SJW CORP filed this DEF 14A on 03/10/2020
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SJW GROUP - DEF 14A - 20200310 - PROPOSAL_3
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED ACCOUNTING FIRM
General
The Audit Committee of the Board of Directors has appointed KPMG LLP as the Corporation's independent registered public accounting firm (the "independent accountants") for the fiscal year ending December 31, 2020. At the annual meeting, stockholders are being asked to ratify the appointment of KPMG LLP as the Corporation's independent registered public accounting firm for fiscal year 2020. In the event the stockholders fail to ratify the appointment of KPMG LLP, the Audit Committee will reconsider its selection.
Representatives of KPMG LLP are expected to be present at the annual meeting. They have been offered the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
Principal Independent Accountants' Fees and Services
The following table sets forth the approximate aggregate fees billed to the Corporation during or for fiscal years 2018 and 2019:
 
2019
 
2018
Audit Fees (1)
2,031,333

 
1,052,361

Audit-Related Fees (2)
—

 
—

Tax Fees (3)
—

 
89,000

All Other Fees (4)
—

 
235,000

Total Fees
$
2,031,333

 
$
1,376,361

(1)
Audit Fees: This category consists of the fees billed for those fiscal years for the audit of annual financial statements, review of the financial statements included in the annual report on Form 10-K and quarterly reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those fiscal years.
(2)
Audit-Related Fees: This category consists of fees billed in those fiscal years with respect to assurance and related services by the independent accountants that are reasonably related to the performance of the audit and review of financial statements and are not reported under "Audit Fees."
(3)
Tax Fees: This category consists of fees billed in those fiscal years with respect to professional services rendered by the independent accountants for tax compliance, tax advice and tax planning. All tax fees, if any, were pre-approved by the Audit Committee. Fees for fiscal year 2018 include fees paid for tax advice relating to the merger with Connecticut Water Service, Inc. (CTWS") and related activities.
(4)
All Other Fees: This category consists of fees billed in those fiscal years which are not covered by "Audit Fees," "Audit-Related Fees" and "Tax Fees." Fees for fiscal year 2018 include fees paid for services provided by KPMG LLP related to the then proposed merger with CTWS and related activities.
The Audit Committee has considered and concluded that the provision of services described above is compatible with maintaining the independence of KPMG LLP.
The Audit Committee has adopted a pre-approval policy regarding the rendering of audit, audit-related and non-audit services by KPMG LLP. In general, audit fees are reviewed and approved by the Audit Committee annually. Audit-related and non-audit services are pre-approved by the Audit Committee. The Audit Committee has delegated authority to its Chairman to pre-approve specific services to be rendered by KPMG LLP subject to ratification by the Audit Committee when it next convenes a meeting.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends a vote FOR the adoption of the proposal to ratify the appointment of KPMG LLP as SJW Group's independent registered public accounting firm for fiscal year 2020. Unless otherwise instructed, the proxy holders named in each proxy will vote the shares represented thereby FOR this Proposal.

25

OWNERSHIP OF SECURITIES
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 requires the executive officers and directors of the Corporation, and persons who own more than 10 percent of a registered class of the Corporation's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. These persons are required to furnish the Corporation with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such reports received by it, and written representations from certain reporting persons that no other reports were required during 2019, the Corporation believes that all Section 16(a) reporting obligations were met during 2019 except that Ms. Wendy Avila-Walker did not file a Form 3 timely and was late in reporting 16 transactions that should have been reported on Forms 4, all due to the Corporation’s failure to timely inform Ms. Avila-Walker that she was subject to Section 16(a) reporting requirement as a result of her serving as the principle accounting officer of the Corporation.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 4, 2020, certain information concerning beneficial ownership of shares of SJW Group common stock by each director of the Corporation, nominee for director, the Corporation's Chief Executive Officer, the Corporation's Chief Financial Officer and each of the Corporation's other executive officers named in the Summary Compensation Table below (the "named executive officers"), all directors, nominees and executive officers as a group, and any beneficial owner of five percent or more of outstanding shares of common stock of SJW Group.
Unless otherwise indicated, the beneficial ownership consists of sole voting and investment power with respect to the shares indicated, except to the extent that spouses share authority under applicable law. None of the shares reported as beneficially owned by the named executive officers, directors and nominees for director have been pledged as security for any loan or indebtedness.
Unless otherwise indicated, the principal address of each of the stockholders below is c/o SJW Group, 110 W. Taylor Street, San Jose, California 95110. The calculations in the table below are based on 28,493,151 shares of common stock issued and outstanding as of March 4, 2020. In addition, shares of common stock that may be acquired by the person shown in the table within 60 days of March 4, 2020, are deemed to be outstanding for the purpose of computing the percentage of ownership of such person, but are not deemed to be outstanding for the purpose of computing the percentage of ownership of any other person shown in the table.

26

 
Name 
Shares
Beneficially
Owned 
Percent 
of
Class
Directors and Nominees for Directors:
 

 

Katharine Armstrong (1)
11,855

*

Walter J. Bishop (2)
11,665

*

Mary Ann Hanley
345

*

Heather Hunt
—

*

Douglas R. King (3)
11,805

*

Gregory P. Landis (4)
3,512

*

Debra C. Man (5)
4,469

*

Daniel B. More (6)
5,638

*

Eric W. Thornburg, President, Chief Executive Officer and Chairman of the Board (7)
9,674

*

Robert A. Van Valer (8)
2,228,292

7.8
%
Carol P. Wallace
—

*

Named Executive Officers not listed above:
 

 

David C. Benoit, former President of CTWS (9)   
—

*

Andrew R. Gere, President and Chief Operating Officer of SJWC (10)
17,477

*

Palle L. Jensen, former Executive Vice President of SJWC (11)   
11,984

*

James P. Lynch, Chief Financial Officer and Treasurer (12)
21,606

*

Maureen P. Westbrook, President of CTWS (13)
—

*

All directors, nominees and executive officers as a group (17 individuals) (14)
2,351,888

8.3
%
Beneficial owners of five percent or more not listed above:
 

 

BlackRock, Inc. and Certain Subsidiaries (15)
55 East 52nd Street, New York, NY 10055
2,027,284

7.1
%
The Vanguard Group (16)
100 Vanguard Blvd., Malvern, PA 19355
1,777,791

6.2
%
T. Rowe Price Associates Inc. (17)
100 E. Pratt Street, Baltimore MD 21202
1,779,859

6.2
%
*
Represents less than one percent of the outstanding shares of SJW Group's common stock.
(1)
Includes (i) 2,550 shares of common stock held in a joint account with spouse and for which Katharine Armstrong and her spouse share voting and investment power, (ii) 1,000 shares of common stock held under an IRA account, (iii) 7,003 shares of common stock held by the Katharine Armstrong Love Exempt Trust U/A/D 6/30/2009, for which Katharine Armstrong is the sole trustee, and (iv) 1,302 shares of common stock subject to a restricted stock unit award which will vest in full upon continuation of board service through the day immediately preceding the date of the annual stockholder meeting to be held on April 29, 2020.
(2)
Includes (i) 10,363 shares of common stock held by the Bishop Family Trust, for which Walter Bishop and his spouse are co-trustees and shared voting and investment powers with respect to such shares, and (ii) 1,302 shares of common stock subject to a restricted stock unit award which will vest in full upon continuation of board service through the day immediately preceding the date of the annual stockholder meeting to be held on April 29, 2020.
(3)
Includes (i) 10,503 shares of common stock held by the King Family Trust dated June 6, 2005 of which Mr. King and Melinda King are trustees and have shared voting and investment powers with respect to such shares, and (ii) 1,302 shares of common stock subject to a restricted stock unit award which will vest in full upon continuation of board service through the day immediately preceding the date of the next annual stockholder meeting to be held on April 29, 2020. Excludes 9,294 shares of the Corporation's common stock underlying deferred stock awards which will be issued in one or more installments following Mr. King's cessation of Board service.
(4)
Includes 1,302 shares of common stock subject to a restricted stock unit award which will vest in full upon continuation of board service through the day immediately preceding the date of the annual stockholder meeting to be held on April 29, 2020.

27

(5)
Includes 1,302 shares of common stock subject to a restricted stock unit award which will vest in full upon continuation of board service through the day immediately preceding the date of the annual stockholder meeting to be held on April 29, 2020.
(6)
Includes (i) 4,336 shares of common stock held by the Daniel B. More Revocable Trust, of which Mr. More is the sole trustee, and (ii) 1,302 shares of common stock subject to a restricted stock unit award which will vest in full upon continuation of board service through the day immediately preceding the date of the annual stockholder meeting to be held on April 29, 2020.
(7)
Excludes 43,027 shares of the Corporation's common stock issuable pursuant to restricted stock unit awards that are subject to various performance-vesting and service-vesting schedule requirements. The shares that actually vest under those awards will be issued in accordance with the applicable issuance schedule in effect for those shares.
(8)
Includes (i) 89,122 share of common stock, (ii) 1,302 shares of common stock subject to a restricted stock unit award which will vest in full upon continuation of board service through the day immediately preceding the date of the annual stockholder meeting to be held on April 29, 2020, (iii) 1,937,226 shares of common stock held under the Non Exempt Bypass Trust created under the Roscoe Moss Jr Revocable Trust dated March 24, 1982 for which Mr. Van Valer has sole voting and dispositive powers, and (iv) 200,642 shares of common stock held under an Exempt Bypass Trust created under the Roscoe Moss Jr Revocable Trust dated March 24, 1982 for which Mr. Van Valer has sole voting and dispositive powers. Excludes 2,705 shares of the Corporation's common stock underlying deferred stock awards which will be issued in one or more installments following Mr. Van Valer's cessation of Board service. The address for Robert A. Van Valer is 4360 Worth Street, Los Angeles, California 90063.
(9)
Excludes 31,461 shares of the Corporation's common stock underlying deferred stock unit awards that are vested and will be settled in accordance with the election previously made by Mr. Benoit. Excludes 3,564 shares of the Corporation's common stock issuable pursuant to a restricted stock unit award including dividend equivalent rights that vested on December 31, 2019 and will be settled in accordance with the terms of the award. Mr. Benoit retired from CTWS effective as of December 31, 2019.
(10)
Includes (i) 400 shares of common stock held in a Uniform Transfer to Minors Act (UTMA) account for the benefit of Jillian Gere, and (ii) 100 shares of common stock held in a UTMA for the benefit of Robert Gere. The shares held in both UTMA accounts have shared voting and dispositive power. Excludes 8,434 shares of the Corporation's common stock issuable pursuant to restricted stock unit awards that are subject to various performance-vesting and service-vesting schedule requirements. The shares that actually vest under those awards will be issued in accordance with the applicable issuance schedule in effect for those shares.
(11)
Mr. Jensen retired from SJWC effective as of February 21, 2020.
(12)
Includes (i) 4,533 shares of common stock, (ii) 2,500 shares of common stock held under a Roth IRA, and (iii) 14,573 shares of common stock held by Mr. Lynch and his spouse in joint tenancy. Mr. Lynch has shared voting and investment powers with respect to 14,573 shares. Excludes 10,113 shares of the Corporation's common stock issuable pursuant to restricted stock unit awards that are subject to various performance-vesting and service-vesting schedule requirements. The shares that actually vest under those awards will be issued in accordance with the applicable issuance schedule in effect for those shares.
(13)
Excludes 19,209 shares of the Corporation's common stock issuable pursuant to restricted stock unit awards that will vest and become issuable in accordance with their terms. Excludes 24,485 shares of the Corporation's common stock subject to deferred share units that are vested and will be settled in accordance with an election previously made by Ms. Westbrook.
(14)
Includes an aggregate of 9,114 shares of common stock subject to restricted stock unit awards held by non-employee Board members which will vest in full upon continuation of board service through the day immediately preceding the date of the annual stockholder meeting to be held on April 29, 2020. 
(15)
Pursuant to Schedule 13G/A filed with the SEC on February 6, 2020, BlackRock, Inc. had sole power to vote or to direct the vote of 1,978,015 shares of common stock and sole power to dispose or to direct the disposition of 2,027,284 shares of common stock.
(16)
Pursuant to Schedule 13G/A filed with the SEC on February 12, 2020, The Vanguard Group had sole power to vote or to direct the vote of 51,417 shares of common stock and sole power to dispose or to direct the disposition of 1,721,902 shares of common stock, and had shared power to vote or to direct the vote of 14,466 shares of common stock and shared power to dispose or to direct the disposition of 55,889 shares of common stock.
(17)
Pursuant to Schedule 13G/A filed with the SEC on February 14, 2020, T. Rowe Price Associates Inc. had sole power to vote or to direct the vote of 361,245 shares of common stock and sole power to dispose or to direct the disposition of 1,779,859 shares of common stock.

For further information concerning such restricted stock unit and deferred stock awards, please see the following sections of this Proxy Statement: "Compensation of Directors," "Summary Compensation Table" and "Grants of Plan-Based Awards."





28

Policy Governing Hedging and Pledging of Common Stock
The Corporation has adopted policies that preclude Board members, executive officers and certain employees, and other individuals, including family members residing in the same household, and entities owned and controlled by the above persons, from engaging in hedging or monetization transactions in the Corporation's common stock such as put and call options and short sales and from pledging the Corporation's common stock or holding such stock in margin accounts. Accordingly, such individuals bear the full risk of economic loss, like any other stockholder, with respect to their equity holdings, whether in the form of actual shares of the Corporation's common stock or restricted stock units that will convert into such shares following the satisfaction of the applicable vesting and payment requirements.


29

EXECUTIVE COMPENSATION AND RELATED INFORMATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes the principles underlying our executive officer compensation policies and discusses the decisions relating to the named executive officer compensation for the 2019 fiscal year. The Executive Compensation Committee (the "Committee") of the Board of Directors is responsible for reviewing and approving the compensation payable to our executive officers.
Merger with Connecticut Water Service, Inc.
On October 9, 2019 (the “Closing Date”), the Corporation completed its previously announced merger (the “Merger”) with Connecticut Water Service, Inc., a Connecticut corporation (“CTWS”) contemplated by the Second Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”), dated as of August 5, 2018. The Merger resulted in CTWS surviving as a wholly owned subsidiary of the Corporation. A further description of the Merger can be found in the current report on Form 8-K filed by the Corporation on October 9, 2019.
In connection with the Merger, the Corporation appointed three new executive officers who were formerly executive officers of CTWS. Two of the newly-appointed executive officers, David C. Benoit and Maureen P. Westbrook are named executive officers of the Corporation for the 2019 fiscal year and are referred to in the Proxy Statement as the “New Executive Officers.” Prior to the Merger, decisions about CTWS’s executive compensation program (including the compensation of Mr. Benoit and Ms. Westbrook) were made by the CTWS Compensation Committee. In connection with Ms. Westbrook’s appointment as an executive officer and a subsequent promotion, the Committee approved certain amendments to her compensation arrangement as more fully described below in the section titled “Discussion and Analysis - 2019 Compensation for Mr. Benoit and Ms. Westbrook.” Mr. Benoit’s compensation, which remained unchanged following the Merger, is also more fully described below in the section titled “Discussion and Analysis - 2019 Compensation for Mr. Benoit and Ms. Westbrook.”
Also, as provided in the Merger Agreement, the Corporation assumed certain outstanding incentive awards granted by CTWS prior to the Closing Date including awards held by Mr. Benoit and Ms. Westbrook as more fully described in the section titled “Discussion and Analysis - 2019 Compensation for Mr. Benoit and Ms. Westbrook.” In connection with such assumption, the awards were modified to provide for accelerated vesting upon termination without cause within 12 months following closing of the Merger.
This Compensation Discussion and Analysis generally describes the actions taken and decisions made by the Committee prior to and following the Merger with respect to our named executive officers, other than the New Executive Officers, and describes the compensation of the New Executive Officers as assumed or amended by the Corporation following the Merger.
 

30

Named Executive Officers
Our named executive officers for 2019 are listed below:
Name
Title
Eric W. Thornburg
President, Chief Executive Officer and Chairman of the Board of SJW Group
David C. Benoit
President of CTWS until December 1, 2019 (1)
Andrew R. Gere
President and Chief Operating Officer of San Jose Water Company ("SJWC")
Palle L. Jensen
Executive Vice President of SJWC (2)
James P. Lynch
Chief Financial Officer and Treasurer of SJW Group
Maureen P. Westbrook
President of CTWS beginning December 1, 2019 (3)
(1)
From the Closing Date until December 1, 2019, Mr. Benoit served as President of CTWS. Mr. Benoit retired from CTWS effective as of December 31, 2019.
(2)
Mr. Jensen retired from SJWC effective as of February 21, 2020.
(3)
Ms. Westbrook was appointed President of CTWS effective December 1, 2019. From the Closing Date until Dec. 1, 2019, Ms. Westbrook served as Vice President, Customer and Regulatory Affairs of CTWS.

This Compensation Discussion and Analysis is organized into four key sections:
 
Page
EXECUTIVE SUMMARY
32
Executive Compensation Highlights
32
Executive Compensation Practices and Governance Highlights
34
COMPENSATION OBJECTIVES AND PHILOSOPHY
34
 
 
DISCUSSION AND ANALYSIS
35
Components of Compensation
35
2019 Compensation for Mr. Benoit and Ms. Westbrook
41
Setting Executive Compensation for 2019
43
OTHER COMPENSATION MATTERS
46
Impact of 2019 "Say-on-Pay" Vote
46
Risk Assessment
46
Other Key Executive Arrangements
46
Executive Officer Stock Ownership Guidelines
48
IRC Section 162(m) Compliance
48



31

EXECUTIVE SUMMARY
This executive summary relates to the compensation of our named executive officers (other than the New Executive Officers).
Executive Compensation Highlights
In fiscal year 2019, we continued our strong commitment to pay for performance by aligning a significant portion of executive compensation with performance. In furtherance of this goal, we adjusted the pay mix for our named executive officers other than Mr. Thornburg, our President and Chief Executive Officer ("CEO"), towards more variable compensation as compared to 2018. In particular, the short-term incentive compensation for such named executive officers was changed from 25% to 28% of base salary and we reduced the weighting of service-based equity awards under the long-term incentives from 50% to 40% and correspondingly increased the weighting of performance-based equity awards. For fiscal year 2019, earnings per share was introduced as a short-term incentive performance metric to ensure an appropriate focus on corporate earnings, within the context of a balance of financial, operational and strategic goals. Long-term return on equity goals were introduced for the long-term equity incentive program to ensure a focus on absolute levels of long-term financial returns, in combination with relative total shareholder return performance goals. The increase made to the weighting of performance-based equity awards and changes made to the short-term and long-term incentive program financial metrics for 2019 help to align executive officer compensation with corporate objectives and peer practices.
As indicated in the charts below, the 2019 performance-based and long-term incentive compensation for Mr. Thornburg constituted 61 percent of his annual total target direct compensation, and the 2019 performance-based and long-term incentive compensation for our other named executive officers, other than the New Executive Officers, as a group, constituted 41 percent of the officers' annual total target direct compensation. These allocations are generally consistent with the average for our peer group as set forth in the charts below. Accordingly, a significant portion of our named executive officers' compensation is "at risk."
Our compensation program for the named executive officers consisted primarily of base salary, a cash incentive program and an equity incentive program in the form of performance-based and service-based restricted stock units ("RSU"). The cash and equity incentive programs are driven by metrics that align with the Corporation’s business, short-term strategic operating goals and long-term growth strategy. The only fixed component of pay is base salary. For the 2019 fiscal year, 75 percent of the target performance-based cash incentive award for the executive officers, including the CEO, was based on performance goals tied to diluted earnings per share, capital additions, water quality compliance and several key operational goals measuring the successful operation of the business and 25 percent of the target performance-based cash incentive award was based on strategic objectives. For the performance-based RSUs, which are aligned with the long-term interests of our stockholders, the goals included total shareholder return and return on equity.

                    

32

TARGET PAY MIX
CHART-34BF1BC461705B82A80.JPG CHART-6262DCDA4D815E029DEA28.JPG
CHART-9C9F5A59A95A5492A9EA28.JPG CHART-DA03F85C27865CBDABAA28.JPG
 
(1) The chart does not include the New Executive Officers.

33

Executive Compensation Practices and Governance Highlights
WHAT WE DO
a
Align our executive pay with performance
a
Include a "clawback" provision in our performance stock awards
a
Provide an appropriate balance of annual and long-term incentives and include multiple measures of performance that are tied to our strategies, goals and stock price performance
a
Prohibit hedging and pledging of the Corporation's common stock
a
Provide change in control payments under the Executive Severance Plan only on a double trigger
a
Maintain a meaningful equity ownership policy for the executive officers
a
Include caps on individual payouts in short-term and long-term incentive plans
a
The Executive Compensation Committee has retained independent compensation consultants
a
Hold an annual "say-on-pay" advisory vote
a
Regularly evaluate our peer group and pay positioning
a
Annually assess risks in our compensation programs
 
 

WHAT WE DON'T DO
r
Pay dividends on unvested equity awards
r
Provide excessive perquisites
r
Provide excise tax gross-up to the CEO or tax gross-up to any NEOs on perquisites
r
Allow short sales or purchases of equity derivatives of our common stock by officers or directors
r
Time the release of material non-public information to affect the value of executive compensation
 
 
COMPENSATION OBJECTIVES AND PHILOSOPHY
The Committee seeks to maintain an overarching pay-for-performance compensation philosophy through the use of compensation programs for the Corporation's executive officers that are designed to attain the following objectives:
•
Recruit, motivate and retain executives capable of meeting the Corporation's strategic objectives;
•
Provide incentives to achieve superior executive performance and successful operation and financial results for the Corporation; and
•
Align the interests of executives with the long-term interests of stockholders.
The Committee seeks to achieve these objectives by:
•
Establishing a compensation structure that is both market competitive and internally fair;
•
Linking a substantial portion of compensation to the Corporation's operational and financial performance and the individual's contribution to that performance;
•
Maintaining a compensation structure that is designed to provide below-target compensation for underachievement and upward leverage for exceptional performance; and
•
Providing long-term equity-based incentives and requiring direct stock ownership by executive officers.

34

The Committee is not authorized to delegate any of its authority with respect to executive officer compensation, other than with respect to routine administrative functions. However, the Committee may from time to time consult with other independent Board members regarding executive compensation matters and is authorized to hire independent compensation consultants and other professionals to assist in the design, formulation, analysis and implementation of compensation programs for the Corporation's executive officers and other key employees.
DISCUSSION AND ANALYSIS
This section provides detailed information about our named executive officers' 2019 compensation and the Committee's decision making process.
Components of Compensation
The following sections relate to the compensation of our named executive officers other than the New Executive Officers. The compensation of our New Executive Officers is discussed below in the section titled “2019 Compensation for Mr. Benoit and Ms. Westbrook.”
For the 2019 fiscal year, the principal components of the Corporation's executive compensation program were as follows:
•
Base salary;
•
Annual short-term cash incentives;
•
Long-term equity incentive awards; and
•
Retirement benefit accruals.
In setting the 2019 compensation of the executive officers, the Committee intended to provide a consistent mix of fixed (salary) and variable short-term incentive cash compensation by defining the target STI as 50 percent of salary for the CEO and 28 percent of salary for the other named executive officers. However, there is no policy for the allocation of compensation between cash and non-cash (equity) components or between short-term and long-term components, and there are no pre-established ratios between the CEO's compensation and that of the other named executive officers.
The named executive officers are also provided with market competitive benefits and perquisites and are entitled to certain severance benefits in the event their employment terminates under certain defined circumstances, as more fully set forth below in this section and in the section entitled "Employment Agreements, Offer Letters, Termination of Employment and Change in Control Arrangements" that appears later in this Proxy Statement.
Base Salary
It is the Committee's objective to set a competitive annual rate of base salary for each executive officer. The Committee believes that such competitive base salaries are necessary to attract and retain top quality executives.
2019 Base Salary for the CEO: Pursuant to Mr. Thornburg's employment agreement, his base salary for calendar year 2017 was set at $700,000. No adjustment was made to his salary in 2018 and the Committee determined to make no adjustments to his salary for 2019. See section titled “Target Pay Positioning” below for a discussion of the Committee’s decision regarding the CEO’s pay.
2019 Base Salary of the Other Named Executive Officers: In setting the 2019 fiscal year base salaries for the other named executive officers, the Committee considered each executive officer's tenure and responsibilities with the Corporation, competitive market data for the officer's position, the cost of living, internal pay equity considerations, and the other components of the officer's total direct compensation for the year. The Committee approved salary adjustments that ranged from 3.0 to 5.9 percent increases for such named executive officers.
Accordingly, the base salary levels in effect for the 2018 and 2019 fiscal years for each named executive officer and the applicable percentage increases for the 2019 fiscal year are as follows:

35

Name
2018 Salary
($)
2019 Salary
($)
Increase 
(%)
Eric W. Thornburg
700,000

700,000

0.0
 
Andrew R. Gere
461,000

475,000

3.0
 
Palle L. Jensen
389,000

401,000

3.1
 
James P. Lynch
441,000

467,000

5.9
 
Annual Cash Incentive Compensation
The annual cash incentive awards are designed to reward superior corporate and executive performance while reinforcing the Corporation's short-term strategic operating goals.
Target Incentive Amounts
Each year, the Committee establishes target annual incentive cash compensation for each named executive officer (tied to either a percentage of base salary or a specific dollar amount). Pursuant to Mr. Thornburg’s employment agreement, his 2019 target annual cash incentive must be no less than 50% of his base salary. For 2019, the Committee determined to make no changes to his target cash incentive. See section titled “Target Pay Positioning” below for a discussion of the Committee’s decision regarding the CEO’s pay.
With respect to the other named executive officers, the Committee increased the target annual incentive cash compensation from 25% to 28% of base salary in order to move the pay mix towards more variable compensation. For fiscal year 2019, the increased target percentage for the other named executive officers as described above is applied to the increased base salaries. The target annual cash incentive compensation levels in effect for the 2018 and 2019 fiscal years for each named executive officer and the applicable percentage increases for the 2019 fiscal year are shown in the table below.
 
Annual Incentive Cash Compensation
 
 
Name
2018 Target
($)
2019 Target
($)
Increase 
(%)
 
Eric W. Thornburg
350,000

350,000

0.0
 
Andrew R. Gere
115,000

133,000

15.7
 
Palle L. Jensen
97,000

112,000

15.5
 
James P. Lynch
110,000

131,000

19.1
 
Performance Goals
As discussed above, for the 2019 fiscal year, earnings per share ("EPS") was introduced as a short-term incentive performance metric to ensure an appropriate focus on corporate earnings within the context of a balance of financial, operational and strategic goals. The performance goals set by the Committee for the 2019 fiscal year, together with the portion of target annual cash incentive compensation allocated to each goal, were as set forth below.
Performance Criteria
Allocation (%)
SJW Group Diluted EPS (1)
25
San Jose Water Company 2019 Capital Additions (2)
20
San Jose Water Company Water Quality Compliance (3)
15
San Jose Water Company Key Operational Goals (4)
15
Strategic Objectives (5)
25
(1)
Diluted EPS as reported in the 2019 Annual Report adjusted for certain compensation-related, non-recurring items and merger related costs. Target goal is $2.20 per diluted share.
(2)
Represents San Jose Water Company's capital expenditures made in 2019, including the cost to retire facilities. Target goal is $104,900,000.

36

(3)
Target is achieved if San Jose Water Company does not receive a citation during the performance period from the California Division of Drinking Water (DDW) (i) for violating health-related drinking water standards and treatment techniques specified in the U.S. National Primary Drinking Water Regulations and California Code of Regulations Title 22, Chapter 15; or (ii) for violating secondary maximum contaminant criteria.
(4)
San Jose Water Company annually establishes quantitative key operational goals that are designed to align management's operating objectives with the primary goals of the company's strategic plan. The operational goals represent a mix of quantitative goals covering key business objectives used to manage the business that are critical to achieving and maintaining superior performance in the public utilities industry. For the 2019 fiscal year, the operational goals were comprised of 6 key performance indicators related to customer service, workplace safety, distribution system operations, and employee engagement.
(5)
The strategic objectives listed below were established for all the executive officers, including for the CEO. The goals are measured against the 2019 Strategic Objectives established by the Board. The level of achievement of the objectives by the CEO and other named executive officers is determined by the Committee.
◦
Develop an integration plan for Connecticut Water Service, Inc. if the acquisition is consummated by September 30, 2019;
◦
Improve the ISS Environmental Quality Score from rating of 9 to between 1 and 8: and
◦
Conduct a San Jose Water Company 2019 Public Official Satisfaction Survey and develop outreach plan.

The actual annual cash incentive compensation attributable to each performance goal could have ranged from 0 to 150 percent of the portion of the target annual cash incentive compensation amount allocated to that goal with up to an additional 50 percent of target annual cash compensation for the executive officers other than the CEO based on exceptional individual performance. If the actual level of attainment of any such performance goal was between two of the designated levels, then the annual cash incentive compensation potential with respect to that goal would be interpolated on a straight-line basis.
2019 Fiscal Year Payout
In February 2020, the Committee determined, on the basis of the Corporation's performance in relation to the performance criteria listed above and the executive officer's individual performance, that the cash incentive compensation for the 2019 fiscal year should be paid to the named executive officers in the amount of 112 percent of target based on reaching 65 to 150 percent of the target allocated to the performance goals described above. The table below sets forth the fiscal year 2019 cash incentive compensation targets and actual cash incentive compensation payout amounts for each of the named executive officers on the basis of the performance criteria listed above.
 
2019 Incentive Cash Compensation
 
Name
Target
($)
Actual
($)
Actual
(% Target)
 
Eric W. Thornburg
350,000

392,000

112
 
Andrew R. Gere
133,000

148,960

112
 
Palle L. Jensen
112,000

125,440

112
 
James P. Lynch
131,000

146,720

112
 
Equity Compensation
A significant portion of each named executive officer's compensation is provided in the form of long-term incentive equity awards under the Corporation's Long-Term Incentive Plan ("LTIP"). Long-term incentive awards are typically made to executive officers in the form of service-based RSUs and leveraged performance-based RSUs covering shares of the Corporation's common stock.
The service-based RSUs granted to date have vesting schedules that provide a meaningful incentive for the executive officer to remain in the Corporation's service. Leveraged performance-based RSUs are also used to payout at increasing rates based on the level of attainment of the specified performance goals. None of the RSU awards granted in 2019 to the named executive officers include dividend equivalent rights.

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2019 Fiscal Year Grants to the CEO: The 2019 target long-term incentive amount for the CEO was retained at the same level as his target 2018 long-term incentive amount. See section titled “Target Pay Positioning” below for a discussion of the Committee’s decision regarding the CEO’s pay. The Committee also determined that the allocation of the award at 30% for service-based RSUs and 70% for performance-based awards was appropriate. In 2018, the performance metrics for the performance-based RSUs were EPS and total shareholder return (“TSR”). For 2019, the Committee replaced EPS as a performance metric under the performance-based RSUs with long-term return on equity (“ROE”) goals and changed the weighting between the performance-based awards so that the TSR award is 57 percent of the total performance-based awards and the ROE award is 43 percent of the total performance-based awards. As discussed above, EPS is now a performance metric for the short-term incentive program. The high allocation to performance-based RSUs and the reallocation of weighting between performance-based awards ensure appropriate stockholder alignment and focus on stockholder value creation.
On January 2, 2019, Mr. Thornburg was granted a service-based RSU award covering 4,367 shares that vests in three equal installments on each of December 31, 2019, December 31, 2020 and December 31, 2021.
On January 29, 2019, Mr. Thornburg was granted a performance-based RSU award covering 4,958 target shares that vests based on relative TSR over the performance period measured from January 1, 2019 to December 31, 2021 and a performance-based RSU award covering 4,100 target shares that vests based on the level of attainment of ROE over the performance period measured from January 1, 2019 through December 31, 2021 and Mr. Thornburg's continued service through December 31, 2021. The number of shares issuable under such TSR award and ROE award will range between 0 to 200 percent and 0 to 150 percent, respectively, of the target number of shares under such awards based on the level of actual attainment of the specified performance goals. The awards provide that in the event of certain involuntary terminations or retirement during the performance period, Mr. Thornburg will vest in the awards, earned based on performance, on a pro-rata basis for the period of service completed during the performance period.
2019 Fiscal Year Grants to the Other Named Executive Officers: In fiscal 2019, the Committee made the following changes to the long-term incentive awards for the other named executive officer to emphasize performance-based compensation and better align with the long-term incentive awards for the CEO:
•
Reduced the weighting of service-based RSUs from 50% to 40% of target.
•
Introduced three-year TSR based awards instead of three year EPS awards; EPS was used as a performance metric under the short-term incentive program instead.
•
Changed the performance period for ROE awards from one-year to three years.
On January 2, 2019, Messrs. Gere, Jensen, and Lynch were each granted an RSU award covering an aggregate number of shares of the Corporation's common stock specified in the table below that vest in three equal annual installments upon completion of each year of service over the three year period measured from the grant date.
On January 29, 2019, Messrs. Gere, Jensen, and Lynch were each granted the following performance-based RSU awards covering the target number of shares specified in the chart below:
•
TSR Award: The TSR award vests based on relative TSR over the performance period measured from January 1, 2019 to December 31, 2021 and the officer's continued service through December 31, 2021. The number of shares issuable under such TSR award will range between 0 to 200 percent of the target number of shares based on the level of actual attainment of the specified performance goals.
•
ROE Award: The ROE award vests based on the level of attainment of the Corporation’s ROE over the performance period measured from January 1, 2019 through December 31, 2021 and the officer’s continued service through December 31, 2021. For purposes of the ROE awards, including the Transition ROE Award described below, the attainment of the ROE goal for any fiscal year in the performance period is based on adjusted net income for the year, as measured

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in accordance with U.S. generally accepted accounting principles, adjusted to exclude certain compensation-related, non-recurring items and merger related costs.
•
Transition ROE Award: In order to facilitate the transition from an award based on annual ROE performance to a three-year ROE performance period, the Committee granted a special transition award comprised of two tranches with 50% of the target shares subject to the award allocated to each tranche. The first tranche (the "1-Year ROE Award") will vest with respect to the target shares allocated to such tranche based on the level of attainment of the Corporation’s ROE over the one-year performance period measured from January 1, 2019 through December 31, 2019 (the “1-Year ROE Measurement Period”) and continued service through December 31, 2019. For the 1-Year ROE Measurement Period, the ROE goals for the awards at threshold, target and maximum levels were 8.45 percent, 9.51 percent and 10.56 percent, respectively. The second tranche will vest with respect to the target shares allocated to such tranche based on the level of attainment of the Corporation’s ROE over the two-year period measured from January 1, 2019 through December 31, 2020 and continued service through December 31, 2020.
The corresponding number of shares issuable to an individual under each such ROE performance-based award is 50 percent, 100 percent, and 150 percent of the target number of shares specified for such individual at threshold, target and maximum levels of performance, respectively, and no shares would be issuable if the minimum threshold level of performance is not attained.
The TSR, ROE and Transition ROE awards each provide that in the event of certain involuntary terminations or retirement during the performance period, the officer will vest in the award, earned based on performance, on a pro-rata basis for the period of service completed during the performance period.
The table below indicates the number of shares of the Corporation's common stock underlying the RSU awards granted to Messrs. Gere, Jensen, and Lynch in January 2019.
Name
Number of Shares subject to
Service RSU Award
(1)
Target Number of Shares for
TSR RSU Award (2)
Target Number of Shares for
ROE RSU Award (3)
Target Number of Shares for Transition ROE RSU Award
(4)
Andrew R. Gere
1,462
927
1,030
2,059
Palle L. Jensen
1,352
858
944
1,887
James P. Lynch
1,535
978
1,081
2,162
(1)
The aggregate number of shares was determined by dividing a designated dollar amount by $54.74, the closing selling price of the Corporation's common stock on the January 2, 2019 grant date. The designated dollar amount was $80,000 for Mr. Gere, $74,000 for Mr. Jensen, and $84,000 for Mr. Lynch.
(2)
The target number of shares was determined by dividing a designated dollar amount by $58.30, the closing selling price of the Corporation's common stock on the January 29, 2019 grant date. The designated dollar amount was $54,000 for Mr. Gere, $50,000 for Mr. Jensen, and $57,000 for Mr. Lynch.
(3)
The target number of shares was determined by dividing a designated dollar amount by $58.30, the closing selling price of the Corporation's common stock on the January 29, 2019 grant date. The designated dollar amount was $60,000 for Mr. Gere, $55,000 for Mr. Jensen, and $63,000 for Mr. Lynch.
(4)
The target number of shares was determined by dividing a designated dollar amount by $58.30, the closing selling price of the Corporation's common stock on the January 29, 2019 grant date. The designated dollar amount was $120,000 for Mr. Gere, $110,000 for Mr. Jensen, and $126,000 for Mr. Lynch.

The Committee believes the TSR and ROE goals for the performance-based RSU awards are challenging and difficult to achieve, but attainable with significant skill and effort on the part of the executive team.
2019 ROE Awards Earned: In February 2020, the Committee determined, on the basis of an adjusted ROE of 8.56 percent for calendar year 2019 that Messrs. Gere, Jensen, and Lynch vested in 568, 521, and 597 shares of common stock, respectively, under the 1-Year ROE Awards. In accordance with the terms of the awards, in determining the level of ROE, the Committee adjusted the 2019 net

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income for costs and expenses incurred in 2019 in connection with the merger with CTWS and related activities.
2017 EPS Awards Earned: In January 2017, the Committee granted Messrs. Gere, Jensen and Lynch a performance-based RSU award covering 615, 517 and 591 target shares, respectively, vesting based on EPS for the 2019 fiscal year and continued service through December 31, 2019. The number of shares issuable under such EPS awards ranged between 0 to 150 percent of the target number of shares based on the level of actual attainment of the specified performance goals, and the target EPS was $2.36. The actual EPS for 2019 was significantly affected by the Merger which was not contemplated at the time the performance goals established and the 2017 EPS awards were granted. Accordingly, in February 2020, the Committee adjusted the EPS to exclude costs and expenses incurred in connection with the Merger and determined, on the basis of an adjusted EPS of $2.34 for calendar year 2019 that Messrs. Gere, Jensen, and Lynch vested in 584, 491, and 561 shares of common stock, respectively, under the 2017 EPS awards.
Executive Benefits and Perquisites
The named executive officers are provided with certain market competitive benefits and perquisites. It is the Committee's belief that such benefits are necessary for the Corporation to remain competitive and to attract and retain top caliber executive officers, since such benefits are commonly provided by peer group companies.
Retirement Benefits: Executive officers employed by San Jose Water Company are eligible to receive retirement benefits under San Jose Water Company's Retirement Plan, a tax-qualified defined benefit plan covering a broad spectrum of the company's employees. Executive officers hired by San Jose Water Company before March 31, 2008 are eligible to receive additional retirement benefits under the Executive Supplemental Retirement Plan ("SERP"), and executive officers hired by San Jose Water Company on or after March 31, 2008 are eligible to receive additional retirement benefits under the Cash Balance Executive Supplemental Retirement Plan ("Cash Balance SERP"). Both of the plans are non-qualified plans in which only senior officers and other designated members of management may participate, and such individuals remain general creditors of San Jose Water Company with respect to their accrued benefits under the plans until the benefits are paid. A description of the plans and the benefits payable to each named executive officer upon retirement is set forth in the Pension Benefits table and the accompanying narrative that appears later in this Proxy Statement.
The pension benefits payable to Messrs. Gere and Jensen under the SERP increase in correlation with increases in their compensation levels and years of service. However, the present value of each executive officer's accrued pension benefit under the SERP will not only reflect such increases, but will also fluctuate from year to year based on the mortality tables and the interest rate used to discount anticipated future payments so that when interest rates decrease for example, the present value associated with the underlying benefit may increase.
Messrs. Lynch and Thornburg commenced employment with the Corporation after March 31, 2008 and accordingly participate in the Cash Balance SERP. Under that plan, each participant will receive compensation credits and interest credits on a quarterly basis to the book account maintained for him or her under the plan. The amount of the compensation credit each quarter will be tied to his or her compensation for that quarter and his or her years of credited service, and the percentage of compensation to be credited on such quarterly basis will increase as the participant's years of credited service increase. For Mr. Thornburg, (i) the percentage of compensation credited to his Cash Balance SERP account each quarter until the quarter he turns 65 will be at 39 percent of his quarterly compensation in lieu of the lower percentage levels in effect for other participants, (ii) the special sign-on bonus specified in his employment agreement will be included in his compensation for the plan quarter in which it was paid, and (iii) he will vest in his accrued benefit under such plan once he turns 65 instead of the regular 10-year vesting schedule in effect for the other participants. As of December 31, 2019, Mr. Thornburg had not vested in his accrued benefit under such plan. For Mr. Lynch, the percentage of compensation credited to his Cash Balance SERP account for the first 20 years of credited service will be at 15 percent of his quarterly compensation in lieu of the lower percentage levels in effect for other participants. Mr. Lynch vested in his accrued benefit under such plan after three years of service.

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For further information concerning the SERP and the Cash Balance SERP, please see the section entitled "Pension Benefits" that appears later in this Proxy Statement.
Broad-Based Employee Benefit Plans: Executive officers are also eligible to participate in San Jose Water Company's Salary Deferral Plan, a tax-qualified 401(k) defined contribution plan. San Jose Water Company matches up to four percent of each participant's contributions, subject to certain statutory limits. Such plan is open to all employees and officers under the same terms and conditions.
Elective Deferral: The named executive officers employed by San Jose Water Company and certain other highly compensated San Jose Water Company employees may participate in San Jose Water Company's Special Deferral Election Plan pursuant to which eligible participants may defer up to 50 percent of their base salary and up to 100 percent of their cash incentive compensation. The deferred amounts are credited with a fixed rate of interest, compounded semi-annually and reset at the beginning of each calendar year at the lower of (i) the then current 30-year long-term borrowing cost of funds to San Jose Water Company (or the equivalent thereof), as measured as of the start of such calendar year, or (ii) 120 percent of the long-term Applicable Federal Rate determined as of the start of such calendar year and based on semi-annual compounding.
Other Benefits and Perquisites: All administrative employees, including executive officers, are eligible to receive standard health care, disability, life and travel insurance, professional development benefits, and time off with pay for vacation and sick leave. In addition, the Corporation provides certain executives from time to time with (i) vehicles for business use and personal commutes, and (ii) club memberships. The Corporation also purchases season tickets to sporting and cultural events which the executive officers and personnel of the Corporation may use for non-business purposes on occasions. Mr. Thornburg is reimbursed for reasonable business related personal expenses approved by the Chair of the Committee of up to $40,000 per calendar year.
The Corporation does not provide tax gross-ups for any imputed income in connection with providing those particular benefits and perquisites.
2019 Compensation for Mr. Benoit and Ms. Westbrook
The following is a summary of the compensation of the New Executive Officers as in effect on the Closing Date of the Merger and a discussion of the subsequent amendment to Ms. Westbrook’s compensation.
The 2019 compensation for Mr. Benoit and Ms. Westbrook was established by the CTWS Compensation Committee. Each of Mr. Benoit and Ms. Westbrook had entered into an employment agreement (the “CTWS Employment Agreement”) with CTWS and Connecticut Water Company (“CWC”) to become effective upon the Closing Date of the Merger. Each such CTWS Employment Agreement provided for severance benefits and the right to terminate employment for any reason within 13 months following the closing of the Merger which would trigger the severance benefits. There were no changes made to Mr. Benoit’s CTWS Employment Agreement following the Merger; he terminated his employment effective December 31, 2019 and received severance benefits in accordance with his CTWS Employment Agreement. Ms. Westbrook’s CTWS Employment Agreement was amended and restated upon the closing of the Merger to establish her compensation arrangement for her continued service post-Merger in her position as Vice President, Customer Service and Regulatory Affairs of CTWS and CWC. In establishing her compensation, the Committee took into consideration the severance benefits she could receive under her CTWS Employment Agreement if she exercised her right to terminate her employment and market compensation for her position as an executive officer of the Corporation. Ms. Westbrook’s base salary was further adjusted effective December 1, 2019 in connection with her promotion to President of CTWS and CWC.
Base Salary: Mr. Benoit’s base salary for 2019 was $445,050 and no changes were made following the Merger. Ms. Westbrook’s base salary was established at $340,000 effective October 9, 2019 and then increased to $390,000 effective December 1, 2019 in connection with her promotion to President of CTWS and CWC.


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2019 Short-Term Incentive Awards: In January 2019, Mr. Benoit was awarded a short-term performance-based incentive award by CTWS, which he elected to receive in cash, with a target amount of $235,850 and Ms. Westbrook was awarded a short-term performance-based incentive award by CTWS, which she elected to receive in cash, with a target amount of $82,004. In connection with the Merger, each award was assumed by the Corporation at target without regard to performance and converted into a service-based award. Each award was to vest in March 2020 subject to continued employment and accelerated vesting upon certain terminations. In accordance with the terms of his CTWS Employment Agreement, Mr. Benoit vested in his award upon his termination of employment on December 31, 2019. Ms. Westbrook will vest in $82,004 on March 15, 2020 and in accordance with her prior deferral election, $65,603 will be deferred to the 2017 Connecticut Water Company Deferred Compensation Plan (the “CTWS Deferred Compensation Plan”) and $16,401 will be paid out.
2019 Long-Term Incentive Awards: In January 2019, Mr. Benoit was awarded a long-term performance-based incentive award by CTWS, which he elected to receive in cash, with a target amount of $353,775 and Ms. Westbrook was awarded a long-term performance-based incentive award by CTWS, which she elected to receive in cash, with a target amount of $82,004. In connection with the Merger, each award was assumed by the Corporation at target without regard to performance and converted into a service-based award. Each award was to vest in three equal annual installments in March of 2020, 2021 and 2022, subject to continued employment and accelerated vesting upon certain terminations. In accordance with the terms of his CTWS Employment Agreement, Mr. Benoit vested in the award in full upon his termination of employment on December 31, 2019. Ms. Westbrook will vest in $27,334 on March 15, 2020 and in accordance with her prior deferral election, $20,501 will be deferred to the CTWS Deferred Compensation Plan and $6,833 will be paid out. The remaining $54,670 under Ms. Westbrook’s 2019 long-term incentive award will vest in 2021 and 2022 subject to continued employment.
Special Retention Grant for Ms. Westbrook: On October 9, 2019, Ms. Westbrook was granted a special retention RSU award covering 17,701 shares of the Corporation’s common stock determined by dividing $1,250,000 by the closing price per share of the common stock on the grant date, rounded to the nearest whole number of shares. The retention RSU award will vest in three equal installments on each of the first, second and third anniversaries of the grant date, subject to her continued employment with the Corporation on the respective vesting dates and accelerated vesting upon certain terminations. Such award does not include dividend equivalent rights.
2018 and 2017 Long-Term Incentive Awards: At the time of closing of the Merger, Mr. Benoit and Ms. Westbrook held unvested long-term incentive awards granted by CTWS in 2018 and in 2017 which were assumed by the Corporation in connection with the Merger as set forth below.
Mr. Benoit held a 2018 RSU award covering 3,549 shares of the Corporation’s common stock, as assumed by the Corporation, subject to vesting in two equal installments on March 14, 2020 and March 14, 2021 and accelerated vesting upon certain terminations. In accordance with the terms of the award, dividend equivalent rights accrue under the award upon payment of dividends by the Corporation on shares of its common stock. Mr. Benoit also held a 2018 cash-settled RSU award covering 3,361 shares of the Corporation’s common stock, as assumed by the Corporation, subject to vesting on March 7, 2021 and accelerated vesting upon certain terminations. In accordance with the terms of his CTWS Employment Agreement, the 2018 awards, together with accrued dividend equivalent rights, vested in full upon Mr. Benoit’s termination on December 31, 2019 and will be paid pursuant to the terms of the awards.
Ms. Westbrook held a 2018 cash incentive award of $48,077 subject to vesting in two equal installments on March 14, 2020 and March 14, 2021 and a 2017 cash incentive award of $23,248 subject to vesting on March 10, 2020, in each case, subject to continued service through the vesting date and accelerated vesting upon certain terminations. Ms. Westbrook will vest in $24,039 on March 14, 2020 under the 2018 award and in $23,248 on March 10, 2020 under the 2017 award. In accordance with her prior deferral elections, the payments will be deferred to the CTWS 2017 Deferred Compensation Plan. Ms. Westbrook also held a 2017 cash-settled RSU award covering 1,039 shares of the Corporation’s common stock (as assumed by the Corporation) subject to vesting on December 8, 2020 and accelerated vesting upon certain terminations.

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Retirement Benefits: Mr. Benoit and Ms. Westbrook are eligible to receive retirement benefits under The Connecticut Water Company Employees’ Retirement Plan, a tax-qualified defined benefit plan covering a broad spectrum of the company's employees. They are also eligible to receive additional retirement benefits under the terms of Supplemental Executive Retirement Agreements entered into between the executives and Connecticut Water Company ("CWC SERP Agreements"). The CWC SERP Agreements provide non-qualified retirement benefits. The benefits under the CWC SERP Agreements are unfunded and the executives remain general creditors of CWC with respect to their accrued benefits under the plan until the benefits are paid. A description of the retirement plan and agreements and the benefits payable to each named executive officer upon retirement is set forth in the Pension Benefits table and the accompanying narrative that appears later in this Proxy Statement.
The retirement benefits payable to Mr. Benoit and Ms. Westbrook under the CWC SERP Agreements increase in correlation with increases in their compensation levels and years of service. However, the present value of each executive officer's accrued pension benefit under the CWC SERP Agreement will not only reflect such increases, but will also fluctuate from year to year based on the mortality tables and the interest rate used to discount anticipated future payments so that when interest rates decrease for example, the present value associated with the underlying benefit may increase.
Broad-Based Employee Benefit Plans: Mr. Benoit and Ms. Westbrook, as employees of CWC, are eligible to participate in the Savings Plan of Connecticut Water Company, a tax-qualified 401(k) defined contribution plan. CWC makes a non-elective contribution equal to 3% of eligible compensation for each year, subject to certain statutory limits. This plan is open to all employees and officers under the same terms and conditions.
Elective Deferral: Mr. Benoit and Ms. Westbrook and certain other highly compensated and management employees of CWC were eligible to participate in the 2017 Connecticut Water Company Deferred Compensation Plan and under specific frozen deferred compensation agreements (the "Deferred Compensation Plan II”) in 2019. Both of these arrangements are non-qualified plans in which only senior officers and other designated members of management may participate, and such individuals remain general creditors of CWC with respect to their accrued benefits under the plan until the benefits are paid. Eligible employees may elect to defer up to 50 percent of base salary and 100 percent of cash incentive pay under the 2017 Connecticut Water Deferred Compensation Plan. The deferred amounts are credited with earnings based on the participant’s notional investments among six index funds and a fixed rate alternative currently crediting 2.75 percent. The Deferred Compensation Plan II is closed to new contributions, but participants continue to have their accounts credited each January 1 and July 1 with earnings equal to 50 percent of the product of (i) the recent AAA Corporate Bond Yield Average published by Moodys, plus four percentage points and (ii) the participant’s existing deferred compensation account balance.
Other Benefits and Perquisites: All full-time employees of CWC are eligible to participate in employee benefits including health, dental, short-term disability, long-term disability, group term life insurance coverage, time off with pay for vacation and sick leave. In addition to such benefits, CWC maintains supplemental long-term disability policies for Mr. Benoit and Ms. Westbrook that when combined with the standard long-term disability policy benefit provided to other employees, such policies provide a benefit to Mr. Benoit and Ms. Westbrook equal to 60 percent of their base compensation in the event that they become disabled. There are no tax gross-ups provided for any imputed income in connection with these particular benefits and perquisites.
Setting Executive Compensation for 2019
This section relates generally to the setting of the 2019 compensation of the named executive officers other than the New Executive Officers, except where reference is made specifically to Ms. Westbrook. The principal factors that the Committee considered when setting the 2019 fiscal year compensation levels for the named executive officers were as follows:
•
Competitive benchmarking;
•
Long-term retention;
•
CEO's recommendations;

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•
Advice from the Committee's independent compensation consultant and other compensation advisors;
•
Results of the last "say-on-pay" proposal;
•
Feedback from stockholders and stockholder advisory groups;
•
Comparison of the Corporation's performance against certain operational and qualitative goals identified in the Corporation's strategic plan;
•
Individual performance as assessed by the Committee, with input from the CEO as to the named executive officers other than himself;
•
The cost of living and cost of labor; and
•
Tenure, future potential, and internal pay equity.
Major compensation decisions for each fiscal year, including base salary adjustments, the determination of target annual incentive cash compensation opportunities and the determination of the size of long-term equity incentive awards, are generally made by the Committee during the last quarter of the prior year or during the first quarter of the current year.
Benchmarking: The Committee made a number of decisions regarding 2019 fiscal year compensation for the named executive officers on the basis of the executive compensation benchmarking reports prepared by Mercer (US), Inc. ("Mercer") in October 2018. The reports benchmarked the compensation paid by the peer group (as described below) to their executive officers.
Target Pay Positioning: For the 2019 fiscal year, the Committee targeted total annual direct compensation between the median and the 75th percentile of the peer group in light of the highly competitive talent market and the higher cost of living and cost of labor for the Corporation as compared to its peers. The Committee uses the peer group compensation as just one of the factors in its pay decisions. Individual positioning relative to market data also gives consideration to tenure, performance, potential and internal equity. In 2017, in response to feedback from stockholder advisory groups, the Committee reviewed the target pay positioning policy described above. Mercer provided the Committee with an analysis of the cost of living and cost of labor for peer companies based on their corporate headquarters location, with the cost of labor focused on positions with compensation levels in a similar range to the Corporation's executive officers. Based on the findings of this analysis, the Committee decided to continue to target compensation for executive officers between the median and the 75th percentile, subject to the additional considerations of tenure, potential and internal equity. The Committee generally applied the same compensation philosophy in setting Ms. Westbrook’s compensation under her amended and restated employment agreement and in connection with her promotion.
Mr. Thornburg’s 2018 compensation was negotiated under his employment agreement which provided for a base salary of $700,000 and target incentive bonus of at least 50% of base salary. Based on Mercer’s review of competitive data, Mr. Thornburg’s short-term and long-term incentive compensation were below the peer group median. It is the Committee’s intent to better align Mr. Thornburg’s compensation with its compensation philosophy and make his compensation more competitive. However, given the timing of compensation decisions relative to key events in relation to the Merger, it was determined by the Committee, and as suggested by Mr. Thornburg, not to make any changes to his target total compensation for 2019, but to reassess in 2019 for 2020 compensation when the Committee would have a better perspective on the impact of the Merger. Accordingly, Mr. Thornburg’s target compensation remained unchanged resulting in his 2019 target total direct compensation at approximately 22% below peer group median.
The table below shows the projected market positioning of the target 2019 total direct compensation for our named executive officers, other than the New Executive Officers, relative to the peer group based on data as was provided by Mercer to the Committee in October 2018.




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Name
Title
Percentile Level of
Total Target Direct Compensation for
2019 Fiscal Year
Eric W. Thornburg
President, Chief Executive Officer and Chairman of the Board
38th
Andrew R. Gere
President and Chief Operating Officer of SJWC
60th
Palle L. Jensen
Executive Vice President of SJWC
66th
James P. Lynch
Chief Financial Officer and Treasurer
54th

Peer Group: Each year, the Committee works with its independent compensation consultant to determine the appropriate peer group for benchmarking our executive compensation program. The peer group is generally comprised of companies that are U.S. publicly traded utility companies of similar size and companies that are identified externally as the Corporation's peers.  Based on recommendations from Mercer in July 2018, the Committee approved the peer group set forth below which included two new peers, Black Hills Corporation and NorthWestern Corporation and such peer group was used in establishing the executive officers' 2019 compensation. The Committee believed that all of the peer companies continued to represent primary competitors for executive talent and investment capital.
Peer Group
 
American States Water
Aqua America
Artesian Resources
Avista Corp.
 
Black Hills Corporation
California Water
Service Group
Chesapeake Utilities
Connecticut Water Service
 
El Paso Electric
Middlesex Water
MGE Energy
NorthWestern Corporation
 
Northwest Natural Gas
PNM Resources Inc.
South Jersey Industries
Unitil
 
York Water
 
 
 

Role of External Advisors: The Committee engaged Mercer, a global human resource consulting firm with extensive expertise and experience providing executive compensation consulting services, to serve as the Committee's independent compensation consultant. Mercer provided the following services:
•
Advised the Committee in selecting a peer group to be used for benchmarking compensation;
•
Conducted a competitive review of officer compensation levels and practices relative to the peer group;
•
Advised the Committee in determining the appropriate base salary, annual incentive and equity compensation terms for the named executive officers, including Mr. Thornburg, and other executive officers;
•
Advised the Committee regarding short and long-term incentive compensation design changes; and
•
Confirmed the competitiveness of director compensation relative to the peer group.
Representatives of Mercer attended certain Committee meetings and provided guidance and expertise on competitive pay practices and plan designs consistent with the Corporation's key objectives.
Mercer also provided Merger related advice to the Committee including but not limited to developing competitive data and recommendations in establishing base salary, target cash incentive compensation, equity awards and severance terms for Ms. Westbrook under her amended and restated employment agreement and subsequent promotion to President of CTWS.

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The Committee determined that Mercer was independent and that its work did not raise any conflict of interest. The Committee made such determinations primarily on the basis of the six factors for assessing independence and identifying potential conflicts of interest that are set forth in Rule 10C-1(b)(4) under the Securities Exchange Act of 1934. The Committee will apply the same factors, together with any factors identified by the New York Stock Exchange and any other factors the Committee may deem relevant under the circumstances, in determining whether any other persons from whom the Committee seeks advice relating to executive compensation matters is independent or whether any potential conflicts exist.
Role of Management: Mr. Thornburg provided the Committee with recommendations regarding 2019 fiscal year compensation levels for each of the named executive officers other than himself. Such recommendations included base salary adjustments, target annual incentive cash compensation opportunities and payout levels, and the size of long-term incentive awards. Mr. Thornburg provided the Committee with his assessment of the individual performance of each of the other named executive officers.
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