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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. )

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

 

Check the appropriate box:
Preliminary Proxy Statement
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
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):
No fee required.
Fee paid previously with preliminary materials.
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 

 

 
 

 
 

PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION

 

 

To Our Shareholders

 

March __, 2024

 

 

 

To Our Shareholders,    
   

On behalf of your Board of Directors, I invite you to attend the 2024 Annual Meeting of the Shareholders of Essential Utilities, Inc. to be held virtually on May 1, 2024.

 

2023 was a pivotal year for progress and growth at Essential. Despite a challenging economic environment that impacted consumers and businesses globally, we leaned on our extensive history, operational expertise and financial strength to improve our nation’s infrastructure, serve our customers and communities, and continue to provide value to you, our shareholders.

 

We have a proven track record of capital investment and operational excellence that has positioned us as one of the strongest utilities in the United States. In 2023, we invested more than $1 billion to improve water and natural gas infrastructure across our footprint. Our investment program is the primary driver of our growth – but it is also critical work, enabling us to provide safe and reliable water, wastewater, and natural gas services, address new and emerging contaminants, and reduce our environmental impact. As one of the most significant utility companies in the U.S., we are proud to play a leading role in addressing our nation’s infrastructure crisis.

 

Essential employs an ambitious growth-through-acquisition strategy, and we continue to expand our water and wastewater footprint by serving as a solution to municipal utilities grappling with aging infrastructure and mounting debt. Last year alone, our regulated water business acquired seven systems, collectively adding over $44.5 million in rate base and more than 11,000 new customers or equivalent dwelling units to our footprint. We also have six signed purchase agreements for additional water and wastewater systems in two of our existing states that are pending closing. Together, these systems represent more than 215,000 retail customers or equivalent dwelling units.

 

While we do not plan to add additional gas utilities to our business, the deep history and strong reputation of our Peoples Gas operation has enabled us to expand our water utility footprint in western Pennsylvania. Our gas segment remains focused on operating safely and efficiently, reducing emissions through pipeline replacement, and developing a regional energy hub that embraces high-potential alternate fuels.

 

Our water segment continues to take a proactive approach in addressing water contaminants of emerging concern in the U.S. This includes investing in treatment for PFAS (also known as

 

“forever chemicals”) and making significant progress in our effort to replace lead or galvanized service lines. As an example of the work we’re doing, our Pennsylvania water utility is attempting to eliminate all known customer and company lead services by the end of 2024.

 

In the fall of 2023, we published our latest sustainability report, which tracks key progress on our commitments to the environment, our employees, and the communities we serve. I am tremendously proud of the work we have accomplished in these areas, including making impressive progress toward our 2035 target of a 60% reduction in greenhouse gas emissions vs. our 2019 baseline. We are committed to continuing to advance our sustainability efforts – and to doing so transparently.

 

We’re also a proud community partner, and our commitment to responsible corporate citizenship extends to all aspects of our business. In 2023, we donated more than $5.5 million to organizations that are improving lives in the communities we serve. Our culture of giving is instilled in our team members too, evidenced by our employees spending thousands of hours giving back to deserving community organizations.

 

All these achievements take dedication at every level of our organization. I am extremely grateful for our team of employees whose dedication and expertise are paramount to our success. I look forward to sharing more about our progress, and what’s ahead for Essential, during our Annual Meeting in May. I hope you’ll join us then.

 

On behalf of the senior leadership team, Board of Directors, and all Essential employees, thank you for your confidence, trust, loyalty and support.

 

Sincerely,

 

 

Christopher H. Franklin

Chairman and Chief Executive Officer

 

 

Essential Utilities, Inc.   |   3   |   2024 Proxy Statement

 
 

Notice of Annual
Meeting of Shareholders

 

Essential Utilities, Inc.
762 W. Lancaster Avenue

Bryn Mawr, Pennsylvania 19010

 

 

 

Purpose
   
1 To elect nine nominees for directors;
   
2 To approve an advisory vote on the compensation paid to the Company’s named executive officers for 2023;
   
3 To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the 2024 fiscal year;
   
4 To ratify the Amendment to the Company’s Amended and Restated Bylaws’ nomination process to implement the universal proxy rules governing contested elections of directors;
   
5 To transact any other business as may properly come before the meeting or any adjournments or postponements thereof.
   

 

Who can vote

Only shareholders of record at the close of business on March 4, 2024, 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
     
 

ONLINE BEFORE THE MEETING*

www.proxyvote.com

ONLINE AT THE MEETING

Attend the Annual Meeting virtually at www.virtualshareholdermeeting.com/WTRG2024 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 April 30, 2024, to vote through the internet or by phone. If you are a plan participant, you have until 11:59 p.m. (ET) on April 28, 2024, 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 __, 2024

VIRTUAL ANNUAL MEETING OF SHAREHOLDERS

 

WEDNESDAY, MAY 1, 2024

8:00 AM ET

 

Record Date March 4, 2024

 

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

 

To attend, go to: www.virtualshareholdermeeting.com/ WTRG2024 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.

 

 

 

 

 

 

 

Essential Utilities, Inc.   |   4   |   2024 Proxy Statement

 
 

Contents
 

 

Proxy Summary 6
Proposal 1 Election of Directors 13
Corporate Governance 23
Shareholder Outreach 31
Age and Term Limits 31
Environmental, Social, and Governance Program 32
Other Governance Policies and Practices 37
Communications with the Company or Independent Directors 38
Director Compensation 39
2023 Director Compensation Program 39
Ownership of Common Stock as of March 4, 2024 41
Proposal 2 Advisory Vote to Approve Named Executive Officers’ 2023 Compensation 42
Executive Compensation (see separate table of contents) 43
Proposal 3 Ratification of the Appointment of PricewaterhouseCoopers LLP as Independent Registered Public Accounting Firm for Fiscal 2024

85

Audit Committee Report 87
Proposal 4 Ratification of an Amendment to the Bylaws to implement universal proxy rules governing contested elections of directors

88

Annual Meeting Information 90
Questions and Answers about the 2024 Annual Meeting 90
Nominating Candidates for Director 93
Additional Information 94
Other Matters 94
Appendix A Reconciliation of GAAP to Non-GAAP Financial Measures

A-1

Appendix B Amendment to Amended and Restated Bylaws of Essential Utilities, Inc. B-1

 

 

 

 

 

Forward-Looking Information

This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements are based on management’s beliefs and assumptions. Various factors may cause actual results to be materially different than the suggested outcomes within forward-looking statements. Accordingly, there is no assurance that such results will be realized. For details on the uncertainties that may cause the Company’s actual future results to be materially different than those expressed in our forward-looking statements, see our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission (SEC) and available on the SEC’s website at www.sec.gov. In light of these risks, uncertainties, and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than described. Forward-looking statements speak only as of the date they are made. Essential Utilities, Inc. expressly disclaims an obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

Essential Utilities, Inc.   |   5   |   2024 Proxy Statement

 
 

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 2023 performance, please review the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 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 2024 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 nine director nominees possess the necessary qualifications, attributes, skills, and experience to provide advice and counsel to the Company’s management and effectively oversee the business and the long-term interests of our shareholders.

 

FOR each Director Nominee

 

13

 

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 2023 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

 

42

 

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 2024 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

 

85

 

PROPOSAL 4

Ratification of an Amendment to the Bylaws’ to implement universal proxy rules governing contested elections of directors

 

The Board amended the Bylaws to set forth the nomination process whereby a shareholder can submit a nomination for election of a person or persons to serve on the Board in a contested elections of directors.

 

FOR

 

88

 

 

Essential Utilities, Inc.   |   6   |   2024 Proxy Statement

 
 

Proxy Summary   |    Director Nominees

 

 

Director Nominees

 

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

 

 

All directors are independent except for Mr. Franklin.

 

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 67 2018 Former Executive Vice President and Chief Human Resources Officer, United Technologies Corporation

 

0

 

 

   

 

CHAIR

Christopher L. Bruner 61 N/A

Partner, Ernst & Young

0

         
David A. Ciesinski 57 2021 President, Chief Executive Officer, and Director, Lancaster Colony Corporation, and President, T. Marzetti Company

 

1

   

 

 

 

Christopher H. Franklin

Chairman

58 2015 Chairman, President and Chief Executive Officer, Essential Utilities, Inc.

 

1

 

CHAIR

     

Daniel J. Hilferty

Lead Independent Director

67 2017 Chairman and Chief Executive Officer, Comcast Spectacor, and Governor, Philadelphia Flyers

 

0

 

 

CHAIR

     
Edwina Kelly 37 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

     
Tamara L. Linde 59 N/A Executive Vice President and General Counsel, Public Service Enterprise Group, Inc. (PSEG)

 

0

         
Roderick K. West 55 2023 Group President, Utility Operations for Entergy Corporation

 

0

     

 

Committee Meetings held in 2023

 

0

 

5

 

7

 

4

 

5

 

*Mr. Stewart is the current Chair of the Audit Committee and Ms. Ruff is the current Chair of the Risk Mitigation and Investment Policy Committee. Ms. Ruff and Mr. Stewart are not standing for re-election in 2024. A new Chair will be appointed after elections to serve in those positions.

 

  

 

Essential Utilities, Inc.   |   7   |   2024 Proxy Statement

 
 

Proxy Summary   |    Board Composition

 

 

Board Composition as Following Election of Nominees on May 1, 2024

 

 

 

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 23 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

Seven out of eight 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* made 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

Risk Oversight

Risk oversight by full Board and all committees

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

Oversight of ESG program by Corporate Governance Committee

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 2023, including over 250 meetings held with investors

 

*As of December 31, 2023

 

Essential Utilities, Inc.   |   8   |   2024 Proxy Statement

 
 

Proxy Summary   |    2023 Performance Highlights

 
2023 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 2023, 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 nearly $1.2 billion in infrastructure; and demonstrated the resiliency of our water and natural gas platforms. As of year-end 2023, we had a total of six signed purchase agreements to acquire future water and wastewater systems, totaling approximately $380 million in purchase price and expected to serve over 215,000 equivalent retail customers or equivalent dwelling units.

 

 

 

Essential Utilities, Inc.   |   9   |   2024 Proxy Statement

 
 

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:

 

  

 

 

Essential Utilities, Inc.   |   10   |   2024 Proxy Statement

 
 

Proxy Summary   |    2023 Pay for Performance Compensation Program

 
2023 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 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.
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.
Reward our named executive officers for leadership excellence and contribution to the organization’s success.
Maintain an important focus on environmental, social, and governance issues while building shareholder value.

 

2021–2023 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 %

2021 $1.66 Achieved 129.70% 65.56% N/A
2022 $1.77 Achieved 129.06% 12.37% 171.16%
2023 $1.88 Achieved 143.73% -15.49% 77.94%

 

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

 

2023 NEO Total Compensation Pay Mix

 

 

 

 

Essential Utilities, Inc.   |   11   |   2024 Proxy Statement

 
 

Proxy Summary   |    Shareholder Outreach and Results of 2023 Advisory Vote to Approve Executive Compensation

 

 

Shareholder Outreach and Results of 2023 Advisory Vote to Approve Executive Compensation

 

At our 2023 annual meeting of shareholders, our shareholders strongly supported our compensation program, with 96% of shareholders voting in agreement with the Company’s compensation design. We believe the high level of support recognized the thoughtfulness and consideration the Executive Compensation Committee and the management team showed in ensuring the program aligns with shareholder interests.

 

Over the course of 2023, 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 31 in this proxy statement.

 

 

Essential Utilities, Inc.   |   12   |   2024 Proxy Statement

 
 

Proposal 1:

Election of Directors

 

 

Our Board has nominated Ms. Amato, Mr. Bruner, Mr. Ciesinski, Mr. Franklin, Mr. Hilferty, Ms. Kelly, Mr. Lewis, Ms. Linde, and Mr. West 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.

 

The nominees will be elected by a plurality of the votes cast at the 2024 Annual Meeting. Properly executed proxies will be voted for the election of the nine 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, 2023

 

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, 2023, the Board of Directors consisted of eight directors, seven of whom were newly appointed or elected since 2015. Each of these directors brings particular expertise and experience to the Board.  

 

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. West, who joined our Board in 2023, came to the committee’s attention through a third-party employment search firm. Ms. Linde also came to the committee’s attention through a third-party employment search firm. Mr. Bruner came to the committee’s attention through a combination of various referrals following the establishment of criteria aimed at identifying audit committee expertise.

 

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.   |   13   |   2024 Proxy Statement

 
 

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 2025 Annual Meeting of Shareholders should submit their recommendations to the Chairperson of the Corporate Governance Committee no later than December 1, 2024.

 

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 Bruner Ciesinski Franklin Hilferty Kelly Lewis Linde West

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 nine nominees for election as directors at the 2024 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.

 

 

 

 

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Proposal 1: Election of Directors   |    Nominees for Election at the 2024 Annual Meeting

 
Nominees for Election at the 2024 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.

  Independent Director         Director Since: 2018          Age: 67
 

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:

 

 

 

KEY SKILLS

 

   Financial

 

  Regulatory

 

    Leadership

 

   Mergers & Acquisitions

 

 

 

Christopher L. Bruner

Partner, Ernst & Young LLP

  Independent Director         Director Nominee: 2024          Age: 61
 

Experience

  Audit Partner and Senior Advisory Partner at Ernst & Young LLP (EY)

  Managing Partner Philadelphia Office EY, 2008-2021

  Partner EY, 2000-2008

  EY, 1987-2000

Mr. Bruner is a graduate of Indiana University from which he holds a Bachelor of Science degree in Accounting.

 

Qualifications

Mr. Bruner has over 35 years of experience in various roles with responsibilities involving finance, audit, strategy, mergers and acquisitions. The Board of Directors believes Mr. Bruner’s independence, his broad financial experience, and his leadership roles support the Board’s conclusion that Mr. Bruner should serve as a director of the Company.

 

Other affiliations

Mr. Bruner has served on several non-profit boards including member and Chair of Mann Center for the Performing Arts, member and Chair of the Audit Committee of Main Line Health Board, and member and Treasurer of The Union League of Philadelphia.

 

Other current public company directorships

None

 

Essential Utilities, Inc.   |   15   |   2024 Proxy Statement

 
 

Proposal 1: Election of Directors   |    Nominees for Election at the 2024 Annual Meeting

 

 

 

BOARD COMMITTEES:

  Audit Committee

  Corporate Governance Committee

 

KEY SKILLS

 

   Financial

 

   Leadership

 

  Mergers & Acquisition

 

  Geographic Diversity

 

 “C-Suite” Experience

 

   Cyber-Security Experience

 

 

David A. Ciesinski

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

  Independent Director         Director Since: 2021          Age: 57
 

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.   |   16   |   2024 Proxy Statement

 
 

Proposal 1: Election of Directors   |    Nominees for Election at the 2024 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: 58
 

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, Inc. (2022-present)

 

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Proposal 1: Election of Directors   |    Nominees for Election at the 2024 Annual Meeting

 

 

 

BOARD COMMITTEES:

  Chair, Executive Compensation Committee

  Executive Committee

 

KEY SKILLS

 

  Regulatory

 

   Financial

 

   Leadership

 

   Mergers & Acquisition

 

   C-Suite Experience

 

 

Daniel J. Hilferty

Lead Independent Director, Essential Utilities, Inc.
Chairman and Chief Executive Officer, Comcast Spectacor and
Governor, Philadelphia Flyers

  Independent Director         Director since: 2017          Age: 67
 

Experience

  Governor, Philadelphia Flyers (July 2023-present).

  Chairman and Chief Executive Officer, Comcast Spectacor, a Philadelphia-based American sports and entertainment company (February 2023-present).

  Chairman and CEO, Dune View Strategies LLC, an advisory firm focused on healthcare (2021-present).

  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.   |   18   |   2024 Proxy Statement

 
 

Proposal 1: Election of Directors   |    Nominees for Election at the 2024 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

  Independent Director         Director Since: 2021          Age: 37
 

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.

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

  Board member of Pattern Energy Group LP, a private renewable energy and transmission company that develops, constructs, owns, and operates high-quality wind, solar, transmission, and energy storage projects worldwide.

  Former 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).

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 affiliations

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

 

Essential Utilities, Inc.   |   19   |   2024 Proxy Statement

 
 

Proposal 1: Election of Directors   |    Nominees for Election at the 2024 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

  Independent Director         Director Since: 2022          Age: 47
 

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.   |   20   |   2024 Proxy Statement

 
 

Proposal 1: Election of Directors   |    Nominees for Election at the 2024 Annual Meeting

 

 

 

BOARD COMMITTEES:

 

 

 

 

KEY SKILLS

 

   Utility Industry

 

   Legal/Government

 

  Regulatory

 

   Leadership

 

   C-Suite Experience

 

   Geographic Diversity

 

Tamara L. Linde

Executive Vice President and General Counsel,
Public Service Enterprise Group, Inc. (PSEG)

  Independent Director         Director Nominee: 2024          Age: 59
 

Experience

  Executive Vice President and Chief Legal Officer at Public Service Enterprise Group (PSEG) 2014–Present, responsible for the legal and regulatory matters for the PSEG Companies, as well as several other corporate functions including risk, compliance, claims, and procurement.

  Vice President, Regulatory at PSEG 2006–2014.

  Ms. Linde has held other roles at PSEG including General Solicitor (2000-2006) and Attorney (1990-2000).

Ms. Linde is a graduate of Seton Hall University from which she holds a bachelor’s degree in History in 1986 and a Juris Doctorate degree from Seton Hall University School of Law in 1989.

 

Qualifications

Ms. Linde has over 30 years of experience in various roles with responsibilities involving energy, regulatory, legal, risk, environmental, governmental affairs, and transactions. The Board of Directors believes Ms. Linde’s independence, her broad regulatory and energy experience, and her leadership roles support the Board’s conclusion that Ms. Linde should serve as a director of the Company.

 

Other affiliations

Ms. Linde is on the board of Community Foundation of New Jersey, PSEG Foundation and is a Member of the American Arbitration Association / International Centre for Dispute Resolution Council (AAA / ICDR). Ms. Linde currently serves as Chair of the Edison Electric Institute (EEI) Legal Committee and previously served as a member of the General Counsel Steering Committee of The National Association of Corporate Directors, was past President of the Northeast chapter of the Energy Bar Association and was past chair of the Energy Bar Association Electricity Regulation and Compliance Committee.

 

Other current public company directorships

None

 

Essential Utilities, Inc.   |   21   |   2024 Proxy Statement

 
 

Proposal 1: Election of Directors   |    Nominees for Election at the 2024 Annual Meeting

 

 

 

BOARD COMMITTEES:

 

 

 

 

 

KEY SKILLS

 

   Utility Industry

 

  Regulatory

 

  Financial

 

  Legal/Government

 

   Leadership

 

  Geographic Diversity

 

  C-Suite Experience

 

 

 

Roderick K. West

Group President Utility Operations,
Entergy Corporation

  Independent Director         Director Since: 2023          Age: 55
 

Experience

  Group President Utility Operations, Entergy Corporation, 2017-present

  Executive Vice President and Chief Administrative Officer of Entergy Corporation, 2010-2017

  President and Chief Executive Officer of Entergy New Orleans, 2007-2010

  Director, Metro Distribution Operation of Entergy Services, Inc., 2005-2006

  Director of Entergy New Orleans, 2005-2001

Mr. West is a graduate of the University of Notre Dame holding a Bachelor of Arts degree. He also earned both his Juris Doctorate and Master of Business Administration from Tulane University.

 

Qualifications

Mr. West has over 20 years of experience in various roles with responsibilities involving strategy development, regulatory, and operational and financial performance. The Board of Directors believes Mr. West’s independence, his broad regulatory experience, and his leadership roles support the Board’s conclusion that Mr. West should serve as a director of the Company.

 

Other affiliations

Mr. West has served on several boards, including the Electric Power Research Institute and the Edison Electric Institute. He is a Hesburgh trustee for the University of Notre Dame. Mr. West is also a member of the Executive Leadership Council, National Football Foundation, and previously served as president to the Allstate Sugar Bowl.

 

Other current public company directorships

None

 

Essential Utilities, Inc.   |   22   |   2024 Proxy Statement

 
 

Corporate Governance

 

 

The Board sets high standards for our employees, officers, and directors. Implicit in this philosophy is the importance of sound corporate governance. Following the principles of our Corporate Governance Guidelines, the Board serves as a prudent fiduciary for shareholders and oversees the management of our business.

 

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

Corporate Governance Guidelines. Developed by the Corporate Governance Committee, these Guidelines provide the principles governing the Board. The Committee annually reviews the Guidelines and recommends any necessary changes to the full Board. The Guidelines include categorical standards of director independence that are consistent with NYSE listing standards.

Board Committee Charters. Each of the Board’s standing Committee’s operates under a written charter that is reviewed annually.

Code of Ethical Business Conduct. The Code applies to our directors, officers, and employees and covers conflicts of interest; corporate opportunities; fair dealing; confidentiality; protection and proper use of Company assets; compliance with laws, rules and regulations (including insider trading laws); and how to report illegal or unethical behavior. In 2019, the Code was updated to reflect changes in our leadership structure and to stress our Core Values of Respect, Integrity, and the pursuit of Excellence. The Company intends to post amendments to or waivers from the Code of Ethical Business Conduct (to the extent applicable to the Company’s executive officers, senior financial officer, or directors) on our website.

 

Our Sustainability Report is available ESG.Essential.co. For additional information see pages 32 through 36 in this proxy statement.

 

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.

 

Essential Utilities, Inc.   |   23   |   2024 Proxy Statement

 
 

Corporate Governance   |    Director Independence

 

 

 

 

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 2023, 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 2023, 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.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.

4.Mr. West is Group President Utility Operations at Entergy Corporation. The Company purchases energy from Entergy pursuant to approved tariff rates.

 

5.Mr. Bruner is the Managing Partner at the Philadelphia Office of Ernst & Young (EY). EY provides non-audit services to the Company involving tax and transaction advisory services. For each of the last three fiscal years, the fees paid to EY for non- audit services, EY’s gross revenues, and the fees as a percentage of EY’s gross revenues were as follows:

 

 

Fiscal
Year

 

 

Fees Paid to EY

 

 

EY Gross
Revenues

Fees Paid as a
Percentage of EY
Gross Revenues
2021 $   312,530 $40,000,000,000 0.0008%
2022 $   311,030 $45,170,000,000 0.0007%
2023 $5,800,000 $49,600,000,000 0.0117%

 

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

 

6.Ms. Linde is the Chief Legal Officer at Public Service Enterprise Group (PSEG). The Company purchased energy from PSEG in the amount of $432,216.10 in 2023 pursuant to approved tariff rates.

 

 

 

   

Essential Utilities, Inc.   |   24   |   2024 Proxy Statement

 
 

 

Corporate Governance   |    Board Committee Membership, Meetings and Director Attendance

 

 

Board Committee Membership, Meetings and Director Attendance

 

 

Under our Bylaws, the Board of Directors may designate an Executive Committee and one or more other committees, with each committee to consist of two or more directors, except for the Audit Committee and Executive Compensation Committee, which must have at least three members. The Board of Directors annually 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 David A. Ciesinski, Ellen T. Ruff, Roderick K. West
Executive Compensation Daniel J. Hilferty Elizabeth B. Amato, Ellen T. Ruff, Lee C. Stewart
Executive Christopher H. Franklin Daniel J. Hilferty, Elizabeth B. Amato, Ellen T. Ruff, Lee C. Stewart
Risk Mitigation and Investment Policy Ellen T. Ruff# Christopher H. Franklin, Edwina Kelly, W. Bryan Lewis, Roderick K. West

 

*Mr. Stewart served as chair of the Audit Committee in 2023, but he is not standing for election in 2024. Mr. Stewart 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.
#Ms. Ruff served as chair of the Risk Mitigation and Investment Policy Committee in 2023, but she is not standing for election in 2024. Ms. Ruff will continue to Chair this Committee until the end of her 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 7 meetings in 2023

 

·In 2023, 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.

 

·In accordance with our policy which encourages such attendance, all of the directors who were elected at the 2023 Annual Meeting of Shareholders attended that meeting.

 

Essential Utilities, Inc.   |   25   |   2024 Proxy Statement

 
 

Corporate Governance   |    Board Committees as of December 31, 2023

 

 

Board Committees as of December 31, 2023

 

 

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 and defined in the NYSE listing standards and are audit committee financial experts within the meaning of applicable SEC rules.

 

*Mr. Stewart is the current Chair of the Audit Committee. He is not standing for re-election in 2024. A new Committee Chair will be appointed after the Annual Meeting.

  Audit
  2023 Meetings Held 7
 

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
  2023 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.   |   26   |   2024 Proxy Statement

 
 

Corporate Governance   |    Board Committees as of December 31, 2023

 

 

Chair

Elizabeth B. Amato 

Members

David A. Ciesinski

Ellen T. Ruff

Roderick K. West

 

All members are independent under NYSE listing standards.

  Corporate Governance
  2023 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*

Ellen T. Ruff 

Members

Christopher H. Franklin
Edwina Kelly
W. Bryan Lewis
Roderick K. West 

All members are independent under NYSE listing standards.

*Ms. Ruff is the current Chair of the Risk Mitigation and Investment Policy Committee. She is not standing for re-election in 2024. A new Committee Chair will be appointed after the Annual Meeting.

  Risk Mitigation and Investment Policy
  2023 Meetings Held 4
 

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.

 

 

 

 

 

 

 

  Executive Committee
  2023 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.

 

Essential Utilities, Inc.   |   27   |   2024 Proxy Statement

 
 

Corporate Governance   |    Board Oversight Responsibilities

 

 

Board Oversight Responsibilities

 

 

 

Board Oversight of Risk Management

 

 

Full Board

 

The Board believes that the present leadership structure, along with the important risk oversight functions performed by management, the Audit Committee, the Risk Mitigation and Investment Policy Committee, the Executive Compensation Committee, and the full Board, permits the Board to effectively perform its role in the risk oversight of the Company.

Management

In addition to updates at each Board meeting by operating management regarding any significant operational, acquisition, or environmental matters, management provides the Board with an annual update on:

· environmental matters by our Chief Environmental Officer;

· cyber security matters by our Chief Technology Officer;

· the Company’s proposed capital spending plans by our Vice President, Financial Planning and Analysis; and

· the Company’s Enterprise Risk Management program by our Executive Vice President and General    Counsel.

 

Audit Committee

 

The Audit Committee, in consultation with management, the independent registered public accountants and the internal auditors, discusses the Company’s policies and guidelines regarding risk assessment and risk management as well as its significant financial risk exposures and the steps management has taken to monitor, control and report such exposures.

· The Audit Committee meets in executive session with the Director of Internal Audit and with the independent registered
    public accountants at the end of each Audit Committee meeting.

· The Company’s General Counsel reports to the Audit Committee quarterly regarding any significant litigation involving the
   Company and his opinion of the adequacy of the Company’s reserves for such litigation.

· The Company’s Internal Audit department reports directly to the Chair of the Audit Committee.

 

Corporate Governance Committee

The Committee leads an annual discussion by the Board of Directors regarding the Company’s strategic plans and management’s performance with respect to those plans. The Committee also has direct oversight over most ESG matters and provides guidance on ESG decisions.

 

Executive Compensation Committee

The Committee reviews the Company’s overall compensation program in the context of the various behaviors that the program may encourage and the risks to the Company as a result of the program. At least annually, the Executive Compensation Committee considers the risks that may be presented by the structure of the Company’s compensation programs and the metrics used to determine individual compensation under that program.

 

Risk Mitigation and Investment Policy Committee

The Committee’s primary purpose is to assist the Board of Directors in fulfilling its oversight responsibilities for the Company’s:

 

· risk management practices;

· significant risks to the enterprise in conjunction with a Company-wide enterprise risk management (ERM) process is used to
   identify, prioritize and monitor key risks that may affect the Company;

· compliance with legal and regulatory requirements;

· potential investments in acquisitions and growth vehicles;

·  cybersecurity risks; and to

· review and approve the Company’s risk management framework.

Management receives approval from the Risk Management and Investment Policy Committee on all potential acquisitions valued in excess of $20 million, and the Board approves every acquisition valued in excess of $50 million or which involves the issuance of the Company’s common stock as part of the consideration.

 

Essential Utilities, Inc.   |   28   |   2024 Proxy Statement

 
 

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 Sustainability Initiatives

 

Board of Directors

 

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

The Corporate Governance Committee has direct oversight of most sustainability matters. At each Committee meeting, updates on initiatives, trends and developments are presented and discussed. Additionally, each meeting features presentations on a key area of sustainability, 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 sustainability program as well as reporting to stakeholders on our performance and progress. 40% of the weighting in the executives’ short-term incentive compensation program focuses on these important sustainability issues.

The ESG Oversight Committee meets at least quarterly to discuss sustainability 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.

 

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Corporate Governance   |    Board Oversight Responsibilities

 

 

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 37, 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 2023, 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.

 

Essential Utilities, Inc.   |   30   |   2024 Proxy Statement

 
 

Corporate Governance   |    Director Onboarding and Continuing Education

 

 

Director Onboarding and Continuing Education

 

 

Mr. West joined the Board as director in October 2023. In addition to informal meetings with the existing directors, Mr. West 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;
·Sustainability;
·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.

 

 

Shareholder Outreach

 

 

At our 2023 annual meeting of shareholders, our shareholders strongly supported our compensation program, with 96% of shareholders voting in agreement with the Company’s compensation design. We believe the high level of support recognized the thoughtfulness and consideration the Executive Compensation Committee and the management team showed in ensuring the program aligns with shareholder interests.

 

Over the course of 2023, 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 2023 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.

 

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 2023, we provided updates on the progress on our ESG commitments.

 

 

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.

 

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 Corporate Governance Committee, in consultation with the Chairman of the Board, will determine if the director’s continued service is appropriate and make a recommendation with respect thereto to the Board. Both Mr. Stewart and Ms. Ruff submitted their resignations and are not seeking re-election in accordance with this policy.

 

Essential Utilities, Inc.   |   31   |   2024 Proxy Statement

 
 

Corporate Governance   |    Environmental, Social, and Governance Program

 

 

Environmental, Social, and Governance Program

 

 

Essential has long understood that sustainability is a critical aspect of business operations. 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.  

 

Oversight    
     
BOARD OF DIRECTORS   MANAGEMENT COMMITTEE
     
The Full Board receives written reports and formal updates from Company executives at regularly scheduled meetings on sustainability matters including safety, environmental stewardship, DEI (diversity, equity, and strategy, and technical inclusion), and human capital management. The Corporate Governance Committee has direct oversight of most sustainability matters. At each committee meeting, management present updates about progress towards goals and targets.   Management’s Sustainability Oversight Committee is made up of senior leaders from different functional areas and backgrounds. They meet at least quarterly to discuss sustainability matters, strategy, and technical planning to achieve goals, with input from our CEO.

 

 

Reporting

 

Essential’s reporting includes the following components, which were published in September 2023 and are available at our recently redesigned microsite ESG.Essential.co:

 

·2022 ESG Report–Our flagship report that provides detail on all relevant ESG topics.
·2022 SASB and ESG Metrics Index–A concise document containing key ESG metrics, primarily using the SASB framework
·2022 TCFD Report–Concise climate reporting as outlined by the Task Force on Climate-Related Financial Disclosures
·2022 CDP Climate Report–Detailed climate reporting via the CDP questionnaire
·2022 AGA Sustainability Template–Technical emissions data via the American Gas Association’s common industry template

 

 

 

 

 
 
 

 

Alignment with UN SDGs

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

 

 

 

Essential Utilities, Inc.   |   32   |   2024 Proxy Statement

 
 

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 this procurement also enabled our water and wastewater operations to rapidly reduce its emission by more than half since 2019.

 

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 Corporate Governance Committee’s October 2023 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 has infused needed capital and resources to rehabilitate the infrastructure required for reliable water and efficient wastewater services. 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.

 

 

 

 

 

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Corporate Governance   |    Environmental, Social, and Governance Program

 

 

 

 

Human Capital Management

 

At Essential, we recognize our 3,100+ 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, 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.

 

 

 

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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.

 

In 2023 we developed several new programs and initiatives focused on the overall employee experience including:

 

·Developed and designed processes, tools and Workday configuration to improve new hire onboarding and assimilation, including the New Hire and Manager Onboarding Guides, New Hire 90-day survey, and 2, 4, and 6 month introductory review evaluations.
·Launched the first Develop for the Future leadership development programs by partnering with Drexel University for our Executive participants. Also developed and delivered curriculum, assessments, and coaching for participants in the Senior Leader Development program.
·Developed Leadership Develop in Place training with over 80% of management attending.

 

Training delivered by resources we provide within the company, including participation in the executive leadership programs above and the ExecOnline certificate programs, increased in 2023 to a total of 18,240 hours versus 12,981 hours in 2022.

 

Our efforts on talent engagement and retention have had a positive impact on employee turnover as turnover has improved in 2023 by 26% over 2022.

 

We align our development model and activities 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.

 

 

Diversity, Equity, and Inclusion

 

Diversity of backgrounds, ideas, thoughts, and experiences is essential to our culture and the way we do business. It is critical to create an environment where people of all backgrounds, ages, races, abilities, and sexual orientations can collaborate, learn from each other and thrive. We believe we can build an even stronger company the more we focus on growing an equitable and inclusive workforce—one where all employees know they are valued and respected for who they are and for the contributions they make.

 

We are proud of the progress we have made in diversity, but we believe we can improve, particularly when engaging our customers, partners and peers in our DE&I efforts. We have a range of diverse recruitment tactics, many of which are supported through diversity associations and job boards for minorities, veterans and women engineers. We also recruit new talent from local community colleges and city-based universities.

Essential regularly conducts education to foster better understanding of points of view and how pre-conceived notions impact relationships at work. We also want to ensure employees of color experience equity and inclusion at Essential. Our goal is for our employee base to be representative of the communities in which we serve.

 

Additionally, Essential hosts a variety of Employee Resource Groups including the Diversity and Inclusion Council, Women’s and Women in Energy Employee Resource Group, Black Resource Group, Veterans and Military Resource Group, Wellness and Health Group, and Pride Resource Group all in an effort to help ensure our employees feel supported in their professional growth at all levels. Benefits of ERGs include the development of future leaders, increased employee engagement and a strong culture of inclusion, which creates fertile conditions for diversity to thrive.

 

Essential is an equal opportunity employer.

 

 

 

 

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Corporate Governance   |    Environmental, Social, and Governance Program

 

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.

 

 

 

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.

 

 

 

 

Demonstrable Progress Through Program Improvement

Since 2020, Essential’s safety organization has incorporated many best practices, shared across the enterprise. The following are some of the critical elements of our program:

·Safety committees across Company leadership, state leadership, divisions, and facilities
·New mechanisms for employees to raise concerns, including a “stop work authority” empowerment and anonymous reporting
·Introduction of a near miss program
·Weekly reporting and analysis, buttressed by a strong auditing program and multi-faceted team communications
·Active participation in industry-wide safety efforts
·Scrutiny of contractor safety records and opportunities for partnership and feedback

These initiatives have helped drive performance1:

In 2022, the most recent year of comparable peer data, both Aqua and Peoples achieved lower lost time and restricted time injury rates (LT/RT) than the industry group average2.

Essential’s employee-responsible motor vehicle accidents (RVA) rate improved by 16% between 2021 and 20233.

Strengthening Our Community

Essential operates in nine states across America, but as a critical part of the communities we serve, our presence is felt locally. We do business with many local suppliers and build our team with members of those communities. Our employees take pride in the essential resources they provide for their families and neighbors. Our services enable households to grow, commerce to bustle, 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 further strengthen our communities. Working with incredible nonprofits throughout our service areas, we have formed some powerful partnerships to improve the quality of life for our customers.

1This data only pertains to full-time Essential employees.
2Industry group average data provided by Bureau of Labor Statistics and American Gas Association. Rate equivalent to number of lost time and restricted duty injuries multiplied by 200,000 and divided by hours worked.
3RVA rate equivalent to number of RVAs divided by miles driven and multiplied by 1,000,000.

 

 

 

 

 

 

 

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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 requirements, 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 2023.

 

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.

 

 

 

 

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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 2023.

 

 

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

 

 

 

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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 2024. The elements of director compensation for 2023 are shown below.

 

2023 Director Compensation Program

 

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 2024 to serve on the Board.

 

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

 

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. As of December 31, 2023, the guidelines required ownership of 16,064 shares.

 

 

(1)Mr. Franklin is a management director. His stock ownership guidelines and current shareholdings are detailed on pages 65 through 68.
(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.

 

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Director Compensation   |    Total 2023 Director Compensation

 

 

Total 2023 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 120,000 120,038 240,038
Ciesinski 105,000 120,038 225,038
Franklin(2) — 
Hilferty 150,000 120,038 270,038
Kelly(3) 105,000 —  105,000
Lewis 105,000 120,038 225,038
Ruff 116,250 120,038 236,288
Stewart 125,000 120,038 245,038
Womack(4) 56,250 60,013 116,263
West 26,250 29,999 56,249

 

(1)The grant date fair values per share of the stock awards paid on March 20, 2023, were $42.765, on June 20, 2023, were $41.425, and on December 20, 2023, were $36.945. These grant date fair 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)Ms. Kelly directed her cash compensation be paid to CPPIB and she does not receive any stock awards.
(4)Mr. Womack did not seek reelection to the Board of Directors, therefore his term expired effective May 2023.

 

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Ownership of Common Stock as of March 4, 2024

 

 

The table below shows the number of shares of our common stock beneficially owned as of the close of business on March 4, 2024, 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

31,004,969   31,004,969 11.34%

The Vanguard Group(4)

100 Vanguard Blvd. Malvern, PA 19355

27,536,540 452,453 27,988,993 10.23%
Canada  Pension  Plan  Investment Board(5)
One Queen Street East, Suite 2500 Toronto,
Ontario M5C 2W5 Canada
  21,661,095 21,661,095 7.92%

State Street Corporation(6)

One Lincoln Street Boston, MA 02111

  13,484,594 13,500,094 4.94%
Directors, Nominees and Named Executive Officers
Elizabeth B. Amato 13,003 13,003 *
Colleen M. Arnold 7,203 7,203 *
Christopher L. Bruner *
David A. Ciesinski 6,267 6,267 *
Christopher H. Franklin 232,133 232,133 *
Daniel J. Hilferty 27,478 27,478 *
Edwina Kelly(7) *
W. Bryan Lewis 3,466 3,466 *
Tamara L. Linde *
Christopher P. Luning 55,581 55,581 *
Matthew R. Rhodes 27,141 27,141 *
Ellen T. Ruff 30,438 30,438 *
Daniel J. Schuller 47,634 47,634 *
Lee C. Stewart 23,003 23,003 *
Roderick K. West 812 812 *
All Directors, Nominees and Executive Officers as a Group (17 persons)
  545,380 26,540(8) 571,920  
*less than one percent
(1)Includes shares held under the Company 401(k) plan.
(2)Percentage of ownership for each person or group based on 273,515,794 shares of Common Stock outstanding as of March 4, 2024 and includes all shares issuable to such person or group upon exercise of outstanding stock options exercisable, or other equity awards vesting, within 60 days of that date.
(3)The information from BlackRock, Inc. was obtained from the Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 24, 2024.
(4)The information from The Vanguard Group was obtained from the Schedule 13G/A filed by The Vanguard Group with the SEC on February 13, 2024.
(5)The information from Canada Pension Plan Investment Board (CPPIB) was obtained from the Schedule 13D filed by CPPIB with the SEC on March 24, 2020.
(6)The information from State Street Corporation was obtained from the Schedule 13G/A filed by State Street Corporation with the SEC on January 25, 2024.
(7)Ms. Kelly is nominated to the Board as designated by CPPIB under the terms of the Company’s private placement transaction with CPPIB.
(8)The shareholdings indicated 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.

 

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Proposal 2:

 

Advisory Vote to Approve Named Executive Officers’ 2023 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 2024 Annual Meeting:

 

RESOLVED, that the compensation paid to the Company’s named executive officers for 2023, 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 43 through 66 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.

 

 

 

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Executive Compensation

 

 

Contents  
 
Compensation Discussion and Analysis 44
Executive Summary 45
Introduction 45
2023 Performance Highlights 46
Our Pay for Performance Compensation Program 47
Highlights of our Compensation Policies 47
Pay for Performance and Results of the 2023 Advisory Vote to Approve Executive Compensation 48
Section 1: Our Compensation Philosophy 49
Elements of Compensation for Named Executive Officers 49
Section 2: How We Determine Executive Compensation 50
The Role of the Compensation Committee 50
The Role of Management 50
The Role of the Compensation Committee’s Independent Consultant 50
Competitive Pay Positioning 50
Our 2023 Benchmarking for Competitive Pay 51
Our 2023 Benchmarking Peer Group 51
Shareholder Advisory Vote Impact on Compensation Committee Actions 52
Section 3: 2023 Executive Compensation Program 53
Overview 53
Base Salary 53
Annual Cash Incentive Awards 54
Long-Term Equity Incentive Awards 56
Other Benefits 59
Section 4: 2023 NEO Compensation and Performance Summaries 61
Section 5: Our 2024 Short- and Long-Term Incentive Programs 64
Section 6: Compensation Governance Policies and Practices 65
Anti-Hedging and Anti-Pledging Policy 65
Clawback of Incentive Compensation 65
Limited Perquisites 65
Stock Ownership Guidelines 65
Executive Compensation Committee Report 66
Executive Compensation Tables 67
Summary Compensation Table 67
Grants of Plan-Based Awards 72
Outstanding Equity Awards at Fiscal Year-End 73
Options Exercised and Stock Vested 75
CEO to Median Employee Pay Ratio 75
Retirement Plans and Other Post-Employment Benefits 76
Pension Benefits 76
Retirement Income Plan (the Retirement Plan) 77
Non-Qualified Retirement Plan 77
Actuarial Assumptions used to Determine Values in the Pension Benefits Table 78
Non-Qualified Deferred Compensation 79
Potential Payments Upon Termination or Change-In-Control 79
Retirement and other Benefits 80

 

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Director Compensation   |    Compensation Discussion and Analysis

 

 

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, Rhodes, and Luning, and Ms. 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.

 

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Executive Compensation   |    Introduction

 

 

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 3,100 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 performance that aligns with our four 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

Despite the winter weather that was significantly warmer than normal in 2023, our Company was successful in delivering the financial performance expectations. Essential invested a record amount of approximately $1.19 billion in capital improvement to its regulated water and natural gas infrastructure systems and to enhance customer service across its operations. Our Company continues to be a leader in the country at replacing miles of underground utility pipe and is committed to maintaining elevated levels of infrastructure investment. We will continue these investments in 2024 as we improve our footprint’s pipes.

 

For the third consecutive year, Essential has been named to Newsweek’s list of America’s Most Responsible Companies. We are honored to be recognized for our commitments to operational excellence, environmental stewardship, and sustainable business practices and are excited to continue in our role as an industry leader.

 

Staying the Course Year  Say -on pay Advisory Vote
In 2020, we introduced a revised compensation program design for Essential’s executives based 2021 96.4%
on an extensive study of industry best practices. This modified compensation program was 2022 97.1%

validated by a high say-on-pay approval vote in our last three years of shareholder voting. We

continue to adhere to those executive compensation design principles while adjusting the

2023 96.0%

program as needed to address current trends and challenges. For example, with the acquisition

of the gas business in 2020, we updated our plan to include specific metrics for gas damage prevention in our safety goals and reducing gas leaks as part of our environmental compliance goals. The peer group adopted by the Compensation Committee in 2020 was slightly expanded to sixteen companies in 2023 following a thorough review of total revenues, net revenues, 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.

 

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.

 

 

 

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Executive Compensation   |    Executive Summary

 

 

2023 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 2023, 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 nearly $1.2 billion in infrastructure; and demonstrated the resiliency of our water and natural gas platforms. As of year-end 2023, we had a total of six signed purchase agreements to acquire future water and wastewater systems, totaling approximately $380 million in purchase price and expected to serve over 215,000 equivalent retail customers or equivalent dwelling units.

 

 

 

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Executive Compensation   |    Executive Summary

 

 

2021-2023 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 %

2021 $1.66 Achieved 129.70% 65.56% N/A
2022 $1.77 Achieved 129.06% 12.37% 171.16%
2023 $1.88 Achieved 143.73% -15.49% 77.94%

*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 

 

 

 

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Executive Compensation   |    Executive Summary

 

 

Pay for Performance and Results of the 2023 Advisory Vote to Approve Executive Compensation

 

We instill a pay for performance culture throughout the Company. At our 2023 Annual Meeting, we submitted a proposal to shareholders for a non-binding advisory vote on the 2022 named executive officers compensation. Our shareholders overwhelmingly approved the proposal, with 96% voting in favor. This 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 part of the Company’s proactive governance outreach program, the Company offers meetings to our top 20 holders which represent approximately 50% of our outstanding shares. As a result, in 2023 the Company interacted with 6 of the top 20 holders which represent over 30% of our shares outstanding.

 

As a result of these meetings and conversations in 2023 and other analysis, the Compensation Committee has taken the below actions.

 

 

 

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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 53 through 58.

 

 

 

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Executive Compensation    |    Section 2: How We Determine Executive Compensation

 

 

Section 2

How We Determine Executive Compensation

 

 

We emphasize pay for performance, especially for our higher-level executives. Therefore, the named executive officers receive a substantial portion of their total direct compensation from annual cash and long-term equity incentives, both of which are risk-based incentives 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. 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 and reviewed by the Audit Committee.

 

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 2023.

 

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Our 2023 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 16 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 2023, 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 2023 Benchmarking Peer Group

 

We use a sixteen-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 acquisition of South Jersey Industries, Inc. we expanded our peer group for 2023 to include 16 companies to ensure the peer companies reflect a sufficiently robust group of investor owned utilities. We added Evergy Inc. and Portland General Electric Co. to the peer group.

 

How We Selected our Peer Group

 

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

 

 

 

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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.

 

 

 

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Executive Compensation    |    Section 3: 2023 Executive Compensation Program

 

 

Section 3

 

2023 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.

 

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

 

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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 2023 Base Salary

 

For 2023, the annual increases to the salaries for the named executive officers reflected these assessments. The NEOs’ salary increases averaged 6.3%, which approximated normal market-driven adjustments and reflected peer group median benchmarks ensuring NEO salaries aligned with the market was viewed as an important retention tool, reflected tenure, experience and peer group for the Committee. The base salaries approved by the Compensation Committee for 2023, effective April 1, 2023, were as follows:

 

Mr. Franklin, $1,000,000

Mr. Luning, $440,000
Mr. Schuller, $510,000 Ms. Arnold, $370,000

Mr. Rhodes, $485,000

   

 

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.

 

 

 

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2023 Performance

The following table shows the Company’s 2023 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 143.73%.

 

2023 Company Performance Metric Scorecard

 

 

Metric Component

Threshold 50% Payout

Target 100%

Payout

Maximum

150%

Payout

2023

Actual Results

Actual Attainment

Weight

Projected Achievement

Financial 50% Essential Earnings Per Share (EPS)* $1.83 $1.88 $1.93 $1.995 150.00% 35.00% 52.50%
Essential ROE 8.00% 9.50% 11.00% 11.27% 150.00% 15.00% 22.50%
Safety 20% Essential Lost Time/ Restricted Time 1.70 1.25 0.90 1.18 110.00% 5.00% 5.50%
Essential Responsible Vehicle Accident Rate 3.05 2.55 2.05 2.43 112.00% 5.00% 5.60%
Gas Damage Prevention 3.28 3.17 3.06 2.71 150.00% 10.00% 15.00%
Customer Service 10% Essential Service Level 82.10% 83.10% 84.10% 83.94% 134.50% 10.00% 13.45%
Compliance 10% Aqua Water Compliance 99.60% 99.75% 100.00% 99.93% 136.00% 2.50% 3.40%
Aqua Wastewater Compliance 93.50% 96.00% 99.00% 98.35% 139.17% 2.50% 3.48%
Peoples Gas Leaks 260 205 150 134 150.00% 2.50% 3.75%
Peoples Gas LTIIP 97.50% 100.00% 102.50% 102.10% 142.00% 2.50% 3.55%
Diversity 10% Essential Supplier Diversity 13.72% 14.00% 14.28% 18.06% 150.00% 5.00% 7.50%
Essential Employee Diversity 16.20% 16.50% 16.80% 17.46% 150.00% 5.00% 7.50%
Total Achievement 143.73%

 

*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 2023 for the named executive officers.

 

2023 Named Executive Officer Short-Term Incentive Awards

 

Name

2023 Salary Rate* ($)

2023 Target Bonus %

2023 Company Achievement

STI Payment ($)

Christopher H. Franklin $1,000,000 100% 143.73% $1,437,300
Daniel J. Schuller $510,000 65% 143.73% $476,465
Matthew R. Rhodes $485,000 60% 143.73% $418,254
Christopher P. Luning $440,000 60% 143.73% $379,447
Colleen M. Arnold** $370,000 45% 132.91% $200,000

 

*The 2023 Salary Rate is an annualized rate.
**Ms. Arnold’s Short-Term Incentive Plan focuses on a blend of Essential and Aqua specific financial, safety, customer service, environmental and diversity metrics. 2023 STI payment reflects an adjustment for water operational outcomes.

 

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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. 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.

 

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 2023.

 

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 2020 and 2024.

 

Long-Term Equity Mix for 2020-2024

 

Award Year

Performance

Period

Payment

Year

Performance Share Units

Performance
Based Stock

Options

Restricted Stock Units

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%
2024 2024-2026 2027 65% 10% 25%

 

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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:

 

 

2023 Target LTI (%)

Christopher H. Franklin 290
Daniel J. Schuller 150
Matthew R. Rhodes 130
Christopher P. Luning 125
Colleen M. Arnold 85

 

Vested Performance Share Awards and Status of Outstanding Performance Share Awards

Performance share or performance share unit grants (PSU) (together referred to as performance shares) provide the named executive 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 2021 covered the performance period for the PSU awards for 2021 began on January 1, 2021, and end on December 31, 2023. The calculation of the 2021 PSU award was based on its three metrics over the three-year grant period: Essential’s ordinal ranking for Total Stockholder Return (TSR) compared to the peer group, targeted rate-based growth as a result of acquisitions, and controlling Operating and Maintenance expenses per targets. The three-year TSR return of -15.49% resulted in a zero payout of the first metric of the PSU. We had success in our rate base growth over the last three years, which shows in the second metric of the PSU. Lastly, our third metric on controlling O&M expenses was achieved through measured spending and managing though high inflation costs. The 2021 PSU calculation is depicted below.

 

The pay for performance design of the LTI program and the alignment of the LTI program with the Company’s shareholders can clearly be seen in the 2021 PSU outcome of 77.94%, a significant lower PSU payout than in recent years. 

 

2021 PSU Calculation Weight Actual Result Performance Extrapolation
Metric 1 - TSR Peer Group 38.46% Ranked 15th 0.00% 0.00%
Metric 2- Rate Base Growth 30.77% $215M 135.04% 41.55%
Metric 3- O&M 30.77% $1.624B 118.28% 36.39%
Total 2021 PSU Attainment:       77.94%

 

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Please see the disclosure on page 73 under the heading Outstanding Equity Awards at Fiscal Year-End for a detailed 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.

 

 

 

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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 ($19,000 for 2019, $19,500 each year for 2020 and 2021, $20,500 for 2022 and  $22,500 for 2023), 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.

 

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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 79 through 84.

 

These change-in-control agreements are referred to as double trigger agreements because they only provide a benefit to executives whose employment is terminated, or who have good reason to resign, following a change-in-control. These change-in-control agreements do not provide any payments or benefits to the covered executives merely as a result of a change-in-control. The normal annual restricted share, stock option and performance share grants to the named executive officers also contain double trigger provisions. Each of the change-in-control agreements limit 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 79 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.

 

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Executive Compensation    |    Section 4: 2023 NEO Compensation and Performance Summaries

 

 

Section 4

2023 NEO Compensation and Performance Summaries

 

 

Linking Pay and Performance

Here we provide a summary of each of our NEOs 2023 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.

   

 

2023 Key Accomplishments

Continued to grow the Company with seven new municipal acquisitions, adding over $44 million in rate base.
Set the course for growth in 2024 with approximately $380 million in pending acquisitions that would add over 215,000 equivalent retail customers or equivalent dwelling units.
Invested $1.2 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.
Filed the Peoples Natural Gas rate case as part of Essential Utilities.

 

 

 

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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.

 

 

     

2023 Key Accomplishments

 

•   Successfully concluded the first multi-year Aqua NC rate case, the Aqua OH rate case, and the inaugural Aqua TX infrastructure surcharge filing. Filed the first forward test year rate case for Aqua VA and the first PNG rate case under Essential’s ownership.

•   Successfully raised debt and equity financing to support operations, capital expenditures, and acquisitions (e.g., $300M of private placement debt and $323M of equity).

 

•   Advanced finance transformation, including Blackline and tax provision software implementation, plus activities related to procure-to-pay, consolidation and reporting, and financial closing.

•   Increased forecasting activities and expense management due to headwinds created by unfavorable weather, inflation, and interest rates.

     

 

 

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 2023 Total Compensation Mix Fixed $64,991 Performance Stock Options 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.

 

 

   

2023 Key Accomplishments

 

•   Successfully reviewed and refined Essential strategic goals through a refresh of the 3-year strategic planning process for senior leaders and monthly strategy sessions with the ELT.

•   Made continued improvements to the muni-acquisition program, closed deals adding over $44 million in rate base and 11,000 customers, signed several new APAs and maintained a solid deal pipeline.

•   Continued to grow the Home Warranty programs at Aqua and Peoples with year-over-year EBITDA growth of ~10%.

 

•   Completed the sale of the Peoples WV assets.

•   Advanced energy transition initiatives including a hydrogen pilot with Univ of Pittsburgh, a successful hydrogen hub consortium application, a voluntary emissions reduction and fuel cell program for customers.

•   Announced the sale of Peoples’ energy projects for $165M, closed in early 2024.

 

 

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Executive Compensation    |    Section 4: 2023 NEO Compensation and Performance Summaries

 

 

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,2023 Total Compensation Mix Fixed $56,702 Performance Stock Options Environmental Affairs, Safety, and Records Department, and is the Company’s designated SEC Compliance Officer.

 

 

     

2023 Key Accomplishments

 

•   Developed, grew, and integrated legal, risk, compliance and safety, records, and regulatory departments, including noticeable improvements to all departments. Created efficiencies across functions and began integration/succession planning.

•   Executed companywide PFAS litigation strategy including protected Company’s interests in multiple court and regulatory proceedings.

 

•   Negotiated sale of West Virginia assets. Managed regulatory process to obtain approval. Negotiated and Closed the sale and the associated Transition Services Agreement and assisted in implementation.

 

     

 

 

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.

 

 

 

     

2023 Key Accomplishments

 

•   Achieved highest water and wastewater compliance rates in Aqua history.

•   Achieved successful rate case in North Carolina using new multi-year rate mechanism with an ROE of 9.8%.

 

•   Directed lead program where Aqua NJ Blackwood selected as one of forty utilities nationally as an EPAs Lead Accelerator Community.

•   Regional leader in response to Delaware River Chemical Spill.

 

 

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Executive Compensation    |    Section 5: Our 2024 Short- and Long-Term Incentive Programs

 

 

Section 5

Our 2024 Short- and Long-Term Incentive Programs

 

 

STI Metrics, Weighting and Target Payout Levels

 

Our STI metrics, which reflect the core areas of Company performance, will continue in 2024 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 sustainability.

 

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 ensuring safe and reliable water and natural gas services for our customers.

 

Proposed 2024 Essential Short-Term Incentive Plan

 

 

 

2024 Long-Term Incentive Program

 

As shown in the charts below, the program for 2024 will keep the 2023 allocation of 10% performance-based stock options, 65% performance-based incentives, and 25% restricted stock units.

 

2024 Essential Long-Term Incentive Plan

 

 

2024 Financial Metrics for PSUs

 

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

 

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.
 

 

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Executive Compensation    |    Section 6: Compensation Governance Policies and Practices

 

 

Section 6

Compensation Governance Policies and Practices

 

 

Anti-Hedging and Anti-Pledging Policy

 

Issuing equity awards to our directors and named executive officers and imposing stock ownership guidelines helps to align their interests with those of our shareholders. As part of our insider trading policy, we prohibit all directors and employees from engaging in hedging or pledging activities with respect to any owned shares or outstanding equity awards. The policy specifically prohibits all insiders from engaging in any short sales of the Company’s securities; buying or selling puts, calls or other derivative securities; or pledging the Company’s securities as collateral for a loan. None of our directors or named executive officers engaged in any hedging or pledging activities with respect to the Company stock during 2023.

 

Clawback of Incentive Compensation

 

In accordance with recent Securities and Exchange Commission and New York Stock Exchange requirements, on February 22, 2023, the Company’s Board of Directors unanimously adopted a Compensation Recoupment Policy. Among other items, the 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.

 

In the event of a significant restatement of our financial results caused by executive fraud or willful misconduct, the Compensation Committee reserves the right to review the cash incentive compensation received by the named executive officers with respect to the period to which the restatement relates. The Committee will recalculate Essential’s results for the period to which the restatement relates and seek reimbursement of that portion of the cash incentive compensation that was based on the misstated financial results from the executive or executives whose fraud or willful misconduct was the cause of the restatement.

 

In addition, starting with the performance share unit grants and restricted stock unit grants in 2014, all shares issued pursuant to those grants are subject to any applicable recoupment or clawback policies and other policies implemented by the Board, as in effect from time to time.

 

Limited Perquisites

 

We offer a limited number of perquisites for our named executive officers. The Board has authorized executive benefits consisting of executive financial planning and annual executive physical exams. The Board regularly reviews the benefits provided to our executives and makes appropriate modifications based on the value of these benefits.

 

Stock Ownership Guidelines

 

In 2005, the Board of Directors established stock ownership guidelines for the named executive officers to encourage these executives to maintain a significant ownership interest in the Company and to help align the interests of these executive officers with the long-term performance of the Company. In 2017, these guidelines were modified to recognize the different levels of executives who may be among the named executive officers and to state the guidelines in terms of the number of shares to be held rather than a dollar value, in order to avoid fluctuations in the number of shares to be held based on variations in the Company’s stock price. In establishing the number of shares to be held, the Compensation Committee uses a round number of shares, the value of which approximates the following multiples of the midpoint of the average base salary grade for the executives:

 

Position

Multiple of Midpoint of 2022 Average Base Salary

Approximate Shares, PSUs, and RSUs To Be Held Based upon December 31, 2022 Share Price
Chief Executive Officer 5 99,500
Executive Vice President/NEO 3 27,100

 

Each named executive officer is expected to have shareholdings consistent with these guidelines within five years of becoming a named executive officer or after receiving a significant promotion. Mr. Franklin received a significant promotion in 2015 and Mr. Schuller was initially hired in 2015 and Mr. Rhodes was initially hired in 2018, starting a new five- year period for each. This is the second year Ms. Arnold has been identified as a NEO.

 

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Executive Compensation    |    Section 6: Compensation Governance Policies and Practices

 

 

 

 

An executive who has not achieved the guideline within this five-year period is expected to retain one-half of any equity awards, after any required tax withholding, in Company stock and to use 10% of any annual cash incentive awards after tax to purchase shares of Company stock until the guideline is met. The chart below shows the shareholdings of the named executive officers as of December 31, 2023.

 

Officer Shareholdings as of December 31, 2023

 

 

Name

 

Position

Shares, PSUs(1), and

RSUs Held

Franklin Chief Executive Officer 362,503
Schuller Executive Vice President 82,444
Rhodes Executive Vice President 55,569
Luning Executive Vice President 80,710
Arnold President, Aqua 20,183

 

(1) PSUs listed at target amount.