Exhibit 10.1

 

AMERICAN STATES WATER COMPANY

 

2017 SHORT-TERM INCENTIVE PROGRAM

 

1.                                      Purpose of 2017 Short-Term Incentive
Program

 

American States Water Company, a California corporation, (the “Corporation”) has
adopted the American States Water Company Performance Incentive Plan (the
“Plan”) to promote the success of the Corporation by (a) motivating executives
selected to participate in the Plan to maximize the performance of the
Corporation both from a financial perspective and in serving its customers and
(b) rewarding them with cash Objective Bonuses directly related to such
performance.  The Corporation’s board of directors recognizes that the ability
of the Corporation and its subsidiaries to attract capital at a low cost is
based on its financial performance and that the Corporation’s customers benefit
through its ability to attract low cost capital.  This 2017 Short-Term Incentive
Program (the “2017 STIP”) sets forth the names of the individuals selected to be
Participants who are eligible to earn Objective Bonuses under the Plan for the
2017 calendar year and the applicable Business Criteria, Additional Objective
Criteria, Performance Targets, and Payout Percentages for the 2017 calendar
year.  The 2017 STIP also provides for Discretionary Bonuses, which when added
to the Objective Bonuses under the Plan, equal the Aggregate Bonuses payable
under the 2017 STIP for the 2017 calendar year.

 

2.                                      Term of 2017 STIP

 

The Performance Period covered by the 2017 STIP (the “Term”) began on January 1,
2017 and will end on December 31, 2017.

 

3.                                      Relationship to American States Water
Company Performance Incentive Plan

 

The Objective Bonuses based on the Business Criteria payable under Awards
granted under the 2017 STIP are granted under the authority of the Plan and are
subject to all of the terms and conditions of the Plan, as it may be amended
from time to time, and any rules adopted by the Committee in accordance with the
terms of the Plan, as such rules are in effect from time to time.  The
Discretionary Bonuses and the Objectives Bonuses based solely on the
satisfaction of the Additional Objective Criteria are granted under the general
authority of the Compensation Committee to determine the compensation payable to
Executives.

 

4.                                      Definitions

 

Capitalized terms used and not otherwise defined herein have the meanings set
forth in the Plan.  In addition, the following phrases shall have the meanings
specified below:

 

“Additional Objective Criteria” means Direct Construction Margin - ASUS.

 

“Adjusted EPS - ASUS” means the EPS of ASUS for 2017 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 2017 associated with a
sale of any of the Corporation’s business units or the acquisition of any new
businesses.

 

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“Adjusted EPS - AWR Consolidated” means the Corporation’s EPS for 2017 adjusted
to remove 1) any write-offs associated with the CPUC’s 2017 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 2017 associated with a sale of any of the Corporation’s business
units or the acquisition of any new businesses.

 

“Adjusted EPS - Regulated Utilities” means the sum of the EPS of each of the
Regulated Utilities for 2017 adjusted to remove 1) any write-offs associated
with the CPUC’s 2017 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 2017 associated with a sale of any of
the Corporation’s business units or the acquisition of any new businesses.

 

“Aggregate Bonus” means the combination of a Participant’s Objective Bonus and
his or her Discretionary Bonus.

 

“ASUS” means American States Utility Services, Inc., a California corporation,
and wholly owned subsidiary of the Corporation, and its wholly owned
subsidiaries.

 

“Award Agreement” means a written agreement setting forth the material terms and
conditions of the Award as determined by the Committee consistent with the
express limitations of the Plan and the 2017 STIP.

 

“Base Salary” means the Participant’s rate of annual base pay on the date the
Committee approves the Business Criteria, the Additional Objective Criteria and
the Performance Targets.

 

“Board of Directors” means the Corporation’s board of directors.

 

“Budget” or “Budgeted” means in the case of Adjusted EPS for the Corporation,
the Regulated Utilities or ASUS, as the case may be, the projected Adjusted EPS
for 2017 as set forth in the Operating Budget and for Construction Revenues —
ASUS, Economic Value — ASUS, Expense Optimization — ASUS, and Direct
Construction Margin — ASUS, the amounts included for these metrics in the
Operating Budget.

 

“Business Criteria” means Adjusted EPS-AWR Consolidated, Adjusted EPS- Regulated
Utilities, Adjusted EPS-ASUS, Customer Complaints-RU, Customer Complaint
Standards-RU, Capital Expenditures-RU, Construction Revenues-ASUS, Expense
Optimization-ASUS, SOX Deficiencies-RU, SOX Deficiencies-ASUS, Economic
Value-ASUS, Field Office Overhead Rate-ASUS, Safety-Recordable Work
Incidents-RU,  Satisfaction of Customers-Small Business Utilization (SBU)-ASUS
and Supplier Diversity-RU.

 

“CAB” means the CPUC Consumer Affairs Branch.

 

“Capital Expenditures - RU” means the dollar amount of capital expenditures for
2017 for the Regulated Utilities.

 

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“Construction Revenues — ASUS” — means the total revenues from the construction
segment of ASUS during 2017 for the military bases served by subsidiaries of
ASUS.

 

“Committee” means the Compensation Committee of the Board of Directors.

 

“CPUC” means the California Public Utilities Commission.

 

“Customer Complaint Standards - RU” means the number of complaints on all
matters on GSWC received by CAB in 2017 divided by the average number of
customers served by GSWC during 2017.

 

“Customer Complaints - RU” means the number of water quality, pressure, and leak
complaints received from water customers by GSWC divided by the average number
of water customers served by GSWC during 2017.

 

“Direct Construction Margin — ASUS” means a percentage determined by dividing
total construction revenues less ASUS construction costs (reported as expenses
in the Company’s Form 10-K for 2017 filed with the Securities and Exchange
Commission) adjusted to exclude construction revenues derived from (i) the Field
Office Overhead Rate — ASUS and (ii) retroactive adjustment due to settlement of
pending filings with the government by total construction revenues reduced for
these two adjustments.

 

“Discretionary Bonus” means a bonus payable to a Participant based on that
Participant’s Individual Performance Measures.

 

“Economic Value - ASUS” means the percentage increase in combined recorded
operations and maintenance revenue and actual billed renewal and replacement
fees for ASUS, other than for Eglin Air Force Base, over the Budgeted amount due
to price redeterminations, economic price adjustments and asset transfers.

 

“EPS” means fully diluted earnings per share as reported in the Corporation’s
consolidated financial statements for 2017.

 

“Expense Optimization — ASUS” means the sum of operations and maintenance and
administrative and general expenses for ASUS in 2017 excluding expenses
associated with the transfer of oil-water separators at Terrapin Utility
Services, Inc. and general office expenses allocated to ASUS by GSWC based on
the percentage of such expenses authorized by the CPUC to be allocated to ASUS.

 

“Field Office Overhead Rate — ASUS” means negotiated rate for field offices for
each of the subsidiaries of ASUS as of December 31, 2016, other than Fort Bliss
Water Services Company and Emerald Coast Utility Services, Inc. for renewal and
replacement projects.

 

“GSWC” means Golden State Water Company, a California corporation and wholly
owned subsidiary of the Corporation.

 

“Individual Performance Measures” means the criteria or goals utilized to
determine the amounts of each Participant’s Discretionary Bonus.

 

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“Objective Bonus” means a bonus based on the degree of achievement of the
Performance Targets for the Business Criteria and the Additional Objective
Criteria.

 

“Operating Budget” means the Company’s operating budget for 2017 as presented to
the Board of Directors at its January 31, 2017 meeting.

 

“Payout Percentage” means the percentage of a Participant’s Target Aggregate
Bonus that is payable based on the degree of satisfaction of a Performance
Target or the Individual Performance Measures.

 

“Performance Measures” means the Business Criteria, the Additional Objective
Criteria and Individual Performance Measures.

 

“Performance Target” means a specific goal established by the Committee with
respect to the Business Criteria or the Additional Objective Criteria as set
forth in Section 6.

 

“Regulated Utilities” means GSWC and any other utility acquired by the
Corporation which is designated a “regulated utility” by the Committee.

 

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

 

“Satisfaction of Customers - Small Business Utilization (SBU) - ASUS” means the
percentage of total contract awards during 2017 by subsidiaries of ASUS with
qualified small business vendors for the purpose of meeting the requirements of
the U.S. government’s small business utilization program divided by the total
expenditures incurred with all vendors. Qualified vendors are 1) Service
Disabled Veteran-owned, Small Business, 2) Veteran-owned Small Business, 3)
Historically Underutilized Business Zones, 4) Women-owned small business, 5)
Small Disadvantaged Business and 6) Small Business.

 

“SOX” means the Sarbanes-Oxley Act of 2002.

 

“SOX Deficiencies - ASUS” means the number of “control deficiencies” (each a
“CD”), “significant deficiencies” (each an “SD”) and “material weaknesses” (each
a “MW”) reported for ASUS in the independent auditor’s report for 2017 pursuant
to Section 404 of SOX.

 

“SOX Deficiencies - RU” means the number of CDs, SDs and MWs reported for the
Regulated Utilities in the independent auditor’s report for 2017 pursuant to
Section 404 of SOX.

 

“Supplier Diversity - RU” means the percentage reported by GSWC to the CPUC
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 CPUC qualified women-owned, minority-owned, disabled veteran-owned,
and lesbian, gay, bisexual and transgender-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).

 

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“Target Aggregate Bonus” means the amount of bonus that would be payable if each
of the Performance Targets were met at the targeted level and the Participant’s
Individual Performance Measures were met at the targeted level.

 

5.                                      Participation and Individual Awards

 

The individuals who have been selected as Participants in the 2017 STIP are set
forth below together with the amount of their Target Aggregate Bonuses as a
percentage of Base Salary:

 

 

 

Participant

 

Target
Aggregate Bonus

 

 

GSWC Officers

 

 

Administrative and General

 

Robert J. Sprowls

 

70.0%

 

Eva G. Tang

 

30.5%

 

Gladys M. Farrow

 

25.0%

Operations

 

Denise L. Kruger

 

30.5%

 

Paul J. Rowley

 

25.0%

 

Patrick R. Scanlon

 

25.0%

 

William C. Gedney

 

25.0%

 

Bryan K. Switzer (Keith)

 

25.0%

 

 

ASUS Officers

 

 

 

 

James C. Cotton III

 

50.0%

 

Granville R. Hodges, Jr. (Rusty)

 

25.0%

 

James B. Gallagher

 

25.0%

 

For purposes of this 2017 STIP, the GSWC officers will be divided into
(1) Administrative and General Officers and (2) Operations Officers.

 

The Corporation will enter into an Award Agreement with each Participant that
(a) describes his or her Individual Performance Measures and sets forth his or
her Target Aggregate Bonus, (b) sets forth his or her threshold, target and
maximum Performance Targets and (c) incorporates the terms and conditions of the
Plan and this 2017 STIP by reference.  The Target Aggregate Bonus amount set
forth above shall represent the aggregate amount of up to three separate
bonuses: an Objective Bonus under the Plan, an Objective Bonus based solely on
satisfaction of the Additional Objective Criteria and a Discretionary Bonus.

 

6.                                      Performance Targets for Objective
Bonuses

 

The threshold, target and maximum Performance Targets for the 2017 STIP are set
forth in Exhibit A to this 2017 STIP.

 

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7.                                      Determination of Participants’ Aggregate
Bonuses

 

The Aggregate Bonus payable to each Participant shall be determined on the basis
of the extent to which the Performance Targets for the Business Criteria, the
Additional Objective Criteria and that Participant’s Individual Performance
Measures are achieved.  The amount of Aggregate Bonus payable is equal to the
amount of the Target Aggregate Bonus multiplied by the sum of the Payout
Percentages for each of the Performance Measures as determined pursuant to the
tables in (a) Section B of Exhibit A for Participants that are Administrative
and General Officers employed by GSWC, (b) Section C for Participants that are
Operations Officers employed by GSWC and (c) Section D for Participants employed
by ASUS.

 

As soon as practicable following the end of the Term of the 2017 STIP and the
completion of the independent auditor’s report for 2017, the Committee shall
determine the extent to which the Performance Targets for the Business Criteria
and the Additional Objective Criteria are achieved and the extent to which the
Individual Performance Measures are achieved, and determine the Payout
Percentage for each of the Performance Measures.  In order for a Participant to
receive any payment with respect to the Participant’s Discretionary Bonus, the
Participant must meet the standards established for the Participant’s position,
which standards shall be one of the components of the Participant’s Individual
Performance Measures.  The determination of whether the standards established
for the Participant’s position are achieved shall be made by the Committee,
which (other than for the Company’s President and Chief Executive Officer)
determination shall be based on the recommendations of the President and Chief
Executive Officer or another direct supervisor of the Participant.

 

For levels of achievement between threshold and maximum, the Committee shall
determine the Payout Percentage by interpolation.  Subject to Section 8 below,
the Aggregate Bonus for each Participant shall be the sum of the Payout
Percentages determined with respect to each Performance Measure multiplied by
the amount of Participant’s Target Aggregate Bonus.

 

8.                                      Payment of Accounts

 

At the time the Committee makes the determinations described in Section 7, it
shall certify, in accordance with Section 4.8 of the Plan, the amounts of the
Objective Bonuses payable to Participants.  The Committee shall, at the same
time, determine the amount of the Discretionary Bonus payable to Participants. 
Payment of such bonuses (the Aggregate Bonuses) shall be made as soon as
practicable following the Committee’s determination and certification, but in no
event later than December 31, 2018.

 

Notwithstanding the foregoing, any Objective Bonus otherwise payable to any
Participant under this 2017 STIP shall be subject to the adjustments,
limitations (including the dollar limitation under Section 4.3 of the Plan), the
Committee’s discretionary authority to make downward adjustments and other terms
and conditions set forth in the Plan.  Any Discretionary Bonus otherwise payable
under this 2017 STIP shall be subject to any adjustments, limitations, upward or
downward adjustments in amounts and any other terms or conditions that the
Committee may impose in its sole discretion.

 

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9.                                      Effect of Termination of Employment

 

Except as otherwise provided in an employment agreement, memorandum of
understanding, other contract between a Participant and the Corporation or one
of its Subsidiaries, or by the Committee in its sole discretion, the bonuses
payable under a Participant’s Award will be forfeited, and the Participant will
not be entitled to any bonus payments with respect to such Award if the
Participant ceases to be employed by the Corporation or one of its Subsidiaries
for any reason prior to the date the bonus payments under the 2017 STIP are paid
to Participants.

 

10.                               Recoupment of Bonuses

 

Any payment of an Objective Bonus, Discretionary Bonus or Aggregate Bonus under
this 2017 STIP is subject to recoupment pursuant to the Corporation’s Policy
Regarding the Recoupment of Certain Performance-Based Compensation Payments as
in effect from time to time, or as otherwise may be required by law and a
Participant shall promptly make any reimbursement requested by the Board of
Directors or the Committee pursuant to such policy with respect to any such
bonuses.  Further, each Participant shall agree, by accepting an Award under the
2017 STIP and executing an Award Agreement, that the Corporation and/or any of
its affiliates may deduct from any amounts it may owe the Participant from time
to time (such as wages or other compensation) any and all amounts the
Participant is required to reimburse the Corporation pursuant to such policy
with respect to the Award.

 

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EXHIBIT A

 

2017 STIP

PERFORMANCE TARGETS AND PAYOUT PERCENTAGES

 

A.            PERFORMANCE TARGETS FOR OBJECTIVE BONUSES

 

Performance

 

Performance Targets

Measure

 

Threshold

 

Target

 

Maximum

Adjusted EPS - AWR Consolidated

 

80% Budget

 

100% Budget

 

120% Budget

Adjusted EPS - Regulated Utilities (RU)

 

80% Budget

 

100% Budget

 

120% Budget

Adjusted EPS - ASUS

 

80% Budget

 

100% Budget

 

130% Budget

Customer Complaints - RU

 

< 0.23%

 

< 0.195%

 

< 0.16%

Customer Complaint Standards - RU

 

Rate of Complaints to the CAB < 0.035%

 

Rate of Complaints to the CAB < 0.025%

 

Rate of Complaints to the CAB < 0.02%

Capital Expenditures - RU

 

> $96.5 million

 

> $110 million

 

> $120 million

Supplier Diversity - RU

 

> 21.5%

 

> 24.5%

 

> 27.5%

Safety - Recordable Work Incidents - RU

 

23

 

17

 

13

SOX Deficiencies - RU

 

No MW, No SD & No more than 4 CDs

 

No MW, No SD & No more than 2 CDs

 

No MW, No SD & No CD

SOX Deficiencies - ASUS

 

No MW, No SD & No more than 1 CD

 

No MW, No SD & No CD

 

N/A

Economic Value - ASUS

 

1% above Budget

 

3% above Budget

 

5% above Budget

Construction Revenues - ASUS

 

90% of Budget

 

100% of Budget

 

110% of Budget

Satisfaction of Customers - Small Business Utilization (SBU) - ASUS

 

N/A

 

> 85%

 

N/A

Expense Optimization - ASUS

 

99% of Budget

 

98% of Budget

 

97% of Budget

Field Office Overhead Rate - ASUS

 

N/A

 

5 Contracts

 

N/A

Direct Construction Margin - ASUS

 

> Budget less 100 basis points

 

At Budget

 

> Budget plus 100 basis points

 

A-1

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B.            PAYOUT PERCENTAGES FOR PERFORMANCE MEASURES - GSWC ADMINISTRATIVE
AND GENERAL OFFICERS

 

Performance

 

Payout Percentage

 

Measure

 

Threshold

 

Target

 

Maximum

 

Adjusted EPS - AWR Consolidated

 

10.0

%

20.0

%

35.0

%

Adjusted EPS - Regulated Utilities (RU)

 

11.5

%

20.0

%

29.0

%

Adjusted EPS - ASUS

 

5.0

%

10.0

%

20.0

%

Customer Complaints - RU

 

1.5

%

5.0

%

7.0

%

Customer Complaint Standards - RU

 

1.5

%

5.0

%

7.0

%

Capital Expenditures - RU

 

4.0

%

10.0

%

15.0

%

SOX Deficiencies - RU

 

2.0

%

5.0

%

7.0

%

SOX Deficiencies - ASUS

 

2.0

%

5.0

%

N/A

 

Objective Bonus Total

 

37.5

%

80.0

%

120.0

%

Individual Performance Measure (Discretionary Bonus)

 

12.5

%

20.0

%

35.0

%

Aggregate Bonus

 

50.0

%

100.0

%

155.0

%

 

A-2

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C.            PAYOUT PERCENTAGES FOR PERFORMANCE MEASURES - GSWC OPERATIONS
OFFICERS

 

Performance

 

Payout Percentage

 

Measure

 

Threshold

 

Target

 

Maximum

 

Adjusted EPS - Regulated Utilities (RU)

 

20.0

%

40.0

%

60.0

%

Customer Complaints - RU

 

2.0

%

5.0

%

7.0

%

Customer Complaint Standards - RU

 

2.0

%

5.0

%

7.0

%

Capital Expenditures - RU

 

7.5

%

15.0

%

20.0

%

Supplier Diversity - RU

 

2.0

%

5.0

%

7.0

%

Safety - Recordable Work Incidents - RU

 

2.0

%

5.0

%

7.0

%

SOX Deficiencies - RU

 

2.0

%

5.0

%

7.0

%

Objective Bonus Total

 

37.5

%

80.0

%

115.0

%

Individual Performance Measure (Discretionary Bonus)

 

12.5

%

20.0

%

35.0

%

Aggregate Bonus

 

50.0

%

100.0

%

150.0

%

 

A-3

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D.            PAYOUT PERCENTAGES FOR PERFORMANCE MEASURES - ASUS

 

Performance

 

Payout Percentage

 

Measure

 

Threshold

 

Target

 

Maximum

 

Adjusted EPS - ASUS

 

15.0

%

40.0

%

70.0

%

Economic Value - ASUS

 

5.0

%

7.0

%

17.5

%

Construction Revenues - ASUS

 

5.0

%

7.0

%

17.5

%

Satisfaction of Customers (SBU) - ASUS

 

N/A

 

4.0

%

N/A

 

Expense Optimization - ASUS

 

5.0

%

7.5

%

15.0

%

Field Office Overhead Rate - ASUS

 

N/A

 

3.0

%

N/A

 

Direct Construction Margin

 

5.0

%

7.5

%

15.0

%

SOX Deficiencies - ASUS

 

2.5

%

4.0

%

N/A

 

Objective Bonus Total

 

37.5

%

80.0

%

135.0

%

Individual Performance Measure (Discretionary Bonus)

 

12.5

%

20.0

%

35.0

%

Aggregate Bonus

 

50.0

%

100.0

%

170.0

%

 

A-4

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