UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. )

 

Filed by the Registrant þ

 Filed by a Party other than the Registrant  o

Check the appropriate box:

o  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

CONNECTICUT WATER SERVICE, INC.

(Name of Registrant as Specified In Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Connecticut Water Service, Inc.

93 West Main Street

Clinton, CT 06413

 

March 31, 2009

 

Dear Shareholder:

 

You are cordially invited to the Annual Meeting of Shareholders of Connecticut Water Service, Inc., scheduled to be held on Wednesday, May 13, 2009, at Water’s Edge, 1525 Boston Post Road, Westbrook, Connecticut, beginning at 2:00 PM.

 

At the meeting, you will be asked to elect three directors and ratify the appointment of our independent auditors for the fiscal year ending December 31, 2009. In addition to the specific matters to be voted on, there will be a report on the progress of the Company and an opportunity for you to ask questions of general interest to shareholders. Important information is contained in the accompanying proxy statement which you are urged to carefully read.

 

It is important that your shares are represented and voted at the meeting, regardless of the number you own or whether you attend. Accordingly, please vote by mail, telephone, or internet. It is also very helpful to us if you would call and let us know if you plan to attend the Annual Meeting. Please call 1-800-428-3985, Extension 3015, for directions and to provide your name, address, and telephone number. Directions to the Annual Meeting are also printed on the back of the proxy statement and available on the Company’s Web site. Your Board of Directors and executive officers look forward to personally meeting you.

 

Also, I am pleased to report that again this year we will be utilizing U.S. Securities and Exchange Commission rules that permit us to furnish our proxy materials to shareholders over the Internet. Accordingly, a Notice of Internet Availability of Proxy Materials will be mailed to some of our shareholders on or about April 3, 2009. These shareholders will have the ability to access the proxy materials on a Web site referred to in the Notice or request that a printed set of the proxy materials be sent to them free of charge, by following the instructions in the notice. For other shareholders, we have elected to mail a full set of printed copies of our proxy materials, as in prior years.

 

We believe that using Internet delivery for some shareholders will expedite the delivery of proxy materials, reduce printing and postage costs, and conserve natural resources.

 

Your interest and participation in the affairs of the Company are appreciated.

 

Sincerely,

 

Eric W. Thornburg

Chairman

 

 

CONNECTICUT WATER SERVICE, INC.

 

NOTICE OF ANNUAL MEETING OF

SHAREHOLDERS AND PROXY STATEMENT

 

May 13, 2009

 

The Annual Meeting of Shareholders of Connecticut Water Service, Inc. will be held on Wednesday, May 13, 2009, at 2:00 PM, at Water’s Edge, 1525 Boston Post Road, Westbrook, Connecticut, for the following purposes:

 

 

Only holders of the Company’s common stock and its Cumulative Preferred Stock — Series A of record at the close of business on March 16, 2009 are entitled to vote at this meeting.

 

Shareholders are cordially invited to attend the meeting.

 

By order of the Board of Directors,

 

 

Daniel J. Meaney

Corporate Secretary

 

Shareholders can help avoid the necessity and expense of follow-up letters to ensure that a quorum is present at the Annual Meeting by promptly voting their shares.

 

YOU CAN VOTE IN ONE OF THREE WAYS:

 

 

Shareholders are invited to visit the Corporate Governance section of our
Web site at http://www.ctwater.com/corporategovernance.htm

 

and the following Web site until 3:00 a.m. on May 13, 2009: www.proxyvote.com. (Shareholders will need the 12 digit control number from the proxy card or NOIA to view proxy materials at www.proxyvote.com)

 

TABLE OF CONTENTS

 

CONNECTICUT WATER SERVICE, INC.

 

PROXY STATEMENT

2009 ANNUAL MEETING OF SHAREHOLDERS

 

This Proxy Statement is furnished by and on behalf of the Board of Directors of Connecticut Water Service, Inc. (the “Company”) for use at the Annual Meeting of Shareholders to be held at Water’s Edge, 1525 Boston Post Road, Westbrook, Connecticut, at 2:00 PM, on May 13, 2009. In that regard, a Notice of Internet Availability or this Proxy Statement, the Company’s 2008 Annual Report and Form 10-K are being mailed to shareholders on or about April 3, 2009. In addition to this solicitation by mail and the Internet, officers and regular employees of the Company may make solicitations by telephone, mail, or personal interviews, and arrangements may be made with banks, brokerage firms, and others to forward proxy material to their principals. The Company has retained Morrow & Company, Inc. to assist in the solicitation of proxies at an estimated cost of $4,500, plus expenses, which will be paid by the Company.

 

Under rules adopted in 2007 by the U.S. Securities and Exchange Commission (“SEC”), we have chosen to furnish our proxy materials, including this Proxy Statement and the Annual Report to Shareholders, to some of our shareholders over the Internet and to provide a Notice of Internet Availability of Proxy Materials (“NOIA”) by mail, rather than mailing a full set of the printed proxy materials. For other shareholders, we have elected to mail a full set of printed copies of our proxy materials, as in prior years.

 

If you receive a NOIA, you will not receive a printed copy of our proxy materials unless you request them by following the instructions provided in the NOIA. Instead, the NOIA explains how you may access and review all of the important information contained in the proxy materials. The NOIA also explains how you may submit your proxy via telephone or the Internet. If you would like to receive a printed copy of our proxy materials, you should follow the instructions in the NOIA.

 

We are mailing either our NOIA or a full set of our printed proxy materials to shareholders of record on or about April 3, 2009. On this date, all shareholders of record and beneficial owners will have the ability to access all of the proxy materials on a Web site referred to in the NOIA. These proxy materials will be available free of charge.

 

What is the purpose of the Annual Meeting of Shareholders?

 

Shareholders are asked to consider and vote upon:

 

1. election of three (3) Directors;

 

2. ratification of the appointment of our independent registered public accountants; and

 

3. transaction of other business to properly come before shareholders.

 

In addition, following the meeting, management will report on the performance of the Company and respond to questions from shareholders.

 

How is a quorum determined for the Annual Meeting?

 

The presence in person or by proxy of a majority of all common shares and Cumulative Preferred Stock — Series A shares issued and outstanding and entitled to vote at the Annual Meeting is required for a quorum. All properly submitted proxies and ballots, including abstentions, broker non-votes and withheld votes are counted as present and entitled to vote. A “broker non-vote” occurs when a broker has not received voting instructions from its client and is barred from exercising its discretionary authority to vote the shares under stock exchange rules because the proposal is considered to be “non-routine”. However, abstentions, broker non-votes, and votes withheld are not considered votes cast and will not be counted for or against a matter or nominee.

Who is entitled to Vote?

 

Holders of the Company’s common stock and its Cumulative Preferred Stock — Series A of record at the close of business on March 16, 2009 are entitled to notice of and to vote at the Annual Meeting. On March 1, 2009, the Company had outstanding 8,417,504 shares of common stock, 15,000 shares of Cumulative Preferred Stock — Series A, $20 par value, and 29,499 shares of $.90 Cumulative Preferred Stock, $16 par value. Each share of common stock is entitled to three votes and each share of Cumulative Preferred Stock — Series A is entitled to one vote on all matters coming before the Annual Meeting. The holders of shares of $.90 Cumulative Preferred Stock, $16 par value, have no general voting rights.

 

What is the difference between holding shares as a shareholder of record and in “street name”?

 

About three-fourths of Connecticut Water’s shareholders hold their shares in “street name”. “Street name” refers to the predominant form of public company share ownership in the United States, whereby investors indirectly own, through banks, brokers and other intermediaries, the companies’ publicly traded shares. Under Connecticut law, only the legal owners of stock on the record date are entitled to vote shares or grant proxies in connection with a shareholder meeting. Some of the key differences between these forms of ownership are described below.

 

Shareholder of record — If your shares are registered directly in your name with our transfer agent, the Registrar and Transfer Company, you are considered the shareholder of record, and these proxy materials, or a NOIA, are being sent directly to you by Connecticut Water. You have the right to grant your voting proxy to the Company or to vote in person at the Annual Meeting. You may vote by any of the methods described below.

 

Owning shares in “street name” — If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name”, and these proxy materials, or a NOIA, are being forwarded to you by your broker or nominee who is considered to be the shareholder of record. As the beneficial owner, you have the right to direct your broker or other nominee on how to vote your shares and are invited to attend the Annual Meeting. Your broker or nominee has enclosed a voting instruction card, or a NOIA, for you to use in directing your broker or nominee on how to vote your shares.

 

How do I Vote?

 

Shareholders of record and most shareholders holding shares in “street name” can vote in any of the following ways:

 

(1) You can vote through the Internet: Available to shareholders of record and through most brokers or nominees by going to the Web site listed on your NOIA, proxy card or voting instruction card. You will need to follow the instructions on your NOIA, proxy card or voting instruction card and the Web site.

 

(2) You can vote by telephone: Available to shareholders of record and through most brokers or nominees by calling the toll-free number on your NOIA, proxy card, or voting instruction card. You will need to follow the instructions on your NOIA, proxy card, or proxy instruction card and follow the voice prompts.

 

(3) You can vote by mail: Available to shareholders of record and through brokers or nominees who received printed copies of proxy materials by signing, dating and returning your printed proxy card or voting instruction card in the enclosed postage-paid envelope provided. Shareholders receiving a NOIA can receive a printed proxy card by requesting a full printed set of proxy materials following instructions on the notice.

 

(4) You can vote in person at the Annual Meeting: Shareholders of record may deliver their completed proxy card in person at the Annual Meeting of Shareholders or by completing a ballot available upon request at the meeting. Shareholders owning shares in “street name” must obtain a “legal proxy” from the holder of record in order to vote in person at the meeting.

 

If you vote by telephone or the Internet, your electronic vote authorizes the named proxies in the same manner as if you signed, dated and returned your proxy card. If you vote by telephone or the Internet, you do not need to return your proxy card.

Can I change my vote?

 

Yes. You may change your proxy instructions at any time prior to the vote at the Annual Meeting. For shares held directly in your name, you may do this by granting a later-dated proxy, submitting a later vote by telephone or the Internet, or by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not cause your previously-granted proxy to be revoked, unless you specifically request it. You may change your proxy instructions for shares in “street name” by submitting new voting instructions to your broker or nominee.

 

How is my vote counted?

 

If you are a registered shareholder and you vote on a director nominee or the ratification of our independent registered public accountants by selecting one of the options available on the proxy card or via Internet and telephone voting methods, the proxy will be voted as you have specified. However, if you do not specify your intentions on a director nominee or the ratification of our independent registered public accountants then your vote will be counted FOR that director nominee or FOR the ratification of our independent registered public accountants.

 

If your shares are held in “street name” and you have not directed your broker or nominee to vote your shares as specified by the voting instructions, then the broker or nominee can determine how to vote your shares for the election of directors and the ratification of our independent auditors.

 

Regardless of how you choose to vote, your interest in the affairs of Connecticut Water Service, Inc. is important and we encourage you to vote promptly.

 

How many votes are needed to elect Directors?

 

Under Connecticut law, the election of directors requires a plurality of the votes cast by the holders of shares present in person or by proxy and voting at the Annual Meeting.

 

How many votes are needed to ratify PricewaterhouseCoopers LLP as independent registered public accountants for 2009?

 

Ratification of the appointment of the Company’s independent registered public accountants requires the affirmative vote of a majority of the shares present in person or by proxy and voting at the Annual Meeting.

 

Who counts the votes?

 

Representatives of Broadridge Financial Solutions, Inc. will tally the votes and certify the results.

 

When and how will the voting results be published?

 

We will announce the preliminary voting results at the Annual Meeting of Shareholders and in a press release, and publish the final voting results in a Form 10-Q to be filed with the Securities and Exchange Commission on or about August 10, 2009.

 

The Company’s Amended and Restated Certificate of Incorporation provides for a Board of no less than nine or no more than fifteen directors, the exact number of directorships to be determined from time to time by resolution adopted by affirmative vote of a majority of the Board. The Directors are divided into three classes, I, II and III, as nearly equal in number as practicable, with members to hold office until their successors are elected and qualified. Each class is to be elected for a three-year term at successive annual meetings.

 

During 2008, the Board of Directors consisted of either ten or nine persons. Until May 15, 2008, the date of the 2008 Annual Meeting of Shareholders, the Board of Directors consisted of ten persons, including Ronald D. Lengyel, who retired from Board service when his term ended at the 2008 Annual Meeting. After May 15, 2008, the Board consisted of nine persons.

 

The Corporate Governance Committee recommended, and the Board of Directors selected, the three nominees listed below for election; Ms. Lisa J. Thibdaue, Ms. Carol P. Wallace, and Mr. Donald B. Wilbur. All are Class III Directors whose terms expire at the 2009 Annual Meeting. Of the remaining Directors, the Class I terms of Directors Hunt, Reeds, and Thornburg will expire in 2010. The Class II terms of Directors Hanley, Kachur, and Lentini will expire in 2011. The Board of Directors has determined to fix the number of directorships for the ensuing year at nine. Proxies cannot be voted for a greater number of persons than the number of nominees named.

 

Unless otherwise directed, it is intended that the enclosed proxy will be voted for the election of Director nominees Thibdaue, Wallace, and Wilbur.  If any nominee is unable or declines to serve, the persons named in the proxy may vote for some other person(s).

(age at 2009 Annual Meeting)

 

(age at 2009 Annual Meeting)

 

(age at 2009 Annual Meeting)

 

 

With the exception of Ms. Hunt and Mr. Thornburg, each director listed above has had the same employment for more than the past five years either in the position indicated or in other similar or executive capacities with the same company or a predecessor.

 

In 2008, the Company’s Board of Directors met five times and conducted five regular executive sessions of the outside directors without management present. In addition, the Company’s Board of Directors maintains a number of standing committees described below under heading “Board Committees and Responsibilities”. In 2008, each director attended at least 93% of the aggregate number of meetings of the Board and Committees on which he or she

served. All directors attended the 2008 Annual Meeting of Shareholders. Directors are expected, but not required, to attend the 2009 Annual Meeting of Shareholders.

 

Mr. Donald B. Wilbur is the Lead Director. As Lead Director, Mr. Wilbur has the following responsibilities:

 

 

Three half-day development sessions were held for directors between June 2008 and January 2009. The sessions were conducted outside of regular meetings and featured experts from both outside and inside the Company and covered matters related to the market for investor-owned water utility securities, executive compensation and Company operations. Directors were not required to attend the development sessions and were not compensated for attending.

 

The Company’s common stock is listed on the NASDAQ Global Select Market. NASDAQ listing rules require that a majority of the Company’s directors be “independent directors” as defined by NASDAQ corporate governance standards. Generally, a director does not qualify as an independent director if the director has, or in the past three years has had, certain material relationships or affiliations with the Company, its external or internal auditors, or is an employee of the Company. The Board has determined that directors Hanley, Hunt, Kachur, Lengyel, Lentini, Reeds, Thibdaue, Wallace, and Wilbur are independent directors under NASDAQ listing standards. Mr. Thornburg, who is an employee of the Company, is not considered an independent director.

 

The Board based these determinations primarily on a review of the responses of the Directors and executive officers to questions regarding employment and compensation history, affiliations, family and other relationships, together with an examination of those companies with whom the Company transacts business.

 

The Board of Directors has established standing Audit, Compensation, Corporate Governance, and Pension Trust and Finance committees. The Audit, Compensation, and Corporate Governance Committees have adopted written charters. Copies of these charters are available at the Company’s website at www.ctwater.com/corporategovernance.htm, or by contacting the Company at the address appearing on page 42.

 

Prior to the Organizational Board Meeting on May 15, 2008, the Board maintained an Executive Committee to act on behalf of the Board when the Board was not in session and recommend Chief Executive Officer succession. At that meeting, the Board disbanded the Executive Committee and transferred the responsibilities of that committee to the full Board of Directors. The Executive Committee did not meet in 2008 prior to being disbanded.

 

 

 

 

The Audit Committee

 

In 2008, the Audit Committee met seven times, including five telephonic meetings. The Audit Committee appoints, compensates, and oversees the work of the independent registered public accountants of the Company and The Connecticut Water Company, and monitors the Company’s financial reporting process and internal control systems. The Board has determined that each member of the Audit Committee qualifies as an “independent director” for purposes of NASDAQ listing standards and also has determined that Carol P. Wallace is a “financial expert” as defined under rules of the Securities and Exchange Commission.

 

At its January 7, 2009 meeting, the Board of Directors approved changes to the Audit Committee Charter that were recommended by the Committee. The revised Audit Committee Charter is available on our Web site at www.ctwater.com/corporategovernance.htm.

 

The Compensation Committee

 

In 2008, the Compensation Committee met four times, including two telephonic meetings. The Compensation Committee determines officer compensation and the promotion and hiring of officers, reviews Company fringe benefit plans other than retirement plans, and administers the Company’s Performance Stock Programs. The Compensation Committee Charter is available on our Web site at www.ctwater.com/corporategovernance.htm.

 

The Compensation Committee has the authority to retain any legal counsel, compensation consultant or other consultant to be used to assist in the evaluation of director or executive compensation. The Compensation Committee has engaged a recognized independent compensation consultant every three years to analyze executive compensation competitiveness and provide recommendations regarding the Company’s Total Pay Program, described within the Compensation Discussion and Analysis on page 18.

 

In addition, the Compensation Committee receives an annual report from the President/Chief Executive Officer on each individual executive’s historical compensation information; each executive’s performance review; a progress report on the executive’s results in achieving strategic objectives; and general competitive market information pertaining to salary increase budgets and executive compensation.

At its May 15, 2008 meeting, the Board of Directors approved changes to the Compensation Committee Charter that were recommended by the Committee. The revised Compensation Committee Charter is available on our Web site at www.ctwater.com/corporategovernance.htm.

 

The Corporate Governance Committee

 

In 2008, the Corporate Governance Committee met three times. The Corporate Governance Committee reviews the qualifications and independence standards of director nominees and makes recommendations to the Board, and reviews the overall effectiveness of the Board. The Corporate Governance Committee Charter is available on our website at www.ctwater.com/corporategovernance.htm.

 

The Pension Trust and Finance Committee

 

In 2008, the Pension Trust and Finance Committee met six times, including two telephonic meetings. The Pension Trust and Finance Committee reviews the Pension Trust Fund of The Connecticut Water Company Employee Retirement Fund, the employee Savings Plan (401(k)), the VEBA Trust Fund for retiree medical benefits, and the Supplemental Executive Retirement Program, reviews and determines actuarial policies and investment guidelines, selects the investment managers, and makes recommendations to and advises the Board of Directors on financial policy issues and the issuance of securities.

 

The Corporate Governance Committee annually identifies director nominees based primarily on recommendations from management, Board members, shareholders, and other sources, such as water industry and state industry associations. All candidates submitted by a shareholder or shareholder group are reviewed and considered in the same manner as all other candidates. The Committee recommends to the Board nominees that are independent of management and satisfy SEC and NASDAQ requirements and possess qualities such as personal and professional integrity, sound business judgment, and utility, financial, or political expertise. The Committee also considers age and diversity (broadly construed to mean a variety of opinions, perspectives, personal, and professional experiences and backgrounds, such as gender, race, and ethnicity differences, as well as other differentiating characteristics) in making its recommendations for nominees to the full Board. In addition, the Committee considers whether potential director nominees live in The Connecticut Water Company’s service regions in sufficient numbers to satisfy the representation requirements of Connecticut Statute 16-62a, and also evaluates other factors that it may deem are in the best interests of the Company and its shareholders. The Committee may, under its charter, retain at the Company’s expense one or more search firms to identify potential board candidates. The Committee does not currently employ an executive search firm, or pay a fee to any other third party, to locate qualified candidates for director positions.

 

The Corporate Governance Committee met on August 19th and September 29th in 2008 to consider the renomination of Directors Thibdaue, Wallace, and Wilbur, whose terms expire at the 2009 Annual Meeting of Shareholders. The Corporate Governance Committee reviewed the attendance, performance, and independence of these Directors, but determined to withhold the Committee’s recommendation of these Director nominees to the Board until January 7, 2009 in order to allow interested shareholders to make either (i) recommendations to the Corporate Governance Committee for Director nominees to be considered by the Board for inclusion on the Company’s proxy card, or (ii) formal Director nominations, which, pursuant to the Company’s Bylaws procedures (described below) were due by January 16, 2009. After consideration of all candidates, and pending any director nominations from shareholders by January 16, 2009, the Corporate Governance Committee recommended to the Board, and the Board approved, that the number of Board members should be set at nine and that Ms. Thibdaue, Ms. Wallace and Mr. Wilbur should be submitted to shareholders as the Company’s director nominees. The Corporate Governance Committee did not receive any formal director nominations from shareholders prior to the deadline.

 

The Company’s Bylaws allows nomination of directors by any shareholder who is entitled to vote for the election of directors at either the Annual Meeting of Shareholders or a special meeting where directors are to be elected. Shareholder nominations must be received no later than January 13, 2010, which is 120 days prior to the first anniversary date of the prior year’s Annual Meeting of Shareholders or within 10 days of the mailing date of a Notice of Special Meeting, and must include the following:

 

 

The presiding officer at the meeting will determine if a shareholder nomination was made in accordance with the provisions of the Company’s Bylaws. If the officer determines that a nomination was not compliant with the Bylaws, he shall state so at the meeting and the nomination will be disregarded.

 

Under the Company’s Bylaws, no director shall be eligible for re-election as a director of the Company after such director has attained the age of 70.

 

On May 8, 2007, the Board of Directors increased minimum stock ownership for each Board member to at least 1,000 shares of Connecticut Water Service, Inc. common stock. Incumbent Directors have until May 1, 2010 to meet the minimum stock ownership requirement. Newly-elected Directors will have three years from the date of their election to the Board to satisfy the minimum stock ownership requirement. All independent directors, except Mr. Lengyel who retired from the Board at the Annual Meeting of Shareholders on May 15, 2008, received an equity award of $5,000 in restricted common stock on May 15, 2008 under the Company’s Performance Stock Program. The shares become unrestricted on the first anniversary of the grant date (May 15, 2009), and count toward the minimum stock ownership requirements.

 

Any shareholder wishing to communicate with a Director may do so by contacting the Company’s Corporate Secretary, at the address and telephone number listed on page 42, who will forward to the Director a written, e-mail, or phone communication. The Corporate Secretary has been authorized by the Board to screen frivolous or unlawful communications or commercial advertisements.

 

During 2008, the Company paid $1,351,671 to Connecticut Light & Power (CL&P) for electric utility services at rates authorized by the Connecticut Department of Public Utility Control (DPUC). Ms. Thibdaue is a vice president at Northeast Utilities Service Company, an affiliate of CL&P. CL&P made payments of $7,152 to the Company during 2008 for water services at rates authorized by the DPUC.

 

The Company recognizes that transactions between the Company and any of its directors or executives can present potential or actual conflicts of interest. Therefore, as a general matter and in accordance with the Company’s Code of Conduct and the Board of Directors’ Code of Ethics, it is the Company’s preference to avoid such transactions.

 

In order to screen any potential conflicts of interest, the Board has designated the Corporate Secretary to review the proxy questionnaires completed by executive officers and directors and report to the Corporate Governance Committee, Audit Committee, and Board, if there are any such potential conflicts. The Audit Committee reviews any matter related to audit misconduct and the Corporate Governance Committee reviews any matter related to a conflict of interest of current board members or those considered for Board membership. Both committees report to the Board on matters that may rise to the level of an actual or potential conflict.

 

Annually, employees are sent the Company’s Code of Conduct. Thereafter, each employee acknowledges their understanding and compliance with the code, including the establishment of a Company hotline for reporting Code of Conduct violations. To date, the Company hotline has received no reports of conduct violations. In addition to the Code of Conduct, the Board has adopted an additional Code of Conduct as a result of the Sarbanes-Oxley Act of 2002.

 

The Board promotes honest and ethical conduct, including the ethical handling of actual and apparent conflicts of interest between personal and professional relationships; full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by the Company; and compliance with applicable governmental laws and regulations and the Company’s own governing documents.

 

The public can access the Company’s Code of Conduct on the Company’s Web site (www.ctwater.com) or by contacting the Company at the address appearing on page 42.

 

Since the Boards of Directors of the Company and the Connecticut Water Company are identical, regular meetings of each are generally held on the same day. Every three years, the Compensation Committee conducts a review of the Board’s compensation. That review was last conducted in May 2007. Effective August 1, 2007, each Board and Committee meeting fee is $800 for regular meetings; $900 for special meetings; whether the directors participate in person or by phone. There were no special meetings of the Board or any Committee held in 2008. Committee members who participate in scheduled committee telephone conference calls are paid $400 per call. Each Board member is paid an annual retainer of $8,000 in quarterly installments. Each Committee Chairman is paid an additional retainer of $2,000 in quarterly installments. On May 15, 2008, independent members of the Board of Directors were awarded $5,000 in restricted common stock that will become unrestricted on May 15, 2009. It is anticipated that similar restricted awards will be made in future years.

The Table below summarizes the compensation paid by us to our directors during the fiscal year ended December 31, 2008.

 

 

 

 

Under the Company’s Directors Deferred Compensation Plan, directors may elect to defer receipt of all or a specified portion of the compensation payable to them for services as Directors until after retiring as directors. Any amounts so deferred are credited to accounts maintained for each participating Director, and earn interest at an annual rate of 8.07% that is currently credited on a monthly basis to all deferred amounts. On January 24, 2008, the Directors Deferred Compensation was amended and restated to comply with Section 409A of the Internal Revenue Code (IRC). As a result, any director who retires after January 1, 2008 receives a distribution of amounts deferred and accumulated interest in a lump sum within 60 days of their retirement date. Mr. Lengyel received a lump sum payment of $184,125.34 on July 11, 2008 representing his deferred compensation and accumulated interest. Until his retirement from the Board in 2008, Mr. Lengyel elected to participate in the Plan. In addition, one of the Company’s retired directors is currently receiving annual payments under the Plan.

 

On May 15, 2008, the Board adopted a travel reimbursement policy for non-employee directors. Non-employee Directors are reimbursed for reasonable and customary travel expenses from their homes or businesses to the meeting location. The maximum annual travel reimbursement for each director is limited to 20% of their director’s fees.

 

On January 7, 2009, the Board adopted an education reimbursement policy for non-employee Directors. Non-employee Directors may be reimbursed up to $750 annually for program fees to attend relevant director education

seminars and programs. Directors are expected to report to the full Board the key findings and insights of the seminar or program, and the Director must request pre-approval for education expenses from the Lead Director or Chairman.

 

None of the members of the Company’s Compensation Committee during 2008 (Directors Hunt, Kachur, Lentini, Wallace, or Wilbur) served as an officer or employee of the Company or any of its subsidiaries during the year. During 2008, no executive officer of the Company served as a director or as a member of the Compensation Committee (or other board committee performing equivalent functions) or another entity, one of whose executive officers served as a director of the Company, or who served on the Board’s Compensation Committee.

 

The following table lists, to the Company’s knowledge, the beneficial ownership of the Company’s common stock and the nature of such ownership for each Director and nominee for Director, for each executive officer named in the Summary Compensation Table, for all executive officers and Directors of the Company as a group, and for each person who beneficially owns in excess of five percent of the outstanding shares of any class of the Company’s voting securities. Unless otherwise noted, each holder has sole voting and dispositive power with respect to the shares listed. All information is given as of March 16, 2009 and assumes that shares which the named person has a contractual right to acquire within 60 days have been acquired and are outstanding.

 

 

The above ownership individually and as a group is less than 5% of the outstanding shares of Connecticut Water Service, Inc.

 

 

 

 

Under Section 16 of the Securities Exchange Act of 1934, directors, officers and certain beneficial owners of the Company’s equity securities are required to file reports of their transactions in the Company’s equity securities with the Securities and Exchange Commission on specified due dates. In 2008, reports of transactions by all directors, officers and such beneficial holders were timely filed, except a late filed Form 4 for Carol P. Wallace on November 26, 2008. In making this statement, the Company has relied on the written representations of its directors, officers, and five percent shareholders and copies of the reports that they have filed with the Securities and Exchange Commission.

 

The following table sets forth information as of March 16, 2009 (except as otherwise indicated) as to all persons or groups known to the Company to be beneficial owners of more than five percent of the outstanding common stock or Preferred A Stock of the Company.

 

 

 

 

In connection with the preparation and filing of the Company’s audited financial statements for the fiscal year ended December 31, 2008 (the “audited financial statements”), the Audit Committee performed the following functions:

 

 

Based upon functions performed, the Audit Committee recommended to the Board of Directors, and the Board approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 for filing with the U.S. Securities and Exchange Commission.

 

AUDIT COMMITTEE

Carol P. Wallace (Chairman)

David A. Lentini

Lisa J. Thibdaue

Arthur C. Reeds

 

This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such statutes.

 

The Audit Committee has appointed PricewaterhouseCoopers LLP to serve as the Company’s independent registered public accounting firm and to audit our financial statements for the year ending December 31, 2009. Although we are not required to seek shareholder approval of this appointment, it has been our practice for many years to do so. No determination has been made as to what action the Audit Committee and the Board of Directors would take if our shareholders fail to ratify the appointment.

 

Even if the appointment is ratified, the Audit Committee retains discretion to appoint a new independent registered public accounting firm at any time if the Audit Committee concludes such a change would be in the best interests of the Company.

 

Representatives of PricewaterhouseCoopers LLP will attend the Annual Meeting of Shareholders, will have the opportunity to make a statement, if they desire to do so, and are expected to be available to respond to appropriate questions.

 

During fiscal year 2008, the Company retained its independent registered public accountants, PricewaterhouseCoopers LLP, to provide services in the following categories and amounts.

 

The aggregate fees billed by PricewaterhouseCoopers LLP for professional services rendered for the audit of the Company’s annual consolidated financial statements included in the Company’s Annual Report on Form 10-K and for the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for the fiscal year ended December 31, 2007 were $385,000 and $367,000 for the fiscal year-ended December 31, 2008.

 

PricewaterhouseCoopers LLP performed audit related professional services as follows:

 

 

In addition to the services and fees stated above, PricewaterhouseCoopers LLP billed the Company for the following:

 

 

 

 

In accordance with its charter, the Audit Committee pre-approved all audit and non-audit fees for 2007 and 2008 listed above.

 

THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” PROPOSAL (2).

 

The following table provides information about the Company’s common stock that may be issued upon the exercise of options and vesting of other awards under all of the Company’s existing equity compensation plans as of December 31, 2008. The table also includes information about the Company’s other equity compensation plans previously adopted without shareholder approval.

 

 

 

 

At the Company, honesty is one of our core values. We believe in the power of this value and know the only way to build and strengthen our reputation is through trust. We hold ourselves to the highest standard of integrity and ethical behavior and strive for transparency. We welcome the opportunity to share this Compensation Discussion and Analysis (CD&A) with our shareholders and rate payers.

 

In this section, we provide an overview and analysis of the Company’s compensation program and policies, the material compensation decisions we have made under those programs and policies, and the material factors that we considered in making those decisions. Later in this proxy statement, under the heading “Additional Information

Regarding Executive Compensation”, you will find a series of tables containing specific information about the compensation earned or paid in 2008 to the following individuals, our NEOs (NEOs):

 

Chairman and Chief Executive Officer (“CEO”), Mr. Eric W. Thornburg; Vice President, Finance and Chief Financial Officer (CFO), Mr. David C. Benoit; Vice President, Business Development, Mr. Thomas R. Marston; Vice President, Service Delivery, Mr. Terrance P. O’Neill; and Ms. Maureen P. Westbrook, Vice President, Customer and Regulatory Affairs.

 

The compensation for these individuals is listed in tables found in the Compensation Discussion and Analysis and in the Executive Compensation sections of this Proxy Statement.

 

PHILOSOPHY AND GOALS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

The Company’s compensation philosophy is set by the Compensation Committee (for purposes of this CD&A, the “Committee”) and affirmed by the Board of Directors. Our philosophy is described in the following table and is intended to align executive officer’s compensation with the Company’s annual and long-term performance. A significant portion of each NEOs’ total compensation opportunity is directly related to the Company’s earnings per share as well as to other performance factors measuring our progress toward the goals of our long-term strategic and business plans. A review of our programs will highlight two core concepts of our philosophy, pay for performance and pay at risk.

 

The following table highlights the primary components and rationale of our compensation philosophy and the pay elements that support the philosophy.

 

 

Elements of Total Compensation

 

Executive Summary

 

We recognize that a sound management compensation program is part of what makes a company an employer of choice. Our compensation philosophy is to provide certain pay elements that are directly linked to the Company’s performance results. By doing so, we are able to provide the following: reasonable salaries that reflect each executive’s responsibility level, qualifications and contribution over time; benefits that adequately meet the needs of our employees and their families at a reasonable shared cost; meaningful, performance-based annual incentives; and long-term equity incentives that reflect the creation of shareholder value and drive other company objectives.

 

Of these four pay elements, we consider the annual and long-term incentive forms of compensation to be the most important because they enable us to attract, retain, motivate and reward talented individuals who have the necessary skills to manage our growing organization on a day-to-day basis as well as for the future.

 

The value of annual incentives is directly linked to specific financial goals such as earnings per share, customer growth and other specific individual objectives, such as customer and employee satisfaction defined and approved by the Committee at the beginning of each fiscal year.

 

Long-term incentives are provided to executive officers in three forms: restricted stock, performance stock and performance cash and vest over a three year period as of 2008. This vesting target is reviewed and established by the Committee for the ensuing three year performance period.

 

To assist the Committee in executing its responsibilities, it engages a consultant (see information on Compensation Consultant page 23) tri-annually to provide the Committee comparative performance and pay data based upon a sample of 11 publicly-traded utilities (page 24). The peer group pay data is derived from their proxy

statements and helps the Committee establish the salaries and target incentive award opportunities for the NEOs. In addition to the peer utility group compensation data, the Consultant selects certain well known and respected published surveys on executive compensation and includes that data, where appropriate, to provide a well defined review.

 

In general, it is the intent of the Committee to have individual base salaries fall within a plus or minus range of 25% from the market median data established by the independent consultant. Variations within the plus or minus 25% range can occur based on length of service, performance, job grade, etc. and are considered by the Committee annually in the merit increase award process. Annual and long-term incentives are targeted at market median for performance which meets targeted annual objectives. Performance results can be above or below the targets set and the Committee intends to have the incentive compensation award levels mirror the actual performance results.

 

Discussion of Specific Elements of Compensation

 

Our approach to total compensation is to create a comprehensive compensation package designed to reward individual performance based on the Company’s short-term and long-term performance and how this performance links to our corporate strategy. The elements of our total compensation for executive officers, including the NEOs, are as follows:

 

Rewarding Short-Term Performance

 

 

Rewarding Long-Term Performance

 

 

Other Elements of Total Compensation

 

 

 

Compensation Consultant

 

In 2008, the Committee engaged the services of Thomas E. Shea of TES & Associates, hereafter know as the “Consultant”, to provide advice and information regarding design and implementation of the Company’s executive compensation programs, and to update the Committee about regulatory and other technical developments that may affect the Company’s executive compensation programs. In addition, the Consultant provides the Committee with competitive market information, analyses and trends on base salary, short-term incentives, long-term incentives, executive benefits and perquisites.

 

The Committee believes that the Consultant provides candid, direct and objective advice to the Committee, to that end:

 

 

Consultant Independence

 

The Committee is solely responsible for engaging, retaining and terminating compensation consultants and determining their terms and conditions, including the fees. The Consultant, TES & Associates, provides the Committee updates as necessary on its services and related fees. The Committee determines whether the compensation consultant’s advice is objective and free from the influence of management. It also closely examines the safeguards and steps the Consultant takes to ensure that its executive compensation consulting services are independent and objective.

 

Competitive Positioning

 

In 2008, the Committee reaffirmed a total pay compensation philosophy, as discussed in the Executive Summary (pages 20 & 21), to target the pay of our executives in a range of plus or minus 25% of the median of both a peer group of utility comparators and data from selected general industry published surveys. The competitive total annual compensation is determined by an arithmetical average of the Utility Comparator 25th percentile; multiple regression size adjusted data for the utility peer group and published survey data.

 

The utility peer comparators listed below were independently recommended by the Consultant, and finalized and approved based upon input from the Committee Chairman and the Company’s Chairman, President & CEO. The Committee reviewed proxy statements for the peer group entities which provided philosophy, program design and total direct compensation statistical data for the Top 5 Executive Officers by rank order of pay. The Committee then approximates the 25^th percentile for all three of the criterion. The Committee utilized 25^th percentile data as well as multiple regression analysis (with revenue, employees & number of customers as the independent variables) to adjust the data for size and provide comparisons comparable to the Company’s scope of operations.

Utility Peer Group

 

The Committee has established a utility peer group of the following companies:

 

 

Published Surveys

 

The Committee has reviewed the following surveys:

 

Watson Wyatt

 

The Survey Group Management Compensation Report (New England)

 

Mercer Executive Benchmark database

 

These published surveys were utilized in this study because executive and officer jobs are typically viewed as part of a broader labor market.

 

Using the information from this utility peer group and published surveys, the Committee compares each executive officer position to similar positions. Where there is no similar position, the Committee compares the Company position to a range of positions from the two resources that are the closest matches, and then assigns the Company position to a salary grade.

 

The Committee uses these salary grades to determine the preliminary salary recommendation, the preliminary target incentive award opportunity, and the target long-term equity incentive award value for each executive position. Each salary grade is expressed as a range with a minimum, midpoint, and maximum. The Committee seeks to set the midpoint for salaries, target incentive award levels, and target annual long-term incentive award values for our Executive Officer positions to plus or minus 25% of the median for executives in equivalent positions in the utility peer group and published survey data. The minimum level of each salary grade is set close to the bottom quartile of these groups, while the maximum level is set close to the top quartile of each group.

 

This framework provides a guide for the Committee’s deliberations. The actual total compensation and/or amount of each compensation element for an individual executive officer may be more or less than this median figure.

 

How We Make Compensation Decisions

 

In conjunction with the review and approval of the upcoming year’s financial and strategic plans each fall, the Committee determines the level of potential awards through the Company’s PSP for the upcoming year. The specific targets are established and the corresponding maximum and minimum awards are set in line with recommendations made by the Consultant. At the conclusion of the year’s performance being measured, the Committee determines what portion of the awards was actually earned, based upon the achievement of goals set in the financial and strategic plans. The awards are then made to the participants. Long-term awards have a vesting period that must be satisfied, pre-established goals that must be achieved and a continued employment term of three or four years, as dictated by the individual plan year.

 

In the first quarter of each year, the Committee reviews the total compensation of our leadership team, the executive officers reporting to the CEO, including salaries, target annual long-term incentive award values, perquisites and other benefits (including retirement, health, and welfare benefits), and change-in-control arrangements. The Committee receives an annual report from the CEO in executive session on each individual executive’s historical compensation information; each executive’s performance reviews; a progress report on the executive’s results in achieving strategic objectives; and general competitive market information pertaining to salary increase budgets and executive compensation. Every three years, or as frequently as the Committee desires, a recognized independent compensation consultant is engaged to analyze executive compensation competitiveness and

reasonableness of the Company’s executive officer pay levels and program. Comparisons have regularly been made to a sample of larger and smaller publicly-traded water company competitors for executive talent, including our Utility Peer Group members. The Consultant also provides recommendations regarding Total Pay Program strategy, mix and award practices based upon competitive market trends as well as tax and financial efficiencies. Ernst & Young LLP provided an analysis and recommendation to the Committee on July 31, 2002 and Pearl Meyer & Partners provided an analysis and recommendation to the Committee on August 30, 2005 and TES & Associates on December 3, 2008.

 

The Committee then sets each executive’s compensation target for the current year. Typically, this involves establishing annual merit opportunities. Merit pay adjustments become effective on a date determined by the Committee, typically in the first or second quarter of the year. The Committee’s decisions are reviewed with the Board.

 

Decisions about individual compensation elements and total compensation are ultimately made by the Committee using its best business judgment, focusing primarily on the executive officer’s performance against his or her individual financial and strategic objectives, as well as the Company’s overall performance. The Committee also considers a variety of qualitative factors, including the business environment in which the financial and strategic objectives were achieved. Thus, with the exception of the performance share awards discussed below, the compensation of our executives is not entirely determined by formula.

 

Total Annual Cash Compensation

 

The Company’s review of 2008 market data showed total annual and long-term incentive compensation opportunities for the CEO and CFO were below the median level of the Company’s peer group and published survey results. Consequently, the Committee adjusted the annual and long-term award opportunities at threshold, target and maximum levels of performance and the grade ranges (not individual base salaries) for these positions. The review confirmed that the salaries and incentive compensation opportunities for the rest of the NEO’s and other executives were in line with market medians in the peer group and public survey results, but that the grade ranges required adjustment to keep pace with market as reflected in these resources. In December 2008, the Committee approved the adjustments to grade ranges and annual and long-term award opportunities as shown in the following table.

 

 

The primary reasons for individual variation of salaries from the market median include length of time in the current position and individual performance. Based on the manner in which the Company manages base salaries, it is expected that actual and market salaries will eventually converge. Since annual cash incentive targets and the annualized value of long-term incentive targets are applied to actual base salaries, total compensation levels may similarly differ from market median total compensation levels.

 

This policy results in a greater percentage of total compensation (excluding benefits) for the NEOs being performance based. The table below shows 2008 total performance-related percentages for the NEOs.

 

 

Performance Objectives and Annual Incentive Awards Though the Performance Stock Plan (PSP)

 

We use annual incentives through the PSP to reward our executive officers, including the NEOs, for the Company’s annual performance in achieving pre-established financial and strategic goals set at both the Company level and the individual level. In the Fall of each year, based on Mr. Thornburg’s recommendations for his direct reports, the Committee establishes the target annual incentive award opportunity for each executive salary grade and approves the performance objectives for the upcoming performance year and reviews those actions with the Board. All references to Mr. Thornburg’s recommendations relate to executives other than himself. All decisions related to Mr. Thornburg are made by the Committee and are reviewed with the Board in accordance with the Committee’s Charter.

 

Threshold, Target and Maximum Award Opportunities

 

The Committee establishes a threshold, target, and maximum incentive amount for each NEO expressed as a percentage of the salary range midpoint for the Annual and Long-Term Awards as detailed in the table following. These amounts have been stable for the years 2004 through 2008 but have been revised for the 2009 plan year based on the advice of the Consultant, its evaluation of competitive market data and internal equitability. The PSP is intended to pay fully competitive annual cash compensation and provide competitive longer-term stock compensation awards when performance against goals matches the target level. Performance against any objective that is below threshold will result in no award being paid for such objective. However, the Committee has the authority in determining the amounts of Annual and Long-Term Awards, to modify the mathematical results (for example, in a year in that an event beyond management’s control, such as extremely wet conditions, were to decrease revenues and earnings significantly) when the Compensation Committee, exercising its sound business judgment, deems it prudent to do so.

 

 

Performance Objectives

 

Based on Mr. Thornburg’s recommendations, the Committee approves the financial and strategic performance objectives for each executive officer, including each other NEO. In selecting the financial performance objectives, the Committee sought to have the executives focus on the Company’s operating financial performance, including in 2008, target earnings per share of $1.12 at a weight of 60%, customer satisfaction, employee satisfaction and customer growth targets at a weight of 20% and individual objectives at a weight of 20%. These individual

objectives were set to reward each executive for actions directly related to his or her own activities and to reinforce accountability.

 

2008 Performance Process

 

In executive session, the Committee selected and weighted Mr. Thornburg’s goals, taking into consideration the Company’s current financial and strategic priorities. The Committee recognizes that earnings per share should be emphasized, but also that performance against this metric may not be reflected in a single 12-month period. For 2008, 60% of Mr. Thornburg’s Annual Incentive Award opportunity was based on the Committee’s assessment of the Company’s total financial performance. This weighting was raised from 50% in 2007. Each of these goals are further defined by identifying the Threshold level of performance (80%), Target or expected performance (100%) and Maximum level of performance (120%). Mr. Thornburg’s financial performance for 2008 was measured by the following metrics:

 

 

The remaining 40% of his award opportunity was based on the Committee’s assessment of the following strategic goals:

 

 

The Committee selected these strategic goals based on its judgment that they represent areas where Mr. Thornburg should focus his energies to drive the Company’s business forward. Mr. Thornburg’s goals were reviewed with the Board and his progress was periodically reviewed by the Committee and the Board during the year.

 

For 2008, annual incentives for our other NEOs were based on performance measured against a combination of financial goals and one or more strategic goals, related to the Company’s business for the year, as follows:

 

Weightings Assigned to Each Performance Objective for the Other NEOs

 

 

The Committee set the target levels for the financial and strategic objectives relating to the Annual Incentive Awards and concluded that the relationship between the payments generated at the various levels of achievement for the NEOs other than Mr. Thornburg and the degree of difficulty of the targets was significant and reasonable given the business environment and related factors. The Committee increased the portion of each NEO’s Annual Incentive Award attributable to financial goals over 2007 levels to better align the plan with shareholder and interests.

Performance Objectives and Long-Term Incentive Awards Though the Performance Stock Plan (PSP)

 

We use long-term incentives through the PSP to reward our executive officers, including the NEOs, for the Company’s longer-term performance in achieving pre-established financial and strategic goals set at both the Company and individual level. In the Fall of each year, based on Mr. Thornburg’s recommendations for his direct reports, the Committee establishes the target Long-Term Incentive Award opportunity for each executive salary grade and approves the performance objectives for the upcoming performance year. All references to Mr. Thornburg’s recommendations relate to executives other than himself. All decisions related to Mr. Thornburg are made by the Committee and are reviewed with the Board in accordance with our Committee’s Charter.

 

Target Award Opportunities

 

Each NEO’s 2008 target incentive award opportunity was set as a percentage of salary grade midpoint. The Committee determined the target incentive levels based on its evaluation of competitive market data and internal equity.

 

For 2008, target incentive opportunities for the NEOs ranged from 20-30% of salary grade midpoints. The range of target incentives will increase in 2009 to 20-45% of salary grade midpoints. These target levels are at market median for similar positions. Where an executive had responsibilities increased during the year and/or was promoted, the target incentive opportunity for the year may be adjusted pro rata to reflect the new salary range and target bonus opportunity.

 

Performance Objectives

 

Based on Mr. Thornburg’s recommendation, the Committee approves the financial and strategic performance objectives for each executive officer, including all NEOs. In selecting the financial performance objectives, the Committee sought to have the executives focus on the Company’s 2008 earnings per share at a weight of 60% and customer growth for 40% of the award total.

 

2008 Performance Process

 

The Committee selected and weighted Mr. Thornburg’s goals, taking into consideration the Company’s current financial and strategic priorities. The Committee recognizes that earnings per share should be emphasized. For 2008, 60% of Mr. Thornburg’s long-term incentive award opportunity was based on the Committee’s assessment of the Company’s achievement of the 2008 earnings per share target defined in 2007. Mr. Thornburg’s financial performance for 2008 was measured by the following metrics:

 

 

The Committee selected these strategic goals based on its judgment that they represent areas where Mr. Thornburg should focus his energies to drive the Company’s business forward. Mr. Thornburg’s goals were reviewed with the Board and his progress was periodically reviewed by the Committee and the Board during the year.

For 2008, annual incentives for our other NEOs were based on performance measured against a combination of financial goals and one or more strategic goals, related to the Company’s business for the year, as follows:

 

Weightings Assigned to Each Performance Objective for the Other NEOs

 

 

The Committee set the target levels for the financial and strategic objectives relating to the Long-Term Incentive Awards and concluded that the relationship between the payments generated at the various levels of achievement and the degree of difficulty of the targets was significant and reasonable given the business environment and related factors. The Committee increased the portion of each NEO’s Long-Term Incentive Award attributable to financial goals over 2007 levels to better align the plan with shareholder interests.

 

PSP Achievement Process

 

The Company’s 2007 Strategic Plan provided the targets for awards through the 2004 PSP that were then payable in 2008. The annual and long-term incentives in 2007 were based on the same performance measures; financial indicators which comprise 50% of the award allocations; performance indicators such as customer satisfaction, employee satisfaction and customer acquisition (growth) which comprised 20% of award allocations; and lastly, corporate initiatives which comprised 30% of the award allocations. The material difference between the annual and long-term incentive awards was the vesting period. Annual Incentive Awards become 100% vested after results were evaluated at the conclusion of the measurement period. The Long-Term Incentive Awards vested 25% per year ratably over four years beginning on the first anniversary of the earning of the award as long as the participant is employed by the Company.

 

As reported previously, the Committee met in late 2007 with the intent of adjusting the components of the Long-Term Incentive to enhance the alignment of the participant’s incentives with that of the Company’s shareholders and rate payers. To accomplish this, the Committee approved changes to the Long-Term Awards to differentiate the goals between the Annual and Long-Term Incentive, and modify the vesting period for the long-term awards. In 2008 and succeeding plan years, the Long-Term Awards will be measured by attainment of earnings per share and customer growth targets, and vest 33.33% per year ratably over three years beginning on the first anniversary of the earning of the award as long as the participant remains employed by the Company.

 

The Compensation Committee met on March 26, 2008, and finalized amounts payable as Annual and Long-Term Incentive Awards to the NEOs . The Board’s previously established earnings per share target for 2007 of $1.06 per common share was achieved; thus the NEOs received 100% of their award allocation based on the Company’s financial results. Achievement of the defined performance indicators, such as customer satisfaction, employee satisfaction and non-rate earnings growth were wholly achieved at target or maximum levels and added 21.8% to the

award allocation. Corporate initiatives were achieved at threshold/target/maximum levels and added 27.5% to the incentive award allocation. Thus, each of the NEOs received 99.3% of their target award allocation, or:

 

 

Twenty-five percent of the Long-Term Award was paid in April 2008 with the remaining 75% to be paid ratably on the anniversary date of the earning of the award in 2009, 2010, and 2011 as long as the participant is employed by the Company.

 

The Committee also met on March 10, 2009, and finalized amounts payable as Annual and Long-Term Incentive Awards to the NEOs through the PSP for 2008. The Board’s previously established earnings per share target for 2008 of $1.12 per basic common share and growth target of increasing our customer base by 1,600 residential equivalents was achieved; thus the NEOs will receive 100% of their award allocation based on the Company’s financial and strategic results in the long-term plan. The short-term plan included the earnings per share target achieved at 100%, defined performance indicators, such as customer satisfaction, employee satisfaction and customer growth were wholly achieved at target or better levels and added 20.1% to the award allocation. Individual initiatives were achieved at various levels per the following table and added an additional amount to each of the NEO’s awards as indicated.

 

 

 

 

 

 

Total awards earned through the PSP for the 2008 plan year were as follows:

 

 

The Impact of Tax Considerations on Executive Compensation Decisions

 

While the Company’s executive compensation program is structured to be sensitive to the deductibility of compensation for federal income tax purposes, the program is principally designed to achieve our objectives as described throughout this Compensation Discussion and Analysis. Section 162(m) of the Code generally precludes the deduction for federal income tax purposes of more than $1 million in compensation (including long-term incentives) paid individually to our Chief Executive Officer and the other NEOs in any one year, subject to certain specified exceptions. As noted above, under the amended and restated employment agreement and change-in-control plan descriptions on page 35, in the event that any payment or benefit received or to be received by the executive under the agreement would be an “excess parachute payment”, as defined in Internal Revenue Code (IRC) Section 280G, and subject to the federal excise tax imposed by IRC Section 4999, then an additional “gross-up” payment will be made to the named executive in the event that the benefits payable to the named executive under agreement becomes subject to the excise tax on excess parachute payments. The gross-up payment would compensate the named executive for the initial 20% excise tax payable on their excess parachute payments plus the income and excise taxes then becoming payable on the gross-up payment. We included these provisions in these agreements because we did not want the potential excise tax to serve as a disincentive to pursue a change-in-control transaction that might otherwise be in the best interests of our shareholders. We believe that, in light of our NEO’s record of performance, this determination is appropriate.

 

We have reviewed and discussed the Compensation Discussion and Analysis with the Company’s management, and, based on our review and discussions and such other matters deemed relevant and appropriate by the Compensation Committee, we recommend to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

THE COMPENSATION COMMITTEE

Donald B. Wilbur (Chairman),

Heather Hunt,

Mark G. Kachur,

David A. Lentini and

Carol P. Wallace

 

This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under such statutes.

 

 

 

 

 

 

 

As described previously in the Compensation Discussion and Analysis on page 18, the Committee allocates a threshold, target, and maximum award for each participant annually in December of the year proceeding the measurement period. Specific targets disclosed on pages 30 & 31 herein, covering a range of shareholder, customer, and employee driven strategic goals are established before the year begins. At the conclusion of the fiscal year, the Committee reviews a management report, comparing the actual performance against the pre-established goals to determine the level of earned award. The award is paid in accordance with the allocation choices made by the participant between restricted stock, performance shares and cash units, made prior to the fiscal year being measured.