OTHER COMPENSATION MATTERS
Impact of 2019 "Say-on-Pay" Vote
We held our last "say-on-pay" vote in 2019 and over 95% of the votes cast on such proposal were in favor of the compensation of the named executive officers.
The Committee will continue to take into account future stockholder advisory votes on executive compensation and other relevant market developments affecting executive officer compensation in order to determine whether any subsequent changes to our programs and policies are warranted to reflect stockholder concerns or to address market developments.
Risk Assessment
The Committee, with the input and assistance of the Corporation's Human Resources Department, reviewed the various compensation programs maintained by the Corporation and its subsidiaries to determine whether any of those programs, including those maintained for the named executive officers, encouraged excess risk taking that would create a material risk to the Corporation's economic viability. Based on that review and the fact that the Corporation operates in a heavily-regulated environment, the Committee concluded it was not reasonably likely that any of the Corporation's compensation programs, including the executive officer compensation programs, would have a material adverse effect upon the Corporation. For further information concerning the overall compensation risk assessment process, please see the section to this Proxy Statement entitled "Executive Compensation and Related Information - Risk Assessment of Compensation Policies and Practices," which appears later in this Proxy Statement.
Other Key Executive Arrangements
Employment Agreements
The Corporation has entered into an employment agreement with Mr. Thornburg which is described more fully in the section titled "Employment Agreements, Offer Letters, Termination of Employment and Change in Control Arrangements."
CTWS and CWC had previously entered into an employment agreement with Mr. Benoit which became effective upon closing of the Merger and which is described more fully in the section titled "Employment Agreements, Offer Letters, Termination of Employment and Change in Control Arrangements."
CTWS and CWC entered into an amended and restated employment agreement with Ms. Westbrook upon closing of the Merger which is described more fully in the section titled "Employment Agreements, Offer Letters, Termination of Employment and Change in Control Arrangements."
Executive Severance Plan and Severance Programs
Executive Severance Plan: The Corporation maintains an Executive Severance Plan under which Mr. Thornburg and the other named executive officers, other than the New Executive Officers, will become entitled to certain severance benefits on a double trigger basis in the event their employment were to terminate under certain defined circumstances in connection with a change in control of the Corporation. Accordingly, such benefits would be triggered in connection with such a change in control only if the executive officer's employment is terminated by the Corporation other than for good cause or such executive officer resigns in connection with (i) a significantly adverse change in the nature or the scope of his or her authority or overall working environment, (ii) the assignment of duties materially inconsistent with his or her present duties, responsibilities or status, (iii) a reduction in the sum of his or her base salary and target annual incentive cash compensation, or (iv) a relocation of his or her principal place of employment by 55 miles or more.
The Executive Severance Plan is designed to serve two primary purposes: (i) encourage the executive officers to remain in the Corporation's employ in the event of an actual or potential change in control transaction; and (ii) align the interests of the Corporation's executive officers with those of the stockholders by enabling the executive officers to consider transactions that are in the best interests of the stockholders and provide opportunities for the creation of substantial stockholder value without undue concern over whether those transactions may jeopardize their employment or their existing compensation arrangements.
The Executive Severance Plan also allows the Corporation to maintain a standard set of severance benefits for new and existing executive officers and limit the instances where one-off arrangements will be negotiated with individual executive officers.
Based on the foregoing considerations and the many years of service that most of the executive officers have rendered to the Corporation, the Committee believes that the benefits provided under the Executive Severance Plan, including any tax gross-up payment to cover the parachute payment taxes the executive officers (except for Mr. Thornburg) may incur under the federal tax laws with respect to one or more severance benefits provided under the plan, have been set at a fair and reasonable level and appropriately balance the respective interests of the various stakeholders.
Mr. Benoit and Ms. Westbrook do not participate in the Executive Severance Plan.
For further information regarding the Executive Severance Plan and the severance benefits provided thereunder, please see the section entitled "Employment Agreements, Offer Letters, Termination of Employment and Change in Control Arrangements" that appears later in this Proxy Statement.
Severance Benefits for Messrs. Thornburg and Lynch: Pursuant to the terms of his employment agreement, Mr. Thornburg will become entitled to severance benefits should his employment terminate under certain defined circumstances in the absence of a change in control. Mr. Lynch will, as part of his negotiated compensation package with the Corporation, become entitled to severance benefits should his employment terminate under certain defined circumstances in the absence of a change of control. The Committee believes that such protections are typical for chief executive officers and chief financial officers in the peer group companies. For further information concerning Messrs. Thornburg's and Lynch's potential severance benefits, see the section titled "Employment Agreements, Offer Letters, Termination of Employment and Change in Control Arrangements" that appears later in this Proxy Statement.
Severance Benefits for Mr. Benoit and Ms. Westbrook: Pursuant to the terms of his CTWS Employment Agreement, Mr. Benoit is entitled to severance benefits which became payable upon his termination of employment on December 31, 2019. Ms. Westbrook will become entitled to severance benefits under her amended and restated employment agreement should her employment terminate under certain defined circumstances. For further information concerning Mr. Benoit’s severance benefits and Ms. Westbrook’s potential severance benefits, see the section titled "Employment Agreements, Offer Letters, Termination of Employment and Change in Control Arrangements" that appears later in this Proxy Statement.
Executive Officer Stock Ownership Guidelines
In 2006, the Committee established a policy requiring executive officers to achieve specific security ownership guidelines within five years. The Committee believes that such a policy is consistent with its philosophy of encouraging executive officer stock ownership and will serve to further align the interests of the executive officers with those of stockholders. Pursuant to the policy, executive officers are expected to own shares of the Corporation's common stock with an aggregate value equal to two times the annual base salary for the CEO and one times the annual base salary for the other named executive officers. Shares of the Corporation's common stock owned outright, shares underlying RSUs, and shares underlying deferred stock units, including deferred shares resulting from dividend equivalent rights, all count as shares owned for purposes of the guidelines. Until the guideline is met, each executive is required to hold any shares of the Corporation's common stock issued upon the vesting of RSUs (net of any shares withheld or sold to cover statutory withholding taxes and other applicable taxes. As of December 31, 2019, all the named executive officers had complied with the policy. The following table shows each named executive officer's stock ownership as of December 31, 2019:
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Name
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Title
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Security
Ownership
($)(1)
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Security
Ownership
Guideline
($)(2)
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Eric W. Thornburg
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President, Chief Executive Officer and Chairman of the Board
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1,495,813
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1,400,000
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David C. Benoit
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Former President of CTWS
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2,717,192
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445,050
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Andrew R. Gere
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President and Chief Operating Officer of SJWC
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1,268,208
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475,000
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Palle L. Jensen
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Executive Vice President of SJWC
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934,013
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401,000
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James P. Lynch
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Chief Financial Officer and Treasurer
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1,742,462
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467,000
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Maureen P. Westbrook
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President of CTWS
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2,996,245
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390,000
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(1)
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This amount is calculated by multiplying (i) the sum of the shares of the Corporation's common stock actually owned, the shares underlying RSUs and any shares underlying deferred stock units, by (ii) $71.06, the closing selling price of the common stock on December 31, 2019.
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(2)
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This amount is equal to two times the base salary in effect for Mr. Thornburg for the 2019 fiscal year and one times the base salary in effect for the other named executive officers for such year.
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IRC Section 162(m) Compliance
For years prior to 2018, Section 162(m) of the Internal Revenue Code generally disallowed a federal income tax deduction for publicly-traded companies such as the Corporation for compensation paid to the CEO and the three other highest paid executive officers (other than the chief financial officer) to the extent that such compensation exceeded one million dollars per officer in any one year and did not otherwise qualify as performance-based compensation.
The exemption for qualified performance-based compensation has been repealed and the class of affected executives has been expanded effective for taxable years beginning after December 31, 2017 such that compensation paid to our covered executive officers in excess of one million dollars will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017. Because of the uncertainties as to the scope and application of the transition relief, no assurances can be given that compensation intended to satisfy the requirements for exemption under Section 162(m) will in fact be fully deductible.
Summary Compensation Table
The following table provides certain summary information concerning the compensation earned for services rendered in all capacities to the Corporation and its subsidiaries for the fiscal years ended December 31, 2017, December 31, 2018, and December 31, 2019 by the Corporation's Chief Executive Officer, the Corporation's Chief Financial Officer, the Corporation's other three most highly compensated executive officers whose total compensation for the 2019 fiscal year was in excess of $100,000 and who were serving as executive officers at the end of the 2019 fiscal year and one former executive officer who would have otherwise been includable in such table on the basis of total compensation for the 2019 fiscal year but was not serving as an executive officer at the end of the 2019 fiscal year. The listed individuals are herein referred to as the "named executive officers."
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Name and Principal Position (1)
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Year
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Salary
($)(2)
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Bonus
($)(2)(3)
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Stock
Awards
($)(4)
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Non-Equity
Incentive
Plan
Compen-sation
($)(2)(5)
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Change in
Pension
Value and Non-Qualified Deferred Compensation Earnings
($)
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All Other
Compen-
sation
($)(6)
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Total
($)
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Eric W. Thornburg
President, Chief Executive Officer and Chairman of the Board of SJW Group
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2019
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700,000
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—
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798,174
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392,000
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700,204
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(7)(8)
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19,041
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2,609,419
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2018
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700,000
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310,000
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760,210
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506,625
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432,108
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(9)
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83,294
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2,792,237
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2017
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80,769
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—
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863,079
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—
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41,045
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(9)
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35,120
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1,020,013
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David C. Benoit
Former President of CTWS
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2019
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99,280
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353,775
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227,447
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—
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1,181,695
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(8)
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5,882,011
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7,744,208
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Andrew R. Gere
President and Chief Operating Officer of San Jose Water Company
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2019
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475,000
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—
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313,207
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148,960
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1,660,828
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(7)(8)
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24,735
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2,622,730
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2018
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461,000
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40,000
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156,217
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166,463
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464,208
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(9)
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23,469
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1,311,357
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2017
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448,000
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30,500
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151,073
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122,501
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901,230
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(9)
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17,007
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1,670,311
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Palle L. Jensen
Executive Vice President of San Jose Water Company
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2019
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401,000
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—
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288,263
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125,440
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1,039,317
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(7)(8)
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21,598
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1,875,618
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2018
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389,000
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40,000
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149,472
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140,408
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27,932
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(9)
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14,823
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761,635
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2017
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378,000
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26,250
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126,992
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103,906
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871,934
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(9)
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12,652
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1,519,734
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James P. Lynch
Chief Financial Officer and Treasurer of SJW Group
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2019
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467,000
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—
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329,167
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146,720
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256,260
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(7)(8)
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37,657
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1,236,804
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2018
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441,000
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40,000
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170,641
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159,225
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69,386
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(9)
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23,005
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903,257
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2017
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428,000
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29,250
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145,310
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117,031
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106,420
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(9)
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22,699
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848,710
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Maureen P. Westbrook
President of CTWS
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2019
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75,958
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156,625
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1,234,682
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—
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671,473
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(8)
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2,361
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2,141,099
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(1)
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Mr. Thornburg joined the Corporation on November 6, 2017. In connection with the merger (the "Merger") with Connecticut Water Service, Inc. ("CTWS"), Mr. Benoit and Ms. Westbrook were appointed executive officers of the Corporation on October 9, 2019. From the closing date of the Merger until December 1, 2019, Mr. Benoit served as President of CTWS. Ms. Westbrook was appointed President of CTWS effective December 1, 2019. Mr. Benoit retired from CTWS effective as of December 31, 2019. Mr. Jensen retired from SJWC effective as of February 21, 2020.
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(2)
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Includes (for all but the New Executive Officers) amounts deferred under (i) San Jose Water Company's Special Deferral Election Plan, a non-qualified deferred compensation plan for officers and other select management personnel, and (ii) San Jose Water Company's Salary Deferral Plan, a qualified deferred compensation plan under section 401(k) of the Internal Revenue Code. For Mr. Benoit and Ms. Westbrook, disclosure is limited to amounts earned or payable after October 9, 2019 in accordance with SEC rules and includes amounts deferred under (i) the CTWS 2017 Deferred Compensation Plan, a non-qualified deferred compensation plan for officers and other select management employees, and (ii) the Savings Plan of the Connecticut Water Company, a qualified deferred compensation plan under section 401(k) of the Internal Revenue Code.
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(3)
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The amount of the 2019 annual cash incentive compensation payable based on attainment of the corporate performance goals is reported in the "Non-Equity Incentive Compensation" column. For 2019, the amounts for Mr. Benoit and Ms. Westbrook represent the 2019 short-term cash incentive award and the portion of the 2019 long-term cash incentive award that were subject to vesting on March 15, 2020 and for Ms. Westbrook the portions of the 2018 and 2017 long-term cash incentive awards that were subject to vesting on March 14, 2020 and March 10, 2020, respectively; the vesting of Mr. Benoit’s awards was accelerated in connection with his termination on December 31, 2019. For 2018, the amount disclosed represents a sign-on bonus in the amount of $310,000 paid in February 2018 to Mr. Thornburg in accordance with his
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employment agreement and a special bonus in the amount of $40,000 for exceptional individual performance for each of Messrs. Gere, Jensen, and Lynch for the 2018 fiscal year. For 2017, represents the portion of the annual cash incentive compensation paid to Messrs. Gere, Jensen, and Lynch at the discretion of the Committee based on a subjective assessment of individual performance goals for the 2017 fiscal year. The portion of Mr. Benoit’s 2018 long-term cash incentive award that was subject to vesting in March 2021 and accelerated upon his termination of employment is reported in the “All Other Compensation” column.
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(4)
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Except for Mr. Benoit and Ms. Westbrook, the dollar amount reported in the Stock Awards column is equal to the aggregate grant-date fair value of the service-based and performance-based restricted stock unit awards made during each reported fiscal year, calculated in accordance with FASB ASC Topic 718, without taking into account any estimated forfeitures related to service-vesting conditions. The assumptions used in the calculation of the FASB ASC Topic 718 grant-date fair value of each such award are set forth in Note 2 to the Corporation's consolidated financial statements included in its quarterly report on Form 10-Q for the quarter ended March 31, 2019 and in Note 2 to the Corporation's consolidated financial statements included in its annual report on Form 10-K for the 2019 fiscal year. For service-based restricted stock unit awards, the grant date fair value was determined using the closing share price of the Corporation's common stock on the date of grant, as appropriately discounted to reflect the lack of dividend equivalent rights. For the performance-based restricted stock unit awards that vest based on return on equity or earnings per share, the total grant-date fair value is calculated using the probable outcome of the attainment of the pre-established performance objectives as of the grant date at 100% of target, as appropriately discounted to reflect the lack of dividend equivalent rights. The grant date fair value of performance-based restricted stock unit awards that vest based on relative total shareholder return was estimated utilizing the Monte Carlo valuation model, using the fair value of the Corporation's common stock with the effect of market conditions and no dividend yield on the date of grant, and assumes the performance goals will be attained. The grant-date fair values of the 2019 performance-based restricted stock unit awards assuming maximum attainment of the performance goals are as follows:
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Grant Date Fair
Value at Maximum Attainment ($)
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Eric W. Thornburg
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1,036,047
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Andrew R. Gere
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390,017
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Palle L. Jensen
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358,630
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James P. Lynch
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410,138
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For further information concerning the service-based and performance-based restricted stock unit awards, see the section below entitled "Grants of Plan-Based Awards."
For Mr. Benoit and Ms. Westbrook, the dollar amount reported in the Stock Awards column is the incremental fair value recognized by the Corporation in connection with the assumed CTWS restricted stock unit awards that were modified at the time of assumption to provide for accelerated vesting on a termination without cause within 12 months following the Merger.
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(5)
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Represents the portion of the annual cash incentive compensation which is based on the level of attainment of corporate performance goals. The 2019 cash incentive awards granted by CTWS to Mr. Benoit and Ms. Westbrook were converted into service-based awards in connection with the assumption of the awards and the portions of such assumed cash incentive awards scheduled vest in 2020 are reported in the "Bonus" column. Mr. Thornburg was not eligible to receive incentive cash compensation for the 2017 fiscal year.
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(6)
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Consists of the following benefits: (i) club memberships for Messrs. Gere and Lynch; (ii) personal use of company vehicle for all named executive officers other than Mr. Benoit and Ms. Westbrook; (iii) 401(k) employer match made on such individual's behalf for all named executive officers, other than Mr. Benoit; (iv) supplemental long-term disability policy premiums for Mr. Benoit and Ms. Westbrook; (v) supplemental life policy premiums for Mr. Benoit; and (iv) severance payments payable to Mr. Benoit in connection with his termination of employment on December 31, 2019.
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For the Year Ended December 31, 2019
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Description
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Thornburg
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Gere
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Jensen
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Lynch
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Benoit
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Westbrook
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Club Memberships
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—
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491
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—
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9,585
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—
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—
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Personal Use of Company Vehicle
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7,841
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13,044
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10,398
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16,872
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—
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—
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401(k) Employer Match
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11,200
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11,200
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11,200
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11,200
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—
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1,960
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Severance
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—
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—
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—
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—
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4,366,319
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—
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280G Excise Tax Gross
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—
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—
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—
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—
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1,514,915
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—
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Supplemental Long-Term Disability Policy Premium
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—
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—
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—
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—
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593
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401
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Supplemental Life Insurance Policy Premium
|
—
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—
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—
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—
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184
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—
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Total
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$
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19,041
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$
|
24,735
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$
|
21,598
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$
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37,657
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$
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5,882,011
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$
|
2,361
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The severance benefits for Mr. Benoit in connection with his termination on December 31, 2019 are summarized in the section below entitled “Employment Agreements, Offer Letters, Termination of Employment and Change in Control Arrangements - Mr. Benoit’s Employment Agreement.”
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(7)
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Consists solely of the change in the actuarial present value of each named executive officer's accrued pension benefits recorded for the 2019 fiscal year. The present value increased for each of Messrs. Thornburg, Gere, Jensen, and Lynch above the present value at the close of fiscal year 2018. The present value for each of the accrued pension benefit fluctuates from year-to-year based on additional years of service, changes in compensation and increased age. In addition, such fluctuations may also occur due to 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. The table below footnote 8 indicates the actuarial present value of the pension benefits accrued as of the close of the 2019 and 2018 fiscal years, respectively, by each named executive officer. For the 2019 fiscal year calculations, the discount rates applied were 3.13% for the Retirement Plan and 3.05% for the Executive Supplemental Retirement Plan ("SERP") and Cash Balance Executive Supplemental Retirement Plan ("Cash Balance SERP"). For the 2018 fiscal year calculations the discount rates applied were 4.16% for the Retirement Plan and 4.09% for the SERP and Cash Balance SERP. The mortality rate tables, all published by the Society of Actuaries, used for the 2019 fiscal year are described as follows: for the Retirement Plan, the Pri-2012 Total Dataset Amount-Weighted Mortality with MP-2019 Mortality Improvement Scale, and for the 2018 fiscal year the RP-2014 Total Dataset Mortality Table adjusted to 2006 with MP-2018 Mortality Improvement Scale. For the SERP and Cash Balance SERP, the Pri-2012 White Collar Amount-Weighted Mortality with MP-2019 Mortality Improvement Scale, and for the 2018 fiscal year the RP-2014 Mortality Table basis adjusted to 2006 with MP-2018 Mortality Improvement Scale. Messrs. Thornburg's and Lynch's Cash Balance SERP benefit is based on a contribution rate of 39% and 15%, respectively, of their quarterly compensation (as defined in the plan), offset by their accrued benefit under the Retirement Plan.
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(8)
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Consists of the change in the actuarial present value of the named executive officer’s accrued pension benefits recorded for the 2019 fiscal year plus the above-market earnings on non-qualified deferred compensation plans in accordance with SEC rules. The present value of their pension accruals under the Connecticut Water Company Employees’ Retirement Plan increased above the present value at the close of fiscal year 2018. The present value for each of the accrued pension benefits fluctuates from year-to-year based on additional years of service, changes in compensation and increased age. In addition, such fluctuations may also occur due to 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. The table below indicates the actuarial present value of the pension benefits accrued as of the close of the 2019 and 2018 fiscal years, respectively, by each named executive officer. For the 2019 fiscal year calculations, the discount rates applied were 3.23% for the Connecticut Water Company Employees’ Retirement Plan and 3.15% for the Supplemental Executive Retirement Agreements ("CWC SERP Agreements").
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Actuarial Present Value
of Retirement Benefits
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Thornburg
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Gere
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Jensen
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Lynch
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Benoit
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Westbrook
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Accrued as of the close
of the 2019 fiscal year
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1,173,357
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4,714,968
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5,102,749
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1,000,803
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4,882,883
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3,177,806
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Accrued as of the close
of the 2018 fiscal year
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473,153
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3,054,140
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4,063,432
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744,543
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3,745,271
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2,517,067
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Change in Pension Value
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$
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700,204
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$
|
1,660,828
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$
|
1,039,317
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$
|
256,260
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$
|
1,181,695
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$
|
671,473
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The above-market earnings included for Mr. Benoit and Ms. Westbrook are $44,083 and $10,734, respectively.
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(9)
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Consists solely of the change in the actuarial present value of each named executive officer's accrued pension benefits recorded for each of the 2018 and 2017 fiscal years. For further information concerning the pension benefits, see the section entitled "Pension Benefits" which appears later in this Proxy Statement.
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Grants of Plan-Based Awards
The following table provides certain summary information concerning each grant of an award made to a named executive officer in the 2019 fiscal year under a compensation plan:
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Name
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Grant Date
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Date of
Pre-
Authori-
zation
|
Potential Payouts Under
Non-Equity Incentive Plan
Awards (1)
|
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Estimated Future Payouts
Under Equity Incentive Plan Awards
|
All Other
Stock
Awards:
Number of Shares
of Stock
or Units
(#)(2)
|
Grant
Date
Value
($)(3)
|
|
Thre-
shold
($)
|
Target
($)
|
Maxi-
mum
($)
|
|
Thre-
shold
(#)
|
Target
(#)
|
Maxi-
mum
(#)
|
|
|
Eric W. Thornburg
|
—
|
|
—
|
|
175,000
|
|
350,000
|
|
525,000
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1/2/2019
|
|
10/23/2018
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
4,367
|
|
(4)
|
223,940
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2,050
|
|
4,100
|
|
6,150
|
|
(5)
|
—
|
|
|
224,844
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2,479
|
|
4,958
|
|
9,916
|
|
(6)
|
—
|
|
|
349,390
|
|
|
David C. Benoit
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
10/9/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
3,549
|
|
(8)
|
105,760
|
|
|
|
10/9/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
31,328
|
|
(9)
|
20,050
|
|
|
|
10/9/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
3,361
|
|
(10)
|
101,637
|
|
|
Andrew R. Gere
|
—
|
|
—
|
|
66,500
|
|
133,000
|
|
199,500
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1/2/2019
|
|
10/23/2018
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
1,462
|
|
(4)
|
74,971
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
463
|
|
927
|
|
1,854
|
|
(6)
|
—
|
|
|
65,326
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
515
|
|
1,030
|
|
1,545
|
|
(5)
|
—
|
|
|
56,485
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
1,029
|
|
2,059
|
|
3,088
|
|
(7)
|
—
|
|
|
116,425
|
|
|
Palle L. Jensen
|
—
|
|
—
|
|
56,000
|
|
112,000
|
|
168,000
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1/2/2019
|
|
10/23/2018
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
1,352
|
|
(4)
|
69,331
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
429
|
|
858
|
|
1,716
|
|
(6)
|
—
|
|
|
60,463
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
472
|
|
944
|
|
1,416
|
|
(5)
|
—
|
|
|
51,769
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
943
|
|
1,887
|
|
2,830
|
|
(7)
|
—
|
|
|
106,700
|
|
|
James P. Lynch
|
—
|
|
—
|
|
65,500
|
|
131,000
|
|
196,500
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
1/2/2019
|
|
10/23/2018
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
1,535
|
|
(4)
|
78,715
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
489
|
|
978
|
|
1,956
|
|
(6)
|
—
|
|
|
68,920
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
540
|
|
1,081
|
|
1,621
|
|
(5)
|
—
|
|
|
59,282
|
|
|
|
1/29/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
1,080
|
|
2,162
|
|
3,242
|
|
(7)
|
—
|
|
|
122,250
|
|
|
Maureen P. Westbrook
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
10/9/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
17,701
|
|
(11)
|
1,187,737
|
|
|
|
10/9/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
24,258
|
|
(12)
|
15,526
|
|
|
|
10/9/2019
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
1,039
|
|
(13)
|
31,419
|
|
|
|
|
|
(1)
|
For named executive officers other than Mr. Benoit and Ms. Westbrook, reflects potential payouts under the annual cash incentive compensation program tied to attainment of corporate performance goals; the entire cash incentive compensation for all of the named executive officers was tied to the attainment of these goals. Each potential level of payout based on the corporate performance goals was tied to the attained level of the performance goals for the 2019 fiscal year established by the Executive Compensation Committee. The goals were tied to a SJW Group diluted earnings per share objective, a capital additions objective, water quality compliance, designated operational goals based on key water industry objectives, and strategic objectives. The diluted earnings per share was attained at between the threshold and target levels, the capital additions objective was attained at the maximum level, the water quality compliance goal was attained at the maximum level, the operational goals were attained between the threshold and maximum levels, and the strategic objectives were attained at target level, resulting in an actual cash incentive compensation to Messrs. Thornburg, Gere, Jensen, and Lynch, in the dollar amount of $392,000, $148,960, $125,440, and $146,720, respectively, representing 112% of their target cash incentive compensation for 2019. These amounts are reported in the Non-Equity Incentive Compensation column in the Summary Compensation Table. Mr. Benoit and Ms. Westbrook were not eligible for the Corporation's annual cash incentive compensation program. 2019 short-term and long-term cash incentive awards granted by CTWS to Mr. Benoit and Ms. Westbrook were converted into service-based awards in connection with the assumption of the awards and the amounts thereunder that vest in March 2020 are reported in the Bonus column in the Summary Compensation Table.
|
|
|
|
|
(2)
|
Except for the assumed awards described below, reflects grants of restricted stock units under the Corporation's Long-Term Incentive Plan as more fully described in the footnotes below. The restricted stock units (other than the assumed awards described below) do not include dividend equivalent rights. A portion of the vested shares which become issuable under the units will be withheld by the Corporation to cover the applicable withholding taxes.
|
|
|
|
|
(3)
|
Except for the assumed awards for Mr. Benoit and Ms. Westbrook, the grant-date value is calculated in accordance with FASB ASC Topic 718, and accordingly determined on the basis of the closing selling price per share of the Corporation's common stock on the applicable grant date, as appropriately discounted to reflect the lack of dividend equivalent rights. For the performance-based restricted stock unit awards that vest based on return on equity ("ROE"), the total grant-date fair value is calculated using the probable outcome of the attainment of the pre-established performance objectives as of the grant date at 100% of target, as appropriately discounted to reflect the lack of dividend equivalent rights. The grant date fair value of the performance-based restricted stock unit awards for Messrs. Thornburg, Gere, Jensen, and Lynch that vest based on relative total shareholder return ("TSR") were estimated utilizing the Monte Carlo valuation model, using the fair value of the Corporation's common stock with the effect of market conditions and no dividend yield on the date of grant, and assumes the performance goals will be attained. The reported grant-date value does not take into account any estimated forfeitures relating to service-vesting conditions. For the assumed CTWS restricted stock units awards held by Mr. Benoit and Ms. Westbrook that were modified in connection with the assumption, the disclosed amount represents the incremental fair value of the modified award (fair value of the modified award minus the fair value of the original award, each as of the modification date).
|
|
|
|
|
(4)
|
On January 2, 2019, Messrs. Thornburg, Gere, Jensen, and Lynch were each awarded service-based restricted stock units covering 4,367, 1,462, 1,352, and 1,535 shares of the Corporation's common stock, respectively. Each restricted unit entitles the officer to receive one share of the Corporation's common stock on the applicable vesting date of that unit. For Mr. Thornburg, the restricted stock units vest in a series of three successive equal annual installments on each of December 31, 2019, December 31, 2020, and December 31, 2021, subject to continued service. For Messrs. Gere, Jensen, and Lynch, the restricted stock units vest in a series of three successive equal annual installments upon each such officer's completion of each year of service with the Corporation over the three-year period measured from the grant date. The units will vest in full, and the underlying shares will become immediately issuable, on an accelerated basis if (i) the officer's service terminates by reason of death or disability; or (ii) the officer is involuntarily terminated other than for good cause, or resigns for good reason, within 24 months after a change in control. Immediate vesting will also occur in the event there is a change in control of the Corporation in which the units are not assumed or otherwise continued in effect.
|
|
|
|
|
(5)
|
On January 29, 2019, Messrs. Thornburg, Gere, Jensen, and Lynch were each granted performance-based restricted stock units covering the target number of shares specified in the table. Each such performance-based award will vest based on the level of achievement of a performance goal based on ROE over the period measured from January 1, 2019 to December 31, 2021. The maximum number of shares issuable to an individual under each such performance-based award is 150% of the target number of shares specified for such individual and no shares would have been issued if the minimum threshold level of performance was not attained. If the officer’s employment terminates prior to the completion of the performance period by reason of death or disability or retirement or if the officer is involuntarily terminated other than for good cause or resigns for good reason, then following completion of the performance period the officer will vest in the number of shares the officer would have vested based on actual performance pro-rated based on the number of months of service (rounded up) completed during the performance period. In the event a change in control occurs during the performance period the award will vest with respect to the target number of shares (i) upon the change in control if the award is not assumed, replaced or converted; or (ii) at the end of the performance period if the award is assumed, replaced or continued, subject to accelerated vesting on an earlier termination by reason of death or disability or involuntary termination other than for good cause or resignation for good reason.
|
|
|
|
|
(6)
|
On January 29, 2019, Messrs. Thornburg, Gere, Jensen, and Lynch were each granted performed-based restricted stock units covering the target number of shares specified in the table. Each such award will vest based on the level of achievement of a performance goal based on relative TSR performance over the period measured from January 1, 2019 to December 31, 2021. The number of shares issuable under such award will range between 0 to 200 percent of the target number of shares and will vest based on the level of actual attainment of the specified performance goal. If the officer’s employment terminates prior to the completion of the performance period by reason of death or disability or retirement or if the officer is involuntarily terminated other than for good cause or resigns for good reason, then following completion of the performance period the officer will vest in the number of shares the officer would have vested in based on actual performance pro-rated based on the number of months of service (rounded up) completed during the performance period. In the event a change in control occurs during the performance period the award will vest with respect to the target number of shares (i) upon the change in control if the award is not assumed, replaced or converted; or (ii) at the end of the performance period if the award is assumed, replaced or continued, subject to accelerated vesting on an earlier termination by reason of death or disability or involuntary termination other than for good cause or resignation for good reason.
|
|
|
|
|
(7)
|
On January 29, 2019, Messrs. Gere, Jensen, and Lynch were each granted performance-based restricted stock units covering the target number of shares specified in the table. Each award is comprised of two tranches with 50% of the target shares subject to the award allocated to each tranche. The maximum number of shares issuable to an individual under each such tranche is 150% of the target number of shares specified for such tranche. The first tranche will vest based on the level of achievement of a performance goal based on ROE measured over the 2019 calendar year period. The ROE goals for the first tranche at threshold, target, and maximum levels were 8.45%, 9.51% and 10.56%, respectively. Based on an adjusted ROE of 8.56% for the 2019 calendar year, 568, 521, and 597 shares were issued to Messrs. Gere, Jensen, and Lynch respectively, on February 28, 2020 (a portion of which were withheld to cover applicable withholding taxes). The second tranche will vest based on the level of achievement of a performance goal based on ROE over the period measured from January 1, 2019 to December 31, 2020. If the officer’s employment terminates prior to the completion of the performance
|
period by reason of death or disability or retirement or if the officer is involuntarily terminated other than for good cause or resigns for good reason, then following completion of the performance period the officer will vest in the number of shares the officer would have vested in under the second tranche based on actual performance pro-rated based on the number of months of service (rounded up) completed during the performance period. In the event a change in control occurs during the performance period the award will vest with respect to the target number of shares (i) upon the change in control if the award is not assumed, replaced or converted; or (ii) at the end of the performance period if the award is assumed, replaced or continued, subject to accelerated vesting on an earlier termination by reason of death or disability or involuntary termination other than for good cause or resignation for good reason.
|
|
|
|
(8)
|
In connection with the Merger, the Corporation assumed restricted stock unit awards previously granted by CTWS to Mr. Benoit as performance-based awards and converted to service-based awards in connection with the assumption which vest in two equal installments on March 14, 2020 and March 14, 2021 and which were modified at the time of the assumption to provide for accelerated vesting upon certain terminations. The assumed awards include dividend equivalent rights.
|
|
|
|
|
(9)
|
In connection with the Merger, the Corporation assumed deferred stock unit awards ("DSU") that are vested and will be settled in accordance with a deferral election previously made by Mr. Benoit. Each DSU will entitle Mr. Benoit to one share of common stock of the Corporation upon settlement. The DSU awards include dividend equivalent rights.
|
|
|
|
|
(10)
|
In connection with the Merger, the Corporation assumed a restricted stock unit award previously granted by CTWS to Mr. Benoit which will vest on the third anniversary of the date of grant and which was modified at the time of the assumption to provide for accelerated vesting upon certain terminations. Each restricted stock unit entitles Mr. Benoit to a cash amount equal to one share of common stock of the Corporation on the vesting date.
|
|
|
|
|
(11)
|
On October 9, 2019, Ms. Westbrook was granted a service-based restricted stock unit award covering 17,701 shares. Each restricted unit entitles her to receive one share of the Corporation's common stock on the applicable vesting date of that unit. The restricted stock units vest in a series of three successive equal annual installments upon Ms. Westbrook's completion of each year of service with the Corporation over the three-year period measured from the grant date. The units will vest in full, and the underlying shares will become immediately issuable, on an accelerated basis if (i) Ms. Westbrook's service terminates by reason of death or disability; or (ii) Ms. Westbrook is involuntarily terminated other than for good cause, or resigns for good reason, within 24 months after a change in control. Immediate vesting will also occur in the event there is a change in control of the Corporation in which the units are not assumed or otherwise continued in effect. In addition, if Ms. Westbrook is involuntarily terminated other than for good cause or for good reason, in either case not in connection with a change in control, then the units that would have vested if Ms. Westbrook had remained in service for an additional period of 12 months following such termination will vest and the underlying shares will be issued, on the date of Ms. Westbrook's termination of service.
|
|
|
|
|
(12)
|
In connection with the Merger, the Corporation assumed deferred stock unit awards ("DSU") that are vested and will be settled in accordance with a deferral election previously made by Ms. Westbrook. Each DSU will entitle Ms. Westbrook to one share of common stock of the Corporation upon settlement. The DSU awards include dividend equivalent rights.
|
|
|
|
|
(13)
|
In connection with the Merger, the Corporation assumed a restricted stock unit award previously granted by CTWS to Ms. Westbrook under certain stock programs of CTWS. Each restricted stock unit which will vest on the third anniversary of the date of grant and which was modified at the time of the assumption to provide for accelerated vesting upon certain terminations. Each restricted stock unit entitles Ms. Westbrook to a cash amount equal to one share of common stock of the Corporation on the vesting date.
|
2019 Incentive Cash Compensation Program
This summary relates to the incentive cash compensation program for our named executive officers, other than the New Executive Officers.
In January 2019, the Executive Compensation Committee set the cash incentive compensation potential for the named executive officers for the 2019 fiscal year. Seventy-five percent of the target cash incentive award for the named executive officers was based on performance goals tied to SJW Group 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 award was based on strategic objectives.
At threshold level attainment, Mr. Thornburg's cash incentive compensation potential was set at $175,000 (25 percent of base salary); for target level attainment, the cash incentive compensation potential was $350,000 (50 percent of base salary); and at above-target level attainment, the applicable cash incentive compensation potential was $525,000 (75 percent of base salary). The actual cash incentive compensation amount could accordingly vary from 0 to 150 percent of the target amount based on the level at which the various performance goals were attained.
The actual cash incentive compensation amount that any other named executive officer could have earned for the 2019 fiscal year ranged from 0 to 200 percent of the officer's target amount based on the Corporation's performance and the Committee's assessment of the named executive officer's individual performance for such year. The actual percentage within that range was to be determined as follows: (i) up to 150 percent of the target amount could be earned, weighted 75 percent based on performance goals tied to SJW Group diluted earnings per share, capital additions, water quality compliance and several key operational goals measuring the successful operation of the business and 25 percent based on strategic objectives; and (ii) up to 50 percent of target could be earned for exceptional individual performance.
Further information concerning the cash incentive compensation program established for Mr. Thornburg and the other named executive officers is set forth in the "Compensation Discussion and Analysis" section that appears earlier in this Proxy Statement.
The 2019 short-term incentive program for Mr. Benoit and Ms. Westbrook was set by CTWS and is described in the "Compensation Discussion and Analysis" section that appears earlier in this Proxy Statement.
Risk Assessment of Compensation Policies and Practices
The Executive Compensation Committee, with input and assistance from the Human Resources Department, annually assesses the various compensation programs, policies and practices maintained by the Corporation and its subsidiaries for the executive officers and other employees throughout the organization to determine whether any of those programs, policies and practices encouraged excess risk taking that would create a material risk to the Corporation's economic viability. As part of that process for the 2019 fiscal year, in January 2019, the Executive Compensation Committee reviewed a detailed inventory of the Corporation's compensation plans and programs prepared by the Human Resources Department summarizing the principal features of each plan, the potential risk factors (if any) associated with each plan and the mitigation factors designed to address those risks. Based on that review and the fact that as public utilities the Corporation's wholly owned subsidiaries operate in a heavily-regulated environment, the Executive Compensation Committee concluded it was not reasonably likely that any of the compensation programs, policies and practices of the Corporation or its subsidiaries, whether individually or in the aggregate, would have a material adverse effect upon the Corporation. In reaching such conclusion, the Executive Compensation Committee took into account the following factors, including factors specifically analyzed in terms of the compensation programs, policies and practices for the Corporation's executive officers:
|
|
|
|
•
|
The overall compensation structure is applied uniformly throughout the Corporation and its subsidiaries, with the only major exception relating to the equity component of that compensation structure. Neither the Corporation nor its subsidiaries have any material compensation arrangements that are unique to any business unit or that otherwise depart significantly from the general uniformity of the overall compensation structure throughout the organization.
|
|
|
|
|
•
|
For most of the employee base, compensation is primarily in the form of base salary. Certain employees are also eligible to receive cash incentive compensation tied to both financial and non-financial metrics and individual performance, with a maximum payout potential of up to $39,600 for employees, other than officers of the Corporation or its subsidiaries, for the 2019 fiscal year.
|
|
|
|
|
•
|
The compensation program for officers provides a balanced mix of cash and equity and annual and long-term incentives designed to align the interests of our officers with our long-term interests.
|
|
|
|
|
•
|
We use different performance measures for our annual cash incentive programs and our long-term incentive plans and we set performance goals that we believe are challenging but attainable without taking excessive risks.
|
|
|
|
|
•
|
Under the cash incentive compensation program for officers, we use a number of different financial and operational performance measures as well as individual goals with meaningful caps on the potential pay-outs; we believe this structure mitigates any tendency for an officer to focus exclusively on the specific financial metrics.
|
|
|
|
|
•
|
Each of the officers, including the executive officers, receives equity compensation in the form of restricted stock unit awards that derive their value from the market price of the Corporation's common stock, and the value of those awards increases as the price of the common stock appreciates and stockholder value is thereby created. Accordingly, the equity component is structured to encourage long-term growth and appreciation in the value of the Corporation's business and stock price.
|
|
|
|
|
•
|
The Corporation uses restricted stock unit awards (service-based and performance-based) rather than stock options because they provide varying levels of compensation as the market price of the Corporation's common stock fluctuates over time (and retain value even if the stock price declines) which should reduce the incentive for excessive risk taking.
|
|
|
|
|
•
|
The service-based restricted stock unit awards vest over a period of years and this vesting element encourages the recipients of those awards to focus on sustaining the Corporation's long-term performance. The performance-based restricted stock unit awards are tied to financial performance measured over one to three years with a payout capped at 200 percent of target shares. Because such awards are made annually, the officers always have unvested awards outstanding that could decrease significantly in value if the business of the Corporation and its subsidiaries is not managed for the long term.
|
|
|
|
|
•
|
Pursuant to the terms of Mr. Thornburg's employment agreement, his compensation is subject to recoupment as required under applicable law and regulations. In addition, any shares, cash or other property issued to the other executive officers pursuant to their performance-based restricted stock unit awards is subject to recoupment as required under applicable laws and regulations.
|
|
|
|
|
•
|
The Corporation maintains two tax-qualified retirement plans that are sponsored by San Jose Water Company and that provide benefits for all San Jose Water Company employees who meet minimum service requirements. One of the San Jose Water Company-sponsored plans is a defined benefit pension plan and the other is a defined contribution 401(k) plan. The defined benefit plan has two benefit formulas, one for employees hired on or after March 31, 2008 and one for employees hired before March 31, 2008. Each plan is designed and operated in accordance with applicable federal laws that impose coverage, vesting, and funding requirements and maximum dollar limitations on the annual retirement benefit that can be accrued under such plan. The plan sponsor regularly monitors the administration, including the funding, of these plans.
|
|
|
|
|
•
|
The Corporation also maintains two executive supplemental retirement plans for certain officers and other selected executives of San Jose Water Company. These plans supplement the eligible executive’s retirement benefits under the applicable tax-qualified defined benefit plan. Each eligible officer and other selected employees participate in only one of the plans. The benefit formula under each plan generally follows the applicable tax-qualified pension plan benefit formula but without application of compensation limits. Benefits payable under the supplemental retirement plan are offset by the benefits payable under the tax-qualified pension plan. Unlike the qualified retirement plan benefits, participants in these two supplemental retirement plans are general creditors of the Corporation who would lose substantially all of their accrued benefits under the supplemental plans were the Corporation to become insolvent.
|
|
|
|
|
•
|
The Corporation has also instituted stock ownership guidelines which require the executive officers to maintain a substantial ownership interest in the Corporation. By requiring that a meaningful amount of their personal wealth be tied to long-term holdings in the Corporation's common stock, the Corporation has further aligned their interests with those of the stockholders and mitigated the risk of excessive risk taking.
|
|
|
|
|
•
|
Finally, the Corporation has adopted policies that preclude certain employees and other individuals, including officers and family members residing in the same household, from engaging in hedging or monetization transactions in the Corporation's stock such as put and call options and from pledging the Corporation's stock or holding such stock in margin accounts. Accordingly, the executive officers 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 requirements.
|
For the foregoing reasons, the Executive Compensation Committee concluded that it was not reasonably likely that the overall employee compensation structure of the Corporation and its subsidiaries, as in effect in January 2019, when analyzed either in terms of its organization-wide application or its specific application to various major business units, would have any material adverse effect upon the Corporation.
On October 9, 2019, we completed the acquisition of Connecticut Water Service, Inc. ("CTWS"), which became our wholly owned subsidiary. The compensation programs, practices and policies maintained by CTWS for its executive officers and other employees for fiscal year 2019 were established by the CTWS Compensation Committee in December 2018 and March 2019. In connection with the review of the compensation programs, policies and practices maintained by the Corporation and its subsidiaries, including CTWS, conducted in January 2020 for fiscal year 2020, the Executive Compensation Committee assessed and considered the risks associated with programs, policies and practices maintained by CTWS. The risk assessment conducted for fiscal year 2020 will be discussed in the Proxy Statement for the 2021 annual shareholders meeting.
Outstanding Equity Awards at Fiscal Year-End
The following table provides certain summary information concerning outstanding equity awards held by the named executive officers as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Stock Awards
|
|
|
Number of Shares or Units of Stock That Have Not Vested
(#)
|
Market Value of Shares or Units of Stock That Have Not Vested
($)(1)
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)(1)
|
|
|
Eric W. Thornburg
|
4,851
|
|
(2)
|
344,712
|
|
3,805
|
|
(3)
|
270,383
|
|
|
|
|
1,182
|
|
(4)
|
83,993
|
|
3,171
|
|
(5)
|
225,331
|
|
|
|
|
2,912
|
|
(6)
|
206,927
|
|
6,150
|
|
(7)
|
437,019
|
|
|
|
|
|
|
|
9,916
|
|
(8)
|
704,631
|
|
|
|
David C. Benoit
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
Andrew R. Gere
|
475
|
|
(9)
|
33,754
|
|
828
|
|
(3)
|
58,838
|
|
|
|
|
857
|
|
(10)
|
60,898
|
|
1,545
|
|
(7)
|
109,788
|
|
|
|
|
1,462
|
|
(6)
|
103,890
|
|
1,543
|
|
(11)
|
109,646
|
|
|
|
|
|
|
|
1,854
|
|
(8)
|
131,745
|
|
|
|
Palle L. Jensen
|
399
|
|
(9)
|
28,353
|
|
792
|
|
(3)
|
56,280
|
|
|
|
|
820
|
|
(10)
|
58,269
|
|
1,416
|
|
(7)
|
100,621
|
|
|
|
|
1,352
|
|
(6)
|
96,073
|
|
1,414
|
|
(11)
|
100,479
|
|
|
|
|
|
|
|
1,716
|
|
(8)
|
121,939
|
|
|
|
James P. Lynch
|
457
|
|
(9)
|
32,474
|
|
904
|
|
(3)
|
64,238
|
|
|
|
|
936
|
|
(10)
|
66,512
|
|
1,621
|
|
(7)
|
115,188
|
|
|
|
|
1,535
|
|
(6)
|
109,077
|
|
1,621
|
|
(11)
|
115,188
|
|
|
|
|
|
|
|
1,956
|
|
(8)
|
138,993
|
|
|
|
Maureen P. Westbrook
|
17,701
|
|
(12)
|
1,257,833
|
|
—
|
|
|
—
|
|
|
|
|
1,039
|
|
(13)
|
73,831
|
|
—
|
|
|
—
|
|
|
|
|
|
|
(1)
|
The reported market value of the shares underlying the unvested units is based on the $71.06 closing selling price of the Corporation's common stock on December 31, 2019, the last trading day in the 2019 fiscal year.
|
|
|
|
|
(2)
|
Represents restricted stock units granted on November 6, 2017 and covering 14,552 shares. The underlying shares vest and become issuable in three successive equal annual installments on each of December 31, 2018, December 31, 2019, and December 31, 2020. As of December 31, 2019, one third of the units were unvested.
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|
|
|
|
(3)
|
Represents performance-based restricted stock units granted on January 30, 2018, covering a target number of shares: 2,537 for Mr. Thornburg; 552 for Mr. Gere; 528 for Mr. Jensen; and 603 for Mr. Lynch. The underlying shares vest based on the EPS for the 2020 fiscal year and continued service through December 31, 2020. The number of shares issuable under such awards will range between 0 to 150 percent of the target number of shares based on the level of actual attainment of the specified performance goals. The reported number and market value of the shares underlying those unvested units assumes attainment at maximum level.
|
|
|
|
|
(4)
|
Represents restricted stock units granted on January 2, 2018, covering 3,545 shares. The restricted stock units vest in a series of three successive equal annual installments on each of December 31, 2018, December 31, 2019, and December 31, 2020 subject to continued service. As of December 31, 2019, one third of the units were unvested.
|
|
|
|
|
(5)
|
Represents performance-based restricted stock units granted on January 30, 2018, covering a target number of 6,342 shares for Mr. Thornburg which vest based on the TSR for the 2020 fiscal year and continued service through December 31, 2020. The number of shares issuable under such awards 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. The reported number and market value of the shares underlying those unvested units assumes attainment at threshold level.
|
|
|
|
|
(6)
|
Represents restricted stock units granted on January 2, 2019, covering: 4,367 shares for Mr. Thornburg; 1,462 shares for Mr. Gere; 1,352 shares for Mr. Jensen; and 1,535 shares for Mr. Lynch. The underlying shares vest and become issuable in three successive equal annual installments over the three-year period of service measured from the date of grant. As of December 31, 2019, two thirds of the units were unvested for Mr. Thornburg, and all of the units were unvested for Messrs. Gere, Jensen, and Lynch.
|
|
|
|
|
(7)
|
Represents performance-based restricted stock units granted on January 29, 2019, covering a target number of shares: 4,100 for Mr. Thornburg; 1,030 for Mr. Gere; 944 for Mr. Jensen; and 1,081 for Mr. Lynch. The underlying shares vest based on the level of achievement of a performance goal based on ROE over the period measured from January 1, 2019 to December 31, 2021. The number of shares issuable under such awards will range between 0 to 150 percent of the target number of shares based on the level of actual attainment of the specified performance goals. The reported number and market value of the shares underlying those unvested units assumes attainment at maximum level.
|
|
|
|
|
(8)
|
Represents performance-based restricted stock units granted on January 29, 2019, covering a target number of shares: 4,958 for Mr. Thornburg; 927 for Mr. Gere; 858 for Mr. Jensen; and 978 for Mr. Lynch. The underlying shares vest based on the level of achievement of a performance goal based on relative TSR performance over the period measured from January 1, 2019 to December 31, 2021. The number of shares issuable under such awards 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. The reported number and market value of the shares underlying those unvested units assumes attainment at maximum level.
|
|
|
|
|
(9)
|
Represents restricted stock units granted on January 3, 2017 and covering: 1,424 shares for Mr. Gere; 1,197 shares for Mr. Jensen; and 1,370 shares for Mr. Lynch. The underlying shares vest and become issuable in three successive equal annual installments over the three-year period of service measured from the date of grant. As of December 31, 2019, one third of the units were unvested.
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|
|
|
|
(10)
|
Represents restricted stock units granted on January 2, 2018 and covering: 1,285 shares for Mr. Gere; 1,229 shares for Mr. Jensen; and 1,403 shares for Mr. Lynch. The underlying shares vest and become issuable in three successive equal annual installments over the three-year period of service measured from the date of grant. As of December 31, 2019, two thirds of the units were unvested.
|
|
|
|
|
(11)
|
Represents the unvested portion of performance-based restricted stock units granted on January 29, 2019, covering a target number of shares: 2,059 for Mr. Gere; 1,887 for Mr. Jensen; and 2,162 for Mr. Lynch. The underlying shares vest in two tranches with 50% of the target shares subject to the award allocated to each tranche. The number of shares issuable under each such tranche will range between 0 to 150 percent of the target number of shares based on the level of actual attainment of the specified performance goals. The first tranche vested based on the level of achievement of a performance goal based on ROE measured over the 2019 calendar year period. The second tranche will vest based on the level of achievement of a performance goal based on ROE over the period measured from January 1, 2019 to December 31, 2020. The reported number and market value of the shares underlying those unvested units assumes attainment at maximum level.
|
|
|
|
|
(12)
|
Represents restricted stock units granted on October 9, 2019. The underlying shares vest and become issuable in three successive equal annual installments over the three-year period of service measured from the date of grant. As of December 31, 2019, all of the units were unvested.
|
|
|
|
|
(13)
|
Represents restricted stock units previously granted to Ms. Westbrook that were assumed by the Corporation in connection with the Merger and that continue to be subject to service-based vesting. Each restricted stock unit will vest on December 8, 2020 and entitles Ms. Westbrook to a cash amount equal to one share of common stock of the Corporation on the vesting date. As of December 31, 2019, all of the units were unvested.
|
Option Exercises and Stock Vested
The following table sets forth, for each of the named executive officers, the number and value of shares of the Corporation's common stock subject to each deferred restricted stock or restricted stock unit award that vested during the year ended December 31, 2019. No option or stock appreciation rights were exercised by the named executive officers during the 2019 fiscal year, and none of such officers held any option or stock appreciation rights as of December 31, 2019.
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|
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|
|
|
|
|
|
|
|
Name
|
Stock Awards
|
|
Number of Shares
Acquired on Vesting (#)
|
|
Value Realized on Vesting ($)(1)
|
|
|
Eric W. Thornburg
|
4,851
|
|
|
344,712
|
|
|
|
|
1,182
|
|
|
83,993
|
|
|
|
|
1,455
|
|
|
103,392
|
|
|
|
David C. Benoit
|
3,564
|
|
(2)
|
253,258
|
|
|
|
|
3,361
|
|
(3)
|
238,833
|
|
|
|
|
574
|
|
(4)
|
37,489
|
|
|
|
Andrew R. Gere
|
428
|
|
|
23,429
|
|
|
|
|
475
|
|
|
26,149
|
|
|
|
|
953
|
|
|
54,159
|
|
|
|
|
589
|
|
(5)
|
40,735
|
|
|
|
|
568
|
|
(6)
|
39,283
|
|
|
|
Palle L. Jensen
|
409
|
|
|
22,389
|
|
|
|
|
399
|
|
|
21,965
|
|
|
|
|
953
|
|
|
54,159
|
|
|
|
|
547
|
|
(5)
|
37,831
|
|
|
|
|
521
|
|
(6)
|
36,032
|
|
|
|
James P. Lynch
|
467
|
|
|
25,564
|
|
|
|
|
457
|
|
|
25,158
|
|
|
|
|
1,016
|
|
|
57,739
|
|
|
|
|
566
|
|
(5)
|
39,145
|
|
|
|
|
597
|
|
(6)
|
41,289
|
|
|
|
Maureen P. Westbrook
|
442
|
|
(4)
|
28,840
|
|
|
|
|
|
|
(1)
|
The value realized is determined by multiplying (i) the market price of the Corporation's common stock on the applicable vesting date by (ii) the number of shares which vested on such date.
|
|
|
|
|
(2)
|
Represents restricted stock units and dividend equivalent rights that accrued on such units that vested upon Mr. Benoit's termination of employment on December 31, 2019. Such restricted stock units were previously granted to Mr. Benoit under certain stock programs of CTWS and assumed by the Corporation in connection with the Merger.
|
|
|
|
|
(3)
|
Represents cash-settled restricted stock units that vested upon Mr. Benoit's retirement from CTWS. Such restricted stock units were previously granted to Mr. Benoit under certain stock programs of CTWS and assumed by the Corporation in connection with the Merger.
|
|
|
|
|
(4)
|
Represents deferred shares subject to deferred stock units ("DSU") pursuant to dividend equivalent rights accrued on outstanding DSUs granted by CTWS and assumed by the Corporation in connection with the Merger.
|
|
|
|
|
(5)
|
Represents performance-based restricted stock units granted on January 24, 2017 that vested based on an adjusted EPS of $2.34 for the calendar year 2019 and each officer's continued service through December 31, 2019.
|
|
|
|
|
(6)
|
Represents awards of restricted stock units under granted on January 29, 2019 covering 1,030, 944, and 1,081, target shares of the Corporation's common stock that vested based on an adjusted ROE of 8.56% measured over the 2019 calendar year period and continued service through December 31, 2019.
|
Pension Benefits
The Corporation maintains three defined benefit plans for employees of San Jose Water Company: San Jose Water Company's Retirement Plan, a tax-qualified pension plan (the "Retirement Plan"); the Executive Supplemental Retirement Plan, a non-qualified supplemental pension plan (the "SERP"); and the Cash Balance Executive Supplemental Retirement Plan, a non-qualified pension plan (the "Cash Balance SERP"). Two separate defined benefit plans are maintained for employees of Connecticut Water Company: The Connecticut Water Company Employees’ Retirement Plan, a tax-qualified pension plan and individual supplemental executive retirement agreements with certain executives (“CWC SERP Agreements”) that provide non-qualified supplemental pension benefits.
The following table sets forth as of December 31, 2019, for each plan or agreement that provides for payments or other benefits in connection with the retirement of each of the named executive officers, the number of years of service credited to the named executive officer under the plan, the actuarial present value of the named executive officer's accumulated benefit under each applicable plan, and the dollar amount of any payments and benefits paid to the named executive officer during the Corporation's last completed fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Plan Name
|
Number
of Years
Credited Service
(#)(1)
|
Present
Value of
Accumulated
Benefit
($)(1)
|
Payments
During
Last
Fiscal Year ($)
|
|
Eric W. Thornburg
|
San Jose Water Company Retirement Plan
|
2
|
|
38,138
|
|
—
|
|
|
|
San Jose Water Company Cash Balance SERP
|
2
|
|
1,135,219
|
|
—
|
|
|
David C. Benoit
|
Connecticut Water Company Employees' Retirement Plan
|
24
|
|
1,511,210
|
|
—
|
|
|
|
CWC SERP Agreement
|
24
|
|
3,371,673
|
|
—
|
|
|
Andrew R. Gere
|
San Jose Water Company Retirement Plan
|
24
|
|
1,667,356
|
|
—
|
|
|
|
San Jose Water Company SERP
|
24
|
|
3,047,612
|
|
—
|
|
|
Palle L. Jensen
|
San Jose Water Company Retirement Plan
|
25
|
|
2,049,664
|
|
—
|
|
|
|
San Jose Water Company SERP
|
25
|
|
3,053,085
|
|
—
|
|
|
James P. Lynch
|
San Jose Water Company Retirement Plan
|
9
|
|
177,731
|
|
—
|
|
|
|
San Jose Water Company Cash Balance SERP
|
9
|
|
823,072
|
|
—
|
|
|
Maureen P. Westbrook
|
Connecticut Water Company Employees' Retirement Plan
|
31
|
|
1,929,377
|
|
—
|
|
|
|
CWC SERP Agreement
|
31
|
|
1,248,429
|
|
—
|
|
|
|
|
|
(1)
|
The number of years of credited service has been rounded to the nearest whole number. The present value of accumulated benefits is based on the actual period of service credited.
|
The pension benefits payable to the executive officers increase in correlation with increases in salary and years of service. The present value of the accrued pension benefit will also fluctuate from year-to-year based on the age of the participant 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.
The actuarial and economic assumptions used above to value the pension plan benefits under plans that cover employees of San Jose Water Company are as follows: For the 2019 fiscal year calculations, the discount rates applied were 3.13% for the Retirement Plan and 3.05% for the Executive Supplemental Retirement Plan ("SERP") and Cash Balance Executive Supplemental Retirement Plan ("Cash Balance SERP"). For the 2018 fiscal year calculations the discount rates applied were 4.16% for the Retirement Plan and 4.09% for the SERP and the Cash Balance SERP. The mortality rate tables, all published by
the Society of Actuaries, used for the 2019 fiscal year are described as follows: for the Retirement Plan, the Pri-2012 Total Dataset Amount-Weighted Mortality with MP-2019 Mortality Improvement Scale, and for the 2018 fiscal year, the RP-2014 Total Dataset Mortality Table adjusted to 2006 with MP-2018 Mortality Improvement Scale; for the SERP and the Cash Balance SERP, Pri-2012 White Collar Amount-Weighted Mortality with MP-2019 Mortality Improvement Scale for the 2019 fiscal year, and for the 2018 fiscal year the RP-2014 Mortality Table basis adjusted to 2006 with MP-2018 Mortality Improvement Scale.
There is no assumption for pre-retirement mortality or cessation of service, and retirement is assumed to occur at the earliest age at which each named executive officer can receive the pension benefits without actuarial reductions. For further information concerning such actuarial assumptions, please see Note 9 to the Corporation's consolidated financial statements included in its annual report on Form 10-K for the 2019 fiscal year.
The actuarial and economic assumptions under plans that cover employees of Connecticut Water Company are as follows: Pri-2012 Private Retirement Plans Amount Weighted Mortality Tables, projected using Scale MP 2019 for annuities, and IRS Applicable Mortality Table for lump sums for the Connecticut Water Company Employees’ Retirement Plan, and Pri-2012 Private Retirement Plans White Collar Amount-Weighted Mortality Tables, projected using Scale MP 2019 for the CWC SERP Agreements. For the 2019 fiscal year calculations shown above, discount rates of 3.23% for the Connecticut Water Company Employees’ Retirement Plan and 3.15% for the CWC SERP Agreements were applied.
San Jose Water Company Retirement Plan Benefit
Benefit accruals under the Retirement Plan of San Jose Water Company differ depending on whether an employee first commenced status as an employee with San Jose Water Company (i) before March 31, 2008 or (ii) on or after March 31, 2008. All the named executive officers employed by San Jose Water Company, except for Messrs. Lynch and Thornburg, commenced service before March 31, 2008.
The monthly retirement benefit under the Retirement Plan payable at age 65 (the plan's normal retirement age) to each named executive officer who commenced employee status before March 31, 2008 will be equal to 1.6 percent of his average monthly compensation (as determined in the manner indicated below) for each year of service completed after January 1, 1978. However, the Retirement Plan provides a minimum benefit to each participant with at least 30 years of service equal to 50 percent of his or her average monthly compensation, less 50 percent of his or her monthly old-age insurance benefit under Section 202 of the Social Security Act. For participants with less than 30 years of service, the minimum benefit described in the preceding sentence will be reduced 1/30 for each year by which their years of service are less than 30 years (adjusted to give credit for partial years of service).
For participants who commenced employee status before March 31, 2008, the Retirement Plan also contains a special benefit calculation when their combined age and service equals or exceeds 75. The combined age and years of service for each named executive officer equals or exceeds 75. Accordingly, the special benefit for each of those named executive officers who commenced employee status before March 31, 2008 and completed at least 30 years of service will be equal to 60 percent of his or her average monthly compensation, less 50 percent of his or her monthly old-age insurance benefit under Section 202 of the Social Security Act. For named executive officers with less than 30 years of service, the special benefit described in the preceding sentence will be reduced one-thirtieth for each year by which their years of service are less than 30 years (adjusted to give credit for partial years of service).
For purposes of the applicable benefit calculation under the Retirement Plan, (i) a participant's average monthly compensation will be determined on the basis of his or her three highest years of compensation (whether or not consecutive) prior to attainment of age 65 (or earlier retirement or termination) and will generally be based upon the amount reported on his or her Form W-2 for federal income tax purposes for each year included in such calculation, plus amounts deferred under the 401(k) plan and certain other limited deferrals, and (ii) the annual compensation taken into account for benefit accrual purposes for each such year may not exceed the annual compensation limit for that year determined in accordance with the Internal Revenue Code. No lump sum payment of accumulated retirement benefits is provided under the Retirement Plan for employees who first commenced status as
an employee before March 31, 2008, except that a lump sum distribution may become payable to the surviving beneficiary of a deceased participant under certain circumstances. In-service distributions are allowed for: (i) a participant who has attained age 70 and a half years; and (ii) a participant who commenced status as an employee before March 31, 2008 if such participant has attained age 65 and his or her age and years of service equal at least 100; provided, if such a participant was not employed by the Company on December 31, 2013 and is subsequently re-hired on or after January 1, 2014, he or she will not be entitled to an in-service distribution.
The retirement benefits accrued by San Jose Water Company employees who first commence service on or after March 31, 2008, including Messrs. Lynch and Thornburg, are determined under the cash balance portion of the Retirement Plan and will be based upon the compensation credits and interest credits made to a hypothetical bookkeeping account established for each such participant. Compensation credits will be made on behalf of each participant each plan quarter in which the participant is an eligible employee with at least one hour of service for that quarter. The amount of the compensation credit for that quarter will be based on the compensation paid to the participant for that quarter and his or her years of credited service, as determined in accordance with the following schedule:
|
|
|
|
|
|
|
Years of Credited Service
|
Percent of
Compensation (%)
|
|
Less than 5
|
5
|
|
|
5 but less than 10
|
6
|
|
|
10 but less than 15
|
7
|
|
|
15 but less than 20
|
9
|
|
|
20 or more
|
11
|
|
For purposes of determining the amount of each participant's compensation credit, (i) compensation is generally based upon the amount that would otherwise be reported on the participant's Form W-2 for federal income tax purposes during the quarter, plus amounts deferred for that quarter under the 401(k) plan and certain other limited deferrals and (ii) the annual compensation taken into account may not exceed the annual compensation limit determined in accordance with the Internal Revenue Code ("Code").
Interest credits are also generally made on behalf of each participant each plan quarter. The amount of each interest credit is determined by multiplying the balance of the participant's account as of the last day of that plan quarter by the lesser of: (i) the greater of one quarter of (a) the minimum three and a quarter percent annual interest rate or (b) the annual yield on 30-year Treasury bonds, determined as of the month of October preceding the first day of the plan year; and (ii) one quarter of the six percent maximum annual interest rate.
Benefits accrued under the Retirement Plan may be paid as (i) a fixed monthly pension for life, (ii) a reduced monthly benefit payable for life but with a minimum payment period of 10 years for the participant or his or her designated beneficiary, or (iii) a reduced joint and survivor annuity for the participant and his or her surviving spouse. For participants who commence employee status on or after March 31, 2008, the accrued benefits may be paid in a lump sum, or pursuant to any of the forms described above, following attainment of the applicable age and service requirements.
Mr. Gere is not currently eligible to receive early retirement benefits. Messrs. Lynch and Thornburg joined the Corporation after March 30, 2008 and participate in the cash balance portion of the Retirement Plan which does not provide early retirement benefits. Participants who are credited with an hour of service on or after March 31, 2008, will become fully vested following the earlier of three years of service or age 65. As of December 31, 2019, all the named executive officers employed by San Jose Water Company, except for Mr. Thornburg, are vested under the Retirement Plan.
The Connecticut Water Company Employees’ Retirement Plan
All employees of The Connecticut Water Company hired prior to January 1, 2009, including Mr. Benoit and Ms. Westbrook, participate in the Connecticut Water Company Employees’ Retirement Plan, a noncontributory qualified defined benefit plan. The plan also covers eligible employees of certain subsidiaries hired before March 1, 2012. Retirement benefits for eligible employees of the Connecticut Water Company are based on the employee’s years of credited service and average earnings, which is defined to mean the highest average annual regular basis compensation received by an individual from the Connecticut Water Company during any 60 consecutive months. Different retirement benefits apply to certain legacy groups. Participants are eligible for normal retirement as of the first day of the month coinciding with or following attainment of age 65. An early retirement benefit, based on the normal retirement benefit subject to reduction factors for retirement before age 62, may be taken upon attainment of age 55 and completion of 10 years of credited service.
The monthly retirement benefit under the Connecticut Water Company Employees’ Retirement Plan is equal to one half of the greatest of (i) 1.6 percent of the participant’s average earnings multiplied by years of credited service and (ii) $1,000 per year of credited service proportionally reduced for less than 10 year of credited service, but in no event shall the benefit be less than the benefit accrued as of December 31, 2000. The benefit is not reduced for old-age insurance benefits under Section 202 of the Social Security Act. Benefits vest with five years of service. Mr. Benoit and Ms. Westbrook are fully vested in their benefits under the Connecticut Water Company Employee’s Retirement Plan.
San Jose Water Company SERP Benefit
The SERP provides participants with a monthly pension benefit that supplements the pension they earn under the Retirement Plan of San Jose Water Company. Each officer of the Corporation employed by San Jose Water Company who commenced employee status before March 31, 2008 is eligible for participation under the SERP. Eligible employees selected for SERP participation by the Executive Compensation Committee of the SJW Group Board of Directors (the "Committee") will become a participant on the first day of the first calendar month next following his or her selection date or such later date as the Committee may specify. All of the named executive officers employed by San Jose Water Company other than Messrs. Lynch and Thornburg participate in the SERP.
The SERP is designed to supplement the retirement income by providing an additional monthly pension in excess of the pension benefit under the Retirement Plan. Effective as of January 1, 2010, the dollar amount of that monthly pension for each participant credited with an hour of service on or after January 1, 2010 is determined on the basis of the following normal retirement benefit payable as a single-life annuity commencing at age 65: 2.2 percent of final average monthly compensation multiplied by the years of service, up to a total monthly retirement benefit not to exceed 60 percent of final average monthly compensation (as determined in the manner indicated below), less the monthly retirement benefit payable to such individual under the Retirement Plan as a single-life annuity commencing at normal retirement age. Accordingly, the maximum retirement benefit is limited to 60 percent of final average compensation, less a participant's normal retirement benefit under the Retirement Plan.
For purposes of such calculation, participants receive credit for partial years of service, and each participant's final average monthly compensation will be his or her average monthly compensation for the consecutive 36-month period within his or her last 10 years of service with the Corporation for which such average monthly compensation is the highest. A participant's average monthly compensation is calculated on the basis of his or her earned salary for that month and the amount of the annual cash incentive compensation that is actually paid to him or her during that month or that would have been paid at that time in the absence of a deferral election.
The SERP benefit will commence following the later of (i) the participant's separation from service with the Corporation or (ii) his or her attainment of age 55, unless the participant makes a timely election of a later attained age. SERP benefits which commence prior to the participant's attainment of age 65 will be subject to actuarial reduction for the early commencement date, except under prescribed circumstances. No lump sum benefit distributions are provided under the SERP.
SERP participants may, for purposes of their benefit calculations, receive special age and service credits under the Executive Severance Plan should their employment terminate under certain circumstances following a change in control. See the discussion of the Executive Severance Plan in the section below entitled "Employment Agreements, Offer Letters, Termination of Employment and Change in Control Arrangements" for further information.
The accrued SERP retirement benefit for Mr. Jensen was not reduced and for Mr. Gere will not be reduced for early commencement if such commencement occurs on or after their attainment of (i) age 60 or (ii) a combined age and years of service equal to 85.
A participant will vest in his or her SERP benefit upon completion of 10 years of service or in the event the participant becomes entitled to a severance benefit under the Executive Severance Plan by reason of a qualifying termination. As of December 31, 2019, each of the named executive officers who participates in the SERP is vested in his or her SERP benefit.
San Jose Water Company Cash Balance SERP Benefit
The Cash Balance SERP is a supplemental retirement benefit plan for executive officers and other key management personnel employed by San Jose Water Company who commence employment on or after March 31, 2008 and are accordingly ineligible to participate in the SERP. The actual participants are selected from time to time by the Committee. Eligible employees selected for Cash Balance SERP participation by the Committee will become a participant on the first day of the first quarter next following the date of his or her selection date or such later date as the Committee may specify, except that the plan was amended to allow Mr. Thornburg to become a participant in the plan as of November 6, 2017, his first day of employment with the company.
An account balance will be maintained for each participant in the Cash Balance SERP and will be periodically credited with a percentage of his or her compensation for the applicable period based on his or her years of credited service. The plan was amended effective October 24, 2018 granting the Committee the discretion to designate a different formula (as to years of credited service and/or percent of compensation) for any participant, provided no such action shall reduce any accrued benefit as of the date of such action. Except for Messrs. Lynch and Thornburg, compensation credits are made in accordance with the following formula:
|
|
|
|
|
|
|
Years of Credited Service
|
Percent of
Compensation (%)
|
|
Less than 5
|
10
|
|
|
5 but less than 10
|
11
|
|
|
10 but less than 15
|
12
|
|
|
15 but less than 20
|
14
|
|
|
20 or more
|
16
|
|
The account balance will also be credited periodically with interest pursuant to a pre-established formula. The benefit accrued under the Cash Balance SERP will be offset by a portion of the participant's benefit accrued under the Retirement Plan. Accordingly, at such time as the participant becomes entitled to receive his or her retirement benefit under the Cash Balance SERP, a portion of his or her accrued benefit under the Retirement Plan will be applied as an offset to his or her vested accrued benefit under the Cash Balance SERP.
A participant's accrued benefit for plan quarters ending before January 1, 2014 and associated interest credits accrued after December 31, 2013 shall be paid in a single lump sum beginning on the first day of the seventh month following the participant's separation from service. Pursuant to the Cash Balance SERP amended as of October 30, 2013, a participant's accrued benefit for plan quarters ending after January 1, 2014 and all associated interest credits shall be paid in a single lump sum beginning on the first day of the seventh month following the participant's separation from service unless a timely election is made by the participant to receive his or her benefit in annual installments over a 10-year period beginning on the first business day of the seventh month following his or her separation from
service. Mr. Lynch elected to receive his accrued benefit for plan quarters ending after January 1, 2014 and all associated interest credits in annual installments over a 10-year period.
The Cash Balance SERP also provides a death benefit should the participant die with a vested accrued benefit. The amount of the death benefit will be calculated in the same manner as if the participant had survived and will be payable in a lump sum to his or her beneficiary.
A participant will vest in his or her Cash Balance SERP benefit upon completion of 10 years of service or in the event the participant becomes entitled to a severance benefit under the Executive Severance Plan by reason of a qualifying termination. At the time of Mr. Lynch's entry into the plan, the plan was amended to provide him with (i) a higher rate of company contributions during his first 20 years of service equal to 15 percent of his quarterly compensation during that period and (ii) full vesting of his accrued benefit under the plan upon completion of three years of service. The plan was amended effective November 6, 2017 for Mr. Thornburg to provide that (i) the percentage of compensation credited to his Cash Balance SERP account each quarter until the quarter he turns 65 shall be 39 percent of his quarterly compensation, (ii) the special sign-on bonus specified in his employment agreement will be included in his compensation for the plan quarter in which it is paid, and (iii) he will vest in his accrued benefit under such plan once he turns 65. As of December 31, 2019, each of the named executive officers who participates in the Cash Balance SERP, except for Mr. Thornburg, is vested in the Cash Balance SERP benefit.
CWC SERP AGREEMENTS
The CWC SERP Agreements are designed to supplement the executive’s retirement income by providing retirement benefits in excess of the pension benefit under the Connecticut Water Company Employees’ Retirement Plan Retirement Plan. If the executive meets the age and any applicable service requirements the CWC SERP Agreements provide the covered executive with a retirement benefit equal to approximately 60% of the participant’s average earnings, as defined under the Connecticut Water Company Employees Retirement Plan but without the compensation limit under the Code, offset by his or her benefit payable under the Connecticut Water Company Employees Retirement Plan. Mr. Benoit’s CWC SERP Agreement benefit is further reduced by benefits payable under the retirement plan of a prior employer. If benefits commence prior to the executive’s attainment of age 62, benefits are reduced by 4% for each complete year by which such benefit commencement precedes the executive’s attainment of age 62. If the participant retires after attaining age 62, average earnings also include the value of cash units, restricted stock, and performance share units awarded under the CTWS 1994 (as amended and restated in 2002), 2004 or 2014 Performance Stock Programs. If the executive undergoes a “separation from service” with the Connecticut Water Company either without cause (as defined in each participant’s employment agreement) or due to death or disability at any time before the attainment of age 62, the participant’s supplemental retirement benefit under the CWC SERP Agreement will generally be treated as if the “separation from service” occurred after the participant attained age 62 in two respects: (1) the executive’s supplemental retirement benefit will not be reduced by an early retirement factor and (2) the components of compensation used to calculate average earnings for purposes of the supplemental retirement benefit will be consistent with the components used following a “separation from service” after attaining age 62. Both Mr. Benoit and Ms. Westbrook have attained age 62 and are fully vested in their CWC SERP Agreement benefits.
Non-Qualified Deferred Compensation
None of the named executive officers, other than Mr. Benoit and Ms. Westbrook, have deferred any compensation or have any deferred shares with respect to the 2019 fiscal year or any prior year. Mr. Benoit and Ms. Westbrook have deferred compensation under the 2017 Connecticut Water Deferred Compensation Plan and the Deferred Compensation Plan II and hold deferred share units of the Corporation’s common stock.
The following table shows the deferred compensation activity for Mr. Benoit and Ms. Westbrook during the 2019 fiscal year attributable to his or her participation in the 2017 Connecticut Water Deferred Compensation Plan and the Deferred Compensation Plan II:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Executive
Contributions
in Last FY
($)(1)
|
Registrant
Contributions
in Last FY
($)
|
Aggregate
Earnings in
Last FY
($)(2)
|
Aggregate
Withdrawals/
Distribution
($)
|
Aggregate
Balance at
Last FYE
($)(3)
|
|
David C. Benoit
|
66,323
|
|
88,476
|
|
—
|
|
—
|
|
1,435,977
|
|
|
Maureen P. Westbrook
|
250,855
|
|
—
|
|
55,965
|
|
—
|
|
640,537
|
|
|
|
|
|
(1)
|
Represents the portion of salary and annual cash incentive compensation earned for the 2019 fiscal year and deferred under the Deferral Plan.
|
|
|
|
|
(2)
|
Includes the amount of interest that was accrued for the 2019 fiscal year on the named executive officer's outstanding balance under the Deferral Plan. For Mr. Benoit and Ms. Westbrook, $44,083 and $10,734, respectively, of the Aggregate Earnings in Last FY represents “above-market” earnings, and is included in the Summary Compensation Table.
|
|
|
|
|
(3)
|
Includes amounts deferred prior to October 9, 2019 (and earnings thereon) some of which may be comprised of “above-market” earnings and may have been included by CTWS in the Summary Compensation Table in its proxy statements in years prior to the Merger.
|
The following table shows the deferred compensation activity for Mr. Benoit and Ms. Westbrook for the 2019 fiscal year attributable to the deferred shares of the Corporation's common stock awarded or credited during such year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Executive
Contributions
in Last FY
($)
|
Registrant
Contributions
in Last FY
($)
|
Aggregate
Earnings in
Last FY
($)(1)
|
Aggregate
Withdrawals/
Distribution
($)
|
Aggregate
Balance at
Last FYE
($)(2)
|
|
David C. Benoit
|
109,216
|
|
—
|
|
522,780
|
|
62,003
|
|
2,235,619
|
|
|
Maureen P. Westbrook
|
—
|
|
—
|
|
405,889
|
|
20,616
|
|
1,731,093
|
|
|
|
|
|
(1)
|
For Mr. Benoit, represents (i) the $40,802 fair market value as of December 31, 2019 of the shares underlying additional deferred share units credited to Mr. Benoit for the 2019 fiscal year as a result of the dividend equivalent rights under his assumed deferred share units and (ii) a $481,978 increase in the fair market value of the shares underlying accumulated deferred share units since the beginning of the 2019 fiscal year. For Ms. Westbrook, represents (i) the $31,378 fair market value as of December 31, 2019 of the shares underlying additional deferred share units credited to Ms. Westbrook for the 2019 fiscal year as a result of the dividend equivalent rights under her assumed deferred share units and (ii) a $374,511 increase in the fair market value of the shares underlying accumulated deferred share units since the beginning of the 2019 fiscal year.
|
|
|
|
|
(2)
|
The reported aggregate balance is based on the $71.06 closing selling price of the common stock on December 31, 2019. Each named executive officer is fully vested in his or her balance.
|
San Jose Water Company Special Deferral Election Plan
The Special Deferral Election Plan (the "Deferral Plan") allows certain key employees, including each of the named executive officers employed by San Jose Water Company, the opportunity to accumulate an additional source of retirement income through the deferral of up to 50 percent of their base salary each year and up to 100 percent of their annual cash incentive compensation or other incentive compensation each year. For the compensation deferred each year, the individual may designate a separate distribution event and form of payment (lump sum or annual installments over a five or 10-year period). Distribution events include separation from service, the expiration of a designated deferral period of at least five years or the occurrence of a change in control. Withdrawals are also permitted in the event of a financial hardship. Each deferred account balance is credited with a rate of interest each year, compounded semi-annually, equal to the lower of (i) the 30-year long-term borrowing cost of funds to San Jose Water Company, as such rate is measured as of the start of each calendar year; or (ii) 120 percent of the applicable federal long-term rate, measured as of the start of each calendar year.
2017 Connecticut Water Deferred Compensation Plan
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 6 index funds and a fixed rate alternative currently crediting 2.75 percent.
The Connecticut Water Company Deferred Compensation Plan II
Eligible employees who entered into deferred compensation agreements with The Connecticut Water Company (these agreements are collectively referred to as the "Deferred Compensation Plan II”) are provided with certain deferred compensation. The Deferred Compensation Plan II is closed to new participant elective deferral contributions, but participants continue to have their accounts credited with earnings each January 1 and July 1 in an amount equal to 50 percent of the product of (i) the recent AAA Corporate Bond Yield Average published by Moodys, plus 4 percentage points and (ii) the participant’s existing deferred compensation account balance.
Pay Ratio Disclosure
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of our Chief Executive Officer ("CEO") and President, Eric W. Thornburg.
For 2019, our last completed fiscal year:
|
|
|
|
•
|
The median of the annual total compensation of all employees of the Corporation (other than our CEO) was $82,050; and
|
|
|
|
|
•
|
The annual total compensation of our CEO, as reported in the Summary Compensation Table included elsewhere in this Proxy Statement, was $2,609,419.
|
Based on this information, the ratio of the annual total compensation of Mr. Thornburg, our President and CEO, to the median of the annual total compensation of all employees for 2019 was 32 to 1.
On October 9, 2019, we completed the acquisition of CTWS, which became our wholly owned subsidiary. As permitted by Item 402(u) of Regulation S-K, we excluded approximately 371 employees of CTWS from our employee population for purpose of identifying the median employee. Accordingly, we used the same median employee that was identified in 2017, because other than the employees of CTWS which are excluded from our employee population as discussed above, there has been no change in our employee population or employee compensation arrangements that we believe would significantly impact our pay ratio disclosure.
As previously disclosed, we took the following steps to identify the median employee in 2017:
|
|
|
|
•
|
We determined that, as of November 30, 2017, our employee population consisted of approximately 478 individuals with all of these individuals located in the United States. This population consisted of our full-time, part-time, temporary and seasonal employees.
|
|
|
|
|
•
|
We selected November 30, 2017, which is within the last three months of 2017, as the date upon which we would identify the “median employee” because it enabled us to make such identification in a reasonably efficient and economical manner.
|
|
|
|
|
•
|
To identify the “median employee” from our employee population, we compared the amount of salary, wages, and tips of our employees as reflected in our payroll records as reported to the Internal Revenue Service on Form W-2 for 2017. We excluded equity awards and bonus payments from our compensation measure because we did not widely distribute such awards and bonus to our employees. We identified our median employee using this compensation measure, which was consistently applied to all our employees included in the calculation.
|
We combined all of the elements of such employee’s compensation for 2019 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $82,050.
Employment Agreements, Offer Letters, Termination of Employment and Change in Control Arrangements
Mr. Thornburg's Employment Agreement: In September 2017, the Corporation entered into an employment agreement pursuant to which Mr. Thornburg agreed to serve as the President and Chief Executive Officer effective November 6, 2017. The agreement was amended on December 31, 2019, and the material terms of such agreement as amended are summarized below:
|
|
|
|
•
|
Mr. Thornburg's annual base salary for the 2017 and 2018 calendar years was established at $700,000.
|
|
|
|
|
•
|
Pursuant to the December 31, 2019 amendment to his employment agreement, Mr. Thornburg's target annual incentive cash compensation is no less than 50 percent of his base salary starting with the 2018 fiscal year, and beginning with the 2020 fiscal year, such target annual incentive cash compensation is no less than 75 percent of his base salary.
|
|
|
|
|
•
|
Mr. Thornburg received a sign-on cash bonus in the amount of $310,000 in the first quarter of 2018. This bonus was intended in part to offset the 2017 cash incentive award forfeited by Mr. Thornburg in light of his move to the Corporation.
|
|
|
|
|
•
|
Mr. Thornburg is eligible to receive enhanced severance benefits under the Executive Severance Plan (but not a tax gross-up as described below) and enhanced retirement benefits under the Cash Balance SERP.
|
|
|
|
|
•
|
Mr. Thornburg is entitled to severance benefits upon an involuntary termination (under certain circumstances where he is not eligible for benefits under the Executive Severance Plan) in an amount equal to the sum of (i) (A) two times the sum of his annual base salary and target annual cash incentive compensation as in effect for the fiscal year of termination if such termination occurs on or prior to December 31, 2019 or (B) one times the sum of his annual base salary and target annual cash incentive compensation as in effect for the fiscal year of termination if such termination occurs after December 31, 2019 and (ii) his annual bonus for the year of termination based on actual performance, pro-rated for the number of days of employment during the year of termination.
|
|
|
|
|
•
|
If any payments or benefits payable to Mr. Thornburg would become subject to excise tax under Section 4999 of the Code, then such payments and benefits will be subject to reduction if such reduction would provide him with a greater after-tax benefit.
|
|
|
|
|
•
|
Mr. Thornburg's compensation is subject to clawback in accordance with applicable laws and regulations.
|
|
|
|
|
•
|
Mr. Thornburg was reimbursed for reasonable temporary housing expenses in the San Jose area (for up to 12 months) and reasonable moving and travel expenses incurred in connection with his relocation to the San Jose area. Mr. Thornburg is also eligible to receive a company-provided motor vehicle and maintenance thereof and the same perquisites as the other senior executive officers of the Corporation. In addition, effective January 1, 2018, the Corporation will reimburse Mr. Thornburg for reasonable business-related personal expenses approved by the Chair of the Executive Compensation Committee.
|
|
|
|
|
•
|
Equity awards under the agreement include the following:
|
|
|
|
|
▪
|
Three initial RSU awards granted in the first quarter of 2018. The first award granted on January 2, 2018, covers 3,545 shares (determined by dividing $225,000 by the closing price per share of the Corporation's common stock on the grant date) vesting in three equal installments on each of December 31, 2018, December 31, 2019, and December 31, 2020 subject to continued service. The second and third initial awards were granted on January 30, 2018 and cover an aggregate number of 8,879 shares determined by dividing $525,000 by the closing price per share of Corporation common stock on the grant date. The second award covers 6,342 target shares based on continued service and total shareholder return ("TSR") performance relative to the seven water peer companies over the period measured from January 1, 2018 to December 31, 2020 (the "TSR Performance Period"). The number of shares issuable under such award will range between 0 to 200 percent of the target number of shares and will vest based on the level of actual attainment of the specified performance goal. The third initial award covers 2,537 target shares and will vest based on the EPS for the 2020 fiscal year and continued service through December 31, 2020. The number of shares issuable under such award will range between 0 to 150 percent of the target number of shares based on the level of actual attainment of the specified performance goal.
|
|
|
|
|
▪
|
A special grant of RSUs granted on November 6, 2017 covering 14,552 shares (determined by dividing $900,000 by the closing price per share of the Corporation's common stock on the grant date) which will vest in three annual equal installments on each of December 31, 2018, December 31, 2019 and December 31, 2020 subject to continued service. This special grant is in recognition of the value of unvested equity awards that were forfeited by Mr. Thornburg in light of his move to the Corporation.
|
Mr. Lynch's Offer Letter: Under the terms of his offer letter, Mr. Lynch is entitled to (i) a company car and reimbursement of membership fees for one local health club; and (ii) separation pay in the form of 12 months of salary continuation should his employment be involuntarily terminated without cause. However, should Mr. Lynch's employment terminate under circumstances that would otherwise entitle him to separation pay and severance benefits under the Executive Severance Plan, there will be no duplication of benefits under the two arrangements, and Mr. Lynch will only receive the severance benefits provided under the Executive Severance Plan. Mr. Lynch's base salary was $467,000 for the 2019 calendar year.
Mr. Benoit’s Employment Agreement: Prior to the Closing Date, Mr. Benoit had entered into an employment agreement with CTWS and CWC which became effective at the closing of the Merger (the “Benoit Employment Agreement”). Under the Benoit Employment Agreement, Mr. Benoit was entitled to certain compensation and benefits for services to CTWS and severance benefits payable upon an involuntary termination which included Mr. Benoit’s right to terminate his employment for any reason within 13 months following closing of the Merger.
Mr. Benoit resigned effective December 31, 2019 and in accordance with the terms of the Benoit Employment Agreement, he became eligible to receive the following severance benefits: (i) an amount equal three times his base salary plus three times his 2019 target bonus payable in equal monthly installments through December 31, 2022; (ii) the value of the aggregate amounts that CWC would have contributed on his behalf under the Savings Plan of Connecticut Water Company, plus estimated earnings thereon, had Mr. Benoit continued to participate in such plan for an additional three years payable in a lump sum on December 31, 2021; (iii) an interest amount that would have been payable to Mr. Benoit under the Deferred Compensation Plan II had he continued in the employ of CWC for an additional three years, with respect to his current deferred compensation account balance payable in a lump sum on December 31, 2021; (iv) additional retirement benefits equal to the present value of the difference between the annual pension benefits that would have been payable to Mr. Benoit under The Connecticut Water Company Employees’ Retirement Plan and his CWC SERP Agreement had he continued to participate in such plan(s) for an additional three years and benefits actually payable in a lump sum on December 31, 2021; (v) accelerated vesting of the CTWS assumed incentive awards; (vi) a lump sum payment equal to three times the sum of the annual contributions, payments, credits or allocations made by the CWC on behalf of Mr. Benoit for coverage under all life, health, disability and similar welfare benefits maintained by CWC payable on July 1, 2020; (vii) reimbursement of reasonable legal or accounting fees incurred by Mr. Benoit; (vii) outplacement services of up to $25,000 for one year; and (viii) a tax gross up for any excise taxes imposed on him under Section 280G of the Code.
The severance benefits payable to Mr. Benoit are conditioned upon his execution of a general release of all employment-related claims against the Corporation and non-competition and non-solicitation covenants for a period of two years following his termination.
Ms. Westbrook’s Employment Agreement: Prior to the Closing Date, Ms. Westbrook had entered into an employment agreement with CTWS and CWC which would become effective at the closing of the Merger for a continuously renewing period of 3 years (the “Westbrook Employment Agreement”). Under the Westbrook Employment Agreement, Ms. Westbrook was entitled to certain compensation and benefits for services to CTWS and severance benefits covering a three year period payable upon a qualifying termination which included Ms. Westbrook’s right to terminate her employment for any reason within 13 months following closing of the Merger.
The Committee and the CTWS Board of Directors approved the amendment and restatement of the Westbrook Employment Agreement effective as of October 9, 2019, to establish Ms. Westbrook’s compensation and benefits for her continued service to the Corporation for a term of three years following the Merger. Under the amended and restated agreement, Ms. Westbrook will be entitled to receive severance benefits payable only upon an involuntary termination during the term and she does not have a right to receive severance benefits if she voluntarily terminates her employment. Her cash severance is determined based on when the involuntary termination occurs during the term; the remaining severance benefits, including the enhanced retirement benefits and excise tax gross up, were benefits already provided for in the Westbrook Employment Agreement as approved by CTWS prior to the Merger.
The material terms of the amended and restated Westbrook Employment Agreement dated October 9, 2019 are as follows:
|
|
|
|
i.
|
A three year fixed term following the Closing Date (the “Term”);
|
|
|
|
|
ii.
|
A base salary of no less than $340,000;
|
|
|
|
|
iii.
|
Commencing in 2020, target annual cash incentive compensation of no less than $119,000;
|
|
|
|
|
iv.
|
Commencing in 2020, an annual RSU grant covering a target number of shares of the Corporation’s common stock equal to at least $136,000 divided by the closing price on the grant date, each such award being in the form of service-vesting RSUs that vest based on Ms. Westbrook’s continued service and/or performance-based RSUs that vest based on achievement of performance goals, as determined by the Committee, and Ms. Westbrook’s continued service;
|
|
|
|
|
v.
|
A special retention RSU award granted on the Closing Date of the Merger covering 17,701 shares of the Corporation’s common stock, which was determined by dividing $1,250,000 by the closing price of the Corporation’s common stock on the Closing Date, and which will vest in three equal annual successive installments upon the completion of each year of Ms. Westbrook’s continued service with the Corporation over the three-year period measured from the Closing Date of the Merger, subject to accelerated vesting under certain prescribed circumstances;
|
|
|
|
|
vi.
|
Severance upon a termination without cause or due to disability, or resignation for good reason, subject to her execution of a release of claims, as follows: Severance in an amount equal to (i) base salary and target bonus for the year of termination times (ii) the Multiplier, with such amount paid in equal installments over the remaining Term, and with the Multiplier being (A) three for termination at any time before the first anniversary of the Closing Date, (B) two for termination at any time during second year of employment under the Amended Westbrook Employment Agreement but before the second anniversary of the Closing Date and (C) one for termination at any time during third year of employment under the amended and restated Westbrook Employment Agreement;
|
|
|
|
|
vii.
|
Full vesting of all CTWS incentive awards assumed by the Corporation in the Merger;
|
|
|
|
|
viii.
|
Contributions to any defined contribution retirement plan for the remainder of Term, payable in a lump sum on the second anniversary of the termination date;
|
|
|
|
|
ix.
|
Interest equivalent deferrals under the Deferred Compensation Plan II as if Ms. Westbrook had remained employed for the remainder of the Term, payable in a lump sum on the second anniversary of the termination date; and
|
|
|
|
|
x.
|
Enhanced retirement benefits, as described in the amended and restated Westbrook Employment Agreement:
|
|
|
|
|
▪
|
Contributions for life, health, disability, and similar welfare plans and perquisites for the remainder of the Term payable in a lump sum on the first day of the month following termination;
|
|
|
|
|
▪
|
Reimbursement for reasonable legal or accounting fees and expenses incurred by Ms. Westbrook to obtain or enforce any right or benefit provided to her under the amended and restated Westbrook Employment Agreement;
|
|
|
|
|
▪
|
Reasonable outplacement services for a period of up to one year;
|
|
|
|
|
▪
|
Gross-up for any taxes or penalties imposed under Section 280G of the Code; and
|
|
|
|
|
▪
|
If her termination is due to her disability, benefits payable in accordance with any disability plan maintained by CWC for which she is eligible.
|
On October, 29, 2019, the Committee approved an annual base salary of $390,000 for Ms. Westbrook effective as of December 1, 2019 and increased her target annual cash incentive commencing in 2020 to 35% of her base salary in connection with her promotion to President of CTWS.
Executive Severance Plan: Officers of the Corporation or its subsidiaries (other than Mr. Benoit, Ms. Westbrook, and officers who are CTWS employees or employees of any of its subsidiaries) who are serving in such capacity at the time of a change in control ("CIC") of the Corporation may become entitled to severance benefits under the Corporation's Executive Severance Plan if their employment terminates under certain circumstances in connection with such change. Accordingly, should (a) such officer's employment be terminated by the Corporation for any reason other than good cause (as defined in the Executive Severance Plan) after the Corporation enters into an agreement to effect the CIC but before such agreement is terminated or prior to the expiration of a 24-month period following the effective date of the CIC, or (b) he or she resign for good reason (as defined in such plan) within the 24-month period following the effective date of the CIC (the "CIC Protection Period"), then (i) such officer will be entitled to a cash severance benefit consisting of three times the sum of the annual base salary and target annual cash incentive compensation (as in effect for the fiscal year of such cessation of employee status or, if higher, immediately before the CIC), (ii) for Mr. Thornburg, also an amount equal to the annual bonus for the year of termination based on actual performance, pro-rated for the number of days of employment during the year of termination, (iii) his or her outstanding stock options will immediately vest and other equity awards may immediately vest in accordance with the terms of the award agreements, (iv) he or she will be reimbursed for the cost of COBRA continuation coverage under the company's group health care plans for himself or herself and his or her spouse and eligible dependents until the earlier of (x) the date of the last annual installment of his or her cash severance benefit or (y) the first date on which the officer is covered under another employer's health benefit program without exclusion for any pre-existing medical condition, and (v) he or she will be deemed to be three years older and be given three additional years of service for purposes of calculating his or her pension benefit under the SERP (the "Enhanced Pension Benefit").
If an officer, other than Mr. Thornburg, qualifies for benefits under the Executive Severance Plan and any payment made in connection with a CIC or the subsequent termination of the officer's employment becomes subject to an excise tax under Section 4999 of the Code (the "Excise Tax"), then such payment or benefit will be grossed-up to ensure that such officer does not incur any out-of-pocket cost with respect to such Excise Tax, and such officer will accordingly receive the same net after-tax benefit he or she would have received had no Excise Tax been imposed. Pursuant to the terms of Mr. Thornburg’s employment agreement, if any compensation payments (including payments under the Executive Severance Plan) would become subject to the Excise Tax, the payments may be reduced if such reduction would provide him with a greater net after-tax benefit.
The benefits payable under the Executive Severance Plan are conditioned upon the named executive officer's execution of a general release of all employment-related claims against the Corporation and a non-solicitation covenant pursuant to which such officer may not induce any representative, agent or employee to terminate his or her employment or service relationship with the Corporation.
For purposes of the various payments and benefits which may be triggered under the Executive Severance Plan in connection with a CIC, the following transactions will be deemed to constitute a CIC event:
|
|
|
|
•
|
A merger, consolidation or other reorganization, unless 50 percent or more of the outstanding voting power of the successor entity is owned, in substantially the same proportions, by the persons who were the Corporation's stockholders immediately prior to the transaction;
|
|
|
|
|
•
|
A sale of all or substantially all of the Corporation's assets, unless 50 percent or more of the outstanding voting power of the acquiring entity or parent thereof is owned, in substantially the same proportions, by the persons who were the Corporation's stockholders immediately prior to the transaction;
|
|
|
|
|
•
|
Certain changes in the composition of the Corporation's Board of Directors; or
|
|
|
|
|
•
|
The acquisition of the Corporation's outstanding securities by any person so as to make that person the beneficial owner of securities representing 30 percent or more of the total combined voting power of the Corporation's outstanding securities.
|
Accelerated Vesting of Equity Awards: The service-based restricted stock unit awards granted to the named executive officers vest in full on a CIC if they are not assumed, replaced or otherwise continued; if the awards are assumed, replaced or otherwise continued following a CIC, then the awards will continue to vest over the service period subject to vesting in full on a termination without good cause or resignation for good reason during the CIC Protection Period. The awards also vest in full on termination by reason of death or permanent disability during the vesting period (even if there is no CIC). The performance-based restricted stock unit awards granted to the named executive officers will vest with respect to the target number of shares on a CIC if the awards are not assumed, replaced or otherwise continued; if the awards are assumed, replaced or otherwise continued following a CIC, then the awards will vest at target level at the end of the performance period or an earlier termination without good cause or resignation for good reason or by reason of death or permanent disability following the CIC. The awards also vest pro-rata based on actual performance and period of service during the performance period upon a termination without good cause or resignation for good reason or by reason of death or permanent disability other than in connection with a CIC.
Under the terms of the employment agreements for Mr. Benoit and Ms. Westbrook (as described above), the CTWS incentive awards assumed by the Corporation in connection with the Merger will accelerate in full upon a termination without cause or for good reason.
Potential Payments Upon a CIC: The table below indicates the potential payments that each named executive officer, other than the New Executive Officers, would receive upon a qualifying termination following a CIC, based upon the assumptions listed below.
|
|
|
|
i.
|
There is a qualifying termination of employment on December 31, 2019; and
|
|
|
|
|
ii.
|
The CIC is assumed to have occurred on December 31, 2019, and at a price per share payable to the holders of the Corporation's common stock in an amount equal to $71.06 per share, the closing selling price of such common stock on December 31, 2019, the last trading day in the 2019 fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Cash
Severance
Payment
($)(1)
|
Present
Value of Enhanced
Pension
Benefit
($)(2)
|
Estimated
Value of Reimbursed
COBRA
Continuation
Health Care
Coverage
($)
|
Value of
Accelerated
Restricted
Stock Unit
Awards
($)(3)
|
Excise Tax
Gross-Up
($)(4)
|
Total
($)
|
|
Eric W. Thornburg (5)
|
3,542,000
|
|
1,135,219
|
|
|
47,883
|
|
1,910,235
|
|
—
|
|
6,635,337
|
|
|
Andrew R. Gere
|
1,824,000
|
|
598,291
|
|
|
72,219
|
|
523,144
|
|
1,651,546
|
|
4,669,200
|
|
|
Palle L. Jensen
|
1,539,000
|
|
474,728
|
|
|
72,219
|
|
482,355
|
|
1,258,552
|
|
3,826,854
|
|
|
James P. Lynch
|
1,794,000
|
|
—
|
|
(6)
|
69,100
|
|
550,856
|
|
—
|
|
2,413,956
|
|
|
|
|
|
(1)
|
Represents three times Mr. Thornburg's annual salary of $700,000 plus three times his target annual cash incentive compensation of $350,000 plus his annual cash incentive for the 2019 fiscal year based on actual performance of $392,000; represents three times Mr. Gere's annual salary of $475,000 plus three times his target annual cash incentive compensation of $133,000; represents three times Mr. Jensen's annual salary of $401,000 plus three times his target annual cash incentive compensation of $112,000; and represents three times Mr. Lynch's annual salary of $467,000 plus three times his target annual cash incentive compensation of $131,000.
|
|
|
|
|
(2)
|
The actuarial and economic assumptions used above to value the pension plan benefits under plans that cover employees of San Jose Water Company are as follows: For the 2019 fiscal year calculations, the discount rates
|
applied were 3.13% for the Retirement Plan and 3.05% for the Executive Supplemental Retirement Plan ("SERP") and Cash Balance Executive Supplemental Retirement Plan ("Cash Balance SERP"). For the 2018 fiscal year calculations the discount rates applied were 4.16% for the Retirement Plan and 4.09% for the SERP and Cash Balance SERP. The mortality rate tables, all published by the Society of Actuaries, used for the 2019 fiscal year are described as follows: for the Retirement Plan, the Pri-2012 Total Dataset Amount-Weighted Mortality with MP-2019 Mortality Improvement Scale, and for the 2018 fiscal year the RP-2014 Total Dataset Mortality Table adjusted to 2006 with MP-2018 Mortality Improvement Scale. For the SERP and Cash Balance SERP, Pri-2012 White Collar Amount-Weighted Mortality with MP-2019 Mortality Improvement Scale for the 2019 fiscal year, and for the 2018 fiscal year the RP-2014 Mortality Table basis adjusted to 2006 with MP-2018 Mortality Improvement Scale. There is no assumption for pre-retirement mortality or cessation of service, and retirement is assumed to occur at the earliest age at which each named executive officer can receive the pension benefits without actuarial reductions.
|
|
|
|
(3)
|
Termination Following CIC: As described above, if the awards are assumed, replaced or otherwise continued in connection with a CIC, then the unvested service-based restricted awards vest in full on a qualifying termination occurring during the CIC Protection Period and the performance-based awards vest at target level upon a qualifying termination if such termination occurs after the CIC but prior to the end of the measurement period.
|
CIC Without Termination: If the awards are not assumed, replaced or otherwise continued in connection with the CIC, then the unvested service-based restricted stock units will automatically vest in full on an accelerated basis at the time of the CIC and the performance-based awards will automatically vest at target level at the time of the CIC.
All reported dollar values in this column are based on the $71.06 closing selling price per share of the Corporation's common stock on December 31, 2019, the last trading day in the 2019 fiscal year and include service-based and performance-based stock unit awards for each named executive officer.
|
|
|
|
(4)
|
For executive officers other than Mr. Thornburg, calculated based on (i) W-2 wages for the five-year period 2014 through 2018, (ii) an effective tax rate of 52.65% (Federal, 37%; State, 13.3%; and Medicare, 2.35%), and (iii) the vesting of all outstanding unvested stock unit awards on the assumed December 31, 2019 CIC/separation from service date.
|
|
|
|
|
(5)
|
As discussed above, Mr. Thornburg is not entitled to receive a tax gross-up under the Executive Severance Plan. However, if any payments or benefits payable to him would become subject to the excise tax under Section 4999 of the Code, such payments and benefits will be reduced if such reduction would provide him with a greater after-tax benefit. The total amount shown for Mr. Thornburg has not been reduced as he would have a greater after-tax benefit on a net after-tax basis if paid the full amount owed.
|
|
|
|
|
(6)
|
There would be no enhancement to Mr. Lynch’s benefits under the Cash Balance SERP, whether in the form of additional compensation credits or contributions or additional years of service credit, triggered by the CIC event or the termination of his employment in connection therewith.
|
In the event of a CIC without termination where equity awards are not assumed, replaced or otherwise continued, the named executive officers would potentially be entitled to acceleration of their restricted stock unit awards as set forth in the chart above (but would not be entitled to the other potential payments listed in such chart).
Potential Payments Upon Termination without a CIC: In the event of a qualifying termination on December 31, 2019, Mr. Thornburg would be entitled to a payment equal to two times the sum of his annual base salary of $700,000 for the 2019 fiscal year plus his target annual cash compensation of $350,000, in addition to his annual cash incentive of $392,000 for the 2019 fiscal year based on actual performance, which equals $2,142,000. In the event of a qualifying termination on December 31, 2019, Mr. Lynch would be entitled to a payment of his annual base salary for the 2019 fiscal year of $467,000.
As described above, the unvested service-based restricted stock units vest in full on a termination by reason of death or permanent disability and the performance-based awards vest pro-rata based on actual performance and period of service during the performance period upon a termination without good cause or resignation for good reason or by reason of death or permanent disability during the performance period. The payout value for each named executive officer's service-based awards and performance-based awards, assuming a qualifying termination on December 31, 2019 (other than in connection with a CIC) and assuming that actual performance under the performance-based awards was at target level, are $1,270,814 for Mr. Thornburg, $319,818 for Mr. Gere, $295,088 for Mr. Jensen, and $336,611 for Mr. Lynch. All reported dollar values are based on the $71.06 closing selling price per share of the Corporation's common stock on December 31, 2019, the last trading day in the 2019 fiscal year.
Potential Payments Upon Termination to Mr. Benoit and Ms. Westbrook: The chart below indicates the payments payable to Mr. Benoit upon his termination on December 31, 2019 and the potential payments Ms. Westbrook would receive upon a qualifying termination of employment on December 31, 2019 under their respective employment agreements. The severance benefits for Ms. Westbrook are the same whether her qualifying termination occurs in connection with or without a change in control except with respect to the accelerated vesting of the restricted stock unit award granted to her on October 9, 2019, (the "Special Retention Award").
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Cash
Seve-
rance
Payment
($)(1)
|
Qualified
Plan
Contri-
butions
($)(2)
|
Interest Equivalent
on
Deferred Compen-
sation Amounts
($)(3)
|
Add-
itional
Retire-
ment
Benefits
($)(4)
|
Acceler-
ation of Assumed
CTWS
Awards
($)(5)
|
Acceler-
ation of
SJW
Awards
($)(6)
|
Health &
Welfare
Bene-
fits & Reason-
able
Out-
place-
ment
Services
($)(7)
|
Excise
Tax
Gross-
Up
($)(8)
|
Total
($)
|
|
David C. Benoit
|
2,042,700
|
|
26,924
|
|
284,647
|
|
1,206,902
|
|
1,081,716
|
|
—
|
|
77,205
|
|
1,514,915
|
|
6,235,009
|
|
|
Maureen P. Westbrook
|
1,416,012
|
|
22,628
|
|
69,310
|
|
1,396,741
|
|
309,164
|
|
419,278
|
|
38,800
|
|
1,266,829
|
|
4,938,762
|
|
|
|
|
|
(1)
|
Represents three times Mr. Benoit's annual base salary of $445,000 plus three times the target annual bonus (as determined under the Benoit Employment Agreement) of $235,850; and represents three times Ms. Westbrook’s annual salary of $390,000 plus three times her annual target bonus of $82,004.
|
|
|
|
|
(2)
|
Represents employer contributions to the Savings Plan of Connecticut Water Company, plus related earnings, as if, for Mr. Benoit, he had continued to be employed for a period of three years following his termination of service, and for Ms. Westbrook, she had continued to be employed through the third anniversary of the effective date of her amended and restated Westbrook Employment Agreement.
|
|
|
|
|
(3)
|
Represents interest Mr. Benoit or Ms. Westbrook would have received under the Deferred Compensation Plan II, plus related earnings as provided for in such plan as if, for Mr. Benoit, he had continued to be employed for a period of three years following a termination of service, and for Ms. Westbrook, she had continued to be employed through the third anniversary of the effective date of her amended and restated Westbrook Employment Agreement.
|
|
|
|
|
(4)
|
Represents the present value of additional pension benefits under the Connecticut Water Company Employees’ Retirement Plan and the CWC SERP Agreements as if for Mr. Benoit, he had continued to be employed for a period of three years following a termination of service, and for Ms. Westbrook, she had continued to be employed through the third anniversary of the effective date of her amended and restated Westbrook Employment Agreement.
|
|
|
|
|
(5)
|
Equity and cash incentive awards held by the named executive officer that were assumed by the Corporation in connection with the Merger accelerate in full. All reported dollar values for the assumed equity awards in this column are based on the $71.06 closing selling price per share of the Corporation's common stock on December 31, 2019, the last trading day in the 2019 fiscal year.
|
|
|
|
|
(6)
|
In the event Ms. Westbrook had a qualifying termination outside of a Change in Control she would be entitled to 12 months of accelerated vesting of her Special Retention Award. All reported dollar values in this column are based on the $71.06 closing selling price per share of the Corporation's common stock on December 31, 2019, the last trading day in the 2019 fiscal year.
|
|
|
|
|
(7)
|
For Mr. Benoit, represents three times the sum of the annual amounts contributed or paid by CWC on Mr. Benoit’s behalf for coverage under CWC’s health and welfare plans for the three years preceding Mr. Benoit’s termination of employment and $25,000 of outplacement services. For Ms. Westbrook, represents CWC’s contributions on behalf of Ms. Westbrook for coverage under CWC’s health and welfare benefit plans through the third anniversary of the effective date of her amended and restated Westbrook Employment Agreement, and $25,000 of outplacement services.
|
|
|
|
|
(8)
|
Represents the excise tax gross up the named executive officer is entitled to. Calculated based on (i) W-2 wages for the five-year period 2014 through 2018 and (ii) an effective tax rate of 46.34% (Federal, 37%; State, 6.99%; and Medicare, 2.35%).
|
In the event Ms. Westbrook had a qualifying termination following a change in control in which her Special Retention Award was assumed, replaced or otherwise continued, or if the award was not assumed, replaced or otherwise continued in connection with the change in control, then upon such termination or such change of control, as applicable, she would be entitled to full accelerated vesting of her Special Retention Award which would have a value of $1,257,833 based on the $71.06 closing selling price per share of the Corporation's common stock on December 31, 2019, the last trading day in the 2019 fiscal year.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2019, with respect to the shares of the Corporation's common stock that may be issued under the Corporation's existing equity compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
B
|
|
C
|
|
|
Plan Category
|
Number of
Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
|
|
Weighted Average Exercise Price of
Outstanding
Options, Warrants and Rights ($)
|
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding Securities Reflected in Column A)
|
|
|
Equity Compensation Plans Approved by Stockholders (1)
|
174,764
|
|
(2)
|
|
$
|
—
|
|
(3)
|
|
1,058,459
|
|
(4)(5)
|
|
Equity Compensation Plans Not Approved by Stockholders (6)
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
Total
|
174,764
|
|
(2)
|
|
$
|
—
|
|
(3)
|
|
1,058,459
|
|
(4)(5)
|
|
|
|
|
(1)
|
Consists of the Corporation's Long-Term Incentive Plan and 2014 Employee Stock Purchase Plan.
|
|
|
|
|
(2)
|
Includes 174,764 shares of common stock underlying deferred stock awards and restricted stock units that will entitle each holder to the issuance of one share of common stock for each deferred share or unit that vests following the applicable performance-vesting or service-vesting requirements. Excludes outstanding purchase rights under the 2014 Employee Stock Purchase Plan. Excludes restricted stock units and deferred stock unit awards assumed by SJW in connection with the merger with CTWS. As of December 31, 2019, a total of 102,931 shares of common stock were issuable under such assumed awards of which 85,280 shares were subject to unvested restricted stock units and 17,651 shares were subject to vested restricted stock units that will be issued in accordance with the participant’s deferral election. No additional awards may be granted under those assumed arrangements.
|
|
|
|
|
(3)
|
Calculated without taking into account the 174,764 shares of common stock subject to outstanding deferred stock awards or restricted stock units that will become issuable upon or following the vesting of those awards or units, without any cash consideration or other payment required for such shares.
|
|
|
|
|
(4)
|
Consists of 805,896 shares of common stock available for issuance under the Long-Term Incentive Plan and 252,563 shares of common stock available for issuance under the 2014 Employee Stock Purchase Plan.
|
|
|
|
|
(5)
|
The shares under the Long-Term Incentive Plan may be issued pursuant to stock option grants, stock appreciation rights, restricted stock or restricted stock unit awards, performance shares, dividend equivalent rights, and stock bonuses.
|
|
|
|
|
(6)
|
The Corporation does not have any outstanding equity compensation plans which are not approved by stockholders.
|
Compensation Committee Interlocks and Insider Participation
No member of the Executive Compensation Committee was at any time during the 2019 fiscal year, or at any other time, an officer or employee of the Corporation or any of its subsidiaries. No executive officer of the Corporation served during the 2019 fiscal year as a member of the board of directors or compensation committee (or other board committee performing equivalent functions) of any entity that has one or more executive officers serving as a member of the Corporation's Board or Executive Compensation Committee. Messrs. Bishop, Landis, and More and Ms. Hunt and Armstrong served on the Executive Compensation Committee during the 2019 fiscal year. None of the Executive Compensation Committee members had a relationship requiring disclosure under Item 404 of Regulation S-K.
COMMITTEE REPORTS
The following reports of the Audit Committee and the Executive Compensation Committee shall not be deemed incorporated by reference into any previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this Proxy Statement, in whole or in part, nor are such reports to be incorporated by reference into any future filings.
Annual Report of the Audit Committee
In connection with the audited consolidated financial statements for the period ended December 31, 2019, the Audit Committee (1) reviewed and discussed the audited consolidated financial statements with management, (2) discussed with the independent registered public accounting firm the matters required to be discussed by Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 1301 as codified, Communications with Audit Committees, or any successor standard, and (3) received the written disclosures and the letter from the independent accountants required by applicable requirements of the PCAOB regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm its independence. Based upon these reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for filing with the Securities and Exchange Commission.
Audit Committee
Douglas R. King, Committee Chair
Mary Ann Hanley
Gregory P. Landis
Debra C. Man
Daniel B. More
Annual Report of the Executive Compensation Committee
The Executive Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with management, and based on such review and such discussions, the Executive Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis, as contained herein, be included in this Proxy Statement.
Executive Compensation Committee
Daniel B. More, Committee Chair
Katharine Armstrong
Walter J. Bishop
Heather Hunt
Gregory P. Landis
