Base Salary 52
Annual Cash Incentive Awards 53
Long-Term Equity Incentive Awards 55
Other Benefits 57
Section 4: 2022 NEO Compensation and Performance Summaries 59
Section 5: Our 2023 Short- and Long-Term Incentive Programs 63
Section 6: Compensation Governance Policies and Practices 66
Anti-Hedging and Anti-Pledging Policy 66
Clawback of Incentive Compensation 66
Limited Perquisites 66
Stock Ownership Guidelines 66
Executive Compensation Committee Report 67
Executive Compensation Tables 68
Summary Compensation Table 68
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:

 

 

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

As used in this CD&A,

“Total cash compensation” means the total of base salary and annual cash incentive compensation; and
“Total direct compensation” means 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, Luning, and Arnold 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.

 

 

42   ESSENTIAL UTILITIES, INC. 2023 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 the Compensation Committee, with input from our Chief Executive Officer, and the Compensation Committee’s independent compensation consultant, Pay Governance, to ensure they meet the objectives of the program, the Company, and our stakeholders.

The Year in Review

The challenges that began with the global pandemic continued in 2022, most notably the management of a fast-moving talent market and the pressures of dramatic inflationary cost increases. In addition, Essential experienced some significant weather- related events that impacted our service territories, particularly in Texas and Pennsylvania. Nevertheless, 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. Significantly, Essential embarked on a three-year technology revamp project in 2022, upgrading systems across the enterprise to enable efficiencies across our water and natural gas business.

Staying the Course

In 2020, we introduced a revised compensation program design for Essential’s executives based on an extensive study of industry best practices. This modified compensation program was validated by a high say-on-pay approval vote of 96.2% at the 2020 shareholders meeting, 96.4% at the 2021 shareholders meeting, and 97.1% at the 2022 shareholders meeting. We continue to adhere to those executive compensation design principles while adjusting the program as needed to address current trends and challenges. For example, we refined the metrics for our short-term incentive program by including supplier and employee diversity goals in 2021 and a damage prevention goal for our gas segment in 2022. These new goals reinforce our commitment to the communities we serve as well as our focus on safety. The peer group adopted by the Compensation Committee in 2020 was unchanged in 2022, but will expand to sixteen companies in 2023 following a thorough review of total and net revenue and market capitalization of peer companies. 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.

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   43

 
 

Executive Compensation

 

Introduction

 

Annually, the Compensation Committee incorporates investor feedback into its review of the compensation program design to ensure alignment with best practices and with investor expectations about our compensation and performance. Among other things, the Committee examines the performance measures for each element of the program to ensure they continue to align with the interests of our shareholders, customers, and employees and remain competitive with the compensation practices of our industry peer group. With the assistance of Pay Governance, the Compensation Committee’s independent compensation consultant, the Committee has determined that our program design, types of compensation vehicles, and the allocation of the compensation elements for the named executive officers is consistent with current competitive compensation practices in the utility industry.

The performance measures in the 2022 compensation program align the interests of our stakeholders and our named executive officers by correlating the amount of the named executive officers’ pay with the Company’s short-term and long-term performance and our stock price.

2022 Performance Highlights

Our core values of respect, integrity, and the pursuit of excellence are the underlying foundation to our mission of safely and reliably delivering Earth’s most essential natural resources to our customers and communities while delivering sustainable growth for our investors. During 2022, our leadership team remained focused on our long tradition of operational excellence, strong growth and continued progress on our ESG commitments; prudently invested a record amount of over $1 billion in infrastructure; and demonstrated the resiliency of our water and natural gas platforms. As of year-end 2022, we had a total of seven signed purchase agreements to acquire eight water and wastewater systems, totaling over $377 million in purchase price and expected to serve over 218,000 equivalent retail customers or equivalent dwelling units.

In 2022, we invested a record amount of over $1.06 billion in infrastructure projects across the water and gas utilities, helping to ensure safe and reliable service for all customers.
Net Income was $465.2 million in 2022, an increase of 7.8 percent over 2021.
Earnings per share were $1.77 in 2022 compared to $1.67 in 2021, an increase of 6.0%.
We added over 23,000 water and wastewater customer equivalents through acquisition in 2022 and increased water and wastewater customers Served by 2.7 percent, which includes customers from organic growth and acquisitions. Our acquisitions in 2022 added approximately $120 million in rate base.
We signed purchase agreements to acquire three water and wastewater systems in 2022. These systems are expected to add over 6,700 equivalent retail customers or equivalent dwelling units.
 
From January 1, 2018, to December 31, 2022, the total return to our shareholders, including share price appreciation and dividends paid, grew by 36.4 percent.
In August 2022, the Board of Directors approved a 7 percent increase in the quarterly dividend, to an annualized rate of $1.1480 per share.
Since making a commitment to reduce greenhouse gas emissions in early 2021, the Company has achieved an estimated 23% Scope 1 and 2 emissions reduction from our 2019 baseline towards our 60% reduction target by 2035.
As of year-end 2022, people of color represented 16% of our employee base, nearing our multi-year target of 17%.
In controllable spending, we purchased over 15% of goods and services from diverse suppliers, achieving our multi-year target of 15%.

 

 

 

44   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Executive Compensation

 

Executive Summary

 

2020-2022 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 %

2020 $1.55 Achieved 137.10% 29.08% 175.00%
2021 $1.66 Achieved 129.70% 65.56% N/A
2022 $1.77 Achieved 129.06% 12.37% 171.16%
*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 goals.
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.

 

Highlights of our Compensation Policies

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   45

 
 

Executive Compensation

 

Executive Summary

 

Pay for Performance and Results of the 2022 Advisory Vote

to Approve Executive Compensation

Our goal is to instill a pay for performance culture throughout the Company. At our 2022 Annual Meeting, we submitted a proposal to shareholders for a non-binding advisory vote on the 2021 compensation awarded to our named executive officers. Our shareholders overwhelmingly approved the proposal, with 96% voting in favor. This approval level validated the compensation design structure that 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 strong long-term performance by our named executive officers and other members of management.

As a result of these meetings and conversations in 2022 and other analysis, the Compensation Committee has taken the following actions.

 

 

 

46   ESSENTIAL UTILITIES, INC. 2023 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 goals.
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.
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 2022. We describe these elements, as well as retirement, severance and other benefits, in more detail on pages 51 through 57.

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   47

 
 

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 tied to the achievement of Company goals. In addition, the percentages of total direct compensation represented by base salary, annual cash incentive opportunities, and equity incentives 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 the target range of equity compensation awards from the information provided by the Compensation Committee’s consultant.
Our Chief Executive Officer compiles and presents supporting information describing the individual executives’ performance against their objectives and his recommendations for any discretionary compensation based on his evaluation of their achievements. He also provides the Compensation Committee with his recommendations for annual salary increases and 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 in relation to the Company-specific goals for the Annual Plan and 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 its independent consultant to assist in designing and assessing the competitiveness of our executive compensation program. 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. The Compensation Committee concluded that Pay Governance is an independent consultant after considering the factors relevant to Pay Governance’s independence from management, as well as 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.

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 2022.

 

 

48   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Executive Compensation

 

Section 2 How We Determine Executive Compensation

 

Our 2022 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 awarded to the named executive officers is intended to compensate them at approximately the 50th percentile of the market when the Company performs at target level.

Pay Governance reviews the Company’s executive compensation program for the Compensation Committee and annually provides the data and analysis described above. The compensation consultant discusses the proposed actual compensation awards for the named executive officers and provides research and input to the Compensation Committee on changes to the compensation program.

In 2022, 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.

Our 2022 Benchmarking Peer Group

We use a fifteen-company peer group to benchmark executive pay. This custom peer group process was first used in 2020 and will continue to be the foundation of our benchmarking approach. With the pending acquisition of one of our peer companies, we have expanded our peer group for 2023 to include 16 companies.

How We Selected our Peer Group

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

 

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   49

 
 

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 previous few years. We are committed to providing shareholders with transparency regarding the metrics and measurements used for our incentive plans.

 

 

 

50   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Executive Compensation

 

Section 3 2022 Executive Compensation Program

 

Section 3

2022 Executive Compensation Program

Overview

We believe the following seven elements contribute to making our compensation program well-designed, balanced and competitive:

 

Element of Compensation Objectives
Competitively benchmarked
base salaries
Designed to attract and retain named executive officers consistent with their talent and experience
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 acquiring 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 achieving 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.

Retirement benefits Intended to assist named executive officers generate income for their retirement.

Non-qualified deferred

compensation plan

Designed to allow eligible executives to manage their financial and tax planning by deferring 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 any such transaction impartially.
Stock ownership guidelines Designed to focus named executive officers on the long-term performance of the Company and align their interests with those of our shareholders by encouraging named executive officers to maintain a significant ownership interest in the Company.

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   51

 
 

Executive Compensation

 

Section 3 2022 Executive Compensation Program

 

Base Salary

Base salary is designed to provide the named executive officers and all our other employees with a level of fixed pay that is commensurate with their role and responsibilities. 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.

 

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

The Compensation Committee annually reviews the base salaries of our named executive officers, and for 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 an executive’s position, individual performance, internal pay equity, and changes in individual duties and responsibilities.

For the NEOs in particular, the Compensation Committee analyzes both the market median rate for their positions and internal equity with both the other named executive officers and the 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 2022 Base Salary

For 2022, the annual increases to the salaries for the named executive officers reflected these assessments. The NEOs’ salary increases averaged 3.95%, which approximated normal market-driven adjustments. The base salaries approved by the Compensation Committee for 2022, effective April 1, 2022, were as follows:

 

  Mr. Franklin, $950,000

  Mr. Schuller, $477,232

  Mr. Fox, $468,174

  Mr. Rhodes, $466,083

  Mr. Luning, $417,154

•   Ms. Arnold, $327,700

 

 

52   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Executive Compensation

 

Section 3 2022 Executive Compensation Program

 

Annual Cash Incentive Awards

The Annual Cash Incentive Award Plan is a non-equity incentive plan that provides each named executive officer with the opportunity to earn a cash award tied to Company performance against specific business objectives.

A balanced scorecard approach to this cash incentive ensures that all employees work in the best interests of the shareholders, employees, and customers.

 

* 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.

 

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   53

 
 

Executive Compensation

 

Section 3 2022 Executive Compensation Program

 

2022 Performance

The following table shows the Company’s 2022 performance 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 weighted achievement of the corporate goals was 129.06%.

2022 Company Performance Metric Scorecard

 

 

 

 

Metric Component

Threshold

50%

Payout

Target
100%

Payout

Maximum

150%

Payout

 

2022
Actual

Results

 

Actual
Attainment

 

 

Weight

 

Projected
Achievement

Financial
50%
Essential Earnings Per Share (EPS)* $1.72 $1.77 $1.82 $1.81 140.00% 35.00% 49.00%
  Essential ROE 4.45% 9.45% 14.45% 10.81% 113.60% 15.00% 17.04%
Safety
20%
Essential Lost Time/ Restricted Time 1.75 1.35 0.95 1.24 113.75% 5.00% 5.69%
  Essential Responsible Vehicle Accident Rate 3.10 2.60 2.10 2.17 143.00% 5.00% 7.15%
  Gas Damage Prevention 3.78 3.29 3.17 3.44 84.69% 10.00% 8.47%
Customer Service 10% Essential Service Level 82.00% 83.00% 84.00% 83.60% 130.10% 10.00% 13.01%
Compliance
10%
Aqua Water Compliance 99.50% 99.70% 100.00% 99.80% 116.67% 2.50% 2.92%
  Aqua Wastewater Compliance 93.50% 95.50% 99.00% 97.68% 131.14% 2.50% 3.28%
  Peoples Gas Leaks 510 455 400 317 150.00% 2.50% 3.75%
  Peoples Gas LTIIP 97.50% 100.00% 102.50% 102.60% 150.00% 2.50% 3.75%
Diversity
10%
Essential Supplier Diversity 11.76% 12.00% 12.24% 15.13% 150.00% 5.00% 7.50%
  Essential Employee Diversity 15.20% 15.50% 15.80% 16.47% 150.00% 5.00% 7.50%
            Total Achievement 129.06%
* 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.

 

Based on this determination, the table below shows the target and actual annual cash incentive awards approved by the Compensation Committee for 2022 for the named executive officers.

 

2022 Named Executive Officer Short-Term Incentive Awards

 

 

Name

2022 Salary
Rate* ($)
2022 Target
Bonus %
2022 Company
Achievement

 

STI Payment ($)

Christopher H. Franklin $950,000 100% 129.06% $1,226,070
Daniel J. Schuller $477,232 65% 129.06% $ 400,345
Richard S. Fox** $468,174 65% 129.06% $ 359,390
Matthew R. Rhodes $466,083 60% 129.06% $ 360,916
Christopher P. Luning $417,154 60% 129.06% $ 323,027
Colleen M. Arnold*** $327,700 45% 123.27% $ 181,780

 

* The 2022 Salary Rate is an annualized rate.
** Mr. Fox’s STI payment is pro-rated to reflect his retirement as of 11/30/2022.
*** Mr. Fox, Essential’s previous COO, retired on November 30, 2022. Essential Utilities did not backfill this role, so the additional NEO currently resides at a SVP, President structure level rather than the other EVP / CEO roles. Ms. Arnold’s Short-Term Incentive Plan focuses on a blend of Essential and Aqua specific financial, safety, customer service, environmental and diversity metrics.
   
 

54   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Executive Compensation

 

Section 3 2022 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,

 

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, performance-based or service-based stock unit 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.

 

Since 2011, the Compensation Committee has used 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. 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 reintroduced performance-based stock options as part of the program to incentivize management to grow the value of the Common Stock. The long-term incentive design for 2023 will be unchanged from 2022.

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 share units, twenty- five percent is in the form of restricted stock units, and ten percent is stock options for 2022.
         

Using the market median rates developed by Pay Governance, the Compensation Committee evaluates the target 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 and options provide retention benefits and closely align management with the shareholders. The table below shows the balance between the performance share units, performance-based options, and restricted stock units between 2019 and 2023.

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   55

 
 

Executive Compensation

 

Section 3 2022 Executive Compensation Program

 

Long-Term Equity Mix for 2019-2023

 

 

Award Year

Performance

Period

 

Payment

Year

  Performance
Share Units
  Performance Based
Stock Options
  Restricted
Stock Units
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%
2023 2023-2025   2026   65%   10%   25%

 

As a result of the Compensation Committee’s analysis of competitive conditions, it established the target percentages of base salary for equity awards each named executive officer as follows:

 

2022 Target LTI (%)
Christopher H. Franklin 270
Daniel J. Schuller 145
Richard S. Fox 145
Matthew R. Rhodes 120
Christopher P. Luning 120
Colleen M. Arnold 75

 

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 officers with the opportunity to earn awards of shares based on Company performance against pre-determined, objective metrics for a three-year performance period. 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 goals for 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, if at all, 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 ended December 31, 2022, 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. Each successive grant will follow methodology as previously stated.

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 PSU awards.

 

Adjusted Return on Equity Calculation — Stock Options

Stock options vest, or not, based on the Company’s adjusted return on equity, which is calculated annually in accordance with the descriptive formula below. If the adjusted return on equity meets or exceeds 150 basis points below the return on equity of the most current Pennsylvania PUC rate award, the stock options will vest. Stock options vest one-third per year over a three year period.

 

56   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Executive Compensation

 

Section 3 2022 Executive Compensation Program

 

 

 

Restricted Share Awards

Annual restricted share or restricted stock unit grants (together referred to as restricted shares) entitle the named executive officers to receive the number of shares granted at the end of a given period of time, or in increments over a period of years, subject to continued employment with the Company. However, if a recipient separates from the Company 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 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, 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, subject to adjustments as allowed under the Plan. For this purpose, 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 received by our other employees participating in the Retirement Plan by providing the benefits that exceed those permitted 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 plans are not taken into account when 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. The ability to defer compensation 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,

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   57

 
 

Executive Compensation

 

Section 3 2022 Executive Compensation Program

 

$19,500 each year for 2020 and 2021, and $20,500 for 2022), receive the portion of the Company matching contribution that the executive would be otherwise ineligible to receive into the Executive Deferral Plan.

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

 

Severance Plans

All of the named executive officers are covered by a severance policy. The policy provides a severance benefit of (i) one full year salary, (ii) one full year projected bonus, and (iii) between one and six months of continued medical benefits following termination, provided 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 24 months of base salary and two times his 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, or (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 in the event of 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 that 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 executives’ attention and dedication to their duties and responsibilities in the event of a possible change-in-control.

 

Under the terms of these agreements, a 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 87.

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 based on the 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 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 a separation from employment following a change-in-control will not be entitled to any payments under our normal severance policy. The form of change-in-control agreement is filed with our SEC filings.

 

58   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Executive Compensation

 

Section 4 2022 NEO Compensation and Performance Summaries

 

Section 4

2022 NEO Compensation and Performance Summaries

Linking Pay and Performance

Here we provide a summary of each of our NEOs 2022 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.

 

2022 Total Compensation Pay Mix

 

 

2022 Key Accomplishments

•   Continued to grow the Company with three new municipal acquisitions, adding nearly $120 million in rate base.

•   Set the course for growth in 2023 with over $377 million in pending acquisitions that would add over 218,000 equivalent retail customers or equivalent dwelling units.

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

•   With a focus on the community, through the Essential Foundation, ensured over $3.9 million in community giving.

 

•   Provided leadership for Essential’s ESG/GHG reduction program to substantially reduce Scope 1 and 2 greenhouse gas emissions, targeting a 60% reduction by 2035 from 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 project, investing in upgraded systems for our customers and operations to ensure improved customer experience and operational efficiency.

 

ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   59

 
 

Executive Compensation

 

Section 4 2022 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 leads all corporate finance functions, including accounting, financial planning, forecasting, cash flow planning, investment strategies, capital structure, regulatory and rate strategies, and tax. Further, Mr. Schuller oversees customer care, supply chain, fleet, and facilities.

 

2022 Total Compensation Pay Mix

 

     

2022 Key Accomplishments

 

•   Successfully concluded Aqua PA, Aqua OH, and Peoples KY rate cases, as well as the PNG-PG merger.

•   Established an equity ATM program and successfully raised debt capital to support operations and acquisitions (e.g., $500M public debt, $200M private placement debt, and $200M expansion of PNG revolving credit facility); renewed the five-year, $1B Essential revolving credit facility.

 

•   Commenced SAP financial system function on 1/1/2022; successfully closed subsequent quarters; and instrumental in post-go-live refinances.

•   Expanded role by taking on the Administrative organization.

     

 

 

Richard S. Fox

 

Former Executive Vice President and Chief Operating Officer

 

Responsibilities

 

As COO, Mr. Fox was 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 remain financially strong.

Mr. Fox directed the Company’s focus on the key operational metrics and performance indicators across all our states. Mr. Fox retired December 1, 2022.

 

2022 Total Compensation Pay Mix

   

2022 Key Accomplishments

 

•   Managed through supply chain shortages and inflationary pressures to control costs and deliver planned capital investment.

•   Oversaw the implementation of SAP for field operations.

 

•   Prepared organization for the successful transition of his duties and of senior level retirements.

 

60   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Executive Compensation

 

Section 4 2022 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.

 

2020 Total Compensation Pay Mix

 

     

2022 Key Accomplishments

 

•   Successfully reviewed and refined Essential strategic goals through a robust strategic planning process for senior leaders and strategy sessions with senior leadership.

•   Advanced new energy transition initiatives, including a joint venture with EQT and WATT to put fuel cells in customers‘ homes and a hydrogen pilot with University of Pittsburgh. Also co-hosted a hydrogen conference, joined a hydrogen hub consortium, advanced a voluntary customer emissions reduction program, and analyzed RNG opportunities.

 

•   Made continued improvements to the municipal acquisition program, signed APAs for deals adding $120M in rate base and 23,000 customer equivalents, and developed a solid pipeline with several large opportunities.

•   Continued to grow the Home Warranty programs at Aqua and Peoples, with year-over-year EBITDA growth of ~20%. Managed Peoples micro-grid projects.

 

     

 

 

Christopher P. Luning

 

Executive Vice President, General Counsel

 

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 Company‘s Legal, Regulatory, Corporate and Legislative Affairs, Risk and Insurance, Environmental Affairs, Safety, and Records Department, and is the Company‘s designated SEC Compliance Officer.

 

 

2020 Total Compensation Pay Mix

 

     

2022 Key Accomplishments

 

•   Executed companywide PFAS strategy, including initiating and pursuing multiple lawsuits to protect the Company and customers.

•   Supported growth in all operations by providing legal support to initiatives, conducting due diligence, negotiating agreements, structuring transactions, and closing transactions with limited liability.

 

•   Integrated legal, risk, records, and regulatory departments into an efficient and cohesive unit.

•   Worked with finance to establish an equity ATM program and successfully raised debt capital to support operations and acquisitions (e.g., $500M public debt, $200M private placement debt, and $200M expansion of revolving credit facility).

 

 

 

 ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   61

 
 

Executive Compensation

 

Section 4 2022 NEO Compensation and Performance Summaries

 

 

 

Colleen M. Arnold

 

President, Water

 

Responsibilities

 

Ms. Arnold is responsible for the leadership, management and vision for Essential‘s water operations. Ms. Arnold ensures 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 remain financially strong.

 

Ms. Arnold directs the water business‘ focus on the key operational metrics and performance indicators across all our states.

 

2020 Total Compensation Pay Mix

 

     

 

2022 Key Accomplishments

 

•   Developed a new field operator on-boarding curriculum to train on the Aqua way.

•   Worked with key legislators to obtain $10M in grants for Aqua Pennsylvania for installation of PFAS treatment.

 

•   Led operations to implement a Near Miss Safety Program.

•   Standardized Cross-Connection control compliance process and program across Aqua using a risk based inventory and innovative Clean Water Protect software.

 

 

 

62   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Executive Compensation

 

Section 5 Our 2023 Short- and Long-Term Incentive Programs

 

Section 5

Our 2023 Short- and Long-Term Incentive Programs

 

STI Metrics, Weighting and Target Payout Levels

In 2022, we retained the diversity metric (10% weighting) added to our short-term incentive plan in 2021. This metric ties our diversity targets directly to executive compensation, encouraging our NEOs to recognize and build diversity in our operations. We found the metric did indeed focus the organization on growing our diversity across our geographic footprint. Specifically, we saw gains in the diversity of our supplier spend as well as our employee population. Our multi-year diversity goals will continue in the 2023 short-term incentive plan. Our STI metrics, which reflect the core areas of Company performance, will continue in 2023 to center on financial performance, water and wastewater compliance, gas leaks and infrastructure improvement, customer satisfaction, and employee safety. We believe this incentive program builds on and supports an already strong foundation of management oversight of ESG.

 

The goal of our short-term incentive program is to encourage our executive team to focus on core issues associated with driving long- term shareholder growth and to recognize and build diversity in our operations.

 

Proposed 2023 Essential Short-Term Incentive Plan

 

 

 

 ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT   63

 
 

Executive Compensation

 

Section 5 Our 2023 Short- and Long-Term Incentive Programs

 

Below is a summary of the 2023 STI Plan that the Compensation Committee adopted for all named executive officers, including the achievement required to earn certain payouts. Each metric associated with the 2023 STI plan was carefully considered and appropriately weighted.

 

2023 Essential Short-Term Incentive Plan

           
Metric Metric Component Weight Threshold 50%
Payout
Target 100%
Payout
Maximum 150%
Payout
           

Financial (50%)

 

 

 

Essential Earnings Per Share (EPS)* 35.00% $1.83 $1.88 $1.93
         
         
Essential ROE 15.00% 8.00% 9.50% 11.00%
           
           

Safety (20%)

 

 

 

 

 

 

Essential Lost Time/Restricted Time Rate 5.00% 1.70 1.25 0.90
         
         
Essential Responsible Vehicle Accident Rate 5.00% 3.05 2.55 2.05
         
         
Gas Damage Prevention 10.00% 3.30 3.19 3.08
           
           
Customer  Essential Service Level 10.00% 82.10% 83.10% 84.10%
Satisfaction          
(10%)*          
           
           
Environmental Aqua Water Compliance 2.50% 99.60% 99.75% 100.00%
Stewardship (10%)          
         
           
           
  Aqua Wastewater Compliance 2.50% 93.50% 96.00% 99.00%
           
           
  Peoples Gas Leaks 2.50% 250 200 150
           
           
  Peoples Gas LTIIP 2.50% 97.50% 100.00% 102.50%
           
           
Diversity Essential Supplier Diversity 5.00% 13.72% 14.00% 14.28%
           
           
(10%) Essential Employee Diversity 5.00% 16.20% 16.50% 16.80%
           
           

 

*Target 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.

 

2023 Long-Term Incentive Program

As shown in the charts below, the program for 2023 will keep the 2022 allocation of 10% performance-based stock options, 65% performance-based incentives, and 25% restricted stock units.

 

2023 Essential Long-Term Incentive Plan

 

 

 

64   ESSENTIAL UTILITIES, INC. 2023 PROXY STATEMENT

 
 

Executive Compensation

 

Section 5 Our 2023 Short- and Long-Term Incentive Programs

 

2023 Financial Metrics for PSUs

 

Relative TSR

The most prevalent long-term incentive metric in the peer group. The performance is based on relative TSR rank against our new 16-company peer group, with the percentile ranking determining the overall payout level (0 - 200%). The payout schedule would be as below:

 

 

 

Additionally, two other operating measures were chosen to balance internal financial and operational management with external shareholder results.

Rate base growth Defined as the approved rate base at the time of completion of the acquisition plus subsequent capital invested in the following three years. Rate base growth is central to the Company’s growth platform.
Operations and
maintenance
performance
To ensure cost-effective operations, operations and maintenance targets include the budget plus the first two years in the plan for the regulated businesses only.

 

2023 PSU Performance Target Payout Percentage

The charts below illustrate the performance that will be required for the 2023 PSUs to be paid out, and at what percentage. However, the final payout percentage will be determined from the payout schedule disclosed above.