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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

SCHEDULE 14A

(Rule 14a-101)

 

INFORMATION REQUIRED IN

PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934 (Amendment No. )

 

Filed by the Registrant x

Filed by a Party other than the Registrant o

 

Check the appropriate box:

o                   Preliminary Proxy Statement        o Soliciting Material Under Rule 14a-12

o                   Confidential, For Use of the

Commission Only (as

permitted

by Rule 14a-6(e)(2))

x                 Definitive Proxy Statement

Definitive Additional

o                   Materials

 

AMERICAN STATES WATER COMPANY

(Name of Registrant as Specified In Its Charter)

 

N/A

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

 

Payment of Filing Fee (Check the appropriate box):

x

No fee required.

o

Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

 

 

 

(1)

Title of each class of securities to which transaction applies:

 

(2)

Aggregate number of securities to which transaction applies:

 

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

(4)

Proposed maximum aggregate value of transaction:

 

(5)

Total fee paid:

 

o

Fee paid previously with preliminary materials:

 

  

o

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

 

 

 

(1)    Amount previously paid:

 

(2)    Form, Schedule or Registration Statement No.:

 

(3)    Filing Party:

 

(4)    Date Filed:

 



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GRAPHIC

 

 

Notice of 2015 Annual Meeting of Shareholders

 

 

Date:

May 19, 2015

 

 

Time:

10:00 a.m., Pacific Time

 

 

Location:

The Langham

 

1401 South Oak Knoll Avenue

 

Pasadena, California 91106

 

 

Record Date:

March 25, 2015

 

 

Agenda:

To elect the following directors to class I of the board of directors to serve until the annual meeting in 2018 or until their successors are duly elected and qualified:

 

 

 

Mr. James L. Anderson

 

Ms. Sarah J. Anderson

 

Ms. Anne M. Holloway;

 

 

 

To approve an amendment and extension of the Performance Incentive Plan;

 

 

 

Advisory vote to approve the compensation of our named executive officers;

 

 

 

To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm; and

 

 

 

To transact any other business which may properly come before the 2015 annual meeting or any adjournment thereof.

 

 

 

By order of the board of directors:

 

 

 

/s/ Eva G. Tang

 

 

 

Eva G. Tang

 

Corporate Secretary

 

 

 

San Dimas, California

 

April 7, 2015

 

 

Important Notice Regarding the Availability of Proxy Materials

For the Shareholders Meeting to Be Held on May 19, 2015

 

Pursuant to rules adopted by the Securities and Exchange Commission, we have elected to furnish our proxy statement, a proxy card and our Annual Report on Form 10-K for the year ended December 31, 2014 primarily via the Internet at www.proxyvote.com.  As a result, on or about April 7, 2015, we are mailing to most of our shareholders a Notice of Internet Availability of Proxy Materials.  This Notice contains instructions on how to access our proxy materials over the Internet and how to request a paper copy of our proxy materials.  On or about April 7, 2015, we are mailing to all of our remaining shareholders a paper copy of our proxy materials.  Shares must be voted either by telephone, Internet or by completing and returning a proxy card as provided in our proxy statement.  Shares cannot be voted by marking, writing on and/or returning this Notice or any other notice regarding our proxy materials.

 

 



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Directions for Attending the 2015 Annual Meeting

 

We will hold the 2015 annual meeting at The Langham, 1401 South Oak Knoll Avenue, Pasadena, California 91106.

 

For shareholders of record, either the detachable portion of your proxy card or your Notice is your ticket to the 2015 annual meeting.  Please present your ticket when you reach the registration area at the 2015 annual meeting.

 

For shareholders who hold shares through a brokerage firm, bank or other shareholder of record, your admission ticket is the copy of your latest account statement showing your investment in our common shares.  Please present your account statement to one of our representatives at the 2015 annual meeting.  You cannot vote your shares at the 2015 annual meeting unless you have obtained a legal proxy from your broker, bank or other shareholder of record.  A copy of your account statement is not sufficient for this purpose.

 

 

Directions to The Langham

 

 

GRAPHIC

 



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American States Water Company

 

Proxy Statement for 2015 Annual Meeting

 

 

 

 



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Page

INFORMATION ABOUT THE 2015 ANNUAL MEETING

1

What is the purpose of the 2015 annual meeting?

1

Who may attend the 2015 annual meeting?

1

How may I vote my shares in person at the 2015 annual meeting?

2

How may I vote my shares without attending the 2015 annual meeting?

2

May I change my vote after I submit a proxy?

3

How may I cast my vote?

3

May I cumulate my votes for a director?

4

How does the board recommend that I vote at the 2015 annual meeting?

4

How will the named proxies vote if I send in my proxy without voting instructions?

4

How will the named proxies vote if a nominee is unable to serve as director?

4

What vote is required to approve each of the proposals?

5

What happens if cumulative voting for directors occurs?

5

What is the quorum requirement for the 2015 annual meeting?

6

Who bears the costs of proxy distribution and solicitation?

6

What does it mean if I receive more than one proxy or voting instruction card?

6

Who will serve as inspector of election?

6

How is an annual meeting adjourned?

6

BOARD STRUCTURE AND COMMITTEES

7

How is the board of directors structured?

7

What is the board’s role in risk oversight?

7

What are the procedures for changing the number of directors?

8

How are vacancies filled on the board of directors?

8

Under what circumstances may a director be removed from the board?

8

What committees does the board of directors have?

8

How often did the board and each of the committees meet during 2014?

9

NOMINATING AND GOVERNANCE COMMITTEE

9

What are the functions of the nominating and governance committee?

9

How does the nominating and governance committee assess candidates to fill vacancies on the board?

9

 

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What is the role of the board in the nomination process?

11

Who are the members of the nominating and governance committee?

11

How may a shareholder nominate a person to serve on the board?

11

Have we paid fees to any third party to assist us in evaluating or identifying potential nominees to the board?

12

Did we receive any nominations for director from certain large beneficial owners of our common shares?

12

AUDIT AND FINANCE COMMITTEE

12

Who are the members of the audit and finance committee?

12

Does the audit and finance committee have any audit committee financial experts?

12

Audit and Finance Committee Report

13

COMPENSATION COMMITTEE

14

What are the functions of the compensation committee?

14

What fees have we paid for services provided by our compensation consultant and its affiliates?

15

Is our compensation consultant independent?

15

Compensation Committee Interlocks and Insider Participation

16

GOVERNANCE OF THE COMPANY

16

Is each of our board and committee members independent?

16

Do we have any relationships with any executive officers?

18

What procedures do we use for reviewing and approving transactions between us and our directors and executive officers?

18

Have any of our directors, executive officers or affiliates been involved in certain legal proceedings during the past ten years?

19

What is our policy regarding attendance by board members at our annual meetings?

19

What is the process for shareholders and other interested persons to send communications to our board?

19

What are the requirements for submission of shareholder proposals?

19

STOCK OWNERSHIP

20

Are there any large owners of our common shares?

20

How much stock do directors and executive officers own?

21

Section 16(a) Beneficial Ownership Reporting Compliance

21

 

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PROPOSAL 1: ELECTION OF DIRECTORS

22

What is the experience of each nominee for election as a director?

22

What is the experience of our other directors?

25

How did we compensate our directors in 2014?

30

EXECUTIVE OFFICERS

33

What has been the business experience of our executive officers during the past five years?

33

Compensation Discussion and Analysis

33

Compensation Committee Report

46

How were certain of our executive officers compensated in 2014?

47

What plan-based awards did we make to these executive officers in 2014?

54

What equity awards granted to these executive officers were outstanding at the end of the year?

58

Did any of these executive officers exercise options or have other stock awards vest in 2014?

59

What pension benefits are payable to these executive officers?

60

Are any of these executive officers participants in a non-qualified deferred compensation plan?

61

What are the terms of severance arrangements with executive officers?

61

What are the terms of change in control agreements with executive officers?

61

What do we estimate we will pay each of these executive officers in the event his or her employment is terminated as a result of a change in control?

63

PROPOSAL 2: APPROVAL OF AMENDMENT AND EXTENSION OF THE PERFORMANCE INCENTIVE PLAN

65

Why did the board approve an amendment and extension of the performance incentive plan?

66

What are the material terms of the performance incentive plan, as amended?

66

What benefits may be paid under the performance incentive plan, as amended?

70

What securities have been authorized for issuance under equity compensation plans of the company?

71

PROPOSAL 3: ADVISORY VOTE TO APPROVE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

72

PROPOSAL 4: RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

73

What are the audit and finance committee’s pre-approval policies and procedures?

73

Principal Accounting Fees and Services

74

 

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OTHER MATTERS

75

OBTAINING ADDITIONAL INFORMATION FROM US

75

ATTACHMENT 1, AMENDED AND RESTATED PERFORMANCE INCENTIVE PLAN

 

 

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April 7, 2015

 

 

American States Water Company

630 East Foothill Blvd.

San Dimas, California 91773

 

2015 Proxy Statement

 

The Securities and Exchange Commission, or SEC, has adopted rules to allow us to elect to use the Internet as our primary means of furnishing our proxy statement, electronic proxy card and our Annual Report on Form 10-K for the year ended December 31, 2014 to our shareholders.  As a result, on or about April 7, 2015, we are mailing to most of our shareholders a Notice of Internet Availability of Proxy Materials referred to herein as the Notice.  The Notice contains instructions on how to access our proxy materials over the Internet at www.proxyvote.com and how to request a paper copy of our proxy materials.  The proxy materials will be posted on the Internet no later than the date we begin mailing the Notice.  On or about April 7, 2015, we are mailing to all remaining shareholders a paper copy of our proxy materials.  We are sending a Notice or proxy materials to each of our shareholders of record in connection with the solicitation by our board of directors of proxies to be voted at our 2015 annual meeting and any adjournments thereof.

 

We have set the record date for determining the shareholders entitled to vote at the 2015 annual meeting as the close of business on March 25, 2015.  As of March 25, 2015, we had 37,977,279 common shares outstanding.  We do not have any other outstanding equity securities.  Each of our common shares is entitled to one vote.

 

We will hold our 2015 annual meeting on May 19, 2015 at 10:00 a.m., Pacific Time, at The Langham, 1401 South Oak Knoll Avenue, Pasadena, California 91106.

 

INFORMATION ABOUT THE 2015 ANNUAL MEETING

 

What is the purpose of the 2015 annual meeting?

 

At our 2015 annual meeting, we will ask our shareholders to elect directors to class I who will serve until our annual meeting of shareholders in 2018 or until our shareholders duly elect their qualified successors.  We will also ask shareholders to approve an amendment and extension of our performance incentive plan, and to approve an advisory vote approving the compensation of our named executive officers, commonly referred to as a “say-on-pay” proposal.  In addition, we will ask shareholders to ratify the appointment of PricewaterhouseCoopers LLP as the company’s independent registered public accounting firm and to vote on any other matter which may properly come before the 2015 annual meeting or any adjournment, including any proposal to adjourn the 2015 annual meeting.

 

Even if you are able to attend the 2015 annual meeting, we encourage you to vote early using the mail, telephone or Internet methods described below.

 

Who may attend the 2015 annual meeting?

 

Our shareholders and our representatives may attend our 2015 annual meeting.  If you are a shareholder of record on the record date, you must bring either the detachable portion of your proxy card or your Notice in order to gain admission to our 2015 annual meeting.  You are a shareholder of record if your shares are registered directly in your name.  We mailed this proxy statement or the Notice directly to you if you are a shareholder of record.

 

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If you are a shareholder who holds shares through a brokerage firm, bank or other shareholder of record on the record date, you must bring a copy of your latest account statement showing your investment in our common shares.  If you are a beneficial owner of our shares, your broker, bank, trustee or nominee sent this proxy statement or the Notice to you.

 

How may I vote my shares in person at the 2015 annual meeting?

 

If you are the shareholder of record, you may vote your shares in person at the 2015 annual meeting if you have either the detachable portion of your proxy card or your Notice as proof of identification.  If you are the beneficial owner of shares held in street name, you may vote your shares at the meeting if you obtained a legal proxy from your broker, bank or other shareholder of record.  Participants in Golden State Water Company’s 401(k) plan may not vote their 401(k) shares in person at the 2015 annual meeting since the 401(k) plan trustee is the shareholder of record of these shares.

 

How may I vote my shares without attending the 2015 annual meeting?

 

All proxies that shareholders properly sign and return, unless properly revoked, will be voted at the 2015 annual meeting or any adjournment thereof in accordance with the instructions indicated on the proxy.

 

You may vote your shares without attending the 2015 annual meeting by mail, telephone or Internet.

 

Voting by Mail

 

¡                 If you received a paper copy of the proxy materials, you may sign, date and return your proxy card in the pre-addressed, postage-paid envelope provided.

 

Voting by Telephone

 

¡                 You may vote by proxy using the toll-free telephone number listed on the proxy card.  Please have your Notice or the proxy card in hand before calling.

 

¡                 If your shares are held through a brokerage firm, bank or other shareholder of record, you may vote by telephone only if the shareholder of record (broker, bank or other shareholder of record) offers that option to you.

 

¡                 Votes submitted by telephone must be received by 11:59 p.m., Eastern Time, on May 18, 2015 in order to be voted at the 2015 annual meeting.  Participants in Golden State Water Company’s 401(k) plan may vote their 401(k) plan shares by telephone, but must do so by the date set forth below.

 

Voting by Internet

 

¡                 You may also vote by proxy using the Internet.  The Internet address is www.proxyvote.com which is also listed on the Notice and the proxy card.  Please have the proxy card or Notice in hand before going online.  You may also view our proxy statement and 2015 annual report at this website.  If your shares are held through a brokerage firm, bank or other shareholder of record, you may vote by the Internet only if the shareholder of record (broker, bank or other shareholder of record) offers that option to you.

 

¡                 Votes submitted by Internet must be received by 11:59 p.m., Eastern Time, on May 18, 2015 in order to be voted at the 2015 annual meeting.  Participants in Golden State Water Company’s 401(k) plan may vote their 401(k) plan shares by Internet, but must do so by the date set forth below.

 

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Regardless of whether or not you attend the 2015 annual meeting in person, we encourage all of our shareholders to vote using one of the methods described above.

 

Participants in Golden State Water Company’s 401(k) plan may vote their 401(k) plan shares by mail, phone or Internet as described above.  Votes submitted by telephone or using the Internet must be received by 11:59 p.m., Eastern Time, on May 15, 2015 in order for us to forward your instructions to the 401(k) plan trustee.  The trustee will vote 401(k) plan shares as to which no directions are received in the same ratio as 401(k) plan shares with respect to which directions are received from other participants in the 401(k) plan, unless contrary to the Employee Retirement Income Security Act of 1974.

 

May I change my vote after I submit a proxy?

 

You may revoke your proxy at any time before the named proxies vote at the 2015 annual meeting by any of the following methods:

 

¡                 filing with us a written notice of revocation of the proxy bearing a later date,

 

¡                 attending the 2015 annual meeting and voting in person, or

 

¡                 presenting a written notice of the revocation of the proxy at the 2015 annual meeting.

 

If you hold your shares through a broker, bank or other shareholder of record, then you must obtain a legal proxy in order to take any of these actions.

 

Please bear in mind that your execution of a proxy will not affect your right to attend the 2015 annual meeting or any adjournment thereof and vote in person; however, your attendance at the 2015 annual meeting will not, by itself, revoke your proxy, unless you take one of the actions listed above.

 

How may I cast my vote?

 

In the election of directors, you may vote your shares for the nominees in the following manner:

 

¡                 “FOR ALL” of the nominees,

 

¡                 “WITHHOLD ALL” (you may withhold your authority to vote for any individual nominee(s) by marking the “For All Except” box and writing the number(s) of the nominee(s) on the line provided), or

 

¡                 “FOR ALL EXCEPT, and write the number(s) of the nominee(s) on the line provided for any individual nominee(s) for whom you choose to withhold your authority to vote.

 

With respect to the advisory vote to approve the compensation of our named executive officers, the vote to approve an amendment and extension of the performance incentive plan and the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, you may vote your shares in the following manner:

 

¡                 “FOR,

 

¡                 “AGAINST, or

 

¡                 “ABSTAIN.”

 

Each share is entitled to one vote on each of these matters.

 

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May I cumulate my votes for a director?

 

You may not cumulate your votes for a director (i.e., cast for any candidate a number of votes greater than the number of common shares that you hold on the record date) unless you or another shareholder:

 

¡                 places the candidate’s name in nomination prior to the voting, and

 

¡                 prior to the voting, gives notice of an intention to cumulate votes at the 2015 annual meeting.

 

If you or any other shareholder gives notice prior to voting of an intention to cumulate votes, then all shareholders may cumulate their votes for candidates who have been nominated.

 

How does the board recommend that I vote at the 2015 annual meeting?

 

Our board recommends that you vote your shares:

 

¡                 “FOR ALL” of the nominees for class I director,

 

¡                 “FOR” the proposal to approve an amendment and extension of the performance incentive plan,

 

¡                 “FOR” approval of the compensation of the named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, compensation tables and any related material disclosed in this proxy statement, referred to herein as a “say-on-pay” advisory vote, and

 

¡                 “FOR” the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm.

 

How will the named proxies vote if I send in my proxy without voting instructions?

 

The named proxies will vote “FOR ALL” of the board’s nominees to be elected as directors, “FOR” the proposal to approve the amendment and extension of the performance incentive plan, “FOR” the approval of the compensation of the named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, compensation tables and any related materials disclosed in this proxy statement, and “FOR” the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm if you send in your proxy without voting instructions.  The named proxies will also vote in favor of such other matters as are incident to the conduct of the 2015 annual meeting, unless otherwise instructed.

 

How will the named proxies vote if a nominee is unable to serve as director?

 

In the event any one or more of the nominees is withdrawn from nomination as a director or is unable to serve for any reason, a contingency not now anticipated, the named proxies may vote for a substitute nominee or nominees, unless otherwise instructed by a shareholder on his or her proxy.

 

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What vote is required to approve each of the proposals?

 

Proposal 1

 

Candidates for the board of directors receiving the highest number of affirmative votes of the shares entitled to vote at the 2015 annual meeting in person or by proxy (up to the number of directors to be elected) will be elected.  Votes cast against a candidate or votes withheld will have no legal effect.  Brokers are not authorized to vote on this proposal unless you instruct otherwise.

 

Proposal 2

 

Approval of the amendment and extension of the performance incentive plan will be ratified by the affirmative vote of those present in person or by proxy at the 2015 annual meeting and voting, provided that the shares voting affirmatively also constitute at least a majority of the required quorum at the 2015 annual meeting.  Abstentions on this proposal will have the effect of a vote against the proposal.  Brokers are authorized to vote on this proposal unless you instruct otherwise.

 

Proposal 3

 

The compensation of the named executive officers, as disclosed pursuant to the compensation rules of the SEC, including the compensation discussion and analysis, compensation tables and any related material disclosed in this proxy statement will be approved upon an affirmative vote of a majority of our common shares represented in person or by proxy and voting, provided that the shares voting affirmatively also constitute at least a majority of the required quorum at the 2015 annual meeting.  Abstentions on this proposal will not be considered as a vote cast for or against this proposal.  Brokers are not authorized to vote on this proposal unless you instruct otherwise.  This vote is advisory and non-binding on the company, the compensation committee and the board.

 

Proposal 4

 

The appointment of PricewaterhouseCoopers LLP, as our independent registered public accounting firm, will be ratified by the affirmative vote of those present in person or by proxy and voting, provided that the shares voting affirmatively also constitute at least a majority of the required quorum at the 2015 annual meeting.  Abstentions on this proposal will not be considered as a vote cast for or against this proposal.  Brokers are authorized to vote on this proposal unless you instruct otherwise.

 

What happens if cumulative voting for directors occurs?

 

If we conduct voting for directors by cumulative voting, then you may cast a number of votes equal to the number of directors authorized multiplied by the number of shares you have a right to vote.  You may cast your votes for a single candidate or you may distribute your votes on the same principle among as many candidates in whatever proportion you desire.

 

The accompanying proxy will grant the named proxies discretionary authority to vote cumulatively if cumulative voting applies.  Unless you instruct the named proxies otherwise, the named proxies will vote equally for each of the candidates for the office of director; provided, however, that if sufficient numbers of our shareholders exercise cumulative voting rights to elect one or more candidates, the named proxies will:

 

¡                 determine the number of directors they may elect,

 

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¡                 select such number from among the named candidates,

 

¡                 cumulate their votes, and

 

¡                 cast their votes for each candidate among the number they are entitled to vote.

 

What is the quorum requirement for the 2015 annual meeting?

 

A quorum is present if shareholders holding a majority of shares entitled to vote on the record date are present at the 2015 annual meeting, either in person or by proxy.  We will count shares represented by proxies that reflect abstentions and broker non-votes as present and entitled to vote for purposes of determining the presence of a quorum.  The term “broker non-vote” refers to shares held by brokers or nominees who have not received instructions on how to vote from the beneficial owners or persons entitled to vote if the broker or nominee indicates on the proxy that the broker or nominee does not have discretionary power to vote on the matter.

 

Who bears the costs of proxy distribution and solicitation?

 

We will bear the entire cost of preparing, assembling, printing and mailing proxy statements and the costs of any additional materials which the board may furnish to you.  We will solicit proxies by U.S. mail in the case of beneficial owners that own 1,000 or more shares or, in the case of all other shareholders, brokers, banks and other nominees, by mailing a notice containing instructions on how to access our proxy materials and vote.  We have engaged the services of Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902 for $8,000 to assist us in soliciting proxies.  We may also solicit proxies by telephone, or personally, by directors, officers and regular employees of the company who will receive no extra compensation for performing these services.

 

What does it mean if I receive more than one proxy or voting instruction card?

 

It means your shares are either registered differently or appear in more than one account.  Please provide us with voting instructions for all proxy and voting instruction cards that you receive.

 

Who will serve as inspector of election?

 

The board of directors has appointed Broadridge Financial Solutions, Inc. to act as the inspector of election.  The inspector of election will count all votes cast, whether in person or by proxy.

 

How is an annual meeting adjourned?

 

Shareholders may adjourn an annual meeting by the affirmative vote of a majority of the shares represented at the annual meeting, in person or by proxy, even if a quorum is not present.  If a proposal is made to adjourn the 2015 annual meeting in order to enable management to continue to solicit proxies in favor of a proposal, the proxies will be voted in favor of adjournment, unless otherwise instructed.

 

In the absence of a quorum at the 2015 annual meeting, no business may be transacted at the 2015 annual meeting other than an adjournment.  We may conduct any business at an adjourned meeting which we could have conducted at the original meeting.

 

We are not required to give you notice of an adjournment of an annual meeting if we announce the time and place of the adjournment at the annual meeting at which the adjournment takes place.  We must, however, give you notice of the adjourned meeting if the adjournment is for more than 45 days or, if after the adjournment, we set a new record date for the adjourned meeting.

 

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BOARD STRUCTURE AND COMMITTEES

 

How is the board of directors structured?

 

The board of directors currently consists of nine directors, with an independent non-management director serving as its chair.  The board is divided into three classes (class I, class II and class III).  Shareholders elect directors in each class to serve for a three-year staggered term expiring in successive years or until shareholders duly elect their successors.  The term of the class II directors will expire at the 2016 annual meeting.  The term of the class III directors will expire at the 2017 annual meeting.  The term of the directors elected to class I at the 2015 annual meeting will expire at the 2018 annual meeting.

 

Mr. Lloyd E. Ross, the chair of the board, is a non-voting ex-officio member of all committees of the board, is the presiding director for executive sessions of the board and acts as lead director of the board.  The board holds executive sessions of the board following regularly scheduled meetings and on an as-needed basis.  Some of these sessions are non-management executive sessions.  Currently, Mr. Robert J. Sprowls, who is also president and chief executive officer of the company, is the only employee director that participates in executive sessions of the board.  He does not participate in non-management executive sessions.  The board held four executive sessions of the board in 2014, one of which included a non-management executive session.

 

The board of directors has determined that Mr. Ross and seven of the other members of the board are independent directors of the company.  The board believes that this leadership structure, in which the chair is an independent director acting as the lead director, ensures a greater role for the other independent directors in the oversight of the company and active participation of the independent directors in setting agendas and establishing priorities and procedures for the board.  The board further believes that this leadership structure is preferred by a significant number of our shareholders.  The board has used this leadership structure since the formation of the company as a holding company in 1998.

 

What is the board’s role in risk oversight?

 

The board does not manage risk.  Rather the board oversees enterprise risk management, or ERM, performed under the direction of the chief executive officer and chief financial officer.  The board satisfies this responsibility by obtaining information from each committee chair regarding the committee’s risk oversight activities and from regular reports directly from officers and other key management personnel responsible for risk identification, risk management and risk mitigation strategies.  The reporting processes are designed to provide visibility to the board about the identification, assessment and management of critical risks and management’s risk mitigation strategies. Diana M. Bontá was appointed as a liaison between the board and management with respect to providing additional oversight of the company’s ERM programs.  Dr. Bontá reports to the full board regarding management’s implementation of the company’s ERM program and other matters relevant to the risk oversight responsibilities of the board.

 

The board has not established a risk oversight committee.  Instead, each committee oversees risks within its area of responsibility.

 

The audit and finance committee considers financial risks and exposures, particularly financial reporting, tax, accounting, disclosure and internal control over financial reporting, financial policies, investment guidelines, credit and liquidity matters and the company’s retirement plans.  The audit and finance committee receives regular reports from the internal auditor of the company in order to assist it in overseeing financial risks.  The audit and finance committee is not responsible for the oversight of non-financial risks.  The oversight of non-financial risks is performed by the full board and other committees.

 

The nominating and governance committee considers risks and exposures relating to corporate governance and succession planning for the board and the chief executive officer.  The nominating and

 

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governance committee is also responsible for making recommendations regarding the delegation of risk oversight responsibilities to committees of the board and the policies and procedures for coordinating the risk oversight responsibilities of the board, the ERM liaison, if any, and each of the committees and the board.

 

The compensation committee considers risks associated with executive and employee compensation programs.  The ASUS committee oversees the risks and exposures associated with the company’s contracted services operations at American States Utility Services, Inc. and its subsidiaries, or ASUS.

 

What are the procedures for changing the number of directors?

 

Under our bylaws, the board of directors may increase the authorized number of directors up to eleven without obtaining shareholder approval so long as we list our common shares on the New York Stock Exchange.  We currently have nine directors on our board.  The board of directors may also decrease the number of authorized directors to no less than six without obtaining shareholder approval.  If the number of authorized directors is decreased to six, then the board will cease to be classified; provided, that the decrease in the number of directors cannot shorten the term of any incumbent director.

 

Unless otherwise approved by our shareholders, the board of directors will cease to be classified if our common shares are not listed on the New York Stock Exchange.

 

How are vacancies filled on the board of directors?

 

The majority of the remaining directors may fill vacancies on the board, except those existing as a result of a removal of a director, though less than a quorum.  If the board consists of only one director, the sole remaining director may fill all vacancies on the board.  Each director so elected will hold office until the end of the term of the director who has been removed, or until the director’s successor has been duly elected and qualified.  Our shareholders also have the right to elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors.

 

Under what circumstances may a director be removed from the board?

 

Under California law, a member of the board of directors may be removed:

 

¡                 by the board of directors as the result of a felony conviction or court declaration of unsound mind,

 

¡                 by the shareholders without cause, or

 

¡                 by court order for fraudulent or dishonest acts or gross abuse of authority or discretion.

 

Generally, shareholders may not remove a director if the votes cast against removal are sufficient to elect the director if voted cumulatively at an election of directors held at the time of removal.  In addition, no director may be removed by shareholders by written consent unless all shareholders vote for removal of the director.

 

What committees does the board of directors have?

 

The board has three standing committees:

 

¡                 an audit and finance committee,

 

¡                 a nominating and governance committee, and

 

¡                 a compensation committee.

 

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Each committee operates under a written charter which identifies the purpose of the committee and its primary functions and responsibilities.  Copies of these committee charters are available on our website at www.aswater.com.

 

The board has also established two committees, one known as the ASUS committee, to aid in efforts with respect to our contracted services business, and an issuance committee.  The ASUS committee operates under a written charter.  The issuance committee does not operate under a charter.  Instead certain matters are delegated to it from time to time by the board with respect to an issuance of securities.

 

From time to time, the board establishes special committees or appoints members of the board to serve as liaisons between the board and management with respect to special projects or to work on special projects.  Two members of the board served as a liaison between the board and management in 2014 with respect to special projects and one board member provided assistance to the board on a special project for ASUS.

 

How often did the board and each of the committees meet during 2014?

 

During 2014:

 

¡                 directors met, as a board, ten times,

 

¡                 the audit and finance committee met six times,

 

¡                 the nominating and governance committee met four times,

 

¡                 the compensation committee met seven times,

 

¡                 the ASUS committee met four times, and

 

¡                 the issuance committee met once.

 

No board member in 2014 attended less than 75% of the meetings of the board.  No committee member in 2014 attended less than 75% of the committee meetings of any committee in which he or she was a member.

 

NOMINATING AND GOVERNANCE COMMITTEE

 

What are the functions of the nominating and governance committee?

 

The nominating and governance committee assesses qualifications of candidates to fill vacancies on the board and makes recommendations to the board regarding candidates to fill these vacancies.  The nominating and governance committee also recommends to the board changes in the company’s corporate governance policies and procedures, CEO succession and board training.

 

How does the nominating and governance committee assess candidates to fill vacancies on the board?

 

The nominating and governance committee assesses nominees for directors on the basis of a number of qualifications, including:

 

¡                 a reputation for integrity, honesty and adherence to high ethical standards;

 

¡                 holding or having held a generally recognized position of leadership;

 

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¡                 business acumen, business or governmental experience and an ability to exercise sound business judgment in matters that relate to our current and long-term objectives;

 

¡              an interest and ability to understand the sometimes conflicting interests of our various constituencies, including shareholders, employees, customers, regulators, creditors and the general public;

 

¡                 an interest and ability to act in the interests of all shareholders;

 

¡                 an ability to work constructively with groups with diverse perspectives and to tolerate opposing viewpoints;

 

¡                 a commitment to service on the board, including commitment demonstrated by prior board service; and

 

¡                 a willingness to challenge and stimulate management.

 

Each director, other than the chief executive officer of the company, is also expected to satisfy the independence requirements of the board.

 

In addition to the criteria set forth above, the nominating and governance committee considers how the skills and attributes of each individual candidate or incumbent director work together to create a board that is collegial, engaged and effective in performing its duties.  In order to achieve this objective, the committee believes that the background and qualifications of the directors, considered as a group, should provide a significant mix and diversity of professional and personal experience, knowledge and skills that will allow the board to fulfill its responsibilities.  The committee construes the concept of diversity broadly so as to include a variety of opinions, perspectives, personal experiences and backgrounds and other differentiating characteristics, including gender and ethnicity.

 

The process used by the committee in assessing candidates for director is a subjective one.  The committee has considered knowledge, skills and experience in the following areas to be helpful to the board in selecting nominees for director:

 

¡                 finance

 

¡                 accounting

 

¡                 engineering

 

¡                 real estate

 

¡                 construction

 

¡                 government contracting

 

¡                 public utility and/or other regulated industry

 

¡                 corporate governance

 

¡                 customer and community service

 

For information on the specific backgrounds and qualifications of our current directors, see “Proposal 1: Election of Directors.”

 

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As part of its annual self-assessment process, the board also evaluates itself and/or directors on a variety of criteria, including:

 

¡                 independence

 

¡                 commitment, time and energy devoted to service on the board

 

¡                 overall contributions to the board

 

¡                 attendance at, and preparation for, board and committee meetings

 

¡                 effectiveness as chair of the board

 

¡                 collegiality

 

¡                 understanding the role of the board and the committees on which he or she serves

 

¡                 judgment and appropriateness of comments

 

¡                 skill set relative to board needs

 

¡                 understanding of the company’s business, industry and risks

 

¡                 opportunity to engage and stimulate management

 

The nominating and governance committee considers candidates recommended by board members, professional search firms, shareholders and other persons, in addition to board members whose terms may be expiring.  The manner in which the nominating and governance committee evaluates a new person as a nominee does not differ based on who makes the nomination.

 

What is the role of the board in the nomination process?

 

After the board receives the nominating and governance committee’s recommendations on nominees, the board then nominates director candidates the board deems most qualified for election at an annual meeting.

 

If a vacancy or a newly created board seat occurs between annual meetings, the board is responsible for filling the vacancy or newly created board seat in accordance with our bylaws as described above under the heading, “How are vacancies filled on the board of directors?”

 

Who are the members of the nominating and governance committee?

 

Ms. Holloway is the chair of the nominating and governance committee.  Mr. Anderson and Dr. Bontá are members of this committee.  Mr. Ross serves as a non-voting ex-officio member of this committee.

 

How may a shareholder nominate a person to serve on the board?

 

You may submit the name of a person for election as a director either by submitting a recommendation to the nominating and governance committee or by directly submitting a name for consideration at a shareholder meeting.  In either event, you must submit the name of the nominee in writing to our corporate secretary at our corporate headquarters between February 19, 2016 and March 5, 2016, in order for your nominee to be considered for election as a director at the 2016 annual meeting.  If we change the 2016 annual meeting date by more than 30 days from the date of our 2015 annual meeting or the date a special meeting is held, you will have another opportunity to submit nominations.  In this case, the corporate secretary must receive your nomination at our corporate headquarters no later than the close of business on the tenth day following the earlier of the date on which we mail you notice of the meeting or we publicly disclose the meeting date.

 

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Your notice to the corporate secretary must contain:

 

¡                  all information that the SEC requires us to disclose in our proxy statement about the nominee,

 

¡                  a consent by the nominee to be named in the proxy statement and to serve as a director if elected,

 

¡                  the name and address of the record and beneficial owner, if any, of the shares making the nomination, and

 

¡                  the number of shares held.

 

If you submit a name for consideration by the nominating and governance committee, we may also ask you to provide other information reasonably related to the recommended individual’s qualifications as a nominee.  The person recommended should be able to, upon request and with reasonable advance notice, meet with one or more members of the nominating and governance committee and/or the board of directors to inquire into the nominee’s qualifications and background and otherwise to be interviewed for purposes of the nomination.

 

If you plan to submit a name directly for nomination as a director at a shareholder meeting, you must comply with all requirements of the Securities Exchange Act of 1934 in connection with soliciting shareholders to vote for your nominee.

 

We have made no material changes in 2015 to these procedures for the nomination of directors.

 

Have we paid fees to any third party to assist us in evaluating or identifying potential nominees to the board?

 

We have not paid any fees for assistance in identifying potential candidates to fill a vacancy on the board in 2014.

 

Did we receive any nominations for director from certain large beneficial owners of our common shares?

 

Since our previous annual meeting, we have not received any nominations from a shareholder or a group of shareholders owning more than 5% of our outstanding common shares.

 

AUDIT AND FINANCE COMMITTEE

 

Who are the members of the audit and finance committee?

 

Ms. Anderson is the chair of the audit and finance committee.  Mr. Fielder and Ms. Wilkins are members of this committee.  Mr. Ross serves as a non-voting ex-officio member of this committee.

 

Does the audit and finance committee have any audit committee financial experts?

 

The board of directors determined that all members of the audit and finance committee are:

 

¡                  financially literate,

 

¡                  Ms. Anderson and Ms. Wilkins are “audit committee financial experts”, and

 

¡  all members of the audit and finance committee are independent under the standards set forth in Rule 10A-3 of the Securities Exchange Act of 1934 and the rules of the New York Stock Exchange.

 

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Audit and Finance Committee Report

 

Functions of the Audit and Finance Committee

 

The audit and finance committee:

 

¡                  reviews significant public documents containing financial statements provided to shareholders and regulatory agencies and reviews all periodic reports filed with the SEC;

 

¡                  discusses with the company’s independent registered public accounting firm its plans, if any, to use the work of internal auditors;

 

¡                  reviews the internal audit function, including its competence and objectivity and proposed audit plans for the coming year, including intended levels of support for and coordination with the external audit process;

 

¡  discusses with the internal auditors and the company’s independent registered public accounting firm, the financial statements and the results of the audit;

 

¡                  discusses with the company’s independent registered public accounting firm any significant matters regarding internal controls over financial reporting that have come to its attention during the conduct of the audit;

 

¡                  reviews the qualifications of our independent registered public accounting firm and appoints (and has sole authority to terminate) our independent registered public accounting firm;

 

¡                  reviews and approves fees charged by our independent registered public accounting firm;

 

¡                  reviews and evaluates the effectiveness of our process for assessing significant financial risks and the steps management takes to minimize these financial risks;

 

¡                  reviews and makes recommendations to the board of directors regarding related party transactions;

 

¡                  reviews accounting and financial human resources;

 

¡  establishes procedures for the receipt, retention and treatment of complaints that the company receives regarding accounting, internal controls or auditing matters, and the confidential anonymous submission by our employees of concerns regarding questionable accounting or auditing matters or related party transactions;

 

¡                  reviews the committee’s charter and its own performance annually; and

 

¡                  oversees the company’s compliance with legal and regulatory requirements.

 

Management has the primary responsibility for our financial statements, internal controls, disclosure controls and the financial reporting process.  PricewaterhouseCoopers LLP, our registered public accounting firm, is responsible for performing an independent audit of our consolidated financial statements in accordance with generally accepted auditing standards and issuing a report based on its findings.  The audit and finance committee’s responsibility is to monitor and oversee our financial reporting process.  PricewaterhouseCoopers LLP reports directly to the audit and finance committee and, if requested, the board of directors.

 

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Discussions with Independent Auditors

 

PricewaterhouseCoopers LLP provided to the audit and finance committee the written disclosures and letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit and finance committee concerning independence, and the audit and finance committee discussed with PricewaterhouseCoopers LLP the independent accountant’s independence.  The audit and finance committee also reviewed and discussed our audited consolidated financial statements with PricewaterhouseCoopers LLP and matters related to the audit required by the Public Company Accounting Oversight Board, including the firm’s evaluation of our internal control over financial reporting and the overall quality of our financial reporting.

 

Discussions with Management

 

The committee reviewed and discussed with management the company’s audited consolidated financial statements for 2014.  Management has represented to the audit and finance committee that our internal controls over financial reporting have no material weaknesses and that management prepared the company’s consolidated financial statements in accordance with generally accepted accounting principles.

 

Recommendation for Inclusion in Form 10-K

 

Based upon the audit and finance committee’s discussions with management and PricewaterhouseCoopers LLP, the audit and finance committee’s review of the representations of management and the reports and presentations of PricewaterhouseCoopers LLP to the audit and finance committee, the audit and finance committee recommended that the board of directors include the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC.

 

This report is submitted by:

 

Sarah J. Anderson, Chair

John R. Fielder, Member

Janice F. Wilkins, Member

 

COMPENSATION COMMITTEE

 

What are the functions of the compensation committee?

 

Our compensation committee, which consists entirely of independent directors:

 

¡                  reviews the performance of our executive officers in January of each year and at the time of the hiring or promotion of an executive officer;

 

¡                  selects a compensation consultant to assist the committee in evaluating the amount or form of executive and director compensation;

 

¡                  recommends the salary for each executive officer, including the salary of Mr. Sprowls, the president and chief executive officer of the company, for ratification by the independent members of the board;

 

¡                  makes stock awards for each executive officer and manager pursuant to our equity compensation plans;

 

¡                  sets performance standards and makes awards under non-equity compensation plans;

 

¡                  approves objective and discretionary cash bonuses for executive officers;

 

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¡                  reviews and makes recommendations to the board regarding long-term compensation strategies and changes in the executive compensation program and the terms of our employee benefit and pension plans;

 

¡                  reviews trends in executive compensation and considers changes in accounting principles and tax laws that impact executive compensation;

 

¡  makes recommendations to the board regarding the terms of employment and severance arrangements applicable to specific executive officers;

 

¡                  reviews and makes recommendations to the board regarding the compensation of directors;

 

¡                  administers the 2000 Stock Incentive Plan, or 2000 plan, and the 2008 Stock Incentive Plan, or 2008 plan, for employees, and the 2003 Non-Employee Directors Stock Plan, or 2003 directors plan, and the 2013 Non-Employee Directors Stock Plan, or 2013 directors plan, for directors; and

 

¡                  reviews and discusses with management the Compensation Discussion & Analysis section.

 

The compensation committee has the authority, in its discretion, to hire, retain, terminate and oversee the work of compensation consultants, independent counsel and other advisers to assist the committee in evaluating the amount or form of executive or director compensation.  Before retaining any compensation consultant, independent counsel or other such advisers, the compensation committee is required to take into account those factors specified in the Dodd-Frank Act and the rules and regulations promulgated by the SEC thereunder and such other factors that the compensation committee considers appropriate that may affect the independence of such consultants, counsel or advisers.  Unless otherwise provided by the board, the compensation committee does not have the authority to delegate its authority to a subcommittee.

 

What fees have we paid for services provided by our compensation consultant and its affiliates?

 

The compensation committee engaged Pearl Meyer & Partners to prepare a survey of executive compensation trends and pay practices of other companies and to make recommendations to the compensation committee regarding the amount and types of compensation to be paid to our executive officers in 2014 (hereafter referred to as the engagement).  The aggregate amount of fees paid to Pearl Meyer & Partners in 2014 in connection with the engagement was $146,992.  The compensation committee had the sole authority to appoint Pearl Meyer & Partners, oversee the executive compensation services provided by Pearl Meyer & Partners and to approve the compensation paid to Pearl Meyer & Partners for these services.

 

Is our compensation consultant independent?

 

The compensation committee believes that the consulting advice that it has received from Pearl Meyer & Partners was objective.  The committee has assessed the independence of Pearl Meyer & Partners pursuant to SEC rules and concluded that no conflicts of interest exist between the company and Pearl Meyer & Partners (or any individuals working on the company’s account on behalf of Pearl Meyer & Partners).  In reaching such determination, the committee considered the following enumerated factors, all of which were attested to or affirmed by Pearl Meyer & Partners:

 

¡  During 2014, Pearl Meyer & Partners provided no services to and received no fees from the company other than in connection with the engagement.

 

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¡  The amount of fees paid or payable by the company to Pearl Meyer & Partners for services provided during the 2014 calendar year represented less than 1% of Pearl Meyer & Partners’ total revenue for the same period.

 

¡  Pearl Meyer & Partners has adopted and implemented adequate policies and procedures designed to prevent conflicts of interest, which policies and procedures were provided to the company.

 

¡  There are no business or personal relationships between any member of the Pearl Meyer & Partners team assigned to the engagement and any member of the compensation committee, other than in respect of the engagement, or any work performed by Pearl Meyer & Partners for any other company, board of directors or compensation committee for whom such committee member also serves as an independent director.

 

¡  There is no business or personal relationships between any member of the Pearl Meyer & Partners team assigned to the engagement or Pearl Meyer & Partners itself and any executive officer of the company other than in respect of the engagement.

 

¡                  No individual on the Pearl Meyer & Partners team assigned to the engagement maintains any direct individual position in the stock of the company.

 

Compensation Committee Interlocks and Insider Participation

 

Mr. Anderson is the chair of the compensation committee.  Ms. Holloway, Dr. Bontá, and Mr. McNulty are members of this committee.  Mr. Ross is a non-voting ex-officio member of this committee.

 

The board has determined that no member of this committee has a material relationship with the company, either directly or indirectly as a partner, shareholder or officer of an organization that has a material relationship with us or any other relationship with the company that the board of directors determined would affect the independence of that member.

 

No member of this committee is a current or former officer or employee of the company or any of its subsidiaries.  None of the executive officers of the company is (or has been during the past three years) a member of the board of directors or the compensation committee of any company on which any of our directors serves as an executive officer, director or member of the compensation committee.  No compensation committee member or any entity in which such member has a 5% or more interest or by whom such member is employed has received any consulting, advisory or other compensatory fees paid by the company or any of its subsidiaries, other than fees received by such member for serving on our board of directors, serving on or attending meetings of committees of our board, acting as a liaison between the board and/or its committees and management on matters specified by the board or otherwise working on matters specified by the board.  We are not aware of any facts or circumstances that would make any member of the compensation committee an affiliate of the company.

 

GOVERNANCE OF THE COMPANY

 

Is each of our board and committee members independent?

 

Based on information solicited from each director, the board has determined that none of our directors, other than Mr. Sprowls, has a material relationship with us, either directly or indirectly as a partner, shareholder or officer of an organization that has a relationship with us and is otherwise independent under the corporate governance standards of the New York Stock Exchange.  We have not adopted any other categorical standards for determining whether a board member is independent.

 

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The board determined that Mr. Anderson, Ms. Anderson, Dr. Bontá, Mr. Fielder, Ms. Holloway, Mr. McNulty, Ms. Wilkins and Mr. Ross are independent directors.  In determining that these directors are independent, the board considered the following facts:

 

¡  none of these directors or any of their immediate family members is or has been an executive officer or employee of the company or any of its subsidiaries at any time;

 

¡                  none of our directors or any of their immediate family members or any “related person” had any indebtedness to us, any business relationship with us or any transaction or proposed transaction with us in excess of $120,000 since January 2014, other than compensation for serving as a director, serving as a member or attending meetings of a committee of the board, serving as a liaison between the board and management or otherwise working on matters specified by the board;

 

¡                  none of these directors or any of their immediate family members received during any twelve month period within the last three years more than $100,000 in direct compensation from us, other than compensation for serving as a director, serving as a member or attending meetings of a committee of the board, serving as a liaison between the board and management or otherwise working on matters specified by the board;

 

¡  none of these directors has accepted, either directly or indirectly, any consulting, advisory or other compensatory fee from us, other than compensation for serving as a director, serving as a member or attending meetings of a committee of the board, serving as a liaison between the board and management or otherwise working on matters specified by the board;

 

¡  no director is, or has been, an employee of any entity, including a charitable organization, that has made payments to, or received payments or charitable contributions from us at any time during the past three years for property or services in an amount which, in any single fiscal year, exceeded the greater of $1 million or 2% of the other entity’s consolidated gross revenues reported for that fiscal year;

 

¡  no immediate family member of any director is an executive officer of any entity, including a charitable organization, that has made payments to, or received payments or charitable contributions from, us at any time during the past three years for property or services in an amount which, in any single fiscal year, exceeded the greater of $1 million or 2% of the other entity’s consolidated gross revenues reported for that fiscal year;

 

¡                  no director or an immediate family member is a current partner or employee of a firm that is our internal or external auditor;

 

¡                  no director or an immediate family member was, within the last three years, a partner or employee of our internal or external auditor and personally worked on our audit during that time;

 

¡                  none of the executive officers of the company is, or has been during the past three years, a member of the board of directors or the compensation committee of any company on which any of our directors serve as an executive officer, director or member of the compensation committee; and

 

¡                  none of our directors is prohibited from serving on our board of directors by the interlocking director rules of the Federal Energy Regulatory Commission.

 

We did not identify any other businesses or other relationships between us and any non-employee director that would affect the independence of these directors nor did the board consider any other

 

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relationships or transactions in determining director independence.  The board has also affirmatively determined that all members of the audit and finance committee, nominating and governance committee and compensation committee, including Mr. Ross, are independent directors under the corporate governance listing standards of the New York Stock Exchange and that all members of the audit and finance committee are independent under the standards set forth in Rule 10A-3 under the Securities Exchange Act of 1934.

 

No member of the audit and finance committee served on more than three public company boards during 2014.

 

Do we have any relationships with any executive officers?

 

No executive officer or nominee or any of his or her immediate family members had any indebtedness to us, any business relationships with us or any transactions or proposed transactions with us since January 2014.

 

What procedures do we use for reviewing and approving transactions between us and our directors and executive officers?

 

We have adopted a code of conduct and guidelines on significant governance issues which include policies and procedures regarding relationships between us and our directors and executive officers.  Information about how to obtain a copy of the code of conduct and guidelines on significant governance issues is set forth in this proxy statement under the heading, “Obtaining Additional Information from Us.”

 

Under the company’s guidelines on significant governance issues, directors are expected to make business opportunities relating to the company’s business available to the company before pursuing the opportunity for the director’s own or another’s account.  Neither the board nor the audit and finance committee has approved any other guidelines that would permit a director or executive officer to engage in any transactions or actions that would create a conflict of interest.  All conflict of interest transactions must be approved by disinterested members of the board and the audit and finance committee in accordance with California law and the rules of the New York Stock Exchange.

 

Our code of conduct prohibits any director or executive officer from engaging in any transactions or other actions which create a conflict of interest, except under guidelines approved by the board or the audit and finance committee.  A conflict of interest arises if a director or executive officer takes an action or has interests that may make it difficult for the director or executive officer to act objectively or effectively and include:

 

¡  causing the company or any of its subsidiaries to employ or retain a family member as an employee or consultant,

 

¡  causing the company or any of its subsidiaries to do business with any businesses in which the director, executive officer or any family member stands to gain personally,

¡                  making investments which may impair the ability of the director or executive to make decisions on behalf of the company,

 

¡                  taking advantage of business opportunities relating to the company’s business or that are discovered through the use of corporate property, information or position for personal gain, without first offering the opportunity to the company, or

 

¡                  competing with the company.

 

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Our guidelines on significant governance issues also require each director to disclose to the board any financial or personal interest in any transaction that comes before the board for approval.  Each director and executive officer is also required to disclose annually any relationships with the company and to declare that all such relationships during the prior year have been disclosed.  Our board did not consider any transactions in which any member of the board or executive officer had an interest in 2014.

 

We do not provide loans, loan guarantees or otherwise extend credit, directly or indirectly, to any of our executive officers or directors.

 

Have any of our directors, executive officers or affiliates been involved in certain legal proceedings during the past ten years?

 

None of our current executive officers, directors or any affiliate or owner of more than 5% of our common shares has been a party adverse to us in any material legal proceeding or been involved in any legal proceedings that the SEC has identified as being material to the evaluation of the ability or integrity of a director or executive officer.

 

What is our policy regarding attendance by board members at our annual meetings?

 

We adopted a policy that each director should make every reasonable effort to attend each annual meeting of shareholders.  All directors were present at our 2014 annual meeting.

 

What is the process for shareholders and other interested persons to send communications to our board?

 

You or any interested person may, at any time, communicate in writing with the chair of the board who presides at regularly scheduled board meetings and executive sessions, any particular director or non-management directors as a group, by writing to our corporate secretary at American States Water Company, 630 East Foothill Boulevard, San Dimas, California 91773.  We will provide copies of written communications received at this address to the relevant director or the non-management directors as a group unless the corporate secretary, in her reasonable judgment, considers the communications to be improper for submission to the intended recipient(s).  Examples of communications considered improper for submission include customer complaints, solicitations, ordinary work employee grievances, communications that do not relate directly or indirectly to our business and communications that relate to improper or irrelevant topics.

 

What are the requirements for submission of shareholder proposals?

 

If you want us to include your shareholder proposal in our proxy materials for the 2016 annual meeting, you must submit the proposal to our corporate secretary at American States Water Company, 630 East Foothill Boulevard, San Dimas, California 91773.  Our corporate secretary must receive your proposal no later than December 9, 2015.  Your proposal must also satisfy the other requirements for shareholder proposals set forth in Rule 14a-8 under the Securities Exchange Act of 1934.

 

A shareholder making a shareholder proposal should state as clearly as possible the course of action that the shareholder believes we should follow.  If we place a shareholder proposal on the proxy card, we will provide, in the form of proxy, the means for other shareholders to specify, by checking a box, as to whether they want to approve, disapprove or abstain from voting on the shareholder proposal.

 

If you want your shareholder proposal to be considered at the 2016 annual meeting and you have not met the deadline for us to include your shareholder proposal in our proxy materials, you may nevertheless submit your proposal for consideration at the 2016 annual meeting if you comply with the following procedures.

 

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You must deliver or mail your notice to our corporate secretary at American States Water Company, 630 East Foothill Boulevard, San Dimas, California 91773 stating that you intend to submit a shareholder proposal at our 2016 annual meeting.  Our corporate secretary must receive your notice between February 19, 2016 and March 5, 2016, unless we change our 2016 annual meeting date by more than 30 days from the date of our 2016 annual meeting, in which case, our corporate secretary must receive your notice no later than the close of business on the tenth day following the day on which we mail you notice of the meeting or the date on which we publicly disclose the date of the meeting.

 

Your notice to our corporate secretary must include for each matter you propose to bring before the 2016 annual meeting:

 

n                  a brief description of the matter you intend to bring before the 2016 annual meeting;

 

n                  reasons for bringing such matter before the 2016 annual meeting;

 

n                  the name and address of the record and beneficial owner, if any, of the shares making the proposal;

 

n                  the number of our common shares you own; and

 

n                  any material interest you have in the matter.

 

STOCK OWNERSHIP

 

Are there any large owners of our common shares?

 

The following table identifies shareholders who own more than 5% of our outstanding common shares on March 31, 2015.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

Title of Class

Name of Beneficial Owner

Amount and Nature of
Beneficial Ownership

Percent of
Class

Common Shares

BlackRock Inc.

55 East 52nd Street

New York, NY 10022

 

The Vanguard Group, Inc.

100 Vanguard Blvd.

Malvern, PA 19355

 

3,721,066(1)

 

 

 

3,237,181(2)

9.76%(3)

 

 

 

8.49%(3)

 

(1)             Based on Schedule 13G filed with the SEC on January 15, 2015, BlackRock Inc. has sole voting over 3,593,363 of our common shares and sole dispositive power over 3,721,066 of our common shares.

 

(2)             Based on Schedule 13G filed with the SEC on February 11, 2015, The Vanguard Group, Inc. has sole voting power over 54,991 of our common shares, sole dispositive power over 3,189,090 of our common shares and shared dispositive power over 48,091 of our common shares.

 

(3)            Percent of class is based on 37,977,279 common shares outstanding on March 31, 2015, 124,558 common shares which our directors and executive officers as a group have the right to acquire on or prior to May 31, 2015 and 29,713 common shares which other employees of the company have the right to acquire on or prior to May 31, 2015.

 

__________________________

 

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How much stock do directors and executive officers own?

 

We are providing you information in the table below regarding the number of our common shares beneficially owned by our directors and executive officers as of March 31, 2015, including common shares which each director and executive officer has a right to acquire on or prior to May 31, 2015.

 

SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

 

Name

 

 

Number of Shares

 

 

Percent of Class

 

James L. Anderson

 

 

21,158

 

 

 

*

 

 

Sarah J. Anderson

 

 

7,489

(1)

 

 

*

 

 

Diana M. Bontá

 

 

20,375

(1)

 

 

*

 

 

John R. Fielder

 

 

5,617

(1)

 

 

*

 

 

Anne M. Holloway

 

 

30,981

 

 

 

*

 

 

James F. McNulty

 

 

12,515

(1)

 

 

*

 

 

Lloyd E. Ross

 

 

39,953

(1)

 

 

*

 

 

Janice F. Wilkins

 

 

11,003

(1)

 

 

*

 

 

Robert J. Sprowls

 

 

161,266

(2)

 

 

*

 

 

Denise L. Kruger

 

 

37,732

 

 

 

*

 

 

McClellan Harris III

 

 

47,188

(3)

 

 

*

 

 

Eva G. Tang

 

 

48,237

(4)

 

 

*

 

 

Patrick R. Scanlon

 

 

35,794

 

 

 

*

 

 

Directors and Executive Officers as a Group

 

 

576,779

(5)

 

 

1.51

%(6)

 

 

*Less than 1%

 

(1)             Mr. Ross has a right to acquire, on or prior to May 31, 2015, 6,000 of our common shares through the exercise of stock options granted pursuant to the 2003 directors plan.  Ms. Anderson, Dr. Bontá, Mr. McNulty, Ms. Wilkins and Mr. Fielder have not been granted any stock options.

 

(2)                   Mr. Sprowls has the right to acquire 36,992 and 47,438 of our common shares on or prior to May 31, 2015 through the exercise of stock options granted pursuant to the 2000 plan and 2008 plan, respectively.

 

(3)                   Mr. Harris, who retired on November 21, 2014, has the right to acquire 6,087 of our common shares on May 21, 2015 through the pay-out of restricted stock units that have vested.

 

(4)             Ms. Tang has the right to acquire 8,604 and 6,816 of our common shares on or prior to May 31, 2015 through the exercise of stock options granted pursuant to the 2000 plan and 2008 plan, respectively.

 

(5)             Our directors and executive officers as a group have the right to acquire 124,558 of our common shares on or prior to May 31, 2015 through the exercise of stock options or the pay-out of restricted stock units that have vested.  We have not included in this table common shares relating to dividend equivalents that may be received by our directors and executive officers with respect to dividends declared by the board after March 31, 2015 or restricted stock units which the directors will have a right to acquire on the date of the 2015 annual meeting pursuant to the 2013 directors plan.

 

(6)                   Percent of class is based on 37,977,279 common shares outstanding on March 31, 2015, 124,558 common shares which our directors and executive officers as a group have the right to acquire on or prior to May 31, 2015 and 29,713 common shares which other employees of the company have a right to acquire on or prior to May 31, 2015.

 

__________________________

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

We have adopted procedures to assist our directors and executive officers in complying with Section 16(a) of the Securities Exchange Act of 1934, including assisting directors and executive officers with preparing and filing statements on Form 3, Form 4 and, if applicable, Form 5.  We believe, on the basis of our review of the statements filed by directors and executive officers in 2014, there were no late filings.

 

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PROPOSAL 1:  ELECTION OF DIRECTORS

 

We have provided information below about each of our directors including their ages, years of service as a director of the company, educational background, business experience, service on other boards and community service activities.  The process used by the board in nominating directors is a subjective one and is based on the recommendations of the nominating and governance committee, the background and qualifications of each of the other members of the board, considered as a group, and the evaluation of the performance of each director based on previous service on the board, board committees and as liaisons between management and the board or a committee or otherwise working on matters specified by the board.

 

What is the experience of each nominee for election as a director?

 

Our board of directors has nominated three persons as class I directors for a three-year term expiring at the end of our annual meeting of shareholders in 2018 or until their successors are duly elected and qualified.

 

The ages of the directors reported below are as of April 1, 2015.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR ALL” OF THE NOMINEES LISTED BELOW.

 

GRAPHIC

Mr. James L. Anderson

Mr. Anderson is chair of the compensation committee and a member of our nominating and governance committee.  He also served as a member of the strategy and corporate development committee until it was dissolved in October 2011.  He has served as a director since 1997.  Mr. Anderson is 71 years old.

 

Mr. Anderson brings strong leadership and management skills to the board developed through his extensive experience as an executive in the insurance industry.  His business acumen and operational experience have also enabled him to provide valuable insights to the board and the committees on which he serves.

 

Since 2003, Mr. Anderson has been a Senior Vice President of Americo Life, Inc., a privately held life insurance and annuity holding company.  He is also a Senior Vice President of several subsidiaries of Americo Life, Inc. engaged in the marketing and underwriting of life and annuity insurance products since 2003.  Prior to 2003, he was President of Americo Financial Services, a third-party administrator and marketer of retirement plans for elementary and high school employees and seniors.  He also served for ten years as the President and Chief Executive Officer of Fremont Life Insurance Company prior to its acquisition by Americo Life, Inc.

 

Prior to joining Fremont Life Insurance Company, Mr. Anderson served as Chairman and Chief Operating Officer of Physicians and Surgeons Underwriting Corporation, an insurance reciprocal management company for Physicians and Surgeons Insurance Exchange, a medical malpractice program for the western United States, and as President, founder and Chief Executive Officer of Hospital Insurance Services, a management company for hospital, medical professional and general liability programs in California.  Prior to forming Hospital Insurance Services, he served as President and Chief Operating Officer for the property and casualty businesses of The National American Insurance Company.  He has been a member of the board of directors of Baldwin Builders, LLC, a privately-held residential home builder in Orange County, California.

 

Mr. Anderson has a BS degree in business from Fort Hays Kansas State University and has participated in the IBM Executive Management program.

 

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GRAPHIC

Ms. Sarah J. Anderson

Ms. Anderson was appointed by the board as a director on March 21, 2012.  She has been the chair of the audit and finance committee since May 20, 2013, a member of the issuance committee since May 21, 2013 and was a member of the ASUS committee from May 22, 2012 until May 20, 2013.  She was a member of the audit and finance committee prior to her appointment as a chair of the committee.  She is 64 years old.

 

Ms. Anderson brings additional expertise to the board in the areas of accounting and financial advisory services.  She also possesses valuable management experience as a result of the various leadership roles that she has held in the accounting profession and in the government and non-profit sectors.

 

Ms. Anderson retired from Ernst &Young LLP in 2008 where she served for 24 years, 21 years of which she served as an advisory services partner.  She served a number of clients, both public and private, across various industries, including utilities, government and service industries.  Ms. Anderson served in multiple leadership positions at Ernst & Young LLP, including serving as the managing partner of both the company’s Orange County and Riverside offices.

 

Ms. Anderson has a BS degree in business administration with a concentration in accounting from Northeastern University.  She has been licensed as a California Certified Public Accountant since 1979 and is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants.

 

Ms. Anderson has been appointed to the California Board of Accountancy for two four-year terms ending in 2014, and is currently serving up to a one year grace period until her seat is otherwise filled.  She has served as president and vice president of the board.  She has also served as the chair of the board’s Committee of Professional Practice and on the Ethics Education and Licensing Frequency task force, chair of the Committee on Professional Practice and chair of the Legislative Committee.  Ms. Anderson has also been a member of the Accountancy Licensee Database Committee and the Uniform Accountancy Act Committee for the National Association of State Boards of Accountancy.

 

Ms. Anderson currently serves on the board of directors and is the audit committee chair of Reliance Steel & Aluminum Company, and a member of the compensation committee and the nominating and governance committee.  She was appointed to the audit committee of the Orange County Community Foundation in February 2012 and currently serves as treasurer and member of the Audit Committee Roundtable of Orange County.  She previously served on the board of managers of Kaiser Ventures, LLC as the chair of its audit committee from 2011 until its liquidation in 2013.

 

Ms. Anderson is also a member of the University of California, Irvine CEO Roundtable and is a member of the Roundtable’s steering committee.  She is on the board and has been a member of the finance committee of the Pacific Symphony since 2001 and has served as the chair of this committee from 2006 until 2009.  She served as chair of the board of the Pacific Symphony from 2009 to 2013.

 

Ms. Anderson has been recognized by the Orange County Business Journal as a leading woman in business and has previously been honored as a Business Woman of Achievement by the YMCA and the Greater Riverside Chambers of Commerce.

 

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GRAPHIC

Ms. Anne M. Holloway

Ms. Holloway is chair of the nominating and governance committee and a member of the compensation committee.  She also served as a member of the strategy and corporate development committee until it was dissolved in October 2011.  Ms. Holloway has served as a director since 1998.  Ms. Holloway is 62 years old.

 

Ms. Holloway brings valuable expertise to the board in human resources, finance and corporate governance matters obtained through her experience in the financial services industry and her experiences in providing strategic advice to Fortune 500 companies.

 

Ms. Holloway is retired.  She was a partner in Navigant Consulting, Inc., a provider of financial and strategic consulting services to Fortune 500 companies, governments and governmental agencies from 1999 to 2000.  She served as President of Resolution Credit Services Corp., a subsidiary of Xerox Financial Services, from 1992 to 1998 where she was responsible for, among other things, the successful resolution of financial guarantees on troubled tax-exempt bonds, the restructuring of debt and the negotiation with the Resolution Trust Corporation.  She also served as Chief Operating Officer of International Insurance Company, another company in the Resolution Group, where she was responsible for operations, human resources and technology.  Prior to joining the Resolution Group, Ms. Holloway held various management positions with Shawmut National Corporation, a financial services company.

 

Ms. Holloway holds a BA degree from Newton College of the Sacred Heart and an MBA from Boston University.  She has also participated in the Harvard Business School Executive Management program.

 

Ms. Holloway served as the chair of the Board of Trustees of Sacred Heart Schools in Atherton, California from 2008 to 2012 and was vice chair from 2012 to 2013.  Ms. Holloway has been a member of the site management and development committee since 2013 and served as chair of the finance committee from 2006 to 2008.

 

She is also actively involved in The Michael J. Fox Foundation Parkinson’s Institute in Sunnyvale, California and is currently serving as a board member for City Year San Jose/Silicon Valley, a national organization that helps reduce dropout rates and improve high school proficiency locally in San Jose, California.

 

She has also served on the board of United Way of Massachusetts Bay, chairing the allocation committee.  She has been on the Massachusetts Governor’s Task Force on the Status of Women and on the board for The Fund for the Arts.

 

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Table of Contents

 

What is the experience of our other directors?

 

Our board has three class II directors with terms expiring at the end of the annual meeting in 2016 or until their successors are duly elected and qualified.

 

GRAPHIC

Dr. Diana M. Bontá

Dr. Bontá is a member of the nominating and governance committee and the compensation committee and serves as enterprise risk management liaison to the board.  She also served as a member of the strategy and corporate development committee until it was dissolved in October 2011.  She has served as a director since 2007.  Dr. Bontá is 64 years old.

 

As a result of her extensive experience in public health and public affairs, Dr. Bontá brings valuable expertise to the board in the areas of customer and community service and corporate governance.

 

Dr. Bontá is currently the President and Chief Executive Officer of The Bontá Group, which provides consulting services in healthcare.  Previously, Dr. Bontá was the President and Chief Executive Officer of The California Wellness Foundation, a private independent foundation with a mission to improve the health of the people in California, by making grants, providing wellness education and preventing disease from January 2012 until June 2013.  From 2004 to January 2012, Dr. Bontá served as the Vice President of Public Affairs of the Kaiser Foundation Health Plan and Hospitals, Southern California Region where she was responsible for setting the Region’s public policy agenda and providing leadership and oversight of public affairs programs and support for Kaiser Permanente’s external communications and reputation management.  She previously served as the first Latina director of the California Department of Health Services from 1999 to 2004.  Prior to serving as director of the California Department of Health Services, Dr. Bontá served as director of the Department of Health and Human Services of the City of Long Beach, California.

 

Dr. Bontá holds doctorate and master degrees in public health from the University of California, Los Angeles.  She has held an appointment as an adjunct professor at UCLA’s School of Public Health since 1999 and is a registered nurse.

 

Dr. Bontá was appointed by California Governor Davis and again by Governor Schwarzenegger to the Board of Trustees of the Health Professions Education Foundation.  She is a trustee of the Annie E. Casey Foundation and the Archstone Foundation.  Dr. Bontá has served as an appointee of Mayor Antonio Villaraigosa as a commissioner of the City of Los Angeles Board of Fire Commissioners from 2007-2012.  She has served as a member of the California State Interagency Coordinating Council and the Managed Risk Medical Insurance Board as an appointee of Governor Davis.  She has also served as a commissioner of the U.S. and Mexico Border Health Commission as an appointee of President Clinton.  Dr. Bontá previously served on the Council for Education in Public Health, on various committees of the Association of State and Territorial Health Officers, as chair of the executive committee of the board of the American Public Health Association, as former chair of the California Women’s Law Center, as a director/trustee of the Charles R. Drew University of Medicine and Science from 2010-2011, on the Department of Health and Human Services Minority Health Committee from 2008-2011 and on the Pat Brown Institute from 2006-2011.

 

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Table of Contents

 

GRAPHIC

Mr. Lloyd E. Ross

Mr. Ross has been chair of the board of directors of the company since April 1999 and has served as a director since 1995.  He is a non-voting ex-officio member of each of the committees of the board.  Mr. Ross is 74 years old.

 

Mr. Ross brings valuable leadership, business acumen, financial and operational experience to the board.  He also has extensive experience in the construction industry which is valuable to the board with respect to the company’s public utility capital improvement programs and the company’s construction activities on military bases.

 

Mr. Ross has been the principal of L. Ross Consulting since 2003, which provides construction, development and consulting services.  He was managing partner of Invermex, LP, a developer of hotels in the southwestern United States and northern Mexico, from 1997 to 2003.  From 1976, prior to becoming managing partner of Invermex, LP, Mr. Ross was the President and Chief Executive Officer of SMI Construction, a commercial and industrial general contracting firm in Irvine, California.  He served on the board of directors of PacifiCare Health Systems from 1985-2005 and as a member of the audit committee and chair of the compensation committee of PacifiCare Health Systems from 2000-2005.

 

Mr. Ross has served on the board of a number of community organizations, including the Orange County small business division of the United Way, the California Young President’s Organization and the Newport Center Chapter of the Kiwanis Club.  He also volunteers at a food bank in Kalispell, Montana.

 

GRAPHIC

Mr. Robert J. Sprowls

Mr. Sprowls has served on the American States Water Company board since May 2009 and the boards of the subsidiary companies since his appointment as President and Chief Executive Officer of the company effective January 2009.  Mr. Sprowls is a member of the ASUS committee and the issuance committee. He also served as a member of the strategy and corporate development committee from January 2009 until it was dissolved in October 2011.  He is 57 years old.

 

Mr. Sprowls is the sole management member of the board of directors.  As President and Chief Executive Officer of the company since 2009 and Chief Financial Officer for four years prior to that, Mr. Sprowls has an intimate knowledge of the company and its operations and personnel.  He has also been in a leadership role in the water industry having served as President and a member of the executive committee of the National Association of Water Companies, a non-profit organization representing private water companies.  He has more than 30 years of experience in business strategy, operations management, corporate finance and business problem-solving for regulated utilities, utility holding companies and highly competitive, non-regulated utility affiliates.

 

Mr. Sprowls is the President and Chief Executive Officer of American States Water Company and holds similar titles and responsibilities for the company’s subsidiaries, Golden State Water Company, or GSWC, and American States Utility Services, Inc. and its subsidiaries, or ASUS.  He also held similar titles at Chaparral City Water Company until its sale to EPCOR Water (USA), Inc. on May 31, 2011.  Mr. Sprowls joined American States Water Company in June

 

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2004 as Senior Vice President – Finance, Chief Financial Officer, Treasurer and Corporate Secretary.  He was promoted to Executive Vice President – Finance, Chief Financial Officer, Treasurer and Corporate Secretary in January 2008 and became Executive Vice President of the company and its subsidiaries in November 2008.

 

Prior to joining American States Water Company, Mr. Sprowls spent 21 years at CILCORP Inc., or CILCORP, a public utility holding company whose largest subsidiary, Central Illinois Light Company, served approximately 250,000 gas and electric utility customers.  During his tenure with CILCORP, Mr. Sprowls held positions as President, Business Unit Leader – Energy Delivery, Chief Financial Officer (CFO) and Treasurer of Central Illinois Light Company, CFO of a non-regulated subsidiary of CILCORP, QST Enterprises Inc., and Vice President and Treasurer of CILCORP.  Mr. Sprowls left CILCORP and Central Illinois Light Company following the sale of the company to Ameren Corporation in 2003.

 

Mr. Sprowls is currently a member of the board of directors of the National Association of Water Companies and a member of the Southern California Leadership Council.  He has served on the board of directors of CILCORP Inc. and Central Illinois Light Company.  He has been a past chairman and a member of the board of directors of the Illinois Energy Association, a past chairman and a member of the board of directors of Goodwill Industries of Central Illinois and a committee chairman for the Heart of Illinois United Way Campaign.

 

He holds a BA degree in economics and business administration from Knox College in Illinois and a master in business administration from Bradley University, also in Illinois.  He is a Certified Public Accountant (Inactive) and a Certified Management Accountant.

 

Our board has three class III directors with terms expiring at the end of the annual meeting in 2017 or until their successors are duly elected and qualified.

 

GRAPHIC

Mr. John R. Fielder

Mr. Fielder was appointed by the board as a director on January 2, 2013.  He has been a member of the audit and finance committee since January 25, 2013 and a member of the ASUS committee since May 20, 2013.  He is 69 years old.

 

Mr. Fielder brings a unique blend of experience in the areas of public utility regulation, strategy, management and information technology matters as a result of over 40 years of experience at Southern California Edison Company.

 

Mr. Fielder is retired.  He was President of Southern California Edison Company from October 2005 until his retirement on December 31, 2010.  As President, he was responsible for operations support, customer service, information technology, environmental affairs, state regulatory and public affairs and employee relations.  Prior to his position as President of Southern California Edison Company, Mr. Fielder held various leadership positions at the company, including Senior Vice President of Regulatory Affairs for 14 years and Vice President of Information Services.

 

Mr. Fielder has served on a number of not-for-profit boards during his career and currently serves as a board member of the Long Beach Memorial Hospital Foundation and the Rancho Los Cerritos Foundation, which supports a historic

 

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property and museum in Long Beach, California.  He also served a two-year term as chair of the board of the Long Beach Aquarium of the Pacific in 2011 and 2012 and a term as the chair of the audit committee of the Aquarium in 2013 and 2014.  He currently serves as a member of the Energy Efficiency Institute Global Advisory Committee for the University of California at Santa Barbara.  He has also served on various industry association boards during his career.

 

Mr. Fielder has a BA degree from the University of California, Santa Barbara, an MBA from the University of California, Los Angeles, and a law degree from Pepperdine School of Law.

 

GRAPHIC

Mr. James F. McNulty

Mr. McNulty was appointed to the board in January 2010.  He is chair of the ASUS committee, was a member of the nominating and governance committee until May 20, 2013 and became a member of the compensation committee on May 20, 2013.  He also served on the strategy and corporate development committee from May 2010 until the committee was dissolved in October 2011.  Mr. McNulty is 72 years old.

 

Mr. McNulty has expertise in engineering, government contracting and project management.  As a result of his 24 years of service in the Army and his experience at Parsons Corporation discussed below, he is able to provide valuable insights to the ASUS committee with respect to its oversight of the company’s military utility privatization projects.

 

Mr. McNulty is retired.  He is the former chairman and Chief Executive Officer of Parsons Corporation, an international engineering, construction and technical and management services firm whose customers include the U.S. government.  He retired from Parsons Corporation in May 2008, but continued to serve as Chairman of the Board until November 2008.  He retained his position as a director on the board of Parsons Corporation until 2011.  He is also a director of ARC Document Solutions, a publicly-traded document management company.  Prior to joining Parsons Corporation in 1988, Mr. McNulty had a 24-year career in the Army in a variety of training, troop, research and development and project management assignments, including work as a research associate at Lawrence Livermore National Laboratory, Deputy Director of the Office of Military Application for the U.S. Department of Energy, Systems Manager for the deployment of the Pershing II missile system and Program Manager for the ground-based laser system for the strategic defense initiative.  He retired from the Army as a Colonel in 1988.

 

Mr. McNulty has a BS degree in engineering from the United States Military Academy at West Point and master degrees from Ohio State University and the Massachusetts Institute of Technology where he was an Alfred P. Sloan Fellow.

 

Mr. McNulty is a trustee of the Linsly School, his high school alma mater in Wheeling, West Virginia, and is a past member of the board of directors of the Greater Los Angeles Chamber of Commerce, the California Science Center, the Los Angeles Sports Council and the board of trustees of Pomona College.  He is a former chairman of Town Hall, Los Angeles.

 

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GRAPHIC

Ms. Janice F. Wilkins

Ms. Wilkins has been a member of the board since her election to the board in May 2011.  She is a member of the audit and finance committee, the issuance committee and the ASUS committee.  Ms. Wilkins is 70 years old.

 

Ms. Wilkins brings extensive expertise to the board in accounting and finance, public company reporting, internal auditing and the development and oversight of ethics and compliance programs.

 

Ms. Wilkins retired as Vice President of Finance and the Director of Internal Audit for Intel Corporation in June 2010 where she was responsible for global internal audit and investigations, and ethics and compliance operations staffs since 1995.  During her 29-year career with Intel Corporation, she held various operational and corporate finance controllership, management and executive positions and managed the human resource organization responsible for compensation and benefits in the U.S.  Prior to joining Intel Corporation, Ms. Wilkins held various finance positions with public and private companies in the electronic, oil and gas, mineral, shipping, banking, and real estate industries.

 

In 2001, Ms. Wilkins was recognized by Ebony Magazine as one of the top-ranking African American women in corporate America.  In 2004, she was named Outstanding Businesswoman of the Year by the Gamma Nu Chapter of Iota Lambda Sorority, with recognition from the U.S. Senator from California, the Mayor of San Francisco and a California State Senator.

 

Ms. Wilkins holds a BS degree in accounting from Xavier University in New Orleans, Louisiana, and an MBA from Golden Gate University in San Francisco, California.  She has been a member of the Institute of Internal Auditors and Financial Executives International.  She has also been involved in professional organizations such as the Conference Board, the Audit Director Roundtable, the Compliance and Ethics Leadership Council of the Corporate Executive Board, the General Auditors’ Council of Manufacturers’ Alliance and the National Association of Corporate Directors.

 

Ms. Wilkins is a member of the Board of Trustees of Golden Gate University, where she serves as a member of the Audit and the Finance and Operations Committees.  She previously served as a member of the Investment Committee.  She was a member of the Board of Trustees of Xavier University, in New Orleans, where she chaired the Business Affairs Committee and the Sub-Committee on Investments and Banking Relationships.  Ms. Wilkins also served on the Executive Committee, the Building and Grounds Committee, the Academic and Faculty Affairs Committee, the Student Affairs Committee and the Development Committee of the Board of Trustees of Xavier University.  Ms. Wilkins served as a member of the Board of Trustees of Sacred Heart Schools in Atherton, California, where she chaired the Audit Committee and was a member of the Executive Committee and the Finance Committee.  In addition, she served as a member of the Finance Council of St. Pius Church in Redwood City, California and the Board of Directors of Peninsula Bridge, a program that promotes academic and personal success for motivated middle-school students from under-sourced communities.

 

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How did we compensate our directors in 2014?

 

We paid fees to each of our directors monthly in cash and made awards of restricted stock units to our directors in 2014 pursuant to the terms of the 2013 directors plan as more particularly described below.  We also reimbursed each of our directors in 2014 for expenses incurred in the performance of his or her duties as a director.

 

DIRECTOR(1) COMPENSATION FOR 2014(3)

 

Name

Fees Paid or Earned
in Cash ($)

Stock Awards ($)(2)

All Other
Compensation ($)
(4)

Total ($)

Lloyd E. Ross

$136,667

 

$66,057

 

$879

 

$203,603

 

James L. Anderson

68,467

 

65,426

 

176

 

134,069

 

Sarah J. Anderson

66,667

 

51,557

 

310

 

118,534

 

Dr. Diana M. Bontá

58,867

 

54,162

 

446

 

113,475

 

John R. Fielder

55,867

 

50,374

 

130

 

106,371

 

Anne M. Holloway

63,967

 

65,210

 

130

 

129,307

 

James F. McNulty

65,167

 

51,905

 

130

 

117,202

 

Janice F. Wilkins

56,467

 

51,905

 

353

 

108,725

 

 

(1)                   Mr. Sprowls, the president and chief executive officer of the company in 2014, was also a director of the company.  We did not pay him any additional compensation for his services as a director or member of any committee.

 

(2)                   The amounts in this column reflect the aggregate grant date fair value of the awards, including dividend equivalent rights, computed in accordance with FASB’s accounting guidance ASC Topic 718.  We provide information regarding the assumptions used in calculation of these amounts in Note 12 to our audited financial statements for the year ended December 31, 2014 in our Annual Report on Form 10-K filed with the SEC.  We did not make any other form of stock award to any director in 2014.  None of our directors forfeited any stock awards in 2014.  Mr. Ross, Mr. Anderson, Ms. Anderson, Dr. Bontá, Ms. Holloway, Mr. McNulty and Ms. Wilkins had a balance of 18,287, 17,515, 975, 3,736, 17,250, 975 and 975 restricted stock units, respectively, credited to his or her account at December 31, 2014, which include restricted stock units granted pursuant to awards under the 2003 directors plan.

 

(3)                   We did not grant any options to directors in 2014.  Mr. Ross had options to acquire 12,000 of our common shares outstanding at December 31, 2014, of which 6,000 was acquired on January 2, 2015.  We have not granted any options to Dr. Bontá, Mr. McNulty, Ms. Anderson, Ms. Wilkins or Mr. Fielder.  All options were granted pursuant to the 2003 directors plan.

 

(4)             We provide our board members and executive officers a blanket accident insurance policy.  The policy is intended to provide coverage for traveling on company business or on assignment for the benefit of our company.  We allocated one–third of the premium of $7,786 (three-year premium) for coverage under the blanket accident insurance policy equally to our board members and executive officers.  The cost was $130 per person in 2014.  We also reimburse our board members for the related cost of travel and meals of their spouses when attending regular board and committee meetings.

 

_________________________

 

Director Fees

 

We paid fees to non-employee directors of the board in 2014 for services rendered on the following basis:

 

n      to each non-employee director, an annual retainer of $25,000 from January through May with an increase of the annual retainer to $45,000 from June through December for service on the board, payable in equal monthly installments;

 

n      to Mr. Ross, an additional annual retainer of $100,000 for his services as chair of the board, payable in equal monthly installments;

 

n      to Ms. Anderson, an additional annual retainer of $15,000 for her services as chair of the audit and finance committee, payable in equal monthly installments;

 

n      to Mr. Anderson, an additional annual retainer of $12,000 for his services as chair of the compensation committee, payable in equal monthly installments;

 

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n      to Ms. Holloway, an additional annual retainer of $7,500 for her services as chair of the nominating and governance committee, payable in equal monthly installments;

 

n      to Mr. McNulty, an additional annual retainer of $7,500 for his services as chair of the ASUS committee, payable in equal monthly installments;

 

n      to each outside director, other than Mr. Ross, and to each outside director who was a member of a committee, a fee of $1,200 for each board or committee meeting attended, other than the annual organizational meeting and telephonic meetings;

 

n      to each non-employee director, other than Mr. Ross, and to each outside director who was a member of a committee, a fee of $600 for each telephonic board or committee meeting attended;

 

n      to Dr. Bontá, $2,400 for serving as the enterprise risk management liaison,

 

n      to Ms. Anderson and Ms. Wilkins, $600 each for serving as issuance committee member, and

 

n      to Mr. McNulty, $1,200 for time spent on ASUS matters.

 

Stock Awards

 

Under the terms of our 2013 directors plan, we automatically granted to each non-employee director in 2014:

 

n                  restricted stock units on the date of the annual meeting in an amount equal to twice the then current annual retainer payable by the company for services rendered as a director divided by the closing price of our common shares on the trading day immediately preceding the date of the annual meeting as shown on The Wall Street Journal website (www.online.wsj.com), and

 

n                  restricted stock units on each dividend record date in an amount equal to the cash dividends payable on this date on a number of shares equal to the aggregate number of restricted stock units credited to each non-employee director’s restricted stock unit account divided by the closing price of our common shares on the dividend payment date, as shown on The Wall Street Journal website (www.online.wsj.com), which we refer to as dividend equivalents.

 

These awards vested and the underlying common shares distributed to each director ninety days after the date of grant.  Commencing with the 2015 annual meeting, the amount of restricted stock units that each director will be entitled to receive at an annual meeting has been revised to an amount equal to $55,000 divided by the closing price of our common shares on the trading day immediately preceding the date of the annual meeting as shown on The Wall Street Journal website (www.online.wsj.com).

 

Under the terms of our 2003 directors plan, each non-employee director who received an award of restricted stock units in 2011 and 2012 was credited with restricted stock units in 2014 on each dividend record date in an amount equal to the cash dividends payable on this date on a number of shares equal to the aggregate number of undistributed restricted stock units credited to each non-employee director’s restricted stock unit account divided by the closing price of our common shares on the dividend record date, as shown on The Wall Street Journal website (www.online.wsj.com).  Under the terms of each award granted in 2011 and 2012, each non-employee director was entitled to receive one-third of each grant in the form of common shares on the first, second and third anniversaries of the grant.

 

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Each non-employee director who received an award of restricted stock units in 2003 through 2008 in the form of retirement stock units was also credited in 2014 with restricted stock units on each dividend record date in an amount equal to the cash dividends payable on this date on a number of shares equal to the aggregate number of undistributed restricted stock units credited to each non-employee director’s restricted stock unit account divided by the closing price of our common shares on the dividend record date, as shown on The Wall Street Journal website (www.online.wsj.com).  Mr. Anderson, Dr. Bontá, Ms. Holloway and Mr. Ross are the only current directors who have received awards of retirement stock units.

 

Other Compensation Plans for Directors

 

We have no incentive compensation, deferred compensation or pension plans for non-employee directors.

 

Stock Ownership Guidelines

 

In 2014, we amended our stock ownership guidelines in response to changes adopted in our compensation program to closer align director and board chair compensation with the market median determined by Pearl Meyer & Partners based on 2013 proxy statement information for members of the peer group approved by the compensation committee described below under “Compensation Discussion and Analysis—Compensation-Committee Process.”  Under the amended guidelines, we have requested each non-employee member of our board to accumulate and hold common shares of the company, restricted stock units or other equity equivalents (other than stock options) granted by the company equal in value to four times his or her annual retainer for board service, plus 1,000 common shares, with the latter to be accumulated and held within three years after his or her appointment as a director.  Non-employee directors are also prohibited from selling or transferring common shares awarded by the company until he or she satisfies these requirements, except where the director sells or transfers his or her shares to satisfy applicable tax withholding obligations owed by the director as a result of the receipt or vesting of his or her shares.  The nominating and governance committee may suspend or adjust these guidelines if the nominating and governance committee determines that the guidelines are unduly burdensome by reason of personal circumstances affecting a director, are unduly affected by temporary declines in the price of our common shares or there has been a recent change in the compensation of directors.  We have not exempted any of our directors from compliance with these guidelines.

 

We consider these guidelines to have been satisfied once the minimum ownership requirements have been satisfied regardless of subsequent changes in the market value of our common shares.  Each member of our board currently satisfies the revised stock ownership guidelines.

 

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EXECUTIVE OFFICERS

 

What has been the business experience of our executive officers during the past five years?

 

We have set forth the principal occupation of each of our executive officers in the following table.  Unless otherwise specified, the principal position of the executive officer is with American States Water Company.  Mr. Sprowls, Ms. Tang and Ms. Farrow are also officers of each of our direct and indirect subsidiaries.  The age of each executive officer is current as of April 1, 2015.

 

EXECUTIVE EXPERIENCE TABLE

 

 

 

 

 

 

 

 

 

 

Name

 

 

Principal Occupation and Experience

 

 

Age

 

 

Held Current
Position Since

Robert J. Sprowls

 

 

President and Chief Executive Officer

 

 

57

 

 

January 2009

 

 

 

 

 

 

 

 

 

 

Denise L. Kruger

 

 

Senior Vice President – Regulated Utilities of Golden State Water Company

 

 

51

 

 

January 2008

 

 

 

 

 

 

 

 

 

 

Eva G. Tang

 

 

Senior Vice President – Finance, Chief Financial Officer, Corporate Secretary and Treasurer

 

 

59

 

 

November 2008

 

 

 

 

 

 

 

 

 

 

Patrick R. Scanlon

 

 

Vice President –Water Operations of Golden State Water Company

 

 

57

 

 

January 2008

 

 

 

 

 

 

 

 

 

 

James C. Cotton, III

 

 

Senior Vice President and Procurement Officer of American States Utility Services, Inc. and its subsidiaries; Vice President – Contracts of American States Utility Services, Inc. and its subsidiaries from November 2012 to December 2014; Director of Contracts of American States Utility Services, Inc. and its subsidiaries from June 2008 to November 2012

 

 

41

 

 

December 2014

 

 

 

 

 

 

 

 

 

 

Gladys M. Farrow

 

 

Vice President – Finance, Treasurer and Assistant Secretary of Golden State Water Company and Treasurer and Assistant Secretary of the other subsidiaries of American States Water Company

 

 

50

 

 

November 2008

 

 

 

 

 

 

 

 

 

 

James B. Gallagher

 

 

Vice President – Management Services of American States Utility Services, Inc. and its subsidiaries

 

 

60

 

 

October 2007

 

 

 

 

 

 

 

 

 

 

William C. Gedney

 

 

Vice President – Asset Management of Golden State Water Company

 

 

60

 

 

January 2008

 

 

 

 

 

 

 

 

 

 

Granville R. Hodges

 

 

Vice President – Operations of American States Utility Services, Inc. and its subsidiaries

 

 

55

 

 

January 2007

 

 

 

 

 

 

 

 

 

 

Bryan K. Switzer

 

 

Vice President – Regulatory Affairs of Golden State Water Company

 

 

58

 

 

September 2004

 

 

 

 

 

 

 

 

 

 

 

Compensation Discussion and Analysis

 

In this section, we describe the philosophy and objectives of our executive compensation programs, explain the compensation decision-making process, summarize the individual components of total compensation for our named executive officers and provide you with our assessment of our compensation program in 2014.  We provide more detailed information regarding the compensation paid to our named executive officers during the past three years in the tables following this section and in the narrative discussion after each of these tables.

 

Total compensation of our named executive officers in 2014 was significantly impacted by a change in pension value assumptions under the Golden State Company Pension Plan, or pension plan, and the Supplemental Executive Retirement Plan or SERP.  Excluding the change in pension values,

 

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Mr. Sprowls’ total compensation in 2014 increased by $207,045 due primarily to an increase in his “at-risk” related compensation (stock awards).  However, Mr. Sprowls’ total compensation, including the change in pension values, increased by $870,694 in 2014 including an increase of $663,649 in pension values even though we made no changes in the terms of our pension plan or supplemental retirement plan, and we have no non-qualified deferred compensation arrangements.  Approximately 65% of the $663,649 increase in the pension values for Mr. Sprowls was due to two external factors: the change in discount rates and the change in mortality rates.  The discount rates used to value pension benefits decreased by 85 basis points for the qualified pension plan and 90 basis points for the supplemental retirement plan as compared to the prior year.  This decrease in discount rate increased Mr. Sprowls’ pension values by $361,350. The mortality assumption was updated to reflect the recent release of new mortality tables by the Society of Actuaries projecting longer life expectancies.  This change in mortality table assumption increased Mr. Sprowls’ pension values by $68,403.  These changes in pension value assumptions also significantly impacted the total compensation of our other named executive officers in 2014.

 

Financial Highlights for Continuing Operations

 

We achieved

 

§                 a total shareholder return, including reinvestment of dividends, of 34.7% in 2014 compared to 13.7% for the S&P 500(1)

 

§                 5.6% annualized growth in revenue over the past 5 years,

 

§                 15.8% annualized growth in net income over the past 5 years,

 

§                 14.3% annualized growth in earnings per share over the past 5 years, and

 

§                 10.5% annualized growth in dividends over the past 5 years.

 

The following table compares our cumulative total shareholder return for the five years ended December 31, 2014 to the cumulative total shareholder return for the same period of the S&P 500 and the members of our peer group described in this section under “Compensation Committee Process:”

 

GRAPHIC

 

(1)                   Copyright© S&P Capital IQ, a division of The McGraw-Hills Companies Inc.  All rights reserved.

 

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Approach to Compensation

 

The compensation committee desires to implement the company’s executive compensation program in a manner that will enable the company to:

 

§                 attract, retain and motivate talented and experienced executives,

 

§                 provide fair, equitable and reasonable compensation to each executive officer,

 

§                 reward job performance, and

 

§                 further align the interests of our executive officers with that of our shareholders and customers.

 

Executive Compensation Practices at a Glance

 

 

 

 

 

 

 

 

WHAT WE DO

 

 

 

WHAT WE DO NOT DO

 

 

 

 

 

 

 ü

Pay for Performance: We link pay to performance and shareholder and customer interests by weighting total direct compensation to the achievement of a balanced mix of performance metrics established in advance by the compensation committee

 

 

û

No Employment Agreements: We do not have employment agreements with any of our executive officers

 

 

 

 

 

 

 

 

 ü

Generally at least 50% of Long-Term Equity Awards are Performance-Based: At least 75% of long-term equity awards to the CEO since 2013 are in the form of performance shares tied to three-year performance objectives. Generally, at least 50% of long-term equity awards to regulated utility executive officers are in the form of performance shares tied to three-year performance objectives, and at least 60% of long-term equity awards to ASUS executive officers are in the form of performance shares tied to three-year performance objectives.

 

 

û

No “Single Trigger” Cash Severance Payments or Tax Gross Ups: We do not have “single trigger” cash severance payments owing solely on account of the occurrence of a change of control event or provide tax gross ups

 

 

 

 

 

 

 

 

 ü

Thoughtful Peer Group Analysis: The compensation committee reviews external market data when making compensation decisions and annually reviews our peer group with our independent compensation consultant

 

 

û

No Hedging in Company Securities: We have a policy prohibiting executives and directors from engaging in any hedging transaction with respect to company equity securities

 

 

 

 

 

 

 

 

 ü

Compensation Risk Assessment: The compensation committee conducts an annual assessment of whether the company’s executive and broad-based compensation programs encourage excessive risk-taking

 

 

û

No Pledging Company Securities: We have a policy prohibiting pledges of company securities by our executives and directors

 

 

 

 

 

 

 

 

 ü

Stock Ownership Guidelines: Executives are subject to stock ownership guidelines equal to a multiple of their annual base salaries (3x for the CEO, 1.5x for senior vice presidents and 1x for vice presidents); directors are also subject to stock ownership guidelines and restrictions on sales of common shares until they own stock equal to 4x their annual cash retainer plus 1,000 additional shares after a person has been a director for at least three years (except that common shares may be transferred to meet applicable tax withholding requirement obligations)

 

 

û

No Repricing, Repurchasing or Discounting of Options: We do not reprice or repurchase underwater awards and we do not grant options at a discount to fair market value on the date of grant

 

 

 

 

 

 

 

 

 ü

“Clawback” Policy: Our clawback policy provides for the recoupment of cash and stock incentive compensation from an executive officer if, as a result of a financial restatement, the compensation committee determines that the company would have paid the executive officer less than he or she was paid prior to the restatement

 

 

û

No Guaranteed Bonuses: We do not provide guaranteed minimum bonuses or uncapped incentives under our annual cash incentive plan

 

 

 

 

 

 

 

 

 

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2014 Pay Mix

 

The principal elements of our compensation program include a base salary, annual cash incentives, a portion of which is based on achieving financial, operational and customer service objectives during the year, and annual equity grants, a portion of which is based on achieving financial and operational performance objectives during a three year performance period.  We refer to these elements of compensation as total direct compensation.

 

The compensation committee set the target percentages set forth in the chart below for each component of total direct compensation in 2014, assuming that each named executive officer earned the aggregate target and will earn his or her performance stock awards at the target level following the end of the three year performance period.  As these charts show, approximately 60% and 40% of target total direct compensation (salary, bonus and equity) is variable (or “at-risk”) for our CEO and other named executive officers, respectively.

 

GRAPHIC

 

In determining the target percentages for each component of total direct compensation, the compensation committee considered the practices of our peer group, how well the company’s pay levels are aligned with performance compared to the company’s peer group, the views and practices of the California Public Utilities Commission, or CPUC, in setting rates, the practices of the two water utilities regulated by the CPUC that are members of our peer group, the preference of proxy advisory firms for significant portions of total direct compensation to consist of variable pay based on the satisfaction of objective performance targets and the prior year’s performance of the executive officer. The compensation committee also believes that it is important for more of the compensation of the chief executive officer to be dependent on performance than that of the other executive officers.

 

The mix of total direct compensation awarded in 2014 which will actually be received by an executive officer (which does not include the actuarial calculation of the change in pension value or other compensation shown in the Summary Compensation Table) may be different from the target mix depending upon, a variety of factors, the value of some of which cannot yet be determined.  The factors affecting actual total direct compensation awarded in 2014 that have not yet been determined include:

 

§                 the company’s financial and operational performance for the period commencing January 1, 2014 and ending on December 31, 2016 with respect to the performance measures set forth in the executive’s performance stock award agreement;

 

§                 the value of the company’s common shares upon the vesting of time vested restricted stock units awarded to the executive in 2014 and the value of dividend equivalent rights on dividends paid after 2014 on these restricted stock units;  no restricted stock units awarded to an executive in 2014 vested in 2014; and

 

§                 the value of the company’s common shares following the determination in 2017 of the amount of common shares to be received by an executive based upon satisfaction of the

 

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objective performance criteria set forth in the performance stock award agreement and the time vesting of these awards, together with the value of any dividend equivalent rights thereon.

 

Alignment of CEO Pay with Performance

 

In the course of reviewing our overall executive compensation program for 2014, our consultants, (Pearl Meyer & Partners) reviewed the relationship between realizable total direct compensation of our CEO and our performance for the two three-year periods ended December 31, 2013 and December 31, 2014.  This review was conducted to assist the compensation committee in understanding the degree of alignment between realizable total direct compensation delivered to the CEO during the period and our performance relative to our peer group as identified below.  For purposes of this review, company performance is defined as total shareholder return (including reinvested dividends) over the respective three-year period.  Peer Group total direct realizable compensation is defined as the sum of:

 

§                 Actual base salaries paid over the three-year period ending December 31, 2013;

 

§                 Actual short-term incentives (bonuses) paid over the three-year period ending December 31, 2013;

 

§                 “In-the-money” value as of December 31, 2013 of any stock options granted over the prior three-year period;

 

§                 The value as of December 31, 2013 of any restricted shares or restricted stock units granted over the prior three-year period; and

 

§                 Payouts of cash-based long-term incentive awards and the value as of December 31, 2013 of any performance shares earned over the three-year period.

 

As a second comparison, we also reviewed the company’s CEO’s pay for performance using realizable pay from January 1, 2012 to December 31, 2014 compared to total shareholder return (including reinvested dividends) over the same period.  Pay is based on the period 2012 and 2013 with an estimate of 2014 equal to 2013 for our peers since 2014 pay information for most of our peers was not available at the time of this analysis.

 

The following chart illustrates the pay for performance analysis of our CEO using realizable pay relative to our peer group for 2013 and illustrates our realizable pay and performance for 2014.  For both periods, the company’s total shareholder return (including reinvestment of dividends) rank was at the 100th percentile, in both periods, and our CEO’s realizable pay rank was at the 54th percentile.

 

In both cases, our CEO’s realizable compensation rank was below the percentile rank of our performance, indicating a strong correlation between realizable compensation and performance.  The compensation committee believes this demonstrates an appropriate alignment between our compensation program outcomes and company performance.

 

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GRAPHIC

 

Changes in our Compensation Program

 

As a result of our annual reviews of our compensation programs in 2014 and 2015, the compensation committee made the following significant changes in our executive compensation programs:

 

§                 approved an amendment to the 2008 plan to prohibit the repurchase of options granted under the plan after the effective date of the amendment,

 

§               adopted a formal policy prohibiting officers and directors, effective March 18, 2014, from entering into hedging or monetization transactions involving our common shares and holding our common shares in a margin account,

 

§               adopted a formal policy prohibiting officers and directors, effective March 18, 2014, from pledging our common shares as collateral for a loan,

 

§                 approved the elimination of the gross up for excise taxes pursuant to Section 280G of the Internal Revenue Code in the change in control agreement and equity award agreements provided to senior executives, and

 

§                 approved the elimination of the single trigger provision on the acceleration of vesting on equity following a change in control under the change in control agreements and equity award agreements.  The revised agreements include a double trigger requirement on vesting of equity where both events have to occur before the equity vests: (1) a change in control event occurs, and (2) the officer is terminated or leaves for “Good Reason” (e.g., cut in pay, responsibilities, etc.), each within two years after the change in control event occurs.

 

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In May 2014, our shareholders cast an advisory vote approving the compensation of our named executive officers, as disclosed in our 2014 proxy statement.  Approximately 96.4% of the votes cast for or against this matter supported our 2014 “say-on-pay” proposal, which was an increase in the favorable vote over the vote in 2013.  Abstentions were not counted as a vote either for or against this proposal.  The compensation committee considered this result when making changes to its compensation program.

 

Compensation Committee Process

 

The compensation committee annually reviews our executive compensation program in order to assess whether the program continues to meet the objectives of the program.  The compensation committee typically engages a compensation consultant to assist the committee.

 

The compensation committee engaged Pearl Meyer & Partners in August 2011 as a compensation consultant to the committee.  The committee extended this engagement in 2012, 2013 and 2014.  Pearl Meyer & Partners provided the compensation committee with information regarding the compensation programs of the following group of companies selected by Pearl Meyers & Partners, after consultation with management, and approved by the compensation committee:

 

ALLETE, Inc.

Northwest Natural Gas Company

Aqua America, Inc.

SJW Corp

California Water Service Group

South Jersey Industries, Inc.

Chesapeake Utilities Corporation

The Empire District Electric Company

El Paso Electric Company

UIL Holdings Corporation

ITC Holdings Corporation

Unitil Corporation

MGE Energy, Inc.

 

 

Owing to the limited number of similarly sized water utilities, peer companies were selected based on similarity in industry (water, gas and electric utilities) and size (annual revenues between $100 million and $1 billion).  The compensation committee considered compensation information for this same group of companies during the past three years with the exception of ALLETE, Inc., El Paso Electric Company and Northwest Natural Gas Company, which were added to the peer group in 2012, and Central Vermont Public Service Corporation which was eliminated in June 2012 due to its acquisition by Green Mountain Power Corporation.  Three members of the peer group are in the water industry, two of which are also regulated by the CPUC, the regulator of the company’s principal subsidiary.  The compensation committee often gives greater weight to the practices of the two CPUC-regulated companies since the company competes with these companies for executive talent and is subject to similar regulatory oversight.  In addition, the compensation committee believes that the financial and operational performance of these companies and the compensation programs of these companies are particularly relevant since the ability of these companies to earn their authorized rate of return and to obtain rate adjustments for changes in employee compensation are also affected to some extent by the rules, regulations and practices of the CPUC.  These companies are, to some extent, also affected by the same weather, climate and economic conditions as the company.  All of the other companies are utilities or utility holding companies.

 

Pearl Meyer & Partners also provided the compensation committee in January 2014 with its competitive assessment of the company’s executive compensation program based on information derived by Pearl Meyer & Partners from four different general market surveys, the Towers Watson-2013 Management Compensation Survey (all industries) and three confidential/proprietary general industry surveys.  The competitive assessment was summary in nature, did not identify any particular company and did not contain any information regarding the compensation program of any particular company.  Accordingly, the compensation committee did not consider the compensation practice of any particular company, other than the compensation practices of members of the peer group, in designing any of the company’s compensation plans.

 

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Pearl Meyer & Partners noted in the competitive assessment provided to the compensation committee that, in the aggregate, the total direct compensation of the executive officers of the company was slightly below the 50th market percentile and that the company’s relative performance significantly exceeds the company’s relative realizable pay rank as measured against its peers for the 2011-2013 period.  Pearl Meyer & Partners also noted in the competitive assessment that the company’s target long-term incentive grants were between the 25th and 50th percentile, with variation by executive, and that the total cash compensation paid by the company was close to the 50th percentile.

 

In addition to the information provided by Pearl Meyer & Partners, the compensation committee considered:

 

§                 recommendations of management regarding changes that the compensation committee may wish to consider in the company’s compensation program,

 

§                 the chief executive officer’s subjective assessment of the company’s performance and the performance of individual executive officers,

 

§                 the recommendations of the chief executive officer for adjustments in the base salary and incentive compensation of other executive officers and managers,

 

§                 compensation increases authorized by the CPUC in rate cases of the company’s principal subsidiary, GSWC,

 

§                 a subjective assessment by individual directors of the company’s performance and the performance of the chief executive officer and other members of the management team,

 

§                 a subjective assessment of whether the company’s compensation program properly incents management,

 

§                 objective measures of the company’s financial, operational and customer service performance established in the company’s short-term incentive program,

 

§                 objective measures of the company’s financial performance used in establishing performance criteria for performance stock awards under the 2008 plan,

 

§                 the views of proxy advisory firms, and

 

§                 the views of the CPUC regarding the company’s compensation programs or practices, to the extent known.

 

Independence Assessment – Compensation Committee Consultant

 

In 2014, as required by rules adopted by the Securities and Exchange Commission under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the compensation committee selected Pearl Meyer & Partners to continue to serve as its independent compensation consultant after assessing the firm’s independence and concluded that no conflicts of interest existed between the company and Pearl Meyer & Partners (or any individuals working on the company’s account on behalf of Pearl Meyer & Partners).  We provide additional information regarding this assessment under “Compensation Committee - Is our compensation consultant independent?”

 

Risk Considerations

 

In establishing and reviewing the company’s compensation program, the compensation committee considers whether the program encourages unnecessary or excessive risk taking and has concluded that it does not.  Base salaries, which constitute the largest component of total direct compensation for all employees of the company, are fixed in amount and thus do not encourage excessive risk taking.

 

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The compensation committee considers a variety of factors in awarding additional cash compensation based on the performance of its executive officers, including factors based on earnings performance, customer satisfaction, capital improvements, improvements in operations and internal accounting controls.  The committee believes that, as a result of this mix of factors, the company’s short-term cash incentive program appropriately balances risk and the committee’s desire to compensate executives for accomplishments that are important to the company’s customers and shareholders.

 

The compensation committee also makes awards of restricted stock units and performance stock to executive officers.  Restricted stock units and performance stock awards granted after 2013 vest at the rate of 33% in the first year, 33% in the second year and 34% in the third year and, with respect to performance stock awards, provide for determination of whether the performance criteria have been satisfied after the end of a three year performance period, subject to limited exceptions.  In addition, we may not repurchase any options granted to any executive officers or managers after March 18, 2014 or reprice any options awarded to any executive officer or manager under our 2008 plan.  The compensation committee believes that these features of our equity plans further discourage excess risk-taking by executives.  In addition, the vesting schedule serves as a retention vehicle for executive officers and managers.

 

In order to mitigate risks that may be associated with performance-based compensation, the compensation committee maintains a clawback policy to recoup cash and equity performance-based compensation payments if:

 

§                 we calculated the amount of the compensation based on achieving financial results that were subsequently subject to an accounting restatement due to material noncompliance with a financial reporting requirement under the securities laws,

 

§                 we identified the need for the accounting restatement within three years after the date of the filing of financial results that were subsequently restated, and

 

§                 we would have paid a lesser amount to the executive officer based on the restated financial results.

 

All awards made to executives under our 2008 stock incentive plan after December 31, 2010 and all awards made under our short-term cash incentive plan are subject to this policy and any rights to repayment that the company may have under Section 304 of the Sarbanes-Oxley Act of 2002 and other applicable laws.

 

We adopted a policy that prohibits the hedging of the risks of economic ownership of our common shares and the pledging of our common shares by officers and directors in March 2014.  Each of our officers and directors has represented to us that he or she has not purchased any financial instrument in 2014 or 2015 designed to hedge or offset any decrease in the market value of any company common shares held, directly or indirectly, by such officer or director or pledged any of our common shares.  We also previously requested each officer and director to inform the company whether he or she had engaged in any hedging activities or pledged any of our common shares.  To date, no officer or director has informed the company that he or she has engaged in any such activities.

 

In addition to establishing and reviewing our compensation program, the compensation committee also examines the pay practices and policies relating to all employees of the company.  On the basis of this examination, the compensation committee has concluded that our pay practices and policies do not appear to involve risks that could have a material adverse effect on us.

 

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Elements of Executive Compensation

 

Our compensation program consists of base salary, short-term cash incentives, stock awards, retirement benefits, severance arrangements and welfare and other benefits and perquisites.  We discuss each of these elements in more detail below.  The compensation committee considers each of these elements independently before assessing whether its overall compensation program is competitive with that of its peer group and other companies with which the company competes for executive talent.

 

Base Salary

 

We pay a base salary in order to enable us to attract and retain talented executive officers and to provide a fixed base of compensation commensurate with the individual responsibilities, performance and experience of each of our executives.

 

The compensation committee considered the following factors in making adjustments to the base salaries of individual executive officers in 2014:

 

§                 the competitiveness of our compensation of each executive officer compared to executive officers of our peer group in comparable positions,

 

§                 the desire to compensate executives in comparable positions in a similar manner; in 2014, Robert Sprowls was our chief executive officer; Denise Kruger, McClellan Harris III and Eva Tang were senior vice presidents; and Patrick Scanlon was a vice president,

 

§                 a subjective assessment of each executive’s performance during 2013, including his or her performance in the areas of our business over which he or she had individual responsibility, and

 

§                 a review of the company’s financial performance and management’s accomplishments during 2013.

 

After consideration of the factors described above, the compensation committee increased the base salary of Mr. Sprowls, Ms. Kruger, Mr. Harris, Ms. Tang and Mr. Scanlon by 3.17%, 3.91%, 3.01%, 4.11% and 3.50%, respectively, in January 2014.

 

Short-Term Cash Incentives

 

We adopted a short-term cash performance incentive plan in order to motivate executives who participate in the plan to maximize our performance from a financial, operations and customer service perspective.  We also from time to time approve short-term cash incentives for specified executives based on objective criteria that were not included in the short-term cash performance incentive plan, referred to herein as the other objective criteria.  We believe that the performance incentives set forth in our annual short-term cash incentive programs will permit us to meet our objectives.  Our customers and shareholders benefit if we achieve our customer service objectives.  Our customers and shareholders also benefit if we are able to attract capital at a lower cost as the result of improved financial performance.

 

In March 2014, the compensation committee approved a short-term incentive program which gave each named executive officer the opportunity to receive:

 

§                 80% of each executive’s target bonus under the performance incentive plan based on achieving objective performance criteria in 2014,

 

§                 20% of each executive’s target bonus based on the subjective assessment by the compensation committee of the executive officer’s performance in 2014 following the end of the year.  In making this subjective assessment, the compensation committee took into account the recommendations of the chief executive officer based on his subjective assessment of the performance of the other executive officers and a subjective assessment of the performance of each executive officer by other members of the board.

 

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The compensation committee increased the target aggregate bonus for Mr. Sprowls under this program by 10% over his percentage of base salary in 2013, by 3.5% over the percentage of base salary in 2013 for Ms. Kruger, Mr. Harris and Ms. Tang, and by 3.0% over the percentage of base salary in 2013 for each of the other executive officers.  The compensation committee may, in its discretion, reduce an award below the level earned for each of the criteria or upon the failure to satisfy other objective criteria, but, may not in any event, increase the amount of the bonus above the level specified for that criteria.  Mr. Harris was not entitled to receive a bonus under this program in 2014 since he was not an employee of the company in 2015 when the bonuses were paid out.  Detailed information regarding the objective criteria selected by the compensation committee for these awards can be found under “How were certain of our executive officers compensated in 2014 - “Non-Equity Incentive Compensation.”

 

The compensation committee recognizes that our financial performance is dependent upon a number of factors beyond the immediate control of management, such as weather, water quality and water supply.  As a result, the pay-out structure includes a discretionary bonus component based on a subjective assessment of the performance of each executive officer by the compensation committee after the end of the year.

 

Mr. Sprowls, Ms. Kruger, Ms. Tang and Mr. Scanlon earned 80.1%, 68.8%, 80.1%, and 68.8%, of the target aggregate bonus as a result of satisfying the objective criteria set for that executive officer, respectively. Mr. Sprowls, Ms. Kruger, Ms. Tang and Mr. Scanlon will receive $312,390, $74,432, $84,420, and $45,874, respectively, in April 2015 with respect to the awards based on these criteria.

 

Mr. Sprowls, Ms. Kruger, Ms. Tang and Mr. Scanlon earned 28.2%, 28.0%, 28.0%, and 25.0% of the aggregate target bonus as a result of the discretionary award for that executive officer, respectively. Mr. Sprowls, Ms. Kruger, Ms. Tang and Mr. Scanlon will receive $110,000, $30,292, $29,510, and $16,669, respectively, in April 2015 with respect to these discretionary bonus awards.

 

In Proposal 2, we are asking our shareholders to approve an amendment and extension of our performance incentive plan in order to enable us to continue to provide each of our executive officers short-term cash incentives that are performance-based under Section 162(m) of the Internal Revenue Code.

 

Equity Awards

 

In order to promote internal pay equity, it is the practice of the compensation committee generally to grant the same amount of equity awards to each senior vice president and the same amount of equity awards to each vice president.  The chief executive officer generally receives a higher equity award than the amounts granted to other officers.

 

The compensation committee considered the following factors in determining the amount and type of equity awards to be made to the chief executive officer, senior vice presidents and vice presidents in 2014:

 

§                 the past practices of the committee in awarding equity, and

 

§                 the market survey prepared by Pearl Meyer & Partners which indicated that the company’s long-term incentives were below average compared to that of our peer group and consisted of a mixture of time vested equity awards and performance stock awards.

 

The compensation committee recommended that all equity awards to executive officers in 2013 and 2014 be granted through a combination of time vested restricted stock units and performance stock awards in the form of restricted stock units, rather than in all time vested restricted stock units, in order to base a higher portion of compensation on achieving objective performance goals as set forth by the

 

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compensation committee.  Information regarding the objective performance goals can be found under “How were certain of our executive officers compensated in 2014 - “Equity Compensation” and “Grants of Plan-Based Awards in 2014.”

 

In January 2014, the compensation committee decided to increase the target value of equity awards to executives in order to increase the amount of the company’s long-term incentives paid to executives to a level closer to that of members of our peer group.  Approximately 50% of the value of equity awards to Ms. Tang and 60% of the value of equity awards to Mr. Harris are subject to the satisfaction of performance conditions.  Approximately 42% of the value of equity awards to Ms. Kruger and Mr. Scanlon were subject to the satisfaction of performance conditions.  The percentage of the equity awards based on satisfaction of performance conditions was lower for Ms. Kruger and Mr. Scanlon due to an increase in the amount of their time vested restricted stock units over that of other executive officers in order to provide additional compensation to them for favorably resolving well contamination issues in the company’s Hawthorne, California system in 2013.  The compensation committee also concluded that more of Mr. Sprowls’ equity awards should be based upon the satisfaction of performance conditions than was the case with the other executive officers, with 75% of the value of his awards subject to performance conditions. The compensation committee determined the amount of these equity awards on the basis of the average closing price of the company’s common shares for the thirty days ending on the date preceding the date that the compensation committee resolutions were presented for approval by the committee.

 

Each equity award granted in 2014 vests over a three-year period, provided that, with respect to performance stock awards the performance criteria have been satisfied at the end of the three-year performance period.  The compensation committee believes that granting equity awards with three-year vesting periods creates a substantial retention incentive and also encourages the named executive officers to focus on the company’s long-term business objectives and stock performance.

 

Each time vested restricted stock unit and performance stock award was granted with dividend equivalent rights to the extent the employee vests in the underlying restricted stock unit or performance stock award.  The compensation committee believes that granting stock units with dividend equivalent rights helps align the interests of the named executive officers with the interests of the shareholders of a utility holding company who, in many cases, purchase and retain the stock of the holding company based on the amount of dividends that the holding company consistently pays.  Dividends have also historically been an important component of our total shareholder return.

 

The number of restricted stock units accumulated for each executive officer pursuant to dividend equivalent rights on time vested restricted stock units prior to vesting and payout of restricted stock units granted to each executive officer was 366.2, 171.5, 172.7, 152.6, 136.2 for Mr. Sprowls, Ms. Kruger, Mr. Harris, Ms. Tang and Mr. Scanlon, respectively, in 2014.  No restricted stock units granted in 2014 were paid out to any executive officer in 2014 since none of the restricted units awarded in 2014 vested in 2014.

 

The number of restricted stock units accumulated for the executive officer pursuant to dividend equivalents rights on performance stock awards granted to each executive officer prior to payout of the awards was 913.4, 104.1, 114.3, 104.1 and 81.1 for Mr. Sprowls, Ms. Kruger, Mr. Harris, Ms. Tang and Mr. Scanlon, respectively.  A portion of these restricted stock units accumulated for, and not paid to, Mr. Sprowls relate to the performance stock granted to him in 2012 that has not vested.  The remainder of the restricted stock units accumulated for, and not paid out to, Mr. Sprowls and the other executive officers relate to the performance stock granted to each executive in 2013 and 2014 since the performance conditions for earning these awards have not yet been satisfied.

 

Upon occurrence of a change in control event followed by either (a) termination of an executive’s employment (other than for cause, death or disability) or (b) termination by the executive of employment for good reason, in each case, within two years following the change in control event, each restricted stock unit and performance stock award will immediately vest free of restrictions. The compensation

 

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committee believes that the vesting of equity awards permits executives whose employment will be terminated as a result of the change in control to share in the value that they created for shareholders at the same time that the shareholders recognize that value upon a change in control. The performance period under the performance stock awards will also end and the performance criteria will be adjusted to account for the shortened performance period as provided in the performance stock award agreements.

 

Tax Considerations

 

Under Section 162(m) of the Internal Revenue Code, we may generally only deduct up to $1,000,000 of the compensation paid to a named executive officer, unless the compensation is performance-based and has been paid pursuant to a plan approved by shareholders. The performance incentive plan was approved by shareholders at our annual meeting in 2010 and the addition of performance stock awards to our 2008 plan was approved by shareholders at our annual meeting in 2012.  We intend the objective bonuses paid to our executive officers under the short-term cash incentive plan and the performance stock awards to qualify as performance-based within the meaning of Section 162(m).  The portion of objective bonuses paid to each of the executive officers that were based on the satisfaction of the other objective criteria do not qualify as performance-based compensation within the meaning of Section 162(m).  From time to time, the compensation committee may approve compensation of an executive officer that exceeds the limitations set forth in Section 162(m).

 

Retirement Benefits

 

We provide retirement benefits that we believe are comparable to the benefits provided by other members of our peer group in order to attract, retain and motivate talented and experienced executives.  Our retirement benefit programs are also intended to provide fair, equitable and reasonable compensation to our executive officers and to assist in the retention of our executive officers.  The change in the pension value of each executive officer may, however, differ markedly from that of members of our peer group due to differences in the age and time of service of the executive officers of the company compared to that of executives in comparable positions in members of our peer group.  Changes in pension value also differ by executive due to differences in cash compensation, the age of the executive and the number of years of service with the company.

 

Severance Arrangements

 

We do not have any employment agreements with any of our executive officers.  We do, however, have change in control agreements with each of our executive officers which provide for certain benefits in the event of a change in control if either the executive officer’s employment is terminated (other than for cause, death or disability) or the executive terminates employment for good reason, in each case within two years following the change in control event.  These change in control agreements replace change in control agreements that were negotiated with management in 1999.

 

The compensation committee believes that the change in control agreements provide management with benefits comparable to those provided by other members of our peer group and other public utilities in California with whom we compete.  The compensation committee also believes that the change in control agreements provide appropriate incentives to management to remain with the company in the event of a potential change in control.

 

We made a severance payment to Mr. Harris of $40,000 pursuant to the terms of a separation agreement executed in November 2014 in connection with his retirement on November 21, 2014 in exchange for a general release of claims against the company.

 

Welfare and Other Benefits and Perquisites

 

We provide welfare and other benefits that we believe are comparable to the benefits provided by other members of our peer group and other perquisites that we believe are reasonable to attract, retain and motivate talented and experienced executives.  Except as described under “How were certain officers

 

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compensated in 2014?” and in this section, we provide the same benefits to executive officers as we provide to other employees of the company.

 

Stock Ownership Guidelines

 

We have requested each of our executive officers to own common shares, restricted stock units, and other equity equivalents, including common shares held in our 401(k) plan, equal in value to:

 

§                 3.0 times his salary for Mr. Sprowls, as the chief executive officer,

 

§                 1.5 times her salary for Ms. Kruger and Ms. Tang who are senior vice presidents, and

 

§                 One time his annual salary for Mr. Scanlon, who is a vice president.

 

We do not consider unexercised stock options to be equity equivalents of our common shares for this purpose.  We have asked each executive officer, other than Mr. Sprowls, to satisfy these guidelines by the later of May 2012 or five years after his or her appointment to the position of senior vice president or vice president.

 

The board increased the stock ownership guidelines applicable to Mr. Sprowls from 2.5 times his salary to 3.0 times his salary in February 2012.  As a result of the increase in his guidelines, we asked Mr. Sprowls to satisfy these guidelines by January 1, 2015.

 

We consider these guidelines to have been satisfied once the minimum ownership requirements are met regardless of subsequent changes in the market value of our common shares.  Mr. Sprowls, Ms. Kruger, Ms. Tang and Mr. Scanlon currently satisfy these guidelines.

 

The nominating and governance committee may suspend or adjust these guidelines if they determine that the required holding of any executive officer is unduly burdensome by reason of personal circumstances affecting an executive officer or is the result of recent significant changes in the compensation of the executive officer.  We have exempted Ms. Farrow, a vice president of the company, from compliance with these stock ownership guidelines since she is prohibited by the auditor independence rules of PricewaterhouseCoopers LLP, our independent public accounting firm, from owning any of our common shares.  Ms. Farrow’s husband is an employee of PricewaterhouseCoopers, but is not involved in any manner in auditing our financial statements or otherwise providing any services to us.

 

Compensation Committee Report

 

The compensation committee has reviewed and discussed the Compensation Discussion and Analysis with management.  On the basis of this review and discussion, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement and in our Form 10-K for the year ended December 31, 2014 by incorporation by reference to this proxy statement.

 

This report is submitted by:

 

James L. Anderson, Chair

Diana M. Bontá, Member

Anne M. Holloway, Member

James F. McNulty, Member

 

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How were certain of our executive officers compensated in 2014?

 

We compensated each of our most highly compensated executive officers in 2014 as more particularly described below.  Unless otherwise specified, the principal position of the executive officer is with American States Water Company.  We also reimbursed each of these executive officers for expenses incurred in the performance of his or her duties as an executive officer.

 

SUMMARY COMPENSATION TABLE(1)

 

Name and Principal
Position

 

Year

Salary

($)(2)

Bonus
($)(3)

Stock
Awards

($)(4)

Non-
Equity
Incentive
Plan
Compen-
sation

($)(5)

Change in
Pension
Value and
Non-
Qualified
Deferred
Compen-
sation
Earnings

($)(6)

All
Other
Compen
-sation

($)(7)

Total

($)

Total
Excluding
Change in
Pension
Value and
Non-
Qualified
Deferred
Compen-
sation
Earnings

($)(8)

 

 

 

 

 

 

 

 

 

 

Robert J. Sprowls

President and Chief Executive Officer

 

2014

 

2013

 

2012

$649,462

 

628,800

 

577,462

$ 110,000

 

110,250

 

100,307

$658,682

 

501,986

 

451,240

$312,390

 

281,610

 

299,693

$995,927

 

332,278

 

462,840

$14,722

 

15,565

 

14,257

$2,741,183

 

1,870,489

 

1,905,799

$1,745,256

 

1,538,211

 

1,442,959

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denise L. Kruger

Senior Vice President, Regulated Utilities of Golden State Water Company

 

2014

 

2013

 

2012

379,215

 

364,995

 

351,856

30,292

 

22,831

 

22,006

142,636

 

111,856

 

103,104

74,432

 

84,750

 

92,514

$709,424

 

-        

 

363,741

18,578

 

18,323

 

18,612

1,354,577

 

602,755

 

951,833

645,153

 

602,755

 

588,092

 

 

 

 

 

 

 

 

 

 

McClellan Harris III

Senior Vice President and Assistant Secretary of American States Utility Services, Inc.

2014

 

2013

 

2012

337,464

 

354,905

 

342,161

-        

 

19,536

 

29,960

122,398

 

154,936

 

103,104

-        

 

69,619

 

86,798

464,654

 

137,041

 

505,153

303,224

 

17,134

 

16,439

1,227,740

 

753,171

 

1,083,615

763,086

 

616,130

 

578,462

 

 

 

 

 

 

 

 

 

 

Eva G. Tang

Senior Vice President-Finance, Chief Financial Officer, Corporate Secretary and Treasurer

2014

 

2013

 

2012

369,408

 

354,905

 

341,969

29,510

 

24,864

 

23,968

121,440

 

111,856

 

103,104

84,420

 

79,387

 

88,767

733,324

 

201,011

 

410,672

16,702

 

17,568

 

17,058

1,354,804

 

789,591

 

985,538

621,480

 

588,580

 

574,866

 

 

 

 

 

 

 

 

 

 

Patrick R. Scanlon

Vice President of Water Operations of Golden State Water Company

2014

 

2013

 

2012

289,638

 

279,867

 

269,800

16,669

 

14,005

 

13,500

113,518

 

87,336

 

81,443

45,874

 

51,987

 

56,754

586,180

 

14,332

 

339,864

17,421

 

17,170

 

15,765

1,069,300

 

464,697

 

777,126

483,120

 

450,365

 

437,262

 

 

 

 

 

 

 

 

 

 

 

(1)                                      We did not grant any stock option awards during the past three years.

(2)                                      This column sets forth the amount paid to each named executive officer during the calendar year based on 26 pay periods.

(3)                                      The amounts paid to a named executive officer as a discretionary bonus for 2012, 2013 and 2014 under the short-term cash incentive plan.

(4)                                      This column sets forth the aggregate grant date fair value of the awards, including the fair value of dividend equivalent rights, computed in accordance with FASB’s accounting guidance ASC Topic 718, rather than the amounts recognized on our financial statements, which is based on vesting.  We provide information regarding the assumptions used in the calculation of the value of these awards in Note 12 to our audited financial statements for the year ended December 31, 2014 in our Form 10-K filed with the SEC.  None of our named executive officers forfeited any stock awards in 2014.  Stock awards consist of time vested restricted stock units and performance stock awards in the form of restricted stock units.  For the performance stock awards subject to performance conditions that have not been satisfied, we assumed that each executive officer would earn

 

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performance stock awards at the target level.  If each executive officer were instead to earn performance stock awards at the maximum level, the grant date fair value of stock awards granted to Mr. Sprowls, Ms. Kruger, Mr. Harris, Ms. Tang and Mr. Scanlon in 2014 would be $963,860, $180,103, $186,411, $158,908 and $142,832 respectively.  A portion of the maximum value includes the dividend equivalent rights on the 2013 and 2014 performance stock awards.  We granted performance stock awards to Mr. Sprowls in 2012 with a grant date fair value of $217,145.  These awards are included in the calculation of stock awards for 2012 since the compensation committee determined in March 2013 that the performance conditions set forth in his 2012 award agreement had been satisfied.  We did not grant any performance stock awards to any other executive officer in 2012.

(5)                                      Each named executive officer received non-equity incentive compensation based upon a percentage of base salary and  satisfaction of performance criteria under the short-term cash incentive programs approved by the compensation committee.

(6)                                      This column sets forth the sum of the change in the value of the pension plan and the supplemental retirement plan for each of the named executive officers.  The change in the pension value under the Golden State Water Company Pension Plan, or pension plan, for 2014, was $121,590, $243,659, $75,018, $227,493 and $331,752 for each of Mr. Sprowls, Ms. Kruger, Mr. Harris, Ms. Tang and Mr. Scanlon, respectively.  The change in the pension value under the supplemental retirement plan for 2014 was $874,337, $465,765, $389,636, $505,831 and $254,428 for each of Mr. Sprowls, Ms. Kruger, Mr. Harris, Ms. Tang and Mr. Scanlon, respectively.  Mr. Harris retired on November 21, 2014.  He deferred the receipt of his benefits under the company’s pension plan to January 1, 2015.  His supplemental executive retirement plan benefits were deferred to June 1, 2015 due to Section 409(a) of the Internal Revenue Code. See the Pension Benefits Table for additional information regarding the retirement age assumptions used in making these calculations.  We provide additional information regarding the assumptions used to calculate the change in pension value in Note 11 to our audited financial statements in our Form 10-K for the year ended December 31, 2014.  We do not have any non-qualified deferred compensation plans.

(7)                                      We provide information on the amount and types of benefits included under the heading “All Other Compensation” in the table below.

(8)                                      This column sets forth total compensation for each named executive officer excluding the Change in Pension Value and Nonqualified Deferred Compensation Earnings column, which increased significantly in 2014 as compared to 2013 even though there were no changes made to the pension plan or the supplemental retirement plan.  The increase was due, in large part, to two external factors: the change in discount rates and the change in mortality rates.  The discount rates used to value pension benefits decreased by 85 basis points for the qualified pension plan and 90 basis points for the supplemental retirement plan as compared to the prior year.  The mortality assumption was updated to reflect the recent release of new mortality tables by the Society of Actuaries projecting longer life expectancies.  The amounts reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column are calculated based on assumptions used in preparing the company’s audited financial statements, and may fluctuate significantly in a given year depending on a number of factors including changes in these actuarial assumptions.

 

_________________________

 

The following table provides information regarding the amount and types of benefits included under the heading “All Other Compensation” in the previous table.

 

ALL OTHER COMPENSATION

 

Name

Year

Employer
401(k)
Matching
Contribution

($)

Insurance

($)(1)

Personal Use of
Company Car

($)(2)

Other
Compen-
sation

($)(3)

 

Separation
Payments
($)(4)

Total

All Other
Compen-
sation

($)

Robert J. Sprowls

2014

 

2013

 

2012

$11,700

 

11,475

 

11,250

$323

 

305

 

299

$2,021

 

2,210

 

2,418

$678

 

1,575

 

290

$-

 

-

 

-

$14,722

 

15,565

 

14,257

 

 

 

 

 

 

 

 

Denise L. Kruger

2014

 

2013

 

2012

11,700

 

11,475

 

11,250

323

 

305

 

299

6,377

 

5,502

 

6,026

178

 

1,041

 

1,037

-

 

-

 

-

18,578

 

18,323

 

18,612

 

 

 

 

 

 

 

 

McClellan Harris III

2014

 

2013

 

2012

11,700

 

11,475

 

11,250

323

 

305

 

299

11,451

 

4,896

 

4,376

-

 

458

 

514

279,750

 

-

 

-

303,224

 

17,134

 

16,439

 

 

 

 

 

 

 

 

Eva G. Tang

2014

 

2013

 

2012

11,700

 

11,475

 

11,250

323

 

305

 

299

4,501

 

5,064

 

5,337

178

 

724

 

172

-

 

-

 

-

16,702

 

17,568

 

17,058

 

 

 

 

 

 

 

 

Patrick R. Scanlon

2014

 

2013

 

2012

11,700

 

11,475

 

11,250

323

 

305

 

299

3,470

 

5,212

 

4,044

1,928

 

178

 

172

-

 

-

 

-

17,421

 

17,170

 

15,765

 

 

 

 

 

 

 

 

 

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(1)                                      We provide group term life insurance to each of our employees and their families.  In the event of the death of an employee or a family member, his or her beneficiary is entitled to receive up to $50,000 under the group life insurance policy.  We also provide each employee with $50,000 of accidental death and dismemberment insurance, which pays additional benefits if an employee suffers a covered accidental loss resulting in death, dismemberment or paralysis.  The cost of $193 was equally allocated to each of our employees, including the executive officers.  In addition, we provide our board members and executive officers a blanket accident insurance policy.  The policy is intended to provide coverage for traveling on company business or on assignment for the benefit of our company.  We allocated one—third of the premium of $7,786 (three-year premium) for coverage under the blanket accident insurance policy equally to our board members and executive officers.  The cost was $130 per person in 2014, $112 in 2013 and $106 in 2012.

(2)                                      The value is based on an estimate of the aggregate incremental costs incurred by us for the personal use of company-provided automobiles by each of our named executive officers.  Mr. Harris purchased the company car that he used from the company in 2014 at the dealer trade-in price as shown in the Kelley Blue Book as adjusted for differences in mileage.  As a result, the value for Mr. Harris in 2014 also includes an amount equal to the difference between the dealer trade-in price and the buy from dealer price as shown in the Kelley Blue Book, as adjusted for differences in mileage.

(3)                                   We paid a holiday bonus in 2014 of $178 to each of our active employees, including our named executive officers.  Mr. Harris retired on November 21, 2014 and did not receive the holiday bonus.  In addition, we paid Mr. Sprowls $500 on his tenth anniversary with us and Mr. Scanlon $1,750 on his thirty-fifth anniversary with us pursuant to our anniversary grant program for all employees.   We also reimburse our CEO and senior vice presidents for the costs of participating in a biannual health examination.  Mr. Sprowls, Ms. Kruger, and Ms. Tang received reimbursement of $1,283, $863 and $546, respectively, for their 2013 incurred biannual health reimbursement in 2014.  None of the named executive officers received reimbursement for these expenses in 2012 or 2013.

(4)                                      All employees are entitled to a cash payment for their unused accrued vacation days based on their then current salary upon termination of employment as required by California law.  Mr. Harris received $239,750 upon termination of his employment on November 21, 2014.  Mr. Harris also received a separation payment pursuant to the terms of a Separation Agreement and General Release of Claims executed in November 2014 in the amount of $40,000.

 

_________________________

 

Equity Compensation

 

During each of the last three years, we granted time vested restricted stock units to each of our executive officers.  Each of these time vested restricted stock units are payable at the rate of 33% one year after the grant date, 33% two years after the grant date and 34% three years after the grant date.  However, if the executive’s employment terminates as a result of death or disability, all of his or her restricted stock units vest on the termination date, and the common shares will be delivered to the executive or his or her personal representative or beneficiary within 60 days following termination of employment.  If an executive’s restricted stock units vest as a result of termination of employment (other than for cause) following a change in control or the executive’s age and years of employment is equal to or greater than 75, the executive’s common shares will be delivered in accordance with the installment vesting schedule in the stock award agreement or, if earlier, within 60 days following termination of employment, subject to any required delay for specified employees under Section 409A of the Internal Revenue Code.

 

All of the restricted stock unit awards granted to Mr. Harris, Mr. Scanlon and Ms. Tang are vested pursuant to the Rule of 75.  Mr. Scanlon and Ms. Tang may not, however, receive any common shares in exchange for these restricted stock units prior to the date that the restricted stock unit vests absent retirement, death, disability or a termination of employment (other than for cause) following a change in control.  Pursuant to Section 409(a), Mr. Harris is entitled to receive all of his vested restricted stock units on May 21, 2015 as a result of his retirement in November 2014.

 

We awarded our president and chief executive officer performance stock awards in 2012 in the form of restricted stock units that vest at the rate of 33% on March 15, 2013, 33% on February 14, 2014 and 34% on February 14, 2015, provided that the net earnings of the company for the period commencing April 1, 2012 and ending on December 31, 2012 were at least $17,555,475.  The compensation committee determined on March 13, 2013 that this performance condition had been satisfied.

 

In 2013 and 2014, we awarded each of our executive officers performance stock awards in the form of restricted stock units that vest at the rate of 33% one year after the grant date, 33% two years after the grant date and 34% three years after the grant date, subject to the satisfaction of the performance conditions set forth in the award agreement.  All of the performance stock awards granted to Mr. Harris,

 

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Mr. Scanlon and Ms. Tang are vested pursuant to the Rule of 75, subject to the satisfaction of the performance conditions set forth in the award agreement.  None of the performance conditions have yet been satisfied for any of these performance stock awards.

 

Information regarding the performance conditions applicable to the awards granted in 2014 is set forth following the “Grants of Plan-Based Awards” table.  Three of the performance criteria used in setting the 2014 stock awards, the total shareholder return, the ASUS cumulative net earnings and the GSWC aggregate operating expense controls, were also used in setting the 2013 performance stock awards.  The target levels for two of these criteria, the total shareholder return and the ASUS cumulative net earnings, in the 2013 stock awards were the same as the target levels for the 2014 awards.  Information regarding the performance goals for each of these performance criteria for performance stock awards granted in 2014 can be found under “What plan-based awards did we make to these executive officers in 2014?”  The table presented below sets forth the target level for the aggregate GSWC operating expense controls in the 2013 stock awards:

 

PERFORMANCE TARGETS AND PAYOUT PERCENTAGES FOR GSWC
OPERATING EXPENSE CONTROLS
(1)

 

Aggregate GSWC Operating Expense Level

Payout as a Percentage of Target

<$273.5 million

150%

>$273.5 million and <$279 million

125%

>$279 million and <$300 million

100%

>$300 million and <$305.5 million

50%

>$305.5 million

0%

 

(1) The aggregate GSWC operating expense level criteria refers to the cumulative operating expenses of the water segment of GSWC as reported in the company’s Form 10-K during the performance period, as adjusted to remove (i) water supply, depreciation and amortization and maintenance expenses, (ii) public relations, legal and other professional services expenses applicable to defending GSWC from condemnation actions, (iii) costs of defense, cost of settlement and judgments incurred in connection with claims arising from perchlorate contamination in the Barstow service area, and any other costs of defense, settlement and judgments which are incurred in connection with claims determined by the compensation committee to be extraordinary events, (iv) write-offs associated with decisions of the California Public Utilities Commission applicable to the company’s financial statements, and (v) gross-up of certain surcharges authorized by the California Public Utilities Commission to recover previously incurred costs recorded pursuant to generally accepted accounting principles.

 


 

We also awarded each of our executive officers restricted stock units in an amount equal to the quarterly cash dividends payable on our common shares times the number of restricted stock units granted to the executive officer, but not yet payable pursuant to the terms of his or her restricted stock unit or performance stock award agreement divided by the closing price of our common shares on the dividend payment date as provided in the 2008 plan.  We refer to these types of awards as dividend equivalent rights.  The value of dividend equivalent rights is included in the “Stock Awards” column in the Summary Compensation Table.  Restricted stock units awarded pursuant to dividend equivalent rights vest and are payable on the same basis as the underlying restricted stock units on which these restricted stock units were earned.

 

Non-Equity Incentive Compensation

 

During the past three years, each of our executive officers, other than Mr. Harris, received short-term cash incentive awards based upon achieving objective financial, operations and customer service performance goals set at target, threshold and maximum levels under our short-term cash incentive program.  The objective bonus of each executive officer is determined on the basis of pay-out percentages established by the compensation committee in March of each year for each performance measure.  The performance measures and payout percentages vary depending upon whether the executive is an administrative officer of GSWC, an operations officer of GSWC or an officer of ASUS.  Mr. Sprowls and Ms. Tang are administrative officers of GSWC.  Ms. Kruger and Mr. Scanlon are operations officers of

 

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GSWC.  Mr. Harris was an officer of ASUS and retired on November 21, 2014.  As a result, he was not entitled to receive a short-term cash incentive award for 2014.

 

In addition, each executive officer is granted a discretionary bonus based upon a subjective assessment of the individual performance of each executive officer by the compensation committee.  Eighty percent of the aggregate target bonus is based upon satisfaction of the performance goals set forth below and 20% of the aggregate target bonus is based upon the subjective assessment of individual performance by the compensation committee.  The amount of the bonus for 2014 based upon the objective performance criteria set forth below is set forth in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table.  The amount of the discretionary bonus for 2014 is disclosed in the Bonus column in the Summary Compensation Table.  Mr. Harris did not receive a discretionary bonus for 2014 due to his retirement in November 2014.

 

The compensation committee determined the target aggregate bonus for each executive officer as a percentage of the base salary of each executive officer, which was:

 

                  50% in 2012 and 2013 and 60% in 2014 for the president and chief executive officer,

 

                  25% in 2012 and 2013 and 28.5% in 2014 for the senior vice presidents, and

 

                  20% in 2012 and 2013 and 23% in 2014 for all other executives.

 

We disclose in the table set forth below actual performance in 2014 for each of the performance goals set by the compensation committee in March 2014 for GSWC administrative and general officers and GSWC operations officers.

 

PERFORMANCE GOALS

 

 

Performance Targets

Actual

Performance Measure

Threshold

Target

Maximum

Performance

Adjusted EPS - AWR Consolidated(1)

 

80% of Budget

100% of Budget

120% of Budget

110% of Budget

Adjusted EPS - RU(2)

 

80% of Budget

100% of Budget

120% of Budget

109% of Budget

Adjusted EPS - ASUS(3)

 

80% of Budget

100% of Budget

130% of Budget

103% of Budget

Customer Complaints to DPH(4)

400 or fewer

330 or fewer

300 or fewer

468

 

Not Met

Customer Complaint Standards - RU(5)

Rate of Complaints to the CAB < 0.1%

Rate of Complaints to the CAB

 

< 0.035%

Rate of Complaints to the CAB

< 0.025%

 

0.021%

 

Met Maximum

 

 

Capital Expenditures - RU(6)

> $75 million

> $85 million

> $90 million

$60.8 million

 

Not Met

 

Supplier Diversity Utilization - RU(7)

> 18.0%

> 21.5%

> 25.0%

 

23.1%

Met

 

OSHA Recordable Work Incidents - RU(8)

29

27

25

 

33

 

Not Met

 

SOX Deficiencies - RU(9)

No MW, No SD and
no more than 10 CDs

No MW, No SD and
no more than 6 CDs

No MW, No SD and
no more than 4 CDs

No MW, No SD
and 4 CDs

 

Met Maximum

 

SOX Deficiencies - ASUS(10)

No MW, No SD and
no more than 5 CDs

No MW, No SD and
no more than 3 CDs

No MW, No SD and
no more than 1 CD

No MW, No SD and
No CDs

 

Met Maximum

 

 

(1)                   “Adjusted EPS - AWR Consolidated” means the company’s earnings per share in 2014 adjusted to remove 1) any write-offs associated with the California Public Utilities Commission’s 2014 procurement audit of GSWC arising out of the settlement of claims approved by the CPUC in December 2011 related to the capital projects contracting matter and 2) any

 

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transaction fees and/or gain or loss on sale recognized in the financial statements in 2014 associated with a sale of any of the company’s business units or the acquisition of any new business.

(2)                   “Adjusted EPS - RU” means the sum of the earnings per share of each of the Regulated Utilities for 2014 adjusted to remove 1) any write-offs associated with the California Public Utilities Commission’s 2014 procurement audit of GSWC arising out of the settlement of claims approved by the CPUC in December 2011 related to the capital projects contracting matter and 2) any transaction fees and/or gain or loss on sale recognized in the financial statements in 2014 associated with a sale of any of the company’s business units or the acquisition of any new business.

(3)                   “Adjusted EPS - ASUS” means the earnings per share of ASUS for 2014 adjusted to remove the general office allocation to ASUS related to any transaction fees and/or gain or loss on sale recognized in the financial statements in 2014 associated with a sale of any of the company’s business units or the acquisition of any new businesses.

(4)                   “Customer Complaints to DPH” means the number of water quality, pressure and service complaints received from customers by GSWC during 2014 that are reported to the California Department of Public Health by GSWC.

(5)             “Customer Complaint Standards - RU” means the number of complaints on all matters on GSWC received by the Consumer Affairs Branch of the California Public Utilities Commission in 2014 divided by the average number of customers served by GSWC during 2014.

(6)                   “Capital Expenditures – RU” means the dollar amount of capital expenditures for 2014 for Regulated Utilities.

(7)             “Supplier Diversity Utilization - RU” means the percentage reported by GSWC to the California Public Utilities Commission annually by March 1 in its General Order 156 Compliance Filing.  The percentage is calculated by taking GSWC’s total procurement dollars for the reporting period with California Public Utilities Commission qualified women-owned, minority-owned and disabled veteran-owned business enterprises divided by GSWC’s total procurement dollars (net of exclusions allowed under the General Order 156 Compliance Filing for the reporting period, such as payments for purchased water, purchased power, pump taxes, income taxes, franchise fees, and postage.)

(8)             “OSHA Recordable Work Incidents - RU” means the number of work-related injuries and illnesses as reported on the OSHA Form 300 for GSWC.

(9)                   “SOX Deficiencies - RU” means the number of “control deficiencies” (each referred to as a “CD”), “significant deficiencies” (each referred to as an “SD”) and “material weaknesses” (each referred to as an “MW”) for the Regulated Utilities in the independent auditor’s report for 2014 pursuant to Section 404 of the Sarbanes-Oxley Act.

(10)                “SOX Deficiencies - ASUS” means the number of CDs, SDs and MWs reported for ASUS in the independent auditor’s report for 2014 pursuant to Section 404 of the Sarbanes-Oxley Act.

 

_________________________

 

The pay-out percentages for the satisfaction of the performance criteria are set forth below.  The sum of the actual payout percentages differs from the objective bonus total due to rounding.

 

PAY-OUT PERCENTAGES FOR GSWC ADMINISTRATIVE AND GENERAL OFFICERS

 

Performance Measure

Target Payout Percentage

Payout Percentage

 

Threshold

Target

Maximum

Actual

Adjusted EPS - AWR Consolidated(1)

10.0%

20.0%

30.0%

24.9%

Adjusted EPS-RU(2)

11.5%

20.0%

27.0%

23.1%

Adjusted EPS-ASUS

5.0%

10.0%

20.0%

11.1%

Customer Complaints to DPH

1.5%

5.0%

7.0%

0.0%

Customer Complaint Standards-RU

1.5%

5.0%

7.0%

7.0%

Capital Expenditures-RU

4.0%

10.0%

15.0%

0.0%

SOX Deficiencies-RU

2.0%

5.0%

7.0%

7.0%

SOX Deficiencies-ASUS

2.0%

5.0%

7.0%

7.0%

Objective Bonus Total

37.5%

80.0%

120%

80.1%

 

(1)                   For the Adjusted EPS – AWR Consolidated performance measure, the payout may be reduced, at the sole discretion of the compensation committee, based upon adverse information concerning the actions of an officer obtained by the company in the procurement audit being conducted by the California Public Utilities Commission.

(2)                   For the Adjusted EPS – Regulated Utilities (RU) performance measure, the payout may be reduced, at the sole discretion of the compensation committee, based upon adverse information concerning the actions of an officer obtained by the company in the procurement audit being conducted by the California Public Utilities Commission.

 

_________________________

 

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PAY-OUT PERCENTAGES FOR GSWC OPERATIONS OFFICERS

 

 

Target Payout Percentage

Pay-Out
Percentage

Performance Measure

Threshold

Target

Maximum

Actual

Adjusted EPS-RU(1)

20%

40.0%

60.0%

48.8%

Customer Complaints to DPH

2.0%

5.0%

7.0%

0.0%

Customer Complaint Standards-RU

2.0%

5.0%

7.0%

7.0%

Capital Expenditures-RU

7.5%

15.0%

20.0%

0.0%

Supplier Diversity Utilization-RU(2)

2.0%

5.0%

7.0%

5.9%

OSHA Recordable Work Incidents-RU(2)

2.0%

5.0%

7.0%

0.0%

SOX Deficiencies-RU

2.0%

5.0%

7.0%

7.0%

Objective Bonus Total

37.5%

80%

115%

68.8%

 

(1)             For the Adjusted EPS - Regulated Utilities (RU) performance measure, the payout may be reduced, at the sole discretion of the compensation committee, based upon adverse information concerning the actions of an officer obtained by the company in the procurement audit being conducted by the CPUC.

(2)             These performance criteria were not adopted pursuant to the performance incentive plan.

 

_________________________

 

The performance criteria for short-term cash incentive awards in 2013 and 2012 were based on similar types of performance criteria.  The objective bonus pay-out under short-term cash incentive awards made to Mr. Sprowls and Ms. Tang in 2013 and 2012 was 89.4% and 103.7% of the aggregate target award, respectively.  The objective bonus pay-out under short-term cash incentive awards made to Ms. Kruger and Mr. Scanlon in 2013 and 2012 was 92.8% and 105.1% of the aggregate target award.  The objective bonus pay-out under short-term cash incentive awards made to Mr. Harris in 2013 and 2012 was 78.4% and 101.4% of the aggregate target award, respectively.  Mr. Harris did not receive any pay-out of short-term incentive awards in 2014 due to his retirement in 2014.

 

Other Compensation

 

We have a 401(k) plan under which employees may invest a percentage of their pay, up to a maximum amount prescribed by law.  We provide matching contributions for each of our employees who participate in the plan of 100% up to the first 3% of eligible compensation deferred and 50% of the next 3% of eligible compensation deferred.  Each of our executive officers is entitled to participate in this plan on the same basis as other employees, subject to the limits imposed by the Internal Revenue Code.

 

We provide all active full-time employees with medical, dental and vision benefits and life insurance coverage.  All employees are required to pay 15% of the company’s premiums for medical, dental and vision benefits, except for certain employees at subsidiaries of ASUS.  We pay all premiums for life insurance coverage in the amount of $50,000 for all employees and their families, plus additional benefits if any employee suffers a covered accidental loss resulting in death, dismemberment or paralysis, except for certain employees at subsidiaries of ASUS.  We also have employee assistance, an anniversary award for reaching certain years of service and holiday bonus programs.  Each of our executive officers is entitled to these benefits on the same basis as other employees.

 

All active full-time employees at GSWC and ASUS and all active managers at subsidiaries of ASUS, receive time off with pay for vacation, holiday and sick leave in accordance with company policy.  Other employees at ASUS subsidiaries have different benefit packages.  Executives receive vacation accrual on the basis of the number of their continuous months of service, with 1 to 60 months of service earning 20 days per year of vacation; 61 to 120 months of continuous service earning 25 days of vacation per year and 121 or more months of continuous service earning 26 days of vacation per year.  Executives receive sick leave benefits on the same basis as all other employees.  Accrued vacation days that are not used in any year are carried over to the next year, provided that, effective January 1, 2012, the number of accrued and unused vacation days for each employee is subject to a cap equal to the total number of vacation days that such employee can accrue over a two-year period.  When an employee reaches the cap, vacation accruals for the employee will cease until vacation days are used.  When an employee’s accrual

 

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rate increases as a result of increased service with the company, such employee’s cap will increase accordingly.  All employees are entitled to a cash payment, based on their then current salary, for any accrued, but unused vacation days upon termination of employment.

 

Each of our executive officers is entitled to the benefits of a travel insurance policy provided by the company and the use of a company-owned car.  Upon termination of employment, each executive is entitled to purchase his or her company-owned car at the wholesale price for such car taking into account the mileage on the car.  Mr. Harris elected to purchase his company-owned car upon his retirement in November 2014.

 

Under the company’s relocation policy, the company will reimburse executive officers for covered relocation expenses, subject to specified limits.  Under the terms of this policy, an officer is required to reimburse us for any expenses paid by us if the officer resigns or is terminated for misconduct and/or poor performance within 24 months after having commenced work at a new assigned work location.  The compensation committee believes that it is appropriate for us to claw back any relocation expenses paid to an officer under these circumstances.  No relocation expenses were paid to any named executive officer during the past three years.

 

Under the terms of a senior executive health examination program, the chief executive officer and each of our senior vice presidents is entitled to be reimbursed up to $2,500 for the costs of an executive physical examination at least once every two years.

 

Total Compensation

 

The proportion of salary, bonus and non-equity incentive plan compensation to total compensation set forth in the Summary Compensation Table for 2014 for Mr. Sprowls, Ms. Kruger, Mr. Harris, Ms. Tang and Mr. Scanlon was 39.1%, 35.7%, 27.5%, 35.7%, and 32.9% of total compensation, respectively.  Mr. Harris did not receive any bonus or non-equity incentive plan compensation in 2014 due to his retirement in November 2014.  The proportion of equity compensation to total compensation set forth in the Summary Compensation Table for 2014 for Mr. Sprowls, Ms. Kruger, Mr. Harris, Ms. Tang and Mr. Scanlon was 24.0%, 10.5%, 10.0%, 8.9%, and 10.7% of total compensation, respectively.  The compensation committee has not adopted any policy regarding the allocation of total compensation among the various components of total compensation.

 

Total compensation set forth in the Summary Compensation Table increased substantially this year due primarily to changes in the discount rate and mortality assumptions used to calculate the change in pension value.  No changes were made to the terms of our retirement plans in 2014 and we have no non-qualified deferred compensation plans.

 

What plan-based awards did we make to these executive officers in 2014?

 

We granted restricted stock units for both time vested and performance based equity awards to each of our named executive officers in 2014 as more particularly described below.  We did not grant any options to executive officers in 2014.  Each of the named executive officers also received a cash award under our performance incentive plan based upon the satisfaction of certain performance criteria.  The amount of this award is reflected in the Summary Compensation Table under the Non-Equity Incentive Compensation column and the award is described in detail under the non-equity incentive compensation section.

 

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GRANTS OF PLAN-BASED AWARDS IN 2014

 

 

 

 

Estimated Future Payouts Under Equity

All Other

 

 

 

 

Incentive Plan Awards(3)

Stock Awards:

Grant Date

 

 

 

 

 

 

Number of

Fair Value

 

 

 

 

 

 

Shares of

of Stock

 

Grant

Award

Threshold

Target

Maximum

Stock or Units

Awards

Name

Date(1)

Date(2)

(#)(4)

(#)(5)

(#)(6)

(#)

($)(7)

Robert J. Sprowls

1/27/14

1/27/14

3/3/14

6/2/14

9/2/14

12/1/14

1/27/14

1/27/14

2/17/14

5/16/14

8/15/14

11/14/14

 

7,004.0

86.2

87.1

85.5

80.9

 

16,009.0

196.9

199.1

195.4

184.9

 

 

26,014.5

320.0

323.5

317.5

300.5

5,336.0

 

365.4

314.1

308.3

291.8

154,584

463,781

10,970

9,391

9,945

10,011

Denise L. Kruger

1/27/14

1/27/14

3/3/14

6/2/14

9/2/14

12/1/14

1/27/14

1/27/14

2/17/14

5/16/14

8/15/14

11/14/14

 

855.8

11.5

11.7

11.4

10.8

 

1,956.0

26.4

26.7

26.2

24.8

 

 

3,178.5

42.9

43.3

42.5

40.2

2,668.0

 

79.2

67.5

66.2

62.7

77,292

56,665

2,376

2,017

2,136

2,150

McClellan Harris III

1/27/14

1/27/14

3/3/14

6/2/14

9/2/14

12/1/14

1/27/14

1/27/14

2/17/14

5/16/14

8/15/14

11/14/14

 

1,027.3

12.7

12.8

12.6

11.9

 

2,348.0

29.0

29.3

28.8

27.2

 

 

4,461.0

51.5

52.1

51.1

48.4

1,565.0

 

84.6

69.5

68.3

64.6

45,338

68,022

2,540

2,079

2,202

2,217

Eva G. Tang

1/27/14

1/27/14

3/3/14

6/2/14

9/2/14

12/1/14

1/27/14

1/27/14

2/17/14

5/16/14

8/15/14

11/14/14

 

855.8

11.5

11.7

11.4

10.8

 

1,956.0

26.4

26.7

26.2

24.8

 

 

3,178.5

42.9

43.3

42.5

40.2

1,957.0

 

74.4

62.6

61.5

58.2

56,694

56,665

2,232

1,872

1,982

1,995

Patrick R. Scanlon

1/27/14

1/27/14

3/3/14

6/2/14

9/2/14

12/1/14

1/27/14

1/27/14

2/17/14

5/16/14

8/15/14

11/14/14

 

669.3

9.0

9.1

8.9

8.5

 

1,530.0

20.6

20.8

20.4

19.3

 

 

2,486.5

33.5

33.8

33.2

31.4

2,152.0

 

62.5

53.2

52.2

49.4

62,343

44,324

1,876

1,592

1,686

1,697

 

(1)                                      Pursuant to the terms of the 2008 plan, the effective date of the grant of restricted stock units pursuant to dividend equivalent rights on restricted stock units is the dividend payment date for our common shares set by the board of directors.

(2)                   Pursuant to the terms of the 2008 plan, the award date of restricted stock units pursuant to dividend equivalent rights on restricted stock units is the dividend record date for our common shares set by the board of directors.

(3)                   These calculations assume that (i) the number of members of the company’s peer group at the end of the performance period will be eight, (ii) the compensation committee will not make any downward adjustment in the amount of the award following the end of the performance period, and (iii) the executive officer will continue to be employed by or provide service to the company throughout the performance period or will be vested pursuant to the Rule of 75.

(4)                   This calculation assumes that the executive officer will achieve the minimum performance level established by the compensation committee for each performance condition set forth in the performance stock award granted to the executive officer in 2014.  The performance required to achieve the total shareholder return minimum condition, the aggregate GSWC operating expense controls minimum condition, the ASUS cumulative net earnings minimum condition and the ASUS new base acquisition success rate in the performance stock awards granted in 2014 is 25%, 50%, 50% and 50% of the target performance level, respectively.

(5)                                      This calculation assumes that the executive officer will achieve the target performance level established by the compensation committee for each performance condition set forth in the performance stock award granted to the executive officer in 2014.

(6)                                      This calculation assumes that the executive officer will achieve the maximum performance level established by the compensation committee for each performance condition set forth in the performance stock award granted to the executive officer in 2014.  The performance required to achieve the total shareholder return maximum condition, the aggregate GSWC operating expense controls maximum condition, the ASUS cumulative net earnings maximum condition and ASUS new base acquisition success rate is 200%, 150%, 150% and 200% of the target performance level, respectively.

 

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(7)                                   We provide information regarding the assumptions used to calculate the value of time vested restricted stock units and performance stock granted on January 27, 2014 pursuant to the 2008 plan in Note 12 to our audited financial statements in our Form 10-K for the year ended December 31, 2014.  The value of dividend equivalents granted on March 3, 2014, June 2, 2014, September 2, 2014, and December 1, 2014 include the value of dividend equivalents on 2013 and 2014 performance stock assuming that each named executive officers earns performance stock awards at the target level.  The values included in this table are for the full grant date fair value of the awards made in 2014 without regard to the time vesting conditions set forth in the award agreement.  We have also included in the table the grant date fair value of dividend equivalents on equity awards made in 2013 and 2014, assuming that the awards vest and, with respect to performance shares, the performance conditions are satisfied.  An estimate of the value of dividend equivalents is also included in the grant date fair value of the equity awards made in 2014 shown in the table.

_________________________

 

Each executive except for Mr. Harris, who can earn between 0% and 190.0% of the target amount, may earn between 0% and 162.5% of the target amount set forth in the 2014 executive’s performance award depending on the company’s performance against the performance goals during the performance period, which consist of the following metrics: 25% of the performance stock awards granted are based on the company’s total shareholder return compared to the total shareholder return of the company’s peer group, referred to as the total shareholder return criteria and 75% of the performance stock awards will be earned based upon the satisfaction of one or more of the following performance conditions:  aggregate GSWC operating expense controls criteria for GSWC operations and administrative officers, and ASUS cumulative net earnings for GSWC administrative officers and ASUS officers, and new base acquisition success rate for ASUS officers.  The performance period commenced on January 1, 2014 and ends on December 31, 2016.  The performance goals for Mr. Sprowls and Ms. Tang are based on the total shareholder return, the aggregate GSWC operating expense controls and the ASUS cumulative net earnings criteria.  The performance stock awards for Ms. Kruger and Mr. Scanlon are based on the total shareholder return criteria and the aggregate GSWC operating expense controls criteria.  The 2014 performance goals for Mr. Harris are based on the total shareholder return, the ASUS cumulative net earnings and the ASUS new base acquisition success rate criteria.

 

We disclose in the tables set below the actual performance goals for each of these performance criteria for performance stock awards granted in 2014:

 

PERFORMANCE TARGETS AND PAYOUT PERCENTAGES FOR TOTAL
SHAREHOLDER RETURN
(1)

 

Total Shareholder Return

Payout as a Percentage of Target

> 8 members of the Peer Group

200%

> 7 members of the Peer Group

175%

> 6 members of the Peer Group

150%

> 5 members of the Peer Group

125%

> 4 members of the Peer Group

100%

> 3 members of the Peer Group

75%

> 2 members of the Peer Group

50%

> 1 member of the Peer Group

25%

 

(1)  The total shareholder return criteria refers to total shareholder return during the performance period, including the reinvestment of dividends.  The peer group for this purpose consists of the following water utilities:  American Water Works Company, Inc., Aqua America, Inc., Artesian Resources Corporation, California Water Service Group, Connecticut Water Service, Inc., Middlesex Water Company, SJW Corp. and York Water Company.  This table assumes that there will be eight members of the company’s peer group at the end of the performance period.  If the stock of any member of the peer group is no longer traded or suspended from trading on the last business day of the performance period, the peer group will not include that member and the payout percentages will be adjusted as provided in the performance stock award agreements.

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PERFORMANCE TARGETS AND PAYOUT PERCENTAGES FOR ASUS
CUMULATIVE NET EARNINGS
(1)

 

ASUS Cumulative Net Earnings

Payout as a Percentage of Target

>$42.7 million

150%

>$36.8 million and <$42.7 million

125%

>$28.1 million and <$36.8 million

100%

>$22.2 million and <$28.1 million

50%

<$22.2 million

0%

 

(1) The ASUS cumulative net earnings criteria refers to the cumulative net income of ASUS and its subsidiaries during the performance period.

_____________________________

 

PERFORMANCE TARGETS AND PAYOUT PERCENTAGES FOR GSWC
OPERATING EXPENSE CONTROLS
(1)

 

Aggregate GSWC Operating Expense Level

Payout as a Percentage of Target

<$263.7 million

150%

>$263.7 million and <$269.7 million

125%

>$269.7 million and <$289.5 million

100%

>$289.5 million and <$295.5 million

50%

>$295.5 million

0%

 

(1)                   The aggregate GSWC operating expense level criteria refers to the cumulative operating expenses of the water segment of GSWC as reported in the company’s Form 10-K during the performance period, as adjusted to remove (i) water supply, depreciation and amortization and maintenance expenses, (ii) public relations, legal and other professional services expenses applicable to defending GSWC from condemnation considerations and actions, (iii) any cost of defense, cost of settlement and judgments incurred in connection with claims arising from water quality incidences which are determined by the compensation committee to be extraordinary events, (iv) write-offs associated with decisions or actions of the California Public Utilities Commission applicable to the company’s financial statements, and (v) gross-up of certain surcharges authorized by the California Public Utilities Commission to recover previously incurred costs recorded pursuant to generally accepted accounting principles.

_____________________________

 

PERFORMANCE TARGETS AND PAYOUT PERCENTAGES FOR ASUS NEW BASE
ACQUISITION SUCCESS RATE
(1)

 

New Base Acquisition Success Rate

Payout as a Percentage of Target

100%

200%

75%

150%

50%

100%

25%

50%

0%

0%

 

(1)        New base acquisition success rate refers to the percentage that results from dividing (1) the projected net income for 2014-2018 set forth in the target new base acquisition table for the targeted new bases awarded to ASUS during 2014-2016 by (2) the projected net income for 2014-2018 set forth in the targeted new base acquisition table for the targeted new bases awarded to all competitors, including ASUS.

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What equity awards granted to these executive officers were outstanding at the end of the year?

 

Each named executive officer had the stock option, restricted stock unit and equity incentive plan awards outstanding at December 31, 2014 described in the table below.  Certain of the equity awards made to Mr. Harris, Ms. Tang and Mr. Scanlon have vested, but are not yet payable.  Information regarding the installment payment dates for these awards is provided in the footnotes following this table.

 

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2014

 

 

Option Awards

Stock Awards

 

 

 

 

 

 

Equity

Equity

 

 

 

 

 

 

Incentive

Incentive Plan

 

 

 

 

 

 

Plan Awards;

Awards;

 

Number of

 

 

 

 

Number of

Market or

 

Securities

 

 

 

Market

Unearned

Pay-out Value

 

Underlying

 

 

Number of

Value of

Shares, Units

of Unearned

 

Unexercised

 

 

Shares or

Shares or

or Rights or

Shares, Units

 

Options (#)

Option

Option

Units That

Units That

Other Rights

or Rights That

 

Exercis-

Exercise

Expiration

Have Not

Have Not

That Have

Have Not

Name

able(1)

Price ($)

Date

Vested (#)

Vested ($)(2)

Not Vested(8)

Vested(8)

Robert J. Sprowls

 

9,646

 14,342

 13,304

 30,400

17,038

 

$16.865

$19.310

$17.055

$17.285

$16.680

 

1/29/2016

1/1/2017

1/27/2018

1/29/2019

1/31/2020

 

17,318(3)

 

$652,196   

 

13,111

$493,760

Denise L. Kruger

-

-

-

6,139(4)

 

$231,195   

1,755

     $66,093

McClellan Harris III

-

-

-

 

(5)

 

(5)

1,268

$47,753

Eva G. Tang

 

8,604

6,816

 

 

$19.310

$16.680

 

1/1/2017

1/31/2020

 

 

(6)

 

 

(6)

 

1,755

$66,093

Patrick R. Scanlon

-

-

 

-

 

(7)

 

(7)

1,372

$51,670

 

(1)             All unexercised options held by the named executive officers are exercisable.

(2)             We determine the market value of restricted stock units and performance stock awards that have not vested by multiplying the number of unvested restricted stock units and unvested performance stock awards outstanding on December 31, 2014 by the closing price of our common shares on December 31, 2014, as reported on The Wall Street Journal website (www.online.wsj.com).  The closing price of our common shares on December 31, 2014, as so reported, was $37.66.

(3)             Of this amount, 1,807 restricted stock units vested on January 26, 2015, 1,608 restricted stock units vested on January 28, 2015, 8,576 restricted stock units vested on February 14, 2015, 1,808 restricted stock units will vest on January 26, 2016, 1,657 restricted stock units will vest on January 28, 2016 and the remainder will vest on January 28, 2017.

(4)             Of this amount, 903 restricted stock units vested on January 26, 2015, 714 restricted stock units vested on January 28, 2015, 1,950 restricted stock units vested on February 14, 2015, 904 restricted stock units will vest on January 26, 2016, 737 restricted stock units will vest on January 28, 2016 and the remainder will vest on January 28, 2017.

(5)                   Restricted stock unit awards made to Mr. Harris in the amount of 6,053 shares have vested pursuant to the Rule of 75, but had not yet been paid out.  At December 31, 2014, these awards had a market value of $227,956.

(6)                   Restricted stock unit awards made to Ms. Tang in the amount of 5,410 shares have vested pursuant to the Rule of 75, but had not yet been paid out.  At December 31, 2014, these awards had a market value of $203,741.

(7)                   Restricted stock units awards made to Mr. Scanlon in the amount of 4,881 shares have vested pursuant to the Rule of 75, but had not yet been paid out.  At December 31, 2014, these awards had a market value of $183,818.

(8)             We assumed for the purpose of this disclosure that each executive officer would earn performance stock awards at the threshold level.  The value listed includes dividend equivalent rights granted as of December 31, 2014 on these awards.  Although the performance stock awards granted to Mr. Harris, Ms. Tang and Mr. Scanlon have vested pursuant to the Rule of 75, they have not been earned since the performance conditions have not been met.

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Did any of these executive officers exercise options or have other stock awards vest in 2014?

 

None of our named executive officers exercised stock options in 2014.  All of our named executive officers had outstanding awards of restricted stock units vest in 2014.  No restricted stock or performance stock vested in 2014.

 

OPTION EXERCISES AND STOCK VESTED IN 2014(1)

 

 

Option Exercises

Stock Awards

Name

No. of Shares
Acquired on
Exercise (#)

Value Realized on
Exercise ($)

No. of Shares
Acquired on Vesting
(#)

Value Realized on
Vesting ($)
(1)

Robert J. Sprowls

-

-

18,318