EX-10.56



 Exhibit 10.56 
 AQUA AMERICA, INC. 
 and SUBSIDIARIES 

ANNUAL CASH INCENTIVE COMPENSATION PLAN 
 (Adopted February 26, 2013) 
 BACKGROUND 

In 1989, the Company and its compensation consultant conducted a feasibility study to determine whether the Company should implement an
incentive compensation plan. The study was prompted by the positive experience of other investor-owned water companies with incentive compensation. 
 The study included interviews with executives and an analysis of competitive compensation levels. Based on the results, the compensation consultant recommended that the Company’s objectives and
competitive practice supported the adoption of an annual incentive plan (the “Plan”). The Company has had a cash incentive compensation plan in place since 1990 and management and the Board of Directors believe it has had a positive effect
on the Company’s operations, aiding employees, shareholders (higher earnings) and customers (better service and controlling expenses). 
 The Plan has two components — a Management Incentive Program and an Employee Recognition (“Chairman’s Award”) Program. 

The Plan is designed to provide an appropriate incentive to the officers, managers and certain other key employees of the Company. The
Management Incentive Program covers officers, managers and certain key employees of Aqua America, Inc., and its subsidiaries. 

Individual subsidiaries of the Company may adopt separate annual cash incentive plans with the approval of the subsidiary’s Board of
Directors. 
 All incentive awards under the Plan shall be paid by March 15 of the calendar year following the calendar year
in which such awards are earned. 
 MANAGEMENT INCENTIVE PROGRAM 

Performance Measures 
 Annual incentive bonus awards are calculated by multiplying an individual’s Target Bonus by a Company Factor based on the applicable company’s performance and an Individual Factor based on the
individual employee’s performance. 







 The approach of having a portion of the calculation of the annual incentive bonus tied to
the applicable company’s financial performance is appropriate as the participants’ assume some of the same risks and rewards as the shareholders who are investing in the company and making its capital construction and acquisition programs
possible. Customers also benefit from the participants’. individual objectives being met, as improvements in performance are accomplished by controlling costs, improving efficiencies and enhancing customer service. For these reasons, future
rate relief should be lessened and less frequent, which directly benefits all customers. 
 The after-tax net income or earnings
before interest, taxes and depreciation (“EBITD”) for the applicable company or business unit relative to its annual budget will be the primary measure for the company’s performance. The measurement to be used as the Company Factor
(financial factor, thresholds and weighting by applicable business unit) for each participant will be established by the Executive Compensation Committee for those participants whose annual incentive compensation is determined by the Committee and
by the Chairman of the Company for all other participants. Each year a “Target Net Income” or “Target EBITD” level will be established for the applicable company or business unit. Portions of the Company Factor may be tied to the
financial targets of more than one company or business unit for some participants whose responsibilities involve more than one company or business unit. For purposes of the Plan, the Target Net Income or EBITD may differ from the budgeted net income
or EBITD level. The applicable company’s or business unit’s final net income or EBITD may exclude the impact of any unbudgeted extraordinary gains or losses as a result of changes in accounting principles and the financial results may be
adjusted for other factors as deemed appropriate by the Executive Compensation Committee for those participants whose annual incentive compensation is determined by the Committee, and by the Chairman of the Company for the other participants.

 The threshold level of performance is set at 75 percent of the Target Net Income or Target EBITD. If the final net income or
EBITD for the applicable company or business unit for the year is less than 75 percent of the Target Net Income or Target EBITD, the Company Factor for that company or business unit will be set at 0%. No additional bonus will be earned for results
exceeding 110 percent of the Target Net Income or EBITD. 
 Each individual’s performance and achievement of his or her
objectives will also be evaluated and factored into the bonus calculation (the “Individual Factor”). Performance objectives for each participant are established each year and are primarily directed toward customer growth, improving
customer service, controlling costs and improving efficiencies and productivity. Each objective has specific performance measures that are used to determine the level of achievement for each objective. A participant’s target Individual Factor
should be no more than 90 points, with the possibility of additional points up to 110 points being awarded for measurable performance above the participant’s targeted performance level. Participants must achieve at least 70 points for their
Individual Factor to be eligible for a bonus award under the Plan. The Executive Compensation Committee may establish a different method of calculating the Individual Factor for the Chief Executive Officer, although the minimum points to be eligible
and the maximum points that can be awarded will be the same as for other participants. 







 Participation 
 Eligible participants consist of officers, managers and certain key employees. 

Participation in the Management Incentive Program will be determined each year. Each participant will be assigned a “Target Bonus
Percentage” ranging from 5 to 75 percent depending on duties and responsibilities. The Executive Compensation Committee will approve the Target Bonus Percentage for the CEO and the senior officers designated by the Committee each year.

 The Target Bonus Percentage for each participant will be applied to their base salary. 

Actual bonuses may range from 0, if the company’s financial results fall below the minimum threshold or the participant does not make
sufficient progress toward achieving his or her objectives (i.e. performance measure points totaling less than 70 points), to 187.5 percent if performance — both Company and individual — is rated at the maximum. 

New employees who are hired into a position that is eligible to participate in the Management Incentive Plan, will normally be eligible to
receive a portion of the bonus calculated in accordance with this Plan that is pro-rated based on the number of full calendar months between the new employee’s hire date and the end of the calendar year. 

Employees who would otherwise be eligible to participate in this Management Incentive Plan, but who leave employment with the company,
either voluntarily (other than for retirement), or involuntarily, prior to the end of the Company’s fiscal year will not receive a bonus for the year in which their employment terminates. 

If an employee who would otherwise be eligible to participate in this Management Incentive Plan dies, the company will pay the deceased
employee’s estate a portion of the bonus the deceased employee would otherwise have been entitled to assuming a 100% Company Factor and 100% Individual Factor, but pro-rated for the number of full calendar months the employee completed before
his or her death. 







 If an employee who would otherwise be eligible to participate in this Management Incentive
Plan retires from the Company within the first ten (10) months of the Company’s fiscal year, the employee will receive payment of the bonus calculated under the terms of this Plan that the employee would otherwise have been entitled to
assuming a 100% Company Factor and 100% Individual Factor, but pro-rated for the number of full calendar months the employee completed before his or her retirement. If an employee who would otherwise be eligible to participate in this Management
Incentive Plan retires from the Company after completion of the first ten (10) months of the Company’s fiscal year, the employee will receive payment of the bonus calculated under the terms of this Plan, but pro-rated for the number of
full calendar months the employee completed before his or her retirement. 
 Compliance 

The Management Incentive Program is intended to comply with the short-term deferral rule set forth in the regulations under section 409A
of the Code, in order to avoid application of section 409A to the Management Incentive Program. If and to the extent that any payment under this Management Incentive Program is deemed to be deferred compensation subject to the requirements of
section 409A, this Management Incentive Program shall be administered so that such payments are made in accordance with the requirements of section 409A. 
 Incentive Award Recoupment Policy 
 In the event of a significant
restatement of our financial results caused by fraud or willful misconduct, the Company reserves the right to review the incentive compensation received by the participant with respect to the period to which the restatement relates, recalculate the
Company’s results for the period to which the restatement relates and seek reimbursement of that portion of the incentive compensation that was based on the misstated financial results from the participant whose fraud or willful misconduct was
the cause of the restatement. 
 Further, any Incentive Award Recoupment Policy as may be adopted from time to time by the
Company’s Board of Directors will apply to the incentive compensation awarded under this Plan to any of the individuals covered by such Policy. 

 







 Company Factor 
 Company performance will be measured on the following schedule: 
  

									
	 	  	Percent of
Target	 	 	Company
Factor	 
	 Threshold
	  	 	<75	% 	 	 	0	% 
		  	 	75	  	 	 	35	  
		  	 	80	  	 	 	40	  
		  	 	85	  	 	 	45	  
		  	 	90	  	 	 	60	  
		  	 	95	  	 	 	80	  
	 Plan
	  	 	100	  	 	 	100	  
		  	 	105	  	 	 	110	  
		  	 	>110	  	 	 	125	  

 The actual Company Factor should be calculated by interpolation between the points shown in the table
above. 
 Regardless of the Company rating resulting from this Schedule, the Executive Compensation Committee retains the
authority to determine the final Company Factor for participants whose annual incentive compensation is determined by the Committee and by the Chairman of the Company for the other participants under the Plan. 

Individual Factor 
 Individual performance will be measured on the following scale: 
  

					
	 Performance Measure Points
	  	Individual
Factor	 
	 0 - 69
	  	 	0	% 
	   70
	  	 	70	% 
	   80
	  	 	80	% 
	   90
	  	 	90	% 
	   100
	  	 	100	% 
	   110
	  	 	110	% 

 In addition, up to 40 additional points and additional percentage points may be awarded to a participant
at the discretion of the Chairman for exemplary performance, subject to approval by the Executive Compensation Committee for those participants whose annual incentive compensation is determined by the Committee. Individual performance points for the
Chief Executive Officer are determined by the Executive Compensation Committee. 







 Sample Calculations 
 Example 1 
  

					
	 Salary or
	  	 	$70,000	  
	 Target Bonus
	  	 	10 percent ($7,000)	  
	 Company Factor
	  	 	100 percent	  
	 Individual Factor
	  	 	90 percent	  

 Calculation: 
  

													
	 Target Bonus
	 	x	 	 Individual

Factor
	 	x	 	 Company Factor
	 	=	 	 Individual

Bonus Earned

	 $7,000
	 	x	 	100%	 	x	 	90%	 	=	 	$6,300
		 		 		 		 		 		 	  


 Example 2 
  

					
	 Salary or
	  	 	$70,000	  
	 Target Bonus
	  	 	10 percent ($7,000)	  
	 Company Factor
	  	 	70 percent	  
	 Individual Factor
	  	 	90 percent	  

 Calculation: 
  

													
	 Target Bonus
	 	x	 	 Individual

Factor
	 	x	 	 Company

Factor
	 	=	 	 Individual

Bonus Earned

	 $7,000
	 	x	 	90%	 	x	 	70%	 	=	 	$4,410
		 		 		 		 		 		 	  


 Example 3 
 If the Individual Factor is rated below 70 points, no bonus would be earned regardless of the Company Factor. 
 Calculation: 
  

													
	 Individual

Target Bonus
	 	x	 	 Company

Factor
	 	x	 	 Individual

Factor
	 	=	 	 Bonus Earned

	 $7,000
	 	x	 	100%	 	x	 	0	 	=	 	$0








 Example 4 
 If the Company Factor is allocated between two companies, the bonus will be calculated separately based on the allocation. 
 Calculation: 
  

																	
	 Target Bonus
	  	x	  	 Company

Factor
	  	x	  	 Company

Allocation
	  	x	  	 Individual

Factor
	  	=	  	Bonus Earned
	 $7,000
	  	x	  	100%	  	x	  	20%	  	x	  	90%	  	=	  	$1,260
	 $7,000
	  	x	  	110%	  	x	  	80%	  	x	  	90%	  	=	  	$5,544
		  		  		  		  		  		  		  		  	  

	Total Bonus	  		  		  		  	=	  	$6,804








 EMPLOYEE RECOGNITION (“CHAIRMAN’S AWARD”) PROGRAM 

 

	1.	In addition to the Management Incentive Program, the Company maintains an Employee Recognition Program known as the Chairman’s Award program to reward non-union
employees who are not eligible for the management bonus plan for superior performance that contains costs, improves efficiency and productivity of the workforce and better serves our customers. Awards may also be made for a special action or heroic
deed, or for a project that positively impacts the performance or image of the Company. Awards are entirely discretionary and may or may not be awarded to any individual employee. The availability of Awards is also contingent upon the Company’s
meeting certain metrics of successful performance. 

  

	2.	Awards may be made from an annual pool designated by the Chairman of Aqua America with the approval of the Executive Compensation Committee. Unused funds will not be
carried over to the next year. If financial performance warrants, management may request special Awards under the program. The individual Award calculation and the distribution of Chairman’s Awards to non-management employees are solely at the
discretion of the officer to whom the employee reports and the Chairman of Aqua America. No Chairman’s Award(s) granted to non-management employees in prior years should be construed as a guaranty of future awards. 


 

	3.	In general, the company or business unit must achieve at least 90% of its EBITD or net income objective for the year to be eligible for the full amount of the pool
created for Chairman’s Awards for that company or business unit for the year. Chairman’s Awards will not be made to employees of a company or business unit that does not achieve at least 75% of its EBITD or net income objective for the
year, however, the Chairman may approve a pool of up to 50% of the annual pool that would otherwise be available for that company or business unit for awards to the eligible employees of that company or business unit if the company or business unit
achieves between 75% and 89.9% of its EBITD or net income target. 

  

	4.	Awards may be made throughout the year, however, no more than one-third of a company’s Chairman’s Award pool may be awarded until the company’s final
EBITD or net income for the year is determined. 

  

	5.	Nominations for employees to receive Chairman’s Awards will be made to the applicable officer and should include documentation on the reasons for the
recommendations. The applicable officer will review the nominations and forward their recommendations to the Chairman of Aqua America. The applicable officer has complete discretion to choose to recommend an Award or not, depending on factors and
considerations deemed by the officer as relevant. Moreover, the Chairman may exercise his own discretion to determine if any individual employee will receive an Award. 


 

	6.	The Chairman will determine the individuals to actually receive a bonus and the amount. The maximum award to any one employee is $10,000. 









	7.	An employee must be actively employed by the Company at the end of the fiscal year in order to be eligible to be considered to receive a Chairman’s Award, unless
the award is made to the eligible employee during the year. 

  

	8.	All Chairman’s Awards under the Employee Recognition Program shall be paid by March 15 of the calendar year following the calendar year in which such awards
are earned. 

  

	9.	The Employee Recognition Program is intended to comply with the short-term deferral rule set forth in the regulations under section 409A of the Code, in order to avoid
application of section 409A to the Plan. If and to the extent that any payment under this Employee Recognition Program is deemed to be deferred compensation subject to the requirements of section 409A, this Employee Recognition Program shall be
administered so that such payments are made in accordance with the requirements of section 409A.