Document:

2011 Annual Incentive Plan Highlights Brochure

 Exhibit 10.1 

 
  
 2011 
 Annual 

Incentive 

Plan 
  

 

 Table of Contents 
  

					
	 THE 2011 AMERICAN WATER ANNUAL INCENTIVE PLAN
	  	 	1	  
		
	 Your Performance — Your Award
	  	 	1	  
		
	 Eligibility
	  	 	2	  
		
	 DETERMINING AIP AWARDS
	  	 	4	  
		
	Step 1: Establish initial award pool based on overall corporate performance	  	 	4	  
		
	Step 2: Allocate overall corporate funding to organizational groups/functional areas, and adjust specific organizational group/functional area funding to reflect results	  	 	6	  
		
	Step 3: Determine individual AIP award based on (a) individual performance, and (b) available organizational group/functional area funding; awards are paid from available
organizational group/functional area award pool	  	 	7	  
		
	 WHAT THE 2011 AIP MEANS FOR YOU
	  	 	8	  
		
	 Performance Ratings
	  	 	8	  
		
	 Award Payout Examples
	  	 	9	  
		
	 Receiving Your AIP Award
	  	 	11	  
		
	 FREQUENTLY ASKED QUESTIONS
	  	 	12	  

			
	American Water	 	
 1

  

 

 THE 2011 AMERICAN WATER ANNUAL INCENTIVE PLAN 

Your Performance — Your Award 
 At
American Water, your performance counts. We rely on our employees’ knowledge and skills to help the Company achieve its business objectives. 
 The American Water 2011 Annual Incentive Plan (AIP) is designed to give eligible exempt employees an annual opportunity to earn a cash award that recognizes and rewards their contributions to the
Company’s success. We continue to make adjustments to the AIP design to reinforce the link between Company and individual performance and award payouts. This means that Company and individual performance are both taken into account to determine
cash awards under the plan. Keeping up our momentum in 2011: 
  

	•	 	 We are continuing the funding approach that was used in 2010, which directly ties the amount of available cash for AIP payouts to Company performance
against specific metrics. AIP funding for all eligible, exempt employees will depend on the Company’s achieving its financial and non-financial goals. 

 

	•	 	 Your individual performance continues to play a large role in determining the amount of your payout. Employees who exceed their performance
targets could receive higher payouts. Conversely, employees who under-perform and do not meet their performance targets could receive lower payouts or no payout at all. In short, your performance directly impacts the amount of your award.

 The 2011 AIP is designed to challenge and motivate you to perform at your highest level, and promote the creation of value
to the customer and shareholder. Read this brochure to learn about how the 2011 plan works and what it means for you. 

			
	American Water	 	
 2

  

 

 The 2011 AIP 

Elements of the Program 

 

	•	 	 AIP award pool funding is based on overall corporate performance against specific financial and non-financial goals (represented by the Corporate
Multiplier), then allocated across organizational groups/functional areas—at senior management’s discretion—depending on organizational group/functional area results. 

 

	 	•	 	 AIP funding for all eligible exempt employees depends on the Company achieving its financial as well as non-financial goals.

  

	 	•	 	 A pre-determined financial threshold for Company performance must be met in order for funding and any award to be provided under the AIP.

  

	•	 	 Individual award payouts will be based on individual performance against specific goals (represented by the Individual Performance Factor) and paid
from available organizational group/functional area funding. 

  

	•	 	 For 2011, the Individual Performance Factor range is 0%-20Q%. Individual payouts will be capped at 200% of AIP target award.

	•	 	 Award opportunity (Target Award) is expressed as a percentage of base salary. (See Attachment B). 

 

	 	•	 	 Actual payout may be lower or higher than target depending on Company and individual performance against specific goals. 

 

	•	 	 Individual performance is assessed by your manager and measured against your pre-determined performance goals. 

 

	•	 	 Your AIP will be distributed as a cash award in March. 

 

	 	•	 	 You must be actively employed with American Water on the date awards are made to receive your 2011 AIP payout. You (or your beneficiary) may be
eligible for a prorata award if you are disabled, retire, die, involuntarily terminate (not “for cause”) or a divestiture occurred after June 30, 2011. Involuntary termination for cause would not be eligible.

  

	•	 	 The American Water Board or its Designee has the right to adjust the award determination(s) and/or award payouts(s) at its discretion.

 

  
 Eligibility 

 

	•	 	 You are eligible for an AIP award opportunity if you are a regular, full-time exempt employee of American Water. 

 

	 	•	 	 Regular, full-time exempt employees who join American Water on or before September 30, 2011 are also eligible to participate in the AIP on a
prorated basis. 

  

	 	•	 	 Employees transferred from nonexempt to exempt status on or after September 30th are not eligible in the current plan year. 

 

	•	 	 You must be an active employee with American Water on the date the payout is made in order to receive the award. You (or your beneficiary) may be
eligible for a prorata award if you are disabled, retire, die, involuntarily terminate (not “for 

			
	American Water	 	
 3

  

 

	 	 
cause”) or a divestiture occurred after June 30, 2011. Involuntary termination for cause would not be eligible. 

 

	•	 	 If you are promoted during the plan year to a position with a higher AIP target level, or if you are reclassified/transferred to a position with a
lower AIP target level, your award payout will be based on your new target level as of December 12, 2011, except ML4s and above who will be prorated at each salary and target level. 

 

	•	 	 If you transfer from exempt status to nonexempt status during the current plan year or your job was reclassified to nonexempt status, you are not
eligible for a 2011 AIP award. 

  

	•	 	 If your performance rating is “Unacceptable” or “Too Soon to Rate,” you will not receive a payout. If you have not complied with
the company’s annual Code of Ethics certification, you will not receive an incentive payment. 

 Why Is the Plan Based
on Individual Performance? 
 Since the value (as reflected in our share price and our return to shareholders) and success of our business
depend on the achievement of annual Company and individual performance goals, American Water recognizes the need to differentiate and reward the performance of employees who enable us to reach these goals. The 2011 AIP is designed to ensure that
award payouts are directly tied to measurable contributions — both Company and individual — to American Water’s success. 

			
	American Water	 	
 4

  

 

 DETERMINING AIP AWARDS 
 AIP award payouts depend on individual performance; they also depend on overall corporate performance and organizational group/functional area results (which determine award pool funding).

 AIP awards will be determined according to the following three-step process: 

 

			
	Step 1:	  	Establish initial award pool based on overall corporate performance
		
	Step 2:	  	Allocate overall corporate funding to organizational groups/functional areas, and adjust specific organizational group/functional area funding to reflect
results
		
	Step 3:	  	Determine AIP award based on individual performance; awards are paid from available organizational group/functional area funding

Step 1: Establish initial award pool based on overall corporate performance 

 

 Each year, American Water establishes funding for the AIP award pool. In 2011, the funding will be directly
tied to Company performance and represented by the Corporate Multiplier. The Corporate Multiplier can range from 0% to 150% depending on how well the Company performed against the financial and non-financial goals described below. Note that a
predetermined threshold for Company performance - 2011 Diluted Earnings Per Share (EPS) must be at least 90.6% of target - must be met in order for funding and any award to be provided under the AIP for Operating Cash Flow (20%) and
Non-Financial Performance Factors (30%). 2011 Diluted Earnings Per Share (EPS) must be at least 90.6% of target for any EPS funding (25%) and award to be provided under the AIP.

									
	 Based on financial (weighted 70%) and

non-financial (weighted 30%) goals

					
	 Sum of Total
 AIP Funding
 $XX,XXX
	 	x	  	 Forecasted Corporate Multiplier [X.XX%]

(0%-150%)
	 	=	  	Corporate Funding $XX,XXX

 

 

  

					
	Financial Performance (70% Weight)
			
	 Diluted Earnings
 Per Share (50%)
	 	+	  	 Operating Cash Flow (GAAP)
 20%

  

													
	Non-Finacial Performance (30% Weight)
							
	 safety
 (7.5%)
	  	+	 	Customer satisfaction Survey (7.5%)	  	+	 	Environment Compliance (7.5%)	  	+	 	Customer Service Quality
(7.5%)

 

			
	American Water	 	
 5

  

 

	 	•	 	 Financial Metrics (Weighted 70%) (See Attachment A) 

 

	 	•	 	 Diluted Earnings Per Share (50%) is a widely tracked measure of financial performance/profitability, and is calculated as follows:

 Net Income to Common Stockholders 
 ÷ 
 Average Outstanding Shares (including dilutive securities such as stock
options) 
 = 
 Diluted Earnings per Share 
  

	 	•	 	 Operating Cash Flow (GAAP) (20%) reflects the amount of cash generated from our operations and is used as an additional measure of
profitability. Operating cash flow is calculated as follows: 

 Net Income 

+ 

Depreciation and Amortization 
 - 
 Deferred Expenses 

+/- 
 Changes
in Payables and Receivables 
 = 
 Operating Cash Flow 
  

	 	•	 	 Non-Financial Metrics (Weighted 30%)* 

  

	 	•	 	 Environmental Compliance Notices of Violation (NOVs) (7.5%) 

 

	 	•	 	 Safety Performance (7.5%) 

  

	 	•	 	 Customer Satisfaction Survey (7.5%) 

  

	 	•	 	 Customer Service Quality Survey (7.5%) 

  

	 	*	These outcomes are based on a combination of surveys, end-of-year results, data and other annual reports (see Attachment A at the back of this brochure).

 Please note that AIP funding for all employees will depend on how well the Company achieves its financial
goals as well as non-financial goals. A predetermined financial threshold for Company performance must be met in order for funding and any award to be provided under the AIP. 

			
	American Water	 	
 6

  

 

 The financial and non-financial metrics are added together to determine the Corporate Multiplier. So,
even if certain metrics are not achieved, the funding may be reduced, but not eliminated altogether. However, if the Company’s financial performance does not meet the threshold, the Corporate Multiplier will be reduced to zero, which would
eliminate your award payout (as indicated in the examples on page 10). The Corporate Multiplier (and thus funding for payouts) may be adjusted to take into account “uncontrollable events” including — but not limited to — severe
weather conditions that significantly impact financial results (i.e., hurricanes), impairment charges, dissolution or acquisition of businesses or costs related to public offerings. 
 Step 2: Allocate overall corporate funding to organizational groups/ functional areas, and adjust specific organizational group/functional area funding to reflect results 

Once the overall corporate funding is determined as described under Step 1, senior management will allocate the Corporate funding to American Water’s
organizational groups and functional areas. The funding for each organizational group/functional area may be increased or decreased, at senior management’s discretion, to reflect specific organizational group/functional area results.

 

 

			
	American Water	 	
 7

  

 

 Step 3: Determine individual AIP award based on (a) individual performance, and
(b) available organizational group/functional area funding; awards are paid from available organizational group/functional area award pool 
 Your AIP target award (i.e., your award opportunity) is based on your job with the Company and is expressed as a percentage of your base salary. Your actual award payout may be higher or lower than target
depending on whether individual and Company performance goals have been met, and your organizational group’s/functional area’s results. Contact your manager for information on your individual AIP Target Award. 

Your individual performance factor is based on (a) your performance against specific targets, and 

(b) the amount of organizational group/functional area funding available 

 

													
	 $XX,XXX
 Individual AIP
 Target

(% of Base

Salary)
	 	  
 x
	 	 Individual
 Performance
 Factor

[x.xx%]

(0%-200%)
	 	  
 =
	 	 $XX,XXX
 Individual
	 	  

f
	 	 Award paid from
 available
 organizational

group/functional
 area award pool

 The sum of individual awards for a
specific organizational group/functional area must not exceed 
 the funding allocated to that organizational group/functional
area 
 The Individual Performance Factor represents how well you achieve your annual individual performance goals. Your Individual
Performance Factor (IPF) can range from 0% to 200%, depending on your performance for the plan year and the amount of organizational group/functional area funding available. This performance factor will then be multiplied by your Target Award to
determine your 2011 AIP award payout. Individual payouts will be capped at 200% of AIP target award. 
 Individual AIP awards are then paid from
the available organizational group/functional area award funding, which may impact the original (IPF%) determination. The sum of all individual awards within a given organizational group/functional area must not exceed its allocated pool of dollars.

			
	American Water	 	
 8

  

 

 WHAT THE 2011 AIP MEANS FOR YOU 
 Performance Ratings 
 Most people are motivated to do their best; therefore the better you
perform, the greater your potential award will be under the Plan. It is your responsibility to maximize your award opportunity by achieving or exceeding your goals. 
 Each year, you and your manager identify four to six high priority and challenging performance targets, which represent where you can directly impact the Company’s success. These performance targets
and their weightings should be specific, measurable and aligned with the Company’s performance targets. During your year-end performance review, you and your manager will discuss how well you performed against the established targets, and rate
your performance using one of the following performance ratings: 
  

			
	 2011 Performance Rating
Scale

	 Rating
	  	 Description

		
	Exceptional	  	Contributions are widely recognized as extraordinary. Results far exceed all defined expectations, producing important and substantial impact on the Company, Division, Operating
Company, Line of Business or Function.
		
	Significant	  	Contributions are widely recognized as distinguished. Results exceed all or most expectations, producing a tangible and material impact on the Company, Division, Operating
Company, Line of Business or Function.
		
	Commendable	  	Contributions are widely recognized as meaningful. Results meet, and in some cases exceed expectations, producing a positive and desirable impact on the Company, Division,
Operating Company, Line of Business or Function.
		
	Needs Improvement	  	Contributions are widely recognized as limited. Results generally meet but in some cases fall slightly short of expectations, producing inconsistent and marginal impact on the
Company, Division, Operating Company, Line of Business or Function.
		
	Unacceptable	  	Contributions are widely recognized as unsatisfactory. Results fall considerably short of expectations, producing negligible or no impact on the Company, Division, Operating
Company, Line of Business or Function.
		
	Too Soon to Rate	  	Contributions cannot be measured at this time because more time is needed to see a result.

			
	American Water	 	
 9

  

 

 Later, during the AIP process, your manager will use your rating to determine your Individual
Performance Factor. Depending on how you performed during the year, you could potentially earn a higher payout than in previous years — or you could earn a lower payout or no payout at all (as the examples on the following page demonstrate). In
other words, the AIP design gives you more power to impact the size of your award. It also means that you are more accountable for meeting your goals. 
 Award Payout Examples 
 Let’s calculate possible award payouts for a sample AIP
participant, under four possible scenarios: 
 AIP Participant Assumptions 

 

			
	Salary Level	  	L07
	Annual Base Salary	  	$90,000
	Individual AIP Target	  	$13,500 (15% of Base Salary)
	Total AIP Funding *	  	$20,000,000
	Total AIP Funding for Organizational Group*	  	$2,000,000
	
	 *  The total is the sum of the target awards for the eligible employees.

 

									
	  	  	Performance
	 	  	Scenario 1	  	Scenario 2	  	Scenario 3	  	Scenario 4
	• Company	  	Above Target	  	Target	  	Threshold	  	Below
Threshold
	 — Financial Performance Factor
	  	1.39	  	0.94	  	0.50	  	0.00
	 — Non-Financial Performance Factor
	  	0.77	  	1.12	  	0.50	  	0.00
					
	• Individual	  	Needs Improvement	  	Exceptional	  	Significant	  	Commendable
	 — Individual Performance Factor
	  	0.25	  	1.50	  	1.05	  	.90

			
	American Water	 	
 10

  

 

									
	 	  	Scenario 1	  	Scenario 2	  	Scenario 3	  	Scenario 4
	
	STEP 1: Establish corporate funding based on overall corporate performance
					
	Total of AIP Targets (A)	  	$20,000,000	  	$20,000,000	  	$20,000,000	  	$20,000,000
	Financial Performance Factor (i) (70% weight)	  	1.39 x 0.70 =
 0.97
	  	0.94 x 0.70 =
 0.66
	  	0.50 x 0.70 =
 0.35
	  	0.00 x 0.70 =

0.00

	Non-Financial Performance Factor (ii) (30% weight)	  	0.77 x 0.30 =
 0.23
	  	1.12 x 0.30 =
 0.34
	  	0.50 x 0.30 =
 0.15
	  	0.00 x 0.30 =

0.00

	i + ii = Corporate Multiplier (B)	  	1.20	  	1.00	  	0.50	  	0.00
	A x B = Corporate Funding	  	$20,000,000 x 1.20
 =
$24,000,000
	  	$20,000,000 x 1.00
 =
$20,000,000
	  	$20,000,000 x 0.50
 =
$10,000,000
	  	$20,000,000 x 0.00
 =
$0

	
	STEP 2: Allocate overall specific organizational corporate funding to organizational groups/functional areas; adjust group/functional area funding to reflect
results
					
	Organizational Group Pool (C) (Allocated from corporate funding)	  	$2,400,000	  	$2,000,000	  	$1,000,000	  	$0
	Organizational Group Adjustment (D)	  	1.00
 (Target)
	  	.80
 (Below Target)
	  	1.20
 (Above Target)
	  	1.00
 (Target)

	C x D = Organizational Group Pool (adjusted based on results)	  	$2,400,000 x1.00
 =
$2,400,000
	  	$2,000,000 x 0.80
 =
$1,600,000
	  	$1,000,000 x 1.20
 =
$1,200,000
	  	$0 x 1.00
 = $0

	
	STEP 3: Determine individual award based on individual performance and available organizational group/functional area funding; awards are paid from available
organizational group/functional area award pool
					
	Individual AIP Target (E)	  	$13,500	  	$13,500	  	$13,500	  	$13,500
	Individual Performance Factor (F) (Range of 0 - 1.50)	  	0.25
 (Needs

Improvement)
	  	1.50
 (Exceptional)
	  	1.05
 (Significant)
	  	.90
 (Commendable)

	ExF = Individual Award	  	13,500 x 0.25 =
$3,375 (25% of AIP
target)
	  	13,500 x 1.50 =
$20,250 (150% of
AIP
target)
	  	13,500 x 1.05 =
$14,175 (105% of
AIP
target)
	  	13,500 x .90 = 

$12,150

However, payout will be $0,
since award pool=$0

As you can see, both Company and individual performance can significantly impact your final payout. Also, remember that the sum of individual
awards for a specific organizational group/functional area must equal the funding allocated to that organizational group/functional area. 
 Note: The American Water Board or its Designee has the right to adjust the award determination(s) and/or award payouts(s) at its discretion. 

			
	American Water	 	
 11

  

 

 Please discuss the AIP with your manager to ensure you clearly understand how the formula works and how
your performance impacts your potential award payout. 
 Receiving Your AIP Award 

Awards will be paid in cash no later than March 15, 2012. If you are eligible for an award payout, please keep in mind that: 

 

	•	 	 The payout will be based on your annual base salary as of December 12, 2011 and subject to all federal, state and local income tax withholdings.

  

	•	 	 The American Water Board or its Designee has the right to adjust the award determination(s) and/or award payouts(s) at its discretion.

 Remember, it’s your performance — and your award: The contributions you make to American Water’s success
throughout the year ultimately impact the size of your payout. Be sure to carefully review this brochure; then speak with your manager about the AIP and about what you can do to improve your performance and share the financial rewards of American
Water’s success. 

			
	American Water	 	
 12

  

 

 FREQUENTLY ASKED QUESTIONS 

 

			
	 Question
	 	 Answer

	How does the plan reward performance?	 	The AIP allows us to differentiate and reward the performance of employees who contribute to the achievement of the Company’s goals. The 2011 AIP directly ties award payouts
to measurable contributions (Company, organizational group/ functional area and individual) to American Water’s success.
		
	Who is eligible for the AIP?	 	All regular, full-time exempt employees are eligible to participate. If you join American Water on or before September 30, 2011, you are also eligible to participate in the plan
on a prorated basis.
		
	What do I have to do to receive an AIP award?	 	 Any payout will depend largely on your performance, as well as on Company, organizational group/ functional area performance
(including financial and non-financial), which determines funding.
  
 If your
performance is rated “Needs Improvement” or higher, you may receive an award payout—but only if threshold Company performance metrics have been met. If your performance rating is “Unacceptable” or “Too Soon to
Rate,” you will not receive a payout. To maximize your award opportunity, it’s important to meet with your manager to establish meaningful performance goals, then work hard throughout the year to achieve those goals.

 
 The American Water Board or its Designee has the right to adjust the award
determination(s) and/or award payout(s) at its discretion.

		
	How is my AIP target award opportunity determined? How can I find out what it is?	 	Your AIP target award opportunity is based on your job and expressed as a percentage of your base salary. Please see your manager to learn more about your target award
opportunity for 2011.

			
	American Water	 	
 13

  

 

			
	 Question
	 	 Answer

	How will my AIP award payout be calculated?	 	 The size of the pool which funds your award is determined based on overall corporate performance and adjusted to reflect specific
organizational group/functional area results. AIP funding for all eligible employees, will depend on the Company and/or organizational group/functional area achieving its non-financial as well as financial goals. Once individual awards are
calculated, they are paid from the organizational group/functional area funding.
 The American Water Board or its Designee has the right to
adjust the award determination(s) and/or award payouts(s) at its discretion.

		
	What is the minimum and maximum that could be paid under the plan (as a percent of target)?	 	AIP award payouts can range from zero, to a maximum of an Individual Performance Factor of 200%. Payouts are capped at 200% of AIP target award.
		
	Will I receive an award payout if I meet my individual performance goals but the Company does not achieve minimum (threshold) performance?	 	No. A pre-determined financial threshold for Company performance must be met in order for funding and any award to be provided under the AIP.
		
	What happens if I leave American Water before I receive my award payout?	 	To receive the award payout, you must be actively employed with American Water on the date the payment is to be made. You (or your beneficiary) may be eligible for a prorata award
if you are disabled, retire, die, involuntarily terminate (not “for cause”) or a divestiture occurred after June 30, 2011. Involuntary termination for cause would not be eligible.
		
	What happens if I change job positions within American Water during the plan year?	 	Your award payout will be based on your base salary and target level percentage as of December 12, 2011.

 This brochure is the 2011 American Water Annual Incentive Plan. The American Water Board or its Designee, whose decisions will be final and binding, will determine interpretations of the Plan. The Company
reserves the right to amend, modify, or discontinue the Plan during the plan year or at any time in the future. Participation in the Plan does not convey any commitment to ongoing employment. 

			
	American Water	 	Attachment A

  

 

 2011 AIP FINANCIAL PAYOUT CURVE 

DILUTED EARNINGS PER SHARE (EPS) (50%) 
  

			
	 % Target Achieved
	  	 % Payout

	 104.7%
	  	150.0%
	 103.5%
	  	137.5%
	 102.4%
	  	125.0%
	 101.2%
	  	112.5%
	 100.0%
	  	100.0%
	 97.6%
	  	81.3%
	 95.3%
	  	62.5%
	 92.9%
	  	43.8%
	 90.6%
	  	25.0%
	 <90.6%
	  	0%

  

	*	For 2011, the EPS target is within the range of our earnings guidance of $1.65 to $1.75. 

OPERATING CASH FLOW (20%) 
  

			
	 % Target Achieved
	  	 % Payout

	 106.4%
	  	150.0%
	 105.4%
	  	136.7%
	 104.5%
	  	123.3%
	 102.5%
	  	110.0%
	 100%
	  	100.0%
	 98.7%
	  	85.0%
	 97.5%
	  	70.0%
	 96.2%
	  	55.0%
	 94.9%
	  	40.0%
	 93.6%
	  	25.0%
	 <93.6%
	  	0%

			
	American Water	 	Attachment A

  

 

 2011 AIP NON-FINANCIAL MEASURES 

Environmental Compliance (7.5%) 
 For
determining environmental compliance, AW will count Notices of Violation (NOV) for which the Company is responsible as described in the Environmental Non-Compliance Reporting Practice. For 2011 AW’s NOV target is 17. 

 

			
	 NOVs
	  	 Award

	 13
	  	150.0%
	 14
	  	137.5%
	 15
	  	125.0%
	 16
	  	112.5%
	 17
	  	100.0%
	 18
	  	87.5%
	 19
	  	75.0%
	 20
	  	62.5%
	 21
	  	50.0%
	 >21
	  	0%

 Safety Performance (7.5%)

 Safety performance will be determined using the total OSHA Recordable Incident Rate (ORIR) which measures all injuries and illnesses
requiring treatment beyond first aid for every 200,000 hours worked. For 2011 the goal has been set at 3.75 which is 8.5% below the Bureau of Labor Statistics (BLS) Water Utility Average ORIR of 4.1 and will be evaluated against the graduated award
scale below. 
  

			
	 ORIR
	  	 Award

	 3.10
	  	150%
	 3.23
	  	140%
	 3.36
	  	130%
	 3.49
	  	120%
	 3.62
	  	110%
	 3.75
	  	100%
	 3.88
	  	90%
	 4.01
	  	80%
	 4.14
	  	70%
	 4.27
	  	60%
	 4.40
	  	50%
	 >4.40
	  	0%

			
	American Water	 	Attachment A

  

 

 2011 AIP NON-FINANCIAL MEASURES 

Service Quality (7.5%) 
 This metric is
measured by the Service Quality Survey (SQS) which is conducted throughout the year for customers requesting service resulting in completion of a service order by a Field Service Representative (FSR). The score is based on the survey question:
“Overall, how satisfied were you with the outcome of your service contact?” taking the top two response categories of a 5 point response scale (5. Extremely Satisfied, 4. Very Satisfied, 3. Somewhat Satisfied, 2. Somewhat Dissatisfied, 1.
Very Dissatisfied). The AW goal for 2011 is 85% and the graduated award scale is provided below. 
  

			
	 SQS %
	  	 Award

	90	  	150%
	89	  	140%
	88	  	130%
	87	  	120%
	86	  	110%
	85	  	100%
	84	  	90%
	83	  	80%
	82	  	70%
	81	  	60%
	80	  	50%
	<80	  	0%

 Customer Satisfaction (7.5%)

 This metric measures overall customer satisfaction through a random customer survey containing the following question, “Overall, how
satisfied have you been with (Company Name) in general during the past twelve months”, which has a five-point response scale (Extremely Satisfied, Very Satisfied, Somewhat Satisfied, Somewhat Dissatisfied, Very Dissatisfied), response
percentages in the top three categories are indicative of overall customer satisfaction levels and a 90% target has been set. 
  

			
	 CSS%
	  	 Award

	95	  	150%
	94	  	140%
	93	  	130%
	92	  	120%
	91	  	110%
	90	  	100%
	89	  	90%
	88	  	80%
	87	  	70%
	86	  	60%
	85	  	50%
	<85	  	0%

			
	American Water	 	Attachment B

  

 

 2011 ANNUAL INCENTIVE PLAN TARGETS 

 

			
	
EXEMPT POSITIONS

	 Grade
	  	 AIP%

	ML4	  	30%
	L5-L6	  	20%
	L7	  	15%
	L8-L9	  	10%
	L10-L12	  	5%Employment Agreement-Kellye L. Walker

 Exhibit 10.2 

 

 

 December 21, 2009 
 Kellye L. Walker 
 179 Hillcrest Avenue 

Philadelphia, Pa. 19118 
 Dear Kellye: 
 On behalf of American Water, I am delighted to confirm our offer of
employment to you as General Counsel, I am confident that you will find your new role to be personally rewarding and one in which you can make significant contributions to the Company. 

The following represents a summary of this offer. 
  

	 	1.	Position and Responsibilities 

 You shall serve as Senior Vice President, General Counsel and Secretary of the Company and shall report to the Chief Executive Officer. You serve as the chief legal officer of the Company, providing
oversight, guidance and direction regarding legal advice on all matters at American Water and its subsidiaries, to include the hiring, development, promotion, oversight and disposition of its team of attorneys and staff responsible for all aspects
of American Water’s legal affairs; and the hiring and firing of outside counsel. 
  

	 	2.	Base Salary 

 $340,000.00
per year, payable on the Company’s regular bi-weekly payroll schedule. 
  

	 	3.	2010 Annual Incentive Plan (AIP) 

 Target Payout of 55% of your annual base salary. Actual payout of the Annual Incentive Plan bonus is discretionary and based on factors, including company performance and individual performance
objectives. Further details about the AIP will be provided to you. 
  

	 	4.	2010 Long Term incentive Plan (LTIP) Eligibility: 

 Target Payout of 110% of Base Salary. Further details about LTIP will be provided to you. 
  

	 	5.	Benefits 

 American Water
is committed to providing a flexible, comprehensive benefits package which provides choices. You will have the opportunity to choose benefits such as medical, dental, and life insurance that makes the most sense for you and your family. Highlights
of some of the benefits are attached. You are also eligible for the executive physical program. 

	 	6.	Vacation 

 You will be
entitled to four weeks vacation in a calendar year. 
  

	 	7.	Floating Holidays 

 You
will be eligible for six (6) floating holidays in a calendar year. 
  

	 	8.	Executive Severance Policy 

 You will be entitled to the executive severance policy which provides severance benefits to executives whose employment is involuntarily terminated by American Water for reasons other than cause. Under
the policy, you will receive 12 months of your base salary, in the form of base salary and prorated annual incentive payment. Continued health, dental and vision coverage with the maximum benefit listed below as set forth in the company’s
executive severance policy is as follows: 
 Health, Dental and Vision Coverage 

Provided the Release is executed and not revoked, a Participant will receive Company-paid COBRA benefits consistent with the chart below.

  

													
	Salary Level	 	 	  	 Minimum
 Company-paid
 COBRA Benefits
	 	 	  	 At least 5 yrs of
 service, but less
 than 10 yrs
	 	 	  	 10 or more years of
 service

							
	ML1 – L3	 		  	8 weeks	 		  	12 weeks	 		  	16 weeks

 At the end of
the period of Company-paid COBRA benefits, COBRA coverage may be continued by the Participant at his or her own expense, for the remaining balance of the statutory coverage period. 

Life insurance coverage and continued participation in the employee assistance plan run through the severance period. 

 

	 	9.	Non Qualified Savings and Deferred Compensation Plan for Employees of American Water Works, Inc. and Its Designated Subsidiaries 

You will be eligible for the Non Qualified Savings Plan which provides a Deferred Contribution restoration benefit of 5.25% above the IRS
pay limits on base and annual incentive pay as well as a 401k restoration benefit on base and annual incentive pay above the IRS pay limit. 
 You will be entitled to participate in the Company’s deferred compensation plan in the next annual enrollment in December 2010. 

 We are looking forward to a favorable decision from you and the possibility of you joining
the American Water team on January 6, 2010. Please signify your acceptance of this offer of employment by signing this letter and returning it to me in the enclosed envelope. 

Sincerely yours, 

 

 

 Sean Burke 
 Senior Vice President, Human Resources 
 American Water

	
	  

 This offer of employment extended by American Water is contingent upon successful completion of a drug screen, applicable background checks, verification of authorization to work and all information
supplied on the resume and employment application, and the absence of any Non-Compete or Non-Solicitation Agreement with a prior employer. 
 I, Kellye L. Walker, understand that my employment will be “at will,” which means that I am not guaranteed employment or any particular job for any specified period of time. The Company or I
may terminate my employment at any time, for any or no reason, with or without cause. 
  

							
	
 

	  	 	  	 12/23/09

	Signature	  	Kellye L. Walker	  		  	Date

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