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Xylem Inc.2020 Proxy Statement Notice of Annual Meeting of Shareholders May 13, 2020

 

 

 


 

1 International Drive

Rye Brook, NY 10573

 

Dear Xylem Shareholders,

Writing to you each year is a welcome opportunity to reflect on Xylem’s progress, and to look forward to the opportunities ahead.

This year, reflecting on the last twelve months is a different kind of task. The events of 2020 changed our world. Everyone has been affected, whether by the big shifts that have cut across society, or by the intimate tragedy of personal loss. Long-held certainties about markets, logistics, ways of working – even our customers’ and stakeholders’ priorities – changed faster than previously thought possible.

Yet, we come into this year inspired – especially by the team we are so privileged to lead. Xylem colleagues around the world responded to 2020’s shocks by coming together in ways that have made our company, our customers and our communities more resilient. Thanks to them, Xylem is in a strong position entering 2021, with resurgent growth momentum and robust financial foundations. 

Xylem’s business and mission have never been more relevant than today. With essential services in the spotlight – and water on the front-line of the world’s public health defenses – the economic and social value of critical infrastructure is more apparent than ever.

Our Colleagues

 

Because our business is global, we felt the impact of COVID-19 early. With the safety of our colleagues as our first concern, we learned quickly from our China team, and activated an enterprise-wide COVID-19 Response Team. The team promptly globalized our implementation of expanded safety and health protocols.

Remote working wasn’t an option for team members in factories that supply mission -critical infrastructure or those who support customers in the field. So, we put extensive infection controls in place, alongside additional resources and premium pay for all colleagues classified as essential workers. As we reduced executive and director compensation temporarily, we also expanded paid leave to support Xylem colleagues and their families directly affected by COVID-19, and extended healthcare and medical benefits.

Incredibly, the COVID-19 Response Team has just marked a year of service. Throughout, it has earned high marks from colleagues and external firms for providing a continuous flow of timely information and support to teams around the world. We are so proud of these efforts. They exemplify our mission, purpose and values as an organization.

Our Customers

 

As the pandemic intensified, utilities worked heroically to keep essential services flowing to every home and hospital. Our people, our suppliers and our partners stepped up to help with incredible resolve. Supply chain, manufacturing, logistics and service teams kept our customers supplied and serviced through the pandemic’s peak with remarkably few interruptions.

With lock-downs preventing various types of site-based work, our teams created dozens of new ways to help customers remotely. We pivoted to online training and certification, so utility operators could keep working. And we now commission engineered solutions by videoconference whenever it’s in the customer’s best interests.

Our teams also offered innovative ways for utilities to meet the new challenges presented by the pandemic. As customers faced challenges putting crews in the field, greater operational flexibility and resilience became imperatives. Customer inquiries about our digital capabilities, from remote monitoring and automated operations to smart infrastructure more broadly, accelerated through the year.

Xylem responded to our customers’ challenges with innovative solutions. The backlog for our advanced digital solutions is up significantly versus the past year. This puts us in a very attractive position as we grow not only in software platforms but in all the digitally-enabled aspects of our portfolio. We’re excited about the opportunity to work with our customers to build the digital water and energy networks, now, that will make them more resilient, and support their communities into the future.

Our Communities: Local and Global

 

Some observers imagined that the cause of sustainability would suffer severe set-backs from the economic hardships of 2020. Instead of a retreat, however, we saw an advance: a broad and energetic global embrace of sustainability, spanning environmental, social, and governance (ESG) issues. The general public, customers, investors and, certainly, our Xylem colleagues are all aligned in seeking meaningful, positive impact on our communities and the world around us.


In our local communities, Xylem colleagues delivered. In Wuhan, our China team donated equipment and expertise to emergency hospital builds. Xylem Watermark, our corporate social responsibility program, extended support to our non-profit partners – like Americares and UNICEF – for front-line COVID response. And we expanded our community-based grant program to help Xylem customers, distributors and partners get relief to their communities.

Aware of the infection risks faced by utility crews, our manufacturing teams re-purposed a portion of production to make personal protective equipment (PPE). We ultimately donated more than 100,000 units to water operators and healthcare workers around the world. And our partnership with Planet Water recently achieved the goal of bringing clean water and WASH education (Water, Sanitation & Hygiene) to more than a million people in underserved communities.

As an enterprise, we also took several bold steps toward our signature 2025 sustainability goals. Most notably, we put sustainability at the heart of Xylem’s financing strategy with our $1 billion green bond offering. The first of its kind for a US industrial company, it was over-subscribed by more than five times and at preferential rates. At the same time, we advanced our sustainability leadership position by establishing a Chief Sustainability Officer. And in 2021 we are continuing to augment sustainability-linked compensation for all named executive officers, including the Chief Executive Officer, as well as a broader group of executives and employees.

Our commitment and action has put us in a leadership position, both in the water sector and beyond. We have achieved an ESG rating of AAA from MSCI and the top Sustainalytics score in the industrial machinery sector. These achievements are gratifying, and a tribute to the team. But we are squarely focused on the work ahead of us to deliver on our mission.

Your Company

 

As a result of the team’s exceptional work, your company entered 2021 having demonstrated the agility required to meet the challenges of a sometimes volatile, uncertain and complex world. 

The team adapted to the past year’s challenges by focusing on what it could control. We took difficult but decisive cost actions, improved productivity, and delivered positive bottom-line outcomes even in unfavorable conditions. The team corrected for the market’s changes so quickly, in fact, we delivered free cash flow conversion of over 180%, and more than in the previous year. We have an even more robust financial foundation, now, than pre-pandemic.

We are moving forward in 2021 with strong momentum. The year began on the back of fourth quarter sequential gains in every segment and every end-market. And while different geographies will continue to recover at different paces, we are encouraged by early signs of market recovery. The ramp-up of vaccination programs offers hope for a return to normalcy – and growth. Our China business – the first to feel the pandemic’s impact, and also the first to recover – actually grew in 2020.

From the shocks of the last year, the world has turned toward what is essential, the need for greater resilience, and the imperative of a sustainable world. Our mission, our business and our values are more relevant than ever. And we are on course to capitalize on our increased competitiveness, financial strength, and commercial momentum.

On October 31, 2021, we will celebrate the ten-year anniversary of Xylem. Some of you have invested in us more recently, but some have been with us for a decade. Together, we have been privileged to make significant improvements in our communities and in people’s lives, while also nearly quadrupling Xylem’s market capitalization. And we are excited to contribute more.

We are grateful to all of you for your confidence in our company and our team, and for joining with us in our mission to solve water. We look forward to the great work, and value, ahead.

Sincerely,

Robert F. Friel

Board Chair

Patrick K. Decker

President & CEO

 

 

 


Table of Contents

 

 

 

1 International Drive

Rye Brook, NY 10573

Notice of 2021 Annual Meeting of Shareholders

 

March 30, 2021

Date and Time:

Wednesday, May 12, 2021, at 11:00 a.m. ET

Virtual Meeting:

www.virtualshareholdermeeting.com/XYL2021

Agenda:

1.  Election of 11 director nominees named in the Proxy Statement.

2.  Ratification of appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2021.

3.  Advisory vote to approve the compensation of our named executive officers.

4.  Shareholder proposal requesting amendments to the proxy access by-law, if properly presented at the meeting.

5.  Transact such other business as may properly come before the meeting.

Record Date:

March 15, 2021

Mailing or Availability Date:

Beginning on March 30, 2021, this Notice of Annual Meeting and the 2021 Proxy Statement are being mailed and made available to shareholders of record as of March 15, 2021.

Voting by Proxy:

YOUR VOTE IS VERY IMPORTANT. Whether or not you attend the virtual Annual Meeting, we urge you to vote in advance of the Annual Meeting by one of the following methods. Make sure you have your proxy card, voting instruction form, or notice of internet availability in hand and follow the instructions.

 

By Phone: In the U.S. or Canada, vote your shares toll-free by calling 1-800-690-6903

By Internet: Go to www.proxyvote.com

By Mail: Mark, date and sign your proxy card or voting instruction form and return it in the envelope provided.

 

In the event you attend and participate in the virtual Annual Meeting, you may, if so desired, revoke the proxy by voting your shares during the meeting.

Attending the Virtual-Only  Annual Meeting:

Shareholders who wish to attend and participate in the virtual Annual Meeting, including to vote, should review the “Voting and Meeting Information” section (starting on page 67) for details on how to do so.

 

As part of our precautions regarding the coronavirus (COVID-19) pandemic and to support the health and well-being of our shareholders, the Board of Directors has, after careful consideration, determined to conduct the Annual Meeting exclusively online via live webcast. The Board of Directors believes this is the right decision for Xylem and its shareholders at this time as the virtual Annual Meeting will facilitate shareholder attendance and participation while safeguarding the health of our shareholders, the director nominees and Xylem’s management. You will be able to attend the virtual Annual Meeting online, view the list of shareholders of record as of March 15, 2021, vote your shares electronically and submit questions during the meeting by visiting www.virtualshareholdermeeting.com/XYL2021.

 

By Order of the Board of Directors,

 

 

Claudia S. Toussaint,

SVP, Chief Sustainability Officer, General Counsel and Corporate Secretary

Important Notice Regarding the Availability of Proxy Materials for the 2021 Annual Meeting:

Our 2021 Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2020 will be available online at www.proxyvote.com and are currently available on our website at www.xylem.com under “Investors.”

 

 

 

 


Table of Contents

 

 

Proxy Statement Summary

This Proxy Statement was prepared in connection with the solicitation of proxies by the Board of Directors of Xylem Inc. (“Xylem” or the “Company”) for the 2021 Annual Meeting of Shareholders (the “Annual Meeting”). Below are highlights of certain information in this Proxy Statement. We encourage you to read the entire Proxy Statement and 2020 Annual Report on Form 10-K for the year ended December 31, 2020 before you vote.

2021 ANNUAL MEETING OF SHAREHOLDERS

 

Date and Time

Record Date

Location

May 12, 2021 at 11:00 a.m. ET

March 15, 2021

Virtual at www.virtualshareholdermeeting.com/XYL2021

 

Agenda Items:

 

Proposal

Board

Recommendation

Page

Reference

1

Election of directors

FOR

9

2

Ratification of the appointment of Deloitte & Touche LLP for 2021

FOR

17

3

Advisory vote to approve named executive officer compensation

FOR

21

4

Shareholder proposal requesting amendments to the proxy access by-law

AGAINST

22

In light of the continuing public health crisis resulting from the coronavirus (“COVID-19”) pandemic and concerns for the safety of our shareholders, director nominees, officers and employees, Xylem’s 2021 Annual Meeting will be held exclusively online via a live webcast. Shareholders of record as of the close of business on March 15, 2021 (the record date) will be able to attend the virtual Annual Meeting, vote their shares electronically, submit questions and view the list of shareholders as of the record date, by visiting www.virtualshareholdermeeting.com/XYL2021. To log into the meeting, use the 16-digit control number included on your Notice, proxy card or the instructions that accompanied your proxy materials. We designed the format of this year’s virtual Annual Meeting to ensure that our shareholders who attend will be afforded the same rights and opportunities to participate as they would have had had the meeting been held in person. For additional information, please see “How do I attend and participate in the online Annual Meeting?” in the “Voting and Meeting Information” section.

Beginning on March 30, 2021, the Notice of Annual Meeting and the 2021 Proxy Statement are being mailed and made available to shareholders of record as of March 15, 2021.

 

HOW TO VOTE YOUR SHARES

You may vote using any of the following methods if you were a shareholder as of the close of business on March 15, 2021

By Phone +1-800-690-6903 (US and Canada only)

Online www.proxyvote.com

By Mail Mark, date and sign your proxy card or voting instruction form and return it in the envelope provided

Annual Meeting Vote online during the virtual Annual Meeting

 

 

 

 

 

 

Xylem 2021 Proxy Statement | 1


CORPORATE GOVERNANCE - HIGHLIGHTS

We are committed to sound corporate governance that promotes the long-term interests of our shareholders and other stakeholders, strengthens Board and management accountability, and helps build trust in the Company. The “Corporate Governance” section describes our governance framework, which includes the following highlights:

 

Board Matters

All directors are independent except our CEO (92%)

 Independent Chair

 Overall Board and committee meeting attendance of 98% in 2020

 Declassified board with all directors elected annually

Regularly-scheduled executive sessions of the independent directors of the Board and each committee without management present

Robust director nominee selection process with commitment to diverse candidate pools

Diverse and skilled Board

Balance of new and more experienced directors, with ~36% of the director nominees with tenure <4 years

4 fully independent Board committees

Oversight by Board and its committees of strategy and risk, including cybersecurity and human capital

Oversight of environmental, social and governance (“ESG”) approach, including regular updates to the Nominating & Governance Committee

 Annual Board, committee and individual director self-assessments, with periodic facilitation by a third-party advisor

Comprehensive orientation program for new directors

Directors may not stand for re-election after age 72

Actively managing Board succession with a focus on diversity of thought & background, C-suite and global leadership experience

Shareholder Matters

 Majority voting with a director resignation policy for directors in uncontested elections

 Shareholder proxy access right

 Regular engagement with shareholders

Shareholders have the right to call special meetings

Annual “say on pay” advisory vote

One class of stock

No poison pill

We value the views of our shareholders and believe that fostering positive relationships with our shareholders is critical to our long-term success. To help management and the Board understand and consider the issues that matter most to our shareholders, we regularly engage with shareholders on a range of topics related to the Company's performance, strategy for long-term growth, governance profile, compensation philosophy, and efforts regarding sustainability and social value creation. See “Shareholder Engagement Program” in the “Corporate Governance” section for more information.

Our 2021 Director Nominees1

 

10 of 11

Nominees are independent

 

3 of 11

Nominees are

women

 

3 of 11

Nominees are

ethnically or racially diverse

 

6 of 11

Nominees with

origins outside the U.S.

 

6 of 11

Nominees have CEO experience

 

6.3

Years average tenure

 

 

 

 

1 

Based on diversity characteristics with which each director nominee identifies.

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OUR STRATEGY

Our strategy is to help customers solve the world's greatest water and resource challenges with innovative products, services and solutions to deliver sustainable economic, social and environmental benefits. The following five strategic pillars guide where and how we focus our efforts and resources to implement this strategy:

 

Drive Customer Success. We seek to partner with customers to meet their stakeholders’ needs through our broad portfolio of unmatched products, services and solutions. We are focused on several key areas, beginning with making it easier for customers to do business with Xylem and access the full range of our capabilities. Second, we seek to lead the way as digital technologies transform the water sector by further integrating our digital solution portfolio and broadening our solution sales, digital literacy and marketing capabilities. Third, we seek to help customers get the most out of their systems by providing services that enable improved uptime, efficiency and resilience. We partner with them by providing powerful, integrated lifecycle services and solutions.

 

Grow in the Emerging Markets. We continue to invest in localizing our capabilities in the emerging markets. We will continue building innovation, product management and engineering teams in these regions, expanding our market coverage in key growth markets such as China, India and select markets in Africa. We seek to address the base of the global economic pyramid by enhancing clean water and safe sanitation access through innovative solutions and business models.

 

 

Strengthen Innovation and Technology. We seek to create new customer offerings that help solve water challenges more powerfully than ever before, while also providing our Company with expansion opportunities. We will focus on building and enabling infrastructure for digital growth by making our hardware, networks and software applications interoperable, and creating a common software experience. This will further strengthen our core product offerings, and we expect these efforts to deliver strategic, sustainable innovations that will help us tap into new markets through advanced technology and new business models.

 

 

Build a Culture of Continuous Improvement. We seek to continue embedding a continuous improvement mindset throughout the company to improve our efficiency, simplify our business and manage costs to support continued growth. We are committed to eliminating business complexity by streamlining internal bureaucracy and expanding standard business platforms and processes to help people do their jobs. This will result in freeing up time to focus on work that creates customer value. Other focus areas include removing unnecessary costs from our end-to-end value chain to free up resources for growth, and building resilience and sustainability into our supply chain to protect our ability to serve customers.

 

 

Cultivate Leadership and Talent Development. We continue to foster an empowering, mission-driven, diverse and inclusive culture. We will continue to build leadership succession depth and breadth in keeping with our commitment to developing the next generation of leaders. We will also further align our incentives and organizational structure to our strategy, favoring approaches to drive 'one company' skills, behaviors and stakeholder value creation.

Our strategic plan firmly embeds sustainability at the heart of our competitive advantage and unique

business model, and aligns each of our five core strategic pillars to the overarching goal of integrating

sustainability into everything we do.

While our strategy will evolve in response to the changing world, our four core values are the enduring principles that go to the heart of who we are and guide how we conduct ourselves each day:

Respect, Responsibility, Integrity and Creativity


 

Xylem 2021 Proxy Statement | 3


OUR RESPONSE TO THE COVID-19 PANDEMIC

 

As the COVID-19 pandemic began to unfold in the first quarter of 2020, the Company focused on a set of guiding principles to help us manage through the crisis:

 

Providing for the safety and well-being of our employees, customers, partners and communities;

 

Serving our customers and communities; and

 

Identifying opportunities and longer-term implications for the Company coming out of the pandemic.

Our Board of Directors and management worked diligently to assess the impact of the pandemic on all facets of the Company, closely monitoring the health and well-being of our employees; and examining the pandemic’s macroeconomic and financial impacts, the effects of governmental mandates to combat the pandemic on the Company’s customers and operations, the resilience of the Company’s supply chain, investors’ perspectives and the Company’s business continuity strategy.

 

In March 2020, the Company deployed a COVID-19 Response Team, which is responsible for Xylem's Pandemic Plan, to aid in prevention, preparedness, response and recovery at our sites and across the Company. From the outset, Xylem has taken measures to protect the health and safety of our employees and work with our customers to minimize potential disruptions. In the first quarter of 2020, we implemented a support pay program for employees impacted by COVID-19, and an essential services premium pay program for the benefit of employees whose roles are classified as an “essential service” and, as such, are required to work either onsite at a Xylem facility or in the field supporting customers during periods of mandated stay at home or similar measures. These programs remain in place through the first quarter of 2021 and will be evaluated for continuation as necessary going forward. In addition, our leadership team held listening sessions with employees who were also caregivers to understand their unique challenges and evolve our support accordingly. In order to maintain a safe work environment for our employees, our production facilities spread out operations over multiple shifts and implemented other protective measures, such as temperature screening and social distancing, while maintaining operational capabilities. Many of our offices globally have transitioned to substantially remote work from home status, with no significant disruption to operations, financial reporting systems, internal control over financial reporting or disclosure controls and procedures. And as public health officials ease recommendations and regulations regarding stay at home measures, our COVID-19 Response Team is applying a set of Xylem “Return to Workplace” health and safety guidelines for remote workers returning to our facilities.

 

As detailed in the “Commitment to Sustainability” section, Xylem is committed to empowering and assisting the communities in which we live and work. Through Xylem Watermark, our corporate social responsibility program, we supported our communities in addressing the challenges posed by the global pandemic via partnerships with Americares and UNICEF, as well as the expansion of our Partner Community Grants program and other philanthropic commitments.

 

In response to the changes in business and economic conditions arising as a result of the COVID-19 pandemic and in addition to the actions described above, in the second quarter of 2020, we committed to restructuring activities across our businesses and functions globally that are designed to support our long-term financial resilience, simplify our operations, strengthen our competitive positioning and better serve our customers. In addition, in May 2020 the Board approved a temporary 20% reduction in the base salary of the Company’s CEO and all officer-level direct reports to the CEO, as well as a temporary 20% reduction in the annual cash retainer fees payable to our directors. These temporary reductions were effective from June 1, 2020 through December 31, 2020.

 

EXECUTIVE COMPENSATION – HIGHLIGHTS

 

We provide our named executive officers (“NEOs”) with short- and long-term compensation opportunities that encourage performance to enhance shareholder value while avoiding excessive risk-taking. Our Leadership Development & Compensation Committee (“LDCC”) aligns our NEOs’ compensation with shareholder interests through a balanced and competitive equity program design that uses a mix of restricted stock units, performance share units and stock options. A significant portion of our NEOs’ pay is performance-based, capped and not guaranteed, and in

4  | Xylem 2021 Proxy Statement


Table of Contents

 

2020 made up approximately 87% of total direct compensation for our CEO and approximately 74% of total direct compensation for our other NEOs (see charts below). In 2020, we received a high level of shareholder support (91%) in our say on pay advisory vote. See “2020 Advisory Vote to Approve Executive Compensation” in the “Compensation Discussion and Analysis” section.

 

2020 NEO Total Direct Compensation Mix*:

 

*Percentage of pay is based on annual target compensation (base salary, target annual incentive compensation and target long-term incentive compensation) and excludes any one-time awards granted upon hire.

Highlights of our executive compensation include:

 

What We Do

What We Don’t Do

✔  Pay-for-performance

✔  Double-trigger change of control provision

✔  Peer group selection

✔  Annual compensation risk assessment

✔  Proactive management of share utilization

✔  Compensation benchmarking

✔  Clawback policy

✔  Balanced compensation design

✔  Stock ownership guidelines

✔  Insider trading policy

✔  Engage an independent compensation consultant

✔  Annual “say on pay” shareholder vote

✘  No executive perquisites  

✘  No special retirement for NEOs

✘  No tax gross-ups

✘  No fixed-term employment contracts

✘  No repricing of stock options or cash buy-outs of underwater stock options

✘  No pledging, hedging or shorting permitted

 

 

 

OUR COMMITMENT TO SUSTAINABILITY - HIGHLIGHTS

At Xylem, sustainability is at the center of who we are and what we do.  As a leading global water technology company, we address one of the world’s most urgent sustainability challenges – responsible stewardship of our shared water resources. Technology is playing an increasingly important role in helping the world solve water issues. We have a long history of innovation, and are focusing on the powerful capabilities of smart technology, integrated management and data analytics.

Xylem approaches sustainability as a way to generate economic value while also creating value for society. Accordingly, we leverage sustainability in our decision-making toward long-term value creation for our shareholders, customers, employees and the communities in which we operate. Xylem is helping to create a water-secure world while creating economic and social value in the following three ways:

 

 

Xylem 2021 Proxy Statement | 5


Serving Our Customers  We provide innovative technologies, solutions and expertise that help  our customers solve major water challenges like water affordability, scarcity and resilience.   Building a Sustainable  Company   We know that in order to be a company that advances sustainability, we need a strong foundation and to execute with discipline today while also focusing on the future. We adhere to and champion responsible business practices, including promoting diversity and inclusion, and look to be a standard-setter in all that we do.  Empowering Communities  We are a company that is committed to creating both economic and social value. We strive every day to have a social impact and solve water for communities in need, including those affected by water-related disasters, recognizing that water challenges dramatically affect the quality of life and economic prospects for millions of people around the globe every day.  

This shared value approach is designed to generate increased economic and social value and requires our business, environmental and social aims to mutually thrive. To this end, we are focused on minimizing negative environmental and social impacts from our operations and creating programmatic and alternative business model strategies that benefit society and the communities in which they are implemented. In addition, the mission of Xylem Watermark, our corporate social responsibility program, is to provide education and access to safe water to enable healthy lives and build resilient communities. We are proud of the program’s expanded strategy to engage a larger ecosystem of stakeholders, as well as the fact that approximately 7,500 of our employees participated in volunteerism activities in 2020, despite significant challenges posed by social distancing requirements globally as a result of the COVID-19 pandemic. This approach is a key lever for our overall human capital strategy, including attracting, retaining and motivating our employees.

In 2020, we completed a $1 billion Green Bond offering, further aligning our sustainability and financing strategies. This follows our 2019 execution of the first sustainable improvement loan in the US General Industrial Sector, which ties the Company’s borrowing rates to our Sustainalytics rating, an important barometer of Xylem’s continued commitment to sustainability. A portion of the individual component of the 2020 Annual Incentive Compensation for both our President & Chief Executive Officer and our Senior Vice President, Chief Sustainability Officer was tied to Xylem’s sustainability performance as rated by Sustainalytics. In addition, the individual component of the 2020 Annual Incentive Compensation for our segment Presidents included the safety performance of their businesses as measured by injury frequency and risk reduction index. In 2021, the Company is augmenting its sustainability-linked compensation for all of our NEOs, as well as a broader group of executives, with a special, one-time grant of performance share units with goals that are based on 5 of our strategically transformative 2025 sustainability goals.

Xylem’s ongoing commitment to sustainability and the results we have achieved have led to our inclusion on several of the world’s most prestigious sustainability equity indexes, as well as several other notable sustainability recognitions. We are also proud signatories to a number of important sustainability compacts, pledges and mandates, and are committed to continuous improvement against the core elements of each and better understanding and managing our own opportunities and risks in the ESG arena.

 

 

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Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

Proxy Statement Summary

 

1

Proposals to be Voted on at the 2021 Annual Meeting

 

8

Proposal 1: Election of Directors

 

8

Proposal 2: Ratification of the Appointment of the Independent Registered Public Accounting Firm

 

16

Audit & Finance Committee Report

 

18

Proposal 3: Advisory Approval of Named Executive Officer Compensation

 

20

Proposal 4: Shareholder Proposal Requesting Amendments To Proxy Access

 

21

Corporate Governance

 

24

Shareholder Engagement Program

 

24

Role of the Board

 

25

Oversight of Strategy

 

25

Oversight of Risk

 

26

Oversight of Cybersecurity

 

27

Oversight of Human Capital Management, Diversity and Inclusion and Succession Planning

 

28

Corporate Governance Policies and Practices

 

29

Corporate Governance Principles

 

29

Related Party Transactions

 

30

Director Independence

 

31

Board Leadership Structure

 

31

Board Effectiveness

 

31

Board Composition and Refreshment

 

32

Board Meetings

 

34

Board Committees

 

35

Compensation Committee Interlocks and Insider Participation

 

37

Leadership Development and Compensation Committee Report

 

38

Communicating with the Board of Directors

 

38

Commitment to Sustainability

 

39

Stock Ownership

 

41

Certain Beneficial Owners

 

41

Directors and Named Executive Officers

 

41

Prohibition on Hedging, Pledging and Shorting Xylem Stock

 

43

Director Compensation

 

43

Compensation Discussion and Analysis

 

46

Executive Summary

 

46

Business Performance for 2020

 

46

CEO Pay-for-Performance Summary

 

47

2020 Executive Compensation Highlights

 

47

2020 Advisory Vote to Approve Executive Compensation

 

48

Best Practices

 

49

Our Executive Compensation Program

 

49

Additional Compensation Elements

 

57

Compensation Decision-Making Process

 

57

Additional Information

 

58

Summary Compensation Table

 

59

Grants of Plan-Based Awards

 

60

Outstanding Equity Awards at Fiscal Year-End

 

61

Option Exercises and Stock Vested

 

62

Non-Qualified Compensation

 

63

Potential Post-Employment Compensation

 

63

CEO Pay Ratio

 

65

Equity Compensation Plan Information

 

66

Voting and Meeting Information

 

66

2022 Shareholder Proposals

 

70

 

Cautionary Note Regarding Forward-Looking Statements

The statements included in this Proxy Statement regarding future performance and results, expectations, plans, strategies, priorities, commitments, and other statements that are not historical facts are forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements are based upon current beliefs, expectations, and assumptions and are subject to significant risks, uncertainties, and changes in circumstances that could cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. Readers of this Proxy Statement are cautioned not to rely on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

 

Xylem 2021 Proxy Statement | 7


PROPOSALS TO BE VOTED ON AT THE 2021 ANNUAL MEETING

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

We are a global water technology company committed to solving critical water and infrastructure challenges with innovation.  Our Board, through its Nominating & Governance Committee, regularly reviews the experience, skills and qualifications needed to properly oversee the interests of the Company and its shareholders, taking into account the Company's short- and long-term strategies and evolving global operations. The Nominating & Governance Committee then compares those attributes to those of the current directors and potential director candidates. The Nominating & Governance Committee conducts targeted efforts to identify and recruit individuals that have the requisite experience, skills and qualifications, keeping in mind our commitment to actively seek qualified women and individuals from minority groups to include in the pool of candidates from which directors are selected. Directors and candidates should be persons of the highest personal and professional ethics, integrity and values, with significant accomplishments and recognized stature, and who bring a diversity of backgrounds and perspectives to the Board and are committed to representing the long-term interests of the shareholders. Our Board believes that the director nominees have the appropriate mix of experience, skills, qualifications and attributes needed to lead the Company at the Board level.

 

Xylem's Director Nominees - Experience, Skills, Qualifications & Attributes

 

 

 

 

 

C-Suite Leadership

 

Operational Expertise

 

Diversity of Thought & Background

 

 

 

Corporate Governance

Strategy

Global Business

 

 

 

Technology & Innovation

Relevant Industry Expertise

Sales & Marketing

 

 

 

Financial

Risk Management

Talent Management

 

Xylem's Current Board of Directors and Director Nominees - Composition

Name

Age

Director
Since

Principal Occupation

Independent

AFC

LDCC

NG

ITC

Jeanne Beliveau-Dunn

61

2017

CEO & President, Claridad LLC

 

 

Patrick K. Decker

56

2014

President & CEO, Xylem Inc.

CEO

 

 

 

 

Robert F. Friel

65

2012

Former Chairman, President & CEO, PerkinElmer, Inc.

Chair

 

 

 

Jorge M. Gomez

53

2019

EVP & CFO, Dentsply Sirona Inc.

*

 

 

Victoria D. Harker

56

2011

EVP & CFO, TEGNA, Inc.

C*

 

 

Sten E. Jakobsson1

72

2011

Former President & CEO, ABB AB

 

 

Steven R. Loranger

69

2011

Former Chairman, President & CEO, ITT Corp.

 

 

C

Surya N. Mohapatra

71

2011

Former Chairman, President & CEO, Quest Diagnostics Inc.

 

 

Jerome A. Peribere

66

2013

Former President & CEO, Sealed Air

 

C

 

Markos I. Tambakeras

70

2011

Former Chairman, President & CEO, Kennametal, Inc.

 

C

 

Lila Tretikov

43

2020

Corporate VP & Deputy Chief Technology Officer, Microsoft

 

 

 

Uday Yadav

58

2020

President & COO, Electrical Sector, Eaton

 

 

 

 

* = Financial Expert          

C = Committee Chair        

1 Retiring from the Board of Directors with his term ending at the 2021 Annual Meeting

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Table of Contents

 

Xylem's Director Nominees – Diversity*

irector Tenure  0-2 1  3-6 2  7-10 7   Director Age    Diversity – Gender & Ethnicity  Women 2  Ethnic Diversity 2   Diversity –  Glob

 

 

 

 

*Tenure and age as of May 12, 2021; gender, ethnicity and global origin as identified by the director nominees

 

 

All director nominees will be elected for a one-year term.

The Board has determined that each nominee, other than our CEO, Mr. Decker, is independent from the Company and management.  Each nominee brings experience, expertise and diverse perspectives that will contribute to the overall strength of the Board in its oversight role. Each of the nominees currently serves on our Board, and each nominee was elected by our shareholders with the exception of Ms. Tretikov and Mr. Yadav, who were appointed by the Board in July 2020. Ms. Tretikov and Mr. Yadav were each identified by a search firm retained by the Nominating & Governance Committee. Each nominee agreed to be named in this Proxy Statement and to serve as a director, if elected.  In the event that a director nominee should become unavailable for election, the persons named as proxy will have the right to use their discretion to vote for a substitute, or the Board may reduce the number of directors.  For more information regarding director nominations and qualifications, see the “Board Composition and Refreshment” section. The following are summaries of the business experience and other qualifications of each of the director nominees.

 

Our Board of Directors recommends that you vote

FOR the election of each of the director nominees


 

 

Xylem 2021 Proxy Statement | 9


 

Director Nominees

 

 

 

 

  Jeanne Beliveau-Dunn, 61

  Independent Director

 

  Director since 2017

 

 

 

  Patrick K. Decker, 56

  President & Chief Executive Officer

 

  Director since 2014

 

 

 

Committees:

      Innovation & Technology

      Leadership Development & Compensation

 

 

 

 

Qualifications, Attributes and Skills

 

As a former executive and a director of other public companies, Ms. Beliveau-Dunn brings extensive innovation and technology experience and critical perspectives on strategy to our Board.  She also brings significant experience in international operations, sales and marketing, sustainability, business transformation and talent management, including building network operations and security teams. Ms. Beliveau-Dunn is a leading voice on digitization and a pioneer in cloud, software-as-a-service and cybersecurity and business productivity software.

 

 

 

Qualifications, Attributes and Skills

 

Mr. Decker brings to our Board valuable global leadership experience, expertise in strategy, business operations, sustainability, finance and risk management and extensive knowledge of emerging markets and relevant industries, including the water industry. He also brings deep experience leading and integrating transformative acquisitions and executing other strategic transactions.

 

 

Professional Experience

 

      Chief Executive Officer & President of Claridad, LLC, a digital and IoT consulting firm, since April 2018

      Vice President & General Manager of Cisco Systems Inc., a global technology company, where she managed the products and services business and operations, and built and operated centers of excellence, learning and knowledge, and innovation practices for scale

      During her 22-year career at Cisco, she built effective networking, digital and security solutions, including strategies for IoT in smart cities and industrial and energy markets.

      Fellow of the National Association of Corporate Directors

      President of the Board of the IoT Talent Consortium, a membership-driven non-profit organization, from 2016 through March 2018

 

 

 

Professional Experience

 

      President & Chief Executive Officer of Xylem from March 2014 to present

      President & CEO and Director of Harsco Corporation, a global industrial services company, from October 2012 to March 2014

      Prior to joining Harsco, served in a number of leadership roles for Tyco International’s Flow Control business, ultimately serving as President of Tyco Flow Control, a leader in industrial flow control solutions

      Earlier in his career, held a number of progressively responsible financial leadership positions at Bristol-Myers Squibb Company, including nine years of service in Latin America and Asia

      Started his career as an auditor for Price Waterhouse LLP, now PricewaterhouseCoopers, LLP

      Serves on the advisory council for the Dean of the Kelley School of Business at Indiana University

      Member of the Bipartisan Policy Center’s Executive Council on Infrastructure

      Member of the Energy and Environment Committee of the Business Roundtable

 

Other Public Company Boards

 

      Columbus McKinnon Corp (2020-present)

      Edison International  and its publicly-listed subsidiary, Southern California Edison Company (2019-present)

 

 

 

 

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Table of Contents

 

 

 

 

 

 

  Robert F. Friel, 65

  Independent Board Chair

 

  Director since 2012

 

 

 

  Jorge M. Gomez, 53

  Independent Director

 

  Director since 2019

 

 

Committees:

      Nominating & Governance

 

 

 

Committees:

      Audit & Finance

      Nominating & Governance

 

 

Qualifications, Attributes and Skills

 

As former President, CEO and Chairman of a large public company and a seasoned director, Mr. Friel brings extensive experience in global technology companies as well as deep strategic, financial, tax and board leadership experience. Mr. Friel also brings to our Board expertise in leadership development, risk management, corporate governance, including executive compensation, as well as experience leading and integrating strategic transactions.

 

 

 

 

Qualifications, Attributes and Skills

 

Mr. Gomez brings to our Board extensive global business experience and broad financial expertise, including financial and business strategy, tax strategy and planning, and capital deployment. He also brings significant experience in corporate governance, risk management, talent development and M&A analysis, execution and integration.

 

 

Professional Experience

 

      Served as Chief Executive Officer of PerkinElmer, Inc., a multinational corporation focused on human and environmental health, from January 2008 until his retirement in December 2019

      One of the primary architects of PerkinElmer's transformation into a global technology leader

      Joined PerkinElmer in 1999 and held a variety of positions, including Executive Vice President & Chief Financial Officer, with responsibility for business development and information technology, in addition to his oversight of the finance function

      Served as PerkinElmer’s President of Life and Analytical Sciences, and President & Chief Operating Officer

      Prior to joining PerkinElmer, held several global financial executive positions, including Vice President & Treasurer, over 19 years with AlliedSignal, Inc. (now Honeywell International Inc.)

 

 

 

Professional Experience

 

      Executive Vice President & Chief Financial Officer of Dentsply Sirona, Inc., a manufacturer of professional dental products and technologies, since August 2019

      Served as Chief Financial Officer of Cardinal Health, a global, integrated healthcare solutions company, from January 2018 to August 2019

      Held a variety of positions at Cardinal Health from 2006 until being named CFO in January 2018, including chief financial officer of the Medical segment, chief financial officer of the Pharmaceutical segment, corporate treasurer and corporate controller

      Previously, held positions at General Motors Corporation, including executive and managerial posts in New York, Singapore, Belgium, and Brazil

      Served on the Mount Carmel Health System Board of Trustees, the executive board of Red Oak Sourcing, the Business Advisory Council at Miami University, and the Dublin Food Pantry board

 

 

Other Public Company Boards

 

      West Pharmaceutical Services, Inc. (2020-present)

      NuVasive, Inc. (2016-present)

      PerkinElmer, Inc. (2006-2019); Chairman (2009-2019)

 

 

 

 

Xylem 2021 Proxy Statement  |  11


 

 

  Victoria D. Harker, 56

  Independent Director

 

  Director since 2011

 

 

 

  Steven R. Loranger, 69

  Independent Director

 

  Director since 2011

 

 

 

Committees:

      Audit & Finance (Chair)

      Nominating & Governance

 

 

 

Committees:

      Innovation & Technology (Chair)

      Leadership Development & Compensation

 

 

Qualifications, Attributes and Skills

 

Ms. Harker brings to our Board extensive global business experience with a wide-ranging management and financial background and experience in the digital transformation of businesses. Ms. Harker’s deep experience as both a sitting CFO and director of other public companies provides additional critical skills, including with respect to governance, strategic and transformative transactions, cybersecurity, operations, risk management, capital allocation, audit and compliance.

 

 

 

Qualifications, Attributes and Skills

 

As former Chairman, President & CEO of ITT Corporation, Mr. Loranger brings an in-depth understanding of the Company’s historical operations, as well as valuable institutional knowledge to our Board. He has extensive strategic, operational and manufacturing experience with global industrial and technology companies, including experience leading and integrating transformative acquisitions and executing other strategic transactions.

 

 

Professional Experience

 

      Executive Vice President & Chief Financial Officer of TEGNA, Inc., since June 2015 when Gannett Co. spun off its broadcast and digital businesses; in 2017, TEGNA spun off and sold its digital businesses

      CFO of Gannett from July 2012 to June 2015

      Prior to joining Gannett in 2012, served as the CFO and President of Global Business Services of the AES Corporation, a diversified, multinational power generation and utility company

      Prior to joining AES in 2006, held several key leadership roles including Acting CFO and Treasurer of MCI and CFO of MCI Group, a unit of World-Com Inc.

      Member of the American University Advisory Council for the Kogod School of Business

      Member of the board of the State Council of Higher Education for Virginia

      Served as a trustee on the Board of Visitors of the University of Virginia (2012 – 2016) and continues to serve on a number of advisory boards

 

 

 

Professional Experience

 

      Chairman, President & Chief Executive Officer of ITT Corporation, our former parent, a global manufacturing company, from 2004 until his retirement in October 2011

      Interim President & Chief Executive Officer of Xylem Inc. from September 2013 until March 2014

      Executive Vice President & Chief Operating Officer of Textron, Inc. from 2002 to 2004

      Held executive positions at Honeywell International Inc. and its predecessor company, AlliedSignal, Inc. from 1981 to 2002, including serving as President & Chief Executive Officer of its Engines, Systems and Services businesses

      Senior Advisor to the CEO of FlightSafety International and member (Emeritus) of the Board of the National Air and Space Museum

 

 

Other Public Company Boards

 

      K12 Inc. (2020-present)

      Huntington Ingalls Industries (2012-present)

 

 

 

Other Public Company Boards

 

      Edwards Lifesciences Corporation (2016-present)

 

 

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Table of Contents

 

 

 

  Surya N. Mohapatra, Ph.D., 71

  Independent Director

 

  Director since 2011

 

 

 

  Jerome A. Peribere, 66

  Independent Director

 

  Director since 2013

 

 

 

Committees:

      Innovation & Technology

      Leadership Development & Compensation

 

 

 

Committees:

      Innovation & Technology

      Leadership Development & Compensation (Chair)

 

 

Qualifications, Attributes and Skills

 

As a former Chairman, President & CEO of a large public company and seasoned director, Dr. Mohapatra brings to the Board extensive international business and technology experience, wide-ranging operational and strategic knowledge, board leadership experience and corporate governance expertise. He remains active in his native India and possesses a deep knowledge of the markets there. Dr. Mohapatra has a strong technical background with an emphasis on Six-Sigma quality and customer-focused business practices.

 

 

 

Qualifications, Attributes and Skills

 

As a former President & CEO of a large public company and a seasoned director, Mr. Peribere brings extensive knowledge in leadership, strategy, sustainability, risk management and executive compensation. Given his deep experience with global industrial companies, he also brings to our Board expertise in the areas of manufacturing and operations, growth, integration of acquisitions, technology and product development.

 

 

Professional Experience

 

      Chairman, President & Chief Executive Officer of Quest Diagnostics Incorporated, a leading provider of diagnostic information services, from 2004 until his retirement in 2012

      Joined Quest Diagnostics as Senior Vice President & Chief Operating Officer in 1999

      Prior to joining Quest Diagnostics, was Senior Vice President and member of the executive committee of Picker International, a worldwide leader in advanced medical imaging technologies, where he served in various executive positions during his 18-year tenure

      Member of the boards of Malaria No More and Safe Water Networks

      Trustee of The Rockefeller University

      Executive-in-Residence at Columbia Business School

 

 

 

Professional Experience

 

      President & Chief Executive Officer of Sealed Air, a global manufacturer of protective and specialty packaging for food and consumer goods, from 2013 until his retirement in 2017

      Led the transformation of Sealed Air from a products-based company to a knowledge-based company, with a more unified organization through the company’s rebranding, and renewed commitments to creating customer value and sustainability

      Previously served as the President and Chief Operating Officer of Sealed Air

      From 1977 through 2012, held various leadership roles at The Dow Chemical Company, most recently as Executive Vice President of Dow and President and Chief Executive Officer, Dow Advanced Materials from 2009 through August 2012

 

Other Public Company Boards

 

      Leidos Holdings (2016-present)

 

 

 

Other Public Company Boards

 

      Ashland Global Holdings Inc. (2018-present)

      Sealed Air (2012-2017)

 

 

 

Xylem 2021 Proxy Statement  |  13


 

 

  Markos I. Tambakeras, 70

  Independent Director

 

  Director since 2011

 

 

 

  Lila Tretikov, 43

  Independent Director

 

  Director since 2020

 

 

Committees:

      Audit & Finance

      Nominating & Governance (Chair)

 

 

 

Committees:

      Innovation & Technology

 

 

Qualifications, Attributes and Skills

 

As a result of his Board leadership and CEO experience, Mr. Tambakeras brings critical high-level perspective and corporate governance expertise to the Board. Having worked in increasingly responsible positions for several manufacturing companies, including leadership positions in South Africa and the Asia-Pacific region, Mr. Tambakeras possesses deep strategic and global industrial experience and an extensive background in international operations, emerging markets and strategic acquisitions.

 

 

 

Qualifications, Attributes and Skills

 

Ms. Tretikov is a leading expert on artificial intelligence and business transformation and brings extensive innovation and technology experience to our Board.  She also brings valuable perspectives related to her experience applying a cross-disciplinary approach to creating solutions that address some of the world's most challenging problems and empower humanity through technology.  Ms. Tretikov founded a company in the field of computational genomics while at college and has numerous patents and articles to her name in the field of technology-enabled business transformations.

 

 

Professional Experience

 

      President & Chief Executive Officer of Kennametal, Inc. from 1999 until his retirement in 2005; Chairman from 2002 to 2006

      President, Industrial Controls Business, Honeywell Incorporated from 1995 to 1999

      Chair of the Board of Make-A-Wish Foundation International since 2016

      Served on the Boards of Trustees of Loyola Marymount University and Arizona State University

      Served on the President’s Council on Manufacturing

      Served as the Chairman of the Board of Trustees of the Manufacturers Alliance/MAPI, the manufacturing industry’s leading executive development and business research organization

 

 

 

Professional Experience

 

      Corporate Vice President & Deputy Chief Technology Officer of Microsoft from April 2020 to present

      Joined Microsoft in April 2018 as Corporate Vice President, Artificial Intelligence, Perception and Mixed Reality

      Served as Senior Vice President of Engie SA, a multinational energy company, and CEO and vice chairman of the Terrawatt Initiative, a non-profit organization launched by Engie and other multinationals with a mission to alter the Earth’s ecology through energy transition to CO2-negative systems, from December 2016 to December 2019

      Chief Executive Officer and Executive Director of The Wikimedia Foundation and Wikipedia Endowment, the non-profit organization that supports Wikipedia, from 2014 to 2016

      Earlier in her career, held a number of leadership positions at technology companies, including as founder and CEO of a business that was ultimately acquired by Ameritrade

      Serves on the boards of a number of private companies

 

 

 

 

Other Public Company Boards

 

      Rackspace Hosting, Inc. (2014 – 2016)

 

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Table of Contents

 

 

 

  Uday Yadav, 58

  Independent Director

 

  Director since 2020

 

 

 

**Note that Mr. Sten Jakobsson will retire from the Board as of the 2021 Annual Meeting, after ~10 years of valuable service

 

Committees:

      Audit & Finance

 

 

 

 

Qualifications, Attributes and Skills

 

Mr. Yadav brings to our Board valuable global leadership experience and expertise in business operations, strategy and risk management, as well as extensive knowledge of emerging markets. He also brings more than 20 years of industrial experience and global P&L leadership serving diverse sectors, including heavy industry, aerospace, and automotive, and deep experience in deploying new product and service solutions and developing new business models.

 

 

 

 

Professional Experience

 

      President & Chief Operating Officer, Electrical Sector, for Eaton, a power management company, from July 2019 to present

      Joined Eaton in 1999 and held leadership positions in all of the company’s operating groups, as well as corporate-wide roles, including in India, China, Europe and the United States

      Prior to joining Eaton, worked with Aeroquip-Vickers, which was acquired by Eaton, and Lucas Engineering & Systems, based in the UK

      Serves on the board of Hopewell, a therapeutic farm community addressing mental illness

 

 

 

 

 

Xylem 2021 Proxy Statement  |  15


PROPOSAL 2 — RATIFICATION OF APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Our Audit & Finance Committee has appointed Deloitte & Touche LLP (“Deloitte”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021. Deloitte has served as the Company’s independent auditor since 2011.

The Audit & Finance Committee periodically considers the rotation of the Company’s independent auditor because the Committee believes it is important for the registered public accounting firm to maintain independence and objectivity. In 2016, the Audit & Finance Committee conducted a comprehensive request for proposals from Deloitte and other large, nationally-recognized public accounting firms with respect to the audit engagement.

The Audit & Finance Committee annually reviews and considers Deloitte’s performance of the Company’s independent audit in determining whether to reappoint the firm. The Audit & Finance Committee carefully considers performance factors including:

independence and objectivity

resources, technical capability and expertise, particularly in handling the complexity of Xylem’s global operations

historical and recent performance, including responsiveness, quality and efficiency of services provided

extent, quality and candor of communications

report on quality, including the results of the peer review program

client service assessment and feedback from management regarding the firm’s overall performance

industry-specific experience and insights

external data relating to audit quality and performance, including the Public Company Accounting Oversight Board (“PCAOB”) inspection results on Deloitte and its peer firms

appropriateness of fees charged for audit and non-audit services

length of time serving in this role, the benefits of longer tenure and the impact of changing auditors

Based on this evaluation, the Audit & Finance Committee has determined that the continued retention of Deloitte as our independent auditor for 2021 is in the best interests of the Company and its shareholders.

In conjunction with the mandated rotation every five years of the independent auditor’s lead engagement partner, in 2020 the Audit & Finance Committee participated in the selection of the new lead engagement partner for the 2021 fiscal year. The selection process commenced with Company interviews of candidates who met professional, industry and personal criteria, including diversity of thought and background, experience with complex global clients, and industry-specific experience, among others. Management recommended a finalist candidate to the Committee. The Committee Chair then interviewed the finalist and, in consultation with the Committee, concurred with management’s recommendation to engage the new lead audit engagement partner for 2021.

The appointment of Deloitte for 2021 is being submitted for shareholder ratification with a view toward soliciting the opinion of shareholders which shall be taken into consideration in future deliberations. If the shareholders do not ratify the appointment, the Audit & Finance Committee will reconsider the appointment and also consider this fact when it appoints the independent auditor for the fiscal year ending December 31, 2022.

Representatives of Deloitte attended all meetings of the Audit & Finance Committee in 2020. Representatives of Deloitte are expected to be present during the online Annual Meeting, will have the opportunity to make a statement, if desired, and are expected to be available to respond to pertinent questions.

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Table of Contents

 

Fees of Audit and Other Services

The aggregate fees for professional services rendered by Deloitte, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (“Deloitte and related affiliates”) for the years ended December 31, 2020 and 2019 were approximately as follows:

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

  Audit Fees (1)

 

$

6,435

 

 

$

6,170

 

  Audit-Related Fees (2)

 

 

45

 

 

 

127

 

Tax Compliance Services

 

 

86

 

 

 

1,281

 

Tax Planning and Consulting Services

 

 

63

 

 

 

4

 

  Total Tax Services (3)

 

 

149

 

 

 

1,285

 

  All Other Fees (4)

 

 

4

 

 

 

56

 

  Total

 

$

6,633

 

 

$

7,638

 

(1)

Fees for audit services billed consisted of:

 

Audit of the Company’s annual financial statements and internal controls over financial reporting;

 

Reviews of the Company’s quarterly financial statements;

 

Statutory and regulatory audits, consents and other services related to SEC matters; and

 

Financial accounting and reporting consultations.

The increase in audit service fees between 2019 and 2020 is attributable to: a) an agreed-to fee increase for 2020, b) the filing of a registration statement and public offering of Senior notes during 2020, and c) incremental audit services for statutory purposes.

(2)

Fees for audit-related services consisted of:

 

Audits and other attest work related to subsidiaries (other than statutory audits) and employee benefit plans; and

 

Other miscellaneous attest services.

(3)

Fees for tax services consisted of tax compliance and tax planning and consulting services. Details of these services include:

 

Tax compliance services are services rendered based upon facts already in existence or transactions that have already occurred, to document, compute, and review amounts to be included in tax filings.

 

Tax planning services are services and advice rendered with respect to the tax impact of regulatory changes and proposed transactions or services that alter the structure of a transaction to obtain an anticipated tax result. Such services include tax advice related to intra-group structuring.

(4)

Fees related to the Company’s subscription to research tools and assistance with market-based research.

Pre-Approval of Audit and Non-Audit Services

Our Audit & Finance Committee pre-approves all audit and permissible non-audit services provided by the independent auditor. The Audit & Finance Committee has adopted a policy for the pre-approval of certain services provided by the independent auditor. Under the policy, pre-approval is generally provided for specific categories of audit, audit-related, tax and other services incremental to the normal auditing function. These categories include, among others, the following: employee benefit plan audits; acquisition and disposition services, including due diligence; audits of subsidiaries and other attest services unrelated to the consolidated audit; tax compliance and certain tax planning advice work; accounting consultations and support related to generally accepted accounting principles in the United States; and reviews and consultations on internal control matters.

Audit, audit-related and non-audit services that have not been pre-approved under the policy must be specifically      pre-approved by the Audit & Finance Committee. In addition, if fees for any audit or non-audit services pre-approved under the policy exceed a pre-determined threshold during any fiscal year, any additional proposed audit or non-audit services to be performed by the independent auditors must be specifically pre-approved by the Audit & Finance Committee. The Committee Chair is authorized to pre-approve audit and non-audit services up to $100,000 on behalf of the Committee between meetings, provided such decisions are presented to the full Committee at its next regularly-scheduled meeting.  All audit, audit-related and non-audit services described above were pre-approved by the Audit & Finance Committee. The Committee considers non-audit fees and services when assessing auditor independence.

Our Board of Directors recommends that you vote FOR the ratification of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm for 2021

 


 

Xylem 2021 Proxy Statement  |  17


AUDIT & FINANCE COMMITTEE REPORT

Xylem’s Audit & Finance Committee reports to and acts on behalf of the Board of Directors. The Committee operates under a written charter adopted by the Board, which can be found on the Company’s website, www.xylem.com, under “About Xylem,” then ““Investors” and then “Corporate Governance.” The Committee reviews and assesses the adequacy of its charter at least annually and, when appropriate, recommends to the Board changes to reflect the evolving role of the Committee. A description of the primary responsibilities of the Audit & Finance Committee is included under “Board Committees — Audit & Finance Committee” (see page 36).

Overview of Committee’s Key 2020 Topics and Actions. The Audit & Finance Committee met eight times in 2020. Meeting agendas are established by the Audit & Finance Committee Chair. During 2020, the Committee fulfilled each of its duties and responsibilities as outlined in its charter, including, among other things:

 

Met with senior members of the Company’s financial management team at each Committee meeting;

 

Held separate executive sessions during its regular meetings, with the Company’s General Counsel, General Counsel of Ethics & Compliance, Chief Financial Officer, Chief Internal Auditor and the independent auditors, during which candid discussions regarding compliance matters, financial management, accounting, auditing and internal controls issues took place;

 

Reviewed the scope and plans for the internal auditor and independent auditors’ audits;

 

Reviewed significant accounting policies, the impact of new accounting pronouncements, and new disclosure requirements;

 

Reviewed with the independent auditors the 2020 Critical Audit Matter;

 

Reviewed with management, including the General Counsel and Chief Internal Auditor, and the independent auditors, significant risks and exposures identified by management;

 

Reviewed oversight of compliance with legal and regulatory requirements;

 

Reviewed the overall adequacy and effectiveness of the Company’s legal, regulatory, business ethics and anticorruption programs, including the Company’s Code of Conduct;

 

Reviewed the Company’s tax rates, controversies and strategy;

 

Reviewed the Company’s enterprise risk management program and processes;

 

Received updates no less than quarterly on management’s framework and process to assess the adequacy of internal control over financial reporting, and management’s conclusions on the effectiveness thereof;

 

Reviewed with the independent auditors the Company’s internal control assessment process, management’s assessment of the internal control over financial reporting, and the independent auditors’ evaluation of the Company’s system of internal control over financial reporting;

 

Reviewed with management and the independent auditors the Company’s earnings releases, Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, prior to filing with the SEC;

 

Reviewed the performance and effectiveness of the Company’s internal audit function; and

 

Participated in the selection of the Company’s new Senior Vice President, Chief Financial Officer.

Selection and Oversight of the Independent Registered Public Accounting Firm. The Audit & Finance Committee assists the Board with its oversight of Xylem’s independent registered public accounting firm, including assessment of the firm’s qualifications, performance and independence. The Committee is responsible for appointing, compensating, and overseeing the work of the independent auditor, including periodically reviewing and evaluating the performance of the lead audit engagement partner, overseeing the required rotation of the lead audit engagement partner every five years, and reviewing and considering the selection of the new lead audit engagement partner commencing with the 2021 fiscal year. Deloitte has served as Xylem’s independent registered public accounting firm since 2011.

The Audit & Finance Committee recognizes the importance of maintaining the independence of Xylem’s auditor. In 2020, the Committee received and reviewed the written disclosures and letter from Deloitte required by the PCAOB regarding Deloitte’s communications with the Committee around independence. The Audit & Finance Committee also discussed with Deloitte the firm’s independence from Xylem and management, including a review of the nature and amount of fees paid to Deloitte for non-audit services and the compatibility of such services with maintaining Deloitte’s independence (see page 18 for details on Deloitte’s 2020 fees for audit and non-audit services). The Committee concurs with Deloitte’s conclusion that they are independent from Xylem and its management. As detailed in Proposal 2,

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Table of Contents

 

the Audit & Finance Committee has appointed Deloitte as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021.

Review and Recommendation Regarding Financial Statements. Management has primary responsibility for the preparation, presentation and integrity of the Company’s financial statements, the application of accounting and financial reporting principles and internal controls, and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Xylem’s independent auditor, Deloitte, is responsible for auditing the Company’s financial statements and expressing an opinion as to their conformity with generally accepted accounting principles in the United States, as well as expressing an opinion on the Company’s internal controls over financial reporting.

The Audit & Finance Committee has reviewed and discussed the audited financial statements for the year ended December 31, 2020 with management and Deloitte. The Committee also discussed with Deloitte the matters required to be discussed by applicable PCAOB standards. In addition, the Committee has received from Deloitte the written disclosures required by the PCAOB concerning independence, and has discussed with Deloitte its independence.

Based on the reviews and discussions described above, the Audit & Finance Committee recommended to the Board that the audited financial statements for the year ended December 31, 2020 be included in the Company’s Annual Report on Form 10-K for 2020 which was filed with the U.S. Securities and Exchange Commission.

Audit & Finance Committee of the Company’s Board of Directors:

Victoria D. Harker, Chair Markos I. Tambakeras

Jorge M. GomezUday Yadav

Sten E. Jakobsson

 

 

 

Xylem 2021 Proxy Statement  |  19


PROPOSAL 3 — ADVISORY APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION

Our Board is committed to excellence in governance and recognizes the interest our shareholders have in our executive compensation.  As part of that commitment, and as required pursuant to Section 14A of the Securities Exchange Act of 1934, as amended, our shareholders are being asked to approve a non-binding advisory resolution on the compensation of our named executive officers ("NEOs") as disclosed in this Proxy Statement. This proposal provides shareholders the opportunity to express their views on our 2020 executive compensation program and policies. In considering your vote, you should review the information on our compensation policies and decisions regarding the NEOs presented in the “Compensation Discussion and Analysis” section.

At our 2020 Annual Meeting of Shareholders, our shareholders overwhelmingly approved our NEO compensation, with approximately 91% of votes cast in favor of the proposal. We value this endorsement by our shareholders and believe that the outcome signals our shareholders’ support of our executive compensation program. Similarly, during our annual outreach of shareholders to solicit their input on a range of topics related to executive compensation and governance matters, our top shareholders expressed strong support of our executive compensation program. As a result, we continued our general approach to our executive compensation program through fiscal year 2020.

The Company’s Leadership Development & Compensation Committee (“LDCC”) considers the following when designing the executive compensation:

 

alignment of executive and shareholder interests by providing incentives linked to key financial and non-financial performance metrics, which the LDCC believes will help drive long-term shareholder value;

the ability of executives to achieve long-term shareholder value creation without undue business risk;

the creation of a clear link between an executive’s compensation and his/her/their individual contribution and performance (pay-for-performance);

the extremely competitive nature of the industries in which we operate and our need to attract and retain the most creative and talented industry leaders; and

comparability to the practices of peers in the industries in which we operate and other similar companies generally.

The Board recommends you vote FOR the following resolution:

RESOLVED, that the shareholders approve, on an advisory basis, the compensation paid to the Company’s NEOs as disclosed in this Proxy Statement, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion.

While the results of the vote are advisory in nature, the Board and the LDCC value feedback from shareholders and will carefully consider the outcome of the vote as part of the ongoing evaluation of the Company’s executive compensation philosophy and design. For a description of our annual shareholder outreach efforts regarding compensation and governance, see “Shareholder Engagement Program” in the “Corporate Governance” section.

The Board has adopted a policy of providing for annual advisory votes on executive compensation. Unless the Board modifies its policy on the frequency of holding such advisory votes, the next such advisory vote will occur in 2022.

 

Our Board of Directors recommends that you vote FOR

the Advisory Vote to Approve Named Executive Officer Compensation

 

 

 

 

 

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The following proposal was submitted by one of our individual shareholders and will be voted on during the online Annual Meeting if it is properly presented.  Such shareholder's name, address, and number of shares of Xylem common stock may be obtained by a shareholder on written request to our Corporate Secretary.

PROPOSAL 4 — SHAREHOLDER PROPOSAL REQUESTING AMENDMENTS TO PROXY ACCESS

Proposal 4 - Improve Our Catch-22 Proxy Access

 

Shareholders request that our board of directors take the steps necessary to enable as many shareholders as may be needed to aggregate their shares to equal 3% of our stock owned continuously for 3-years in order to enable shareholder proxy access.

 

The current arbitrary ration of 20 shareholders to initiate shareholder proxy access can be called Catch-22 Proxy Access. In order to assemble a group of 20 shareholders, who have owned 3% of company stock for an unbroken 3-years, one would reasonably need to start with 60 activist shareholders who own 9% of company stock for an unbroken 3-years because initiating proxy access is a complicated process that is easily susceptible to errors. It is a daunting process that is also highly susceptible to dropouts.

 

The 60 activist shareholders could then be whittled down to 40 shareholders because some shareholders would be unable to timely meet all the paper chase requirements. After the 40 shareholders submit their paperwork to management - then management might arbitrarily claim that 10 shareholders do not meet the requirements (figuring that shareholders do not want a battle in court) and management might convince another 10 shareholders to drop out - leaving 20 shareholders. But the current bylaws do not allow 40 shareholders to submit their paperwork to management to end up with 20 qualified shareholders.

 

And 60 shareholders who own 9% of company for an unbroken 3-years might determine that they own 51% of company stock when length of unbroken stock ownership is factored out.

 

But how does one begin to assemble a group of 60 potential participants if potential participants cannot even be guaranteed participant status after following the tedious rules that are 3800-words of legalese with the directors having the last word on interpreting the 3800-words - because a single shareholder always takes the risk that one will be the 21st shareholder that could be voted off the island after a substantial investment of time by the arbitrary ration of 20 shareholders.

 

More emphasis should be given to improving proxy access because we do not have the right to act by written consent due to backward provisions of lndiana law. It also takes a high 30% of shares that typically cast ballots at the annual meeting to call for a special shareholder meeting.

 

Plus the shareholder right to call a special meeting has taken a big hit due to the avalanche of online shareholder meetings that can be tightly controlled bare bones meetings where all challenging questions and comments are screened out by management.  This has paved the way for a future special shareholder meeting to unfortunately be an online meeting.

 

Please vote yes:

Improve Our Catch-22 Proxy Access - Proposal 4

Board of Directors’ Statement of Opposition

The Board recommends a vote AGAINST Proposal 4. The Board takes a holistic approach to corporate governance and believes that this proposal is unnecessary in light of the existing proxy access right of our shareholders, the Board’s record of making corporate governance changes that promote the accountability of management and the Board to shareholders, and Xylem’s other strong governance practices, commitment to sustainability, and robust shareholder engagement program, as detailed below:

 

We adopted a proxy access right that reflects a balanced approach to enhancing shareholder rights and protecting the interests of all shareholders.  In February 2016, we amended our By-laws to allow a group of up to 20 shareholders (counting certain groups of funds as one shareholder for this purpose) owning at least 3% of the

 

Xylem 2021 Proxy Statement  |  21


Company’s outstanding shares of common stock continuously for at least 3 years to nominate and include in the Company’s proxy materials director nominees constituting up to 20% of our existing Board (but not less than 2 nominees), subject to the requirements of our By-laws.

Prior to the adoption of this right, we closely monitored proxy access developments and reached out to shareholders representing approximately 57% of the Company’s outstanding shares, engaging in discussions on this topic with shareholders representing approximately 40% of the Company’s outstanding shares.  After taking into account the feedback provided during these discussions and following the Board’s deliberations on proxy access, we adopted what we believe is an appropriate proxy access framework that is consistent with market practice and provides a meaningful proxy access right to shareholders, while balancing the need to protect the interests of all our shareholders.

Since then, we have continued to regularly engage with our largest shareholders to discuss our governance profile and proxy access, including conversations with shareholders representing more than 20% of our outstanding shares in 2021.  These shareholders generally continue to support the 20-shareholder limit on nominating group size.

In addition to best serving the interests of our shareholders, the proxy access framework described above, including the 20-shareholder limit on nominating group size, reflects proxy access provisions that are consistent with practices of other significant U.S. public companies with proxy access rights and that are widely endorsed in the voting policies of institutional investors.  Specifically, the 20-shareholder limit on nominating group size, which is used by more than 90% of U.S. public companies that have adopted proxy access, strikes an appropriate balance between empowering shareholders with a meaningful right to nominate individuals to the board, while mitigating the risk of abuse as well as the risk of chaotic and unmanageable circumstances arising shortly before the Company must distribute its proxy materials.  This limitation also helps to ensure that the proxy access mechanism is not driven by a large number of shareholders, no single one of which has a substantial economic stake in the Company.

The proponent’s requested change to our proxy access By-law would place no limit on the number of shareholders that may aggregate their holdings to reach the required 3% ownership threshold.  However, as noted above, our current By-laws provide shareholders with significant flexibility to aggregate related funds in determining nominating group size (with a group of investment funds under common management and investment control or under common management and funded primarily by a single employer counting as a single shareholder), so we do not believe there is a need to increase this limit, particularly in light of the composition of the Company’s shareholder base.  As of December 31, 2020, 6 shareholders each own more than 3% of our outstanding shares, and our 20 largest shareholders collectively own more than 48% of the Company’s common stock.  With our ownership structure as of such date, it is also possible to assemble a group of 20 shareholders that owns at least 3% of our shares and does not include any of our largest 89 institutional shareholders (assuming each holder has owned its shares for 3 years).  These facts demonstrate that limiting the size of the nominating group to no more than 20 shareholders provides shareholders with an appropriate opportunity to use proxy access while avoiding the administrative burden that would result from eliminating any limit on the potential group size.  Moreover, our 2021 shareholder outreach confirmed strong support for maintaining a 20-member nominating group limit.  

In addition to adopting a proxy access right, our Board has a history of making corporate governance changes that promote accountability of management and our Board to our shareholders:

 

Declassified Board:  In 2013, our Board proposed (and our shareholders approved) an amendment to the Company’s Articles of Incorporation to declassify the Board; all directors are now up for election annually.

 

Right to Call Special Meetings:  In 2014, our Board proposed (and our shareholders approved) an amendment to the Company’s Articles of Incorporation to allow shareholders owning 25% or more of our shares to request that the Board call a special meeting.

 

Proxy Access:  As noted above, in 2016, our Board amended the By-laws to adopt a proxy access right.

 

Right of Shareholders to Amend By-laws:  In 2017, our Board proposed (and our shareholders approved) an amendment to the Company’s Articles of Incorporation to allow shareholders to amend our By-laws.

 

 

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In addition, the Company maintains strong and effective practices that reflect our ongoing commitment to corporate governance:

 

Majority voting:  Shareholders elect our directors by majority voting in uncontested elections.

 

No poison pill:  We do not have a “poison pill.”

 

Independent Board leadership:  Our Board Chair is independent under the New York Stock Exchange’s (“NYSE”) listing standards.

 

Independent directors:  Other than Mr. Decker, our President & CEO, all of our Directors are independent under the NYSE’s listing standards.

 

Annual self-assessments: Our Board and Committees conduct robust annual assessments, including individual and peer assessments periodically facilitated by a third party at regular intervals.

 

Prohibition on hedging, pledging and shorting:  We have a policy against hedging, pledging and shorting by Company insiders, including Directors and officers, involving the Company’s common stock.

 

Share ownership guidelines:  We have meaningful share ownership guidelines for all Directors and officers.

 

Pay-for-Performance:  Our executive compensation program emphasizes pay-for-performance.

 

Clawback policy: Our executive officers are subject to a clawback policy.

 

ESG:  Our Corporate Governance Principles and Committee charters establish clear accountability for the oversight of ESG matters, such as safety, innovation, environmental sustainability, and ethics and compliance.  In 2017, Xylem became a signatory to the CEO Water Mandate, a UN Global Compact initiative that mobilizes business leaders on water, sanitation, and the Sustainable Development Goals.  We continue to be rated by and named to several indices used to track performance of companies in measuring and reporting on their sustainability performance and social value creation:  the MSCI Global Sustainability Index Series, the FTSE4Good Index Series, and the CDP (formerly the Carbon Disclosure Project).  These are major acknowledgments reflecting the work we have done to advance sustainable business practices and to consistently report our progress over time.  As an important barometer of Xylem’s continued commitment to sustainability, the individual component of the 2020 Annual Incentive Compensation for both our President & CEO and our Senior Vice President, Chief Sustainability Officer, General Counsel and Corporate Secretary was tied to Xylem’s sustainability performance as rated by Sustainalytics.  In addition, the individual component of the 2020 Annual Incentive Compensation for segment presidents includes safety performance of their businesses as measured by injury frequency and risk reduction index.  In 2020, we completed a $1 billion Green Bond offering, the proceeds of which will be allocated to green projects that help improve water accessibility, water affordability and water systems resilience, thus further aligning our sustainability and financing strategies. This follows our 2019 execution of the first sustainable improvement loan in the General Industrial sector in the United States, which ties the Company’s borrowing rates to our Sustainalytics rating.

 

Shareholder Engagement:  We continue to view direct shareholder engagement as critical to our Company’s success.  To provide our shareholders with an opportunity to raise important issues between annual meetings, Xylem’s leadership team meets regularly throughout the year with shareholders to discuss our strategy, operational performance, and business practices and to share perspectives on corporate governance, sustainability and executive compensation matters; a number of these discussions with shareholders include our independent Board Chair.  We also periodically hold Investor and Analyst Days where we meet with investors and present and discuss our long-term strategy and financial objectives.

Given the existence of a balanced and meaningful proxy access right that serves the best interests of our shareholders and our demonstrated and continuing commitment to effective corporate governance, as evidenced by our corporate governance changes and practices described above, the Board believes that this proposal is unnecessary.

 

Our Board of Directors recommends that you vote AGAINST this proposal

 

 

Xylem 2021 Proxy Statement  |  23


CORPORATE GOVERNANCE

Shareholder Engagement Program

Our Board values the input and insights of the Company’s shareholders and believes that effective Board-shareholder communication strengthens its role as an active, informed and engaged fiduciary. Our Board views engagement as a year-round conversation with shareholders about creating long-term sustainable value. Accordingly, the Board seeks to maintain a framework for deep, frequent, and productive conversations with the Company’s shareholders.

We engage with a wide range of constituents, including institutional shareholders, retail shareholders, proxy advisory firms, ESG rating firms and industry thought leaders. We pursue multiple avenues for engagement, including the Annual Meeting of Shareholders, in-person and virtual meetings (though since March 2020 shareholder engagement meetings have been limited to a virtual format due to the pandemic), quarterly earnings calls and other investor conferences and presentations. We participate in corporate governance organizations and other associations that provide valuable opportunities to convene with a variety of investors, peer companies, policy makers and other interested parties in promoting knowledge and positive dialogue around corporate governance policy and practices, including the World Economic Forum, the Business Roundtable, the National Association of Corporate Directors, and the Society for Corporate Governance. In addition, we periodically hold Investor and Analyst Days to meet with investors and present and discuss our long-term strategy and financial objectives. Our engagement program involves members of our Board of Directors and senior management, as well as employees from a number of different functions in the Company, including Investor Relations, Legal, Executive Compensation and Sustainability.

In December 2020, we invited our largest shareholders to engagement meetings.

 

These engagement meetings are an opportunity to discuss key aspects of the Company’s governance profile, compensation philosophy, and performance around sustainability and social value creation, among other things.  These meetings also provide a forum for management to solicit feedback regarding the practices and policies that are important to our shareholders. Topics discussed in these engagement meetings included:

 

 

•    Board Evaluation Process

•    Board Oversight of Risk, including Cybersecurity

•    Board Oversight of Strategy

•    Board Policy on Outside Directorships

•    Board-Shareholder Engagement

•    Board Succession, Composition and Diversity

•    CEO and Senior Leadership Succession

•    Corporate Governance Profile

 

 

•    COVID-19 Response

•    Disclosure and Transparency

•    Diversity and Inclusion

•    Executive Compensation Philosophy and Metrics

•    Proxy Access

•    Share Ownership Threshold to Call Special Meetings

•    Sustainability Goals and Social Value Creation

Board Composition, Diversity and Succession Board Evaluation Process Corporate Governance Profile Policy on Outside Directorships Board Oversight of Risk, including Cybersecurity Board Oversight of Strategy CEO and Senior leadership succession Sustainability Goals and Social Value Creation Diversity and Inclusion Board-Shareholder Engagement Disclosure and Transparency Executive Compensation Philosophy and Metrics Share Ownership Threshold to Call Special Meetings

 

A number of these engagement meetings included our independent Board Chair, who provided our shareholders with the Board's perspective on corporate governance, including board succession, composition and diversity, and the Board's oversight of critical areas such as risk management, cybersecurity, strategy and corporate transactions.

 

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Management reviews the key themes and insights from all shareholder engagement meetings, as well as broader governance trends, with the Board, which the Board considers in making decisions regarding our governance practices and policies and executive compensation. We may from time to time hold follow-up conversations with shareholders to address important issues that will be considered at the annual shareholders meeting. The outreach and engagement by our management team may also include additional director participation when the topic or the nature of the shareholder request makes this a more meaningful outreach approach.

 

We engage with shareholders throughout the year to update them and solicit their feedback on a range of topics, including corporate governance, executive compensation, sustainability and social value creation, performance, and strategy for long-term growth.

 

 

Role of The Board

 

Key Responsibilities of the Board Oversee the interests of all shareholders in the long-term health and overall success of the Company’s business and financial strength Serve as the ultimate decision-making body of the Company, except for those matters reserved to or shared with the shareholders Oversee the Company’s strategy and risk Oversee the proper safeguarding of the Company’s assets, the maintenance of appropriate financial and their internal controls, and the Company’s compliance with applicable laws and regulations

Oversight of Strategy

One of the Board’s key responsibilities is overseeing the Company’s strategy. The Board has deep knowledge and expertise in this area and regularly discusses our strategic priorities and businesses, believing that oversight of our strategy is a continuous process that includes the following:

 

Each director participates in a comprehensive orientation program upon joining the Board (see the “Director Orientation and Continuing Education” section) where he/she/they gain an understanding of Xylem’s strategy, businesses and operations.

 

At each of its meetings, the Board receives information and updates from management and actively engages with our President & CEO, our Chief Strategy & Digital Officer and other senior leaders with respect to the Company’s strategy and its execution, including the strategic plans for our businesses and research and development, and the competitive landscape.

 

Matters of strategy are also discussed at committee meetings, as relevant, given each committee’s specific focus and expertise.

 

One Board meeting per year is dedicated to an intensive review and discussion of the Company’s strategic plans. During this meeting, the Board engages with the President & CEO, senior leaders and other members of management regarding long-range strategy, business objectives, the competitive landscape, key market opportunities, customer and economic trends, innovation and technology, key talent considerations and other developments. This review also includes our strategic approach to sustainability and ESG matters, given their importance to Xylem’s business.

 

The independent directors hold regularly-scheduled executive sessions without management to discuss strategy.

 

Xylem 2021 Proxy Statement  |  25


 

The Board’s engagement on oversight of strategy continues between meetings in a variety of ways.

 

Our directors may from time-to-time visit our business locations, including research and development facilities, around the globe. Due to pandemic-related safety concerns and travel restrictions in 2020, our Board was unable to conduct site visits; however, our Board is committed to resuming visits once safety concerns abate.

Our directors also have the opportunity to understand and assess how we are communicating our strategy to investors through updates during shareholder engagement and periodic Investor and Analyst Days.

While the Board and its committees oversee the development and evolution of corporate strategy, management is responsible for executing the strategy. Our strategy is approached with a long-term mindset and a focus on assessing both the opportunities for, and risks to, the Company and its stakeholders.

 

Oversight of Risk

Management is responsible for day-to-day management of the Company’s risks, including the creation of appropriate risk management programs, policies and practices. Management conducts an enterprise risk management (“ERM”) program, which is an evergreen process using a widely-accepted framework to identify, assess, monitor and communicate the Company’s strategic, operational, financial, compliance and reputational risks. We seek to identify and mitigate risks, and enable improved decision-making and prioritization. The Board and its committees work with management, our independent and internal auditors, as well as other external advisors, to incorporate ERM into corporate strategy and business operations.

As an integral and ongoing part of its work, the Board oversees management’s approach to risk management and execution of its risk management responsibilities. This oversight includes the following:

 

Throughout the year, the Board discusses risk in both general terms and in relation to strategy and specific proposed actions.

 

The Board receives periodic updates from management on the Company’s financial and operating results, strategic and annual operating plans, and key enterprise risks, and provides appropriate input and perspectives.

 

Management periodically reports to the Board and its committees on specific risks as they arise or as requested by the Board.

 

The Company’s independent directors hold regularly-scheduled executive sessions without management present to discuss risks facing the Company and management’s approach to managing and mitigating them.

The Board has delegated responsibility for oversight of certain risk categories to its committees based on each committee’s expertise and applicable regulatory requirements, as summarized below. Each committee regularly receives updates on these matters from management and reports on them to the full Board so that the Board has information necessary to fulfill its risk oversight responsibilities.

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Board/Committee

Key Areas of Oversight

Board

Significant commercial and capital markets risks

Significant legal or reputational matters

Significant mergers and acquisitions

Strategy

Competitive landscape and dynamics

CEO succession planning (with assistance of N&G and LDCC)

Cybersecurity

Audit & Finance Committee (“AFC”)

Financial statements and financial risk exposures

Tax strategy and related risks

Business ethics and anti-corruption program

Effectiveness of the Code of Conduct

Overall risk assessment and risk management processes and policies

Accounting, controls and financial disclosures

Financial strategies, capital structure, liquidity and credit rating

Innovation & Technology
Committee (“ITC”)

Technology and innovation priorities, plans and investments

Commercialization and disruption approach

Technical talent management and development

Product safety

Leadership Development &
Compensation Committee (“LDCC”)

Executive compensation philosophy and program design

Executive development and leadership

Non-employee director compensation

Talent management

Diversity and inclusion

Succession planning for senior management

Nominating & Governance
Committee (“N&G”)

Board composition and refreshment

Annual assessment of the Board and committees

Business continuity, disaster recovery and crisis management

 

Sustainability, corporate citizenship and social value creation

Compliance programs, including anti-harassment, trade compliance, environmental, health & safety and conflict minerals

 

Oversight of Cybersecurity

 

The Board recognizes the importance of maintaining the trust and confidence of our customers, suppliers, employees and shareholders. As part of its objective to provide independent oversight of the key risks facing the Company, the Board devotes considerable time and attention to oversight of management’s approach to cybersecurity, including strategy, resources, policies, processes and practices. At least twice each year, the Board receives reports from management, including the Chief Information Officer and the Chief Information Security Officer, on the Company’s cybersecurity risk profile, assessments of the Company’s enterprise and product security programs, strategy for managing risks, status of projects to strengthen the Company’s cybersecurity posture, the emerging threat landscape, and other relevant topics.

 

To more effectively prevent, detect and respond to cybersecurity threats, the Company has a cybersecurity program for both enterprise and product security that is overseen by our Chief Information Security Officer. Key elements of the program are driven by the overall Company and functional strategy and include policy, standards, architecture, processes, employee education and incident response. The program is designed to protect and preserve the security, integrity and continued availability of the Company’s information technology systems and connected products, and also to protect the confidentiality and integrity of all information owned by, or in the care of, the Company. Our employees receive a variety of regular education regarding relevant cybersecurity practices and how to protect information and data against cyber threats.

 

Xylem’s Cyber Risk Committee, comprised of senior leaders, is responsible for overseeing the strategic and functional management of cybersecurity across the Company. Throughout the year, the committee receives presentations and reports on a broad range of topics around enterprise and product security, including updates on policies and practices, the threat landscape, periodic third-party vulnerability assessments, technology trends, regulatory developments and legal issues, and specific aspects of the Company’s evolving risk profile. The Company’s Enterprise Risk Committee, also comprised of senior leaders, is responsible for reviewing the Company’s critical risks, including cyber risk, and overseeing the Company’s identification, management and mitigation of risks and associated reports to the Board.

 

Xylem 2021 Proxy Statement  |  27


Oversight of Human Capital Management, Diversity and Inclusion and Succession Planning

 

Our employees around the globe are united in a shared purpose – to solve water – and as such, are key to the Company’s success and strategy. Xylem’s overall success and long-term growth depend, in part, on our continued ability to attract and retain highly-skilled employees, including senior leaders and employees with skills in our strategic areas and core competencies, including engineering, innovation, digital technologies, sales excellence, and product and project management.

At Xylem, we recognize the power of diversity and inclusion to drive innovation, make us more competitive, positively impact customer satisfaction and Company performance, and create value for our shareholders and our other stakeholders. Xylem‘s culture is global and diverse. We have approximately 16,700 employees based in more than 45 countries. Fifty-five percent of our director nominees have origins outside the United States, and 55% of our director nominees also identify as diverse from a gender, ethnic or racial standpoint.

We endeavor to foster a culture that enables all employees to thrive, which means cultivating a diverse and inclusive workplace that brings together people with different perspectives, talents and experiences. We do this in a number of ways, including:

 

We provide periodic training on diversity and inclusion, including for our senior leaders.

 

We offer Employee Network Groups, which are voluntary, employee-led groups formed by people with a common affinity, such as gender, race, sexual orientation, military status or other attributes. Each Employee Network Group is sponsored and supported by one or more senior leaders and all groups are open to all employees regardless of the diversity attributes with which they may identify.

 

Our CEO and leadership team hold regular global town hall meetings, as well as smaller regional or local town halls, to share and hear from our employees across all areas of the Company and geographies.

 

We conduct periodic employee engagement surveys, the results of which the Board and management use to understand our employees’ perspectives, identify areas for additional focus and establish action plans. The last employee engagement survey was in 2019, and the next is planned for 2021.

 

With our continuous improvement mindset, we continually look for ways to advance our diversity and culture of inclusion.

The Board, with the assistance of its committees, provides oversight of the Company’s human capital management strategy and approach, including our diversity and inclusion and talent development programs and policies, and our Board and senior leadership succession planning.

The Board, through its Nominating & Governance Committee, assesses and manages its composition and refreshment, including consideration of a diverse mix of director experiences, skills, qualifications, viewpoints and education, as well as race, ethnicity, gender and global origin. (See “Board Composition and Refreshment”). The Committee also oversees the Company’s anti-harassment, corporate social responsibility and sustainability programs.

The LDCC is responsible for overseeing the Company’s talent management programs and initiatives, including diversity and inclusion. The Company has a broad range of talent development programs to facilitate the continued professional growth and development of our colleagues, and to support development of our succession plans. These programs span across many levels, businesses and functions of the Company, including entry-level talent recruitment programs, development programs for emerging leaders, manager training and executive development.

The Board has primary responsibility for CEO succession planning, as well as oversight of succession planning for senior leadership positions. Key Board and committee activities around succession planning include:

 

The Board regularly discusses with the CEO recommendations and evaluations of his senior leadership team, including potential successors to the CEO role and his direct reports.

 

The Board maintains current contingency plans in the event the CEO is unable to serve for any reason.

 

The Board periodically updates the CEO selection criteria and competencies, including through the assistance of a third-party advisor.

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The Nominating & Governance Committee assists the Board with CEO succession planning by conducting periodic external market scans for potential succession talent.

 

The LDCC assists the Board with CEO succession planning, focusing on internal candidate development plans.

 

The LDCC oversees succession planning for senior leadership positions. Together with the CEO, the LDCC regularly reviews senior leadership talent, including readiness to take on additional leadership roles, and developmental opportunities needed to prepare senior leaders for greater responsibilities. In 2021, the LDCC also retained an affiliate of its independent compensation consultant to provide advisory services with respect to CEO and senior leadership development and succession.

 

Corporate Governance Policies and Practices

 

Corporate Governance Principles

The Board has adopted Corporate Governance Principles that, together with the Company’s articles of incorporation, by-laws, Code of Conduct, and Board committee charters, provide a governance framework for the Company and set out general principles regarding the functions and responsibilities of the Board and its committees.

The Corporate Governance Principles, which are reviewed by the Board periodically and were last updated in December 2020, emphasize the importance of Board composition, including diversity and director performance and effectiveness. Among other things, our Corporate Governance Principles expressly state our commitment to actively seek highly-qualified women and individuals from minority groups to include in the pool of candidates from which Board nominees are selected as part of each Board search.

The Corporate Governance Principles provide that directors must be able to devote the time required to prepare for and attend regularly-scheduled Board and committee meetings, and participate in other matters necessary for sound corporate governance, including director continuing education, site visits and communication with management.

To help assure that directors are able to fulfill their commitments to the Company, the Corporate Governance Principles provide that directors who are executive officers of public companies may not serve on more than three public company boards, including their own board and our Board. Directors that are not executive officers of public companies, may serve on no more than four public company boards (including our Board). However, as provided in the Corporate Governance Principles, even when directors have not exceeded these guidelines, any new or proposed directorships or affiliations are reviewed with respect to conflicts, potential conflicts or other concerns, including the effect on such director’s ability to devote the time required for service on our Board.

The Corporate Governance Principles also provide that when a director retires, or his, her or their principal occupation significantly changes, that director will offer to tender his, her or their resignation.  The Nominating & Governance Committee will make a recommendation to the Board whether to accept or reject the offer to tender resignation.  The Corporate Governance Principles are available on our website at www.xylem.com, by selecting “About Xylem,” then “Investors” and then “Corporate Governance.” A copy of the Corporate Governance Principles will be provided free of charge to any shareholder upon written request to our Corporate Secretary.

Code of Conduct

Our Code of Conduct requires all of our directors, officers and employees to act ethically and honestly. The Code of Conduct is available on our website at www.xylem.com, by selecting “About Xylem” and then “Our Code of Conduct.” We will disclose within four business days any substantive changes in or waivers of, the Code of Conduct granted to our CEO, CFO or Chief Accounting Officer, or persons performing similar functions, by posting such information on our website rather than by filing a Current Report on Form 8-K. A copy of the Code of Conduct will be provided free of charge to any shareholder upon written request to our Corporate Secretary.

Related Party Transactions

We have a written policy that governs the reporting, review and approval or ratification of transactions with related parties. The policy covers, but is not limited to, the related party transactions and relationships required to be disclosed under the US Securities and Exchange Commission (“SEC”) rules. The policy supplements our Code of Conduct, which

 

Xylem 2021 Proxy Statement  |  29


addresses potential conflict of interest situations. Under our policy, directors and executive officers are required to promptly notify the Chair of the Nominating & Governance Committee and our Corporate Secretary of any actual or potential related party transactions so that the transaction can be reviewed and considered for approval or ratification by the Nominating & Governance Committee.

In reviewing related party transactions, the Nominating & Governance Committee will consider the relevant facts and circumstances, including:

 

whether terms or conditions of the transaction are generally similar to those available to third parties;

 

the level of interest or benefit to the related party;

 

the availability of alternative suppliers or customers; and

 

the benefit to the Company.

Any Nominating & Governance Committee member who is a related party with respect to a transaction under review may not participate in the deliberations about the transaction or vote for its approval or ratification.

The policy provides pre-approval for certain types of transactions that the Nominating & Governance Committee has determined do not pose a significant risk of conflict of interest, either because a related party would not have a material interest in a transaction of that type or due to the nature, size or degree of significance of the transaction to Xylem.

Since January 1, 2020, there have been no related party transactions that are required to be disclosed pursuant to Item 404(a) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Political Activities

Xylem believes that transparent and responsible participation in the public policy process is an important means of enhancing long-term shareholder value. Furthermore, as a thought leader and a leading, global water technology company committed to solving the world’s water challenges, Xylem believes it has a responsibility to participate in the public policy process. Therefore, we engage in public policy advocacy on issues that are core to our businesses through ongoing, constructive and transparent interactions with government officials, policymakers, industry and trade associations and other stakeholder groups. These engagements are grounded in and guided by our unwavering commitment to strong corporate governance, compliance with our Code of Conduct, and respect and adherence to applicable laws in the jurisdictions in which we operate globally.

In 2021, we implemented a Political Activities policy, which specifies, among other things, that:

 

Lobbying activities by or on behalf of Xylem will materially comply with applicable laws, including with respect to registration and the filing of required information;

 

Neither Xylem, nor anyone on its behalf, will make any direct or indirect political contributions in support of candidates or campaigns for political office, political causes or political views; and

 

Xylem does not have a Political Action Committee.

We believe that involvement in industry and trade associations is beneficial to our business, and therefore we participate as a member in a number of these organizations. Our participation in an organization may be, in whole or in part, to advance collaborative and constructive approaches to industry engagement with policymakers and other stakeholders to help advance the Company’s public policy agenda and related business goals. We pay membership dues to a number of trade associations and industry groups that may use these funds at their discretion to fund political activities. Our membership in an organization, however, does not imply the Company’s endorsement of all of the policy positions of that particular group. We review these memberships annually to assess their business value and alignment with the Company’s overall public policy agenda. A copy of our Political Activities policy can be found on our website at www.xylem.com, under “About Xylem.”

 

 

 

 

30  | Xylem 2021 Proxy Statement


 

Director Independence

Our Corporate Governance Principles require a majority of our Board to be comprised of directors who are independent in accordance with the NYSE’s listing standards. The Board conducts an annual review and has affirmatively determined that 11 of our current 12 directors (Jeanne Beliveau-Dunn, Robert F. Friel, Jorge M. Gomez, Victoria D. Harker, Sten E. Jakobsson, Steven R. Loranger, Surya N. Mohapatra, Jerome A. Peribere, Markos I. Tambakeras, Lila Tretikov and (Uday Yadav)meet the independence requirements in the NYSE’s listing standards. Mr. Loranger, who served as our CEO from September 2013 until March 2014, meets the independence requirements in the NYSE’s listing standards because his service as CEO was on an interim basis. Curtis J. Crawford, who served as a director until May 13, 2020, was determined to be independent during the time he served on the Board. Patrick K. Decker is not independent because he serves as our President & CEO.

 

All of our directors are independent, with the exception of our CEO

 

Board Leadership Structure

Our Board is led by our independent Chair. The Board will consider the continued appropriateness of this structure as necessary to meet the best interests of the Company and its shareholders. The Board believes that our current leadership structure strengthens the Board’s role in risk oversight of the Company. Mr. Friel currently serves as our independent Chair, and will continue in that role contingent upon his successful re-election at the 2021 Annual Meeting.

Board Effectiveness

The effectiveness of the Board and its committees is critical to Xylem’s success and the protection of the long-term interests of our shareholders and other stakeholders. In the spirit of continuous improvement, each year our Nominating & Governance Committee initiates a comprehensive assessment of the effectiveness of the Board and each of our committees, as well as individual directors, using a self-assessment or third-party advisor. The objective of the assessment is to identify and assess areas where the Board functions effectively, and importantly, areas where it can improve. The assessment process includes the following steps:

 

 

1 Surveys

 

 

 

 

Surveys solicit each director’s opinions on a variety of topics, including:

•  Board and committee performance and effectiveness, including sufficiency of time and attention to key issues

•  Board size, composition, processes, and meeting logistics, including quality of meeting agendas, minutes, materials and presentations

•  Board dynamics and relationship with, and access to, management

•  Director education and other resources

 

 

 

 

2 Interviews

 

 

 

 

The Chair of the Nominating & Governance Committee holds one-on-one meetings with each director to solicit additional feedback, including with respect to:

•  Effectiveness of individual directors

•  Areas for Board focus

•  Effectiveness of new director onboarding program

 

 

 

Xylem 2021 Proxy Statement  |  31


 

 

3 Review and Dialogue

 

 

 

 

•  The Chair of the Nominating & Governance Committee reviews the responses to the surveys and one-on-one interview feedback, and shares the aggregated results with the Board Chair

•  Aggregated results of the Board and committee surveys are shared with all directors

•  Annually in the fall, the Board Chair and Chair of the Nominating & Governance Committee summarize the annual assessment results for the full Board and facilitate a dialogue among all of the directors

 

 

 

On a periodic basis (generally every three years), the Nominating & Governance Committee will also engage a third-party advisor to assist with the qualitative assessment of the Board and its committees, including meeting with each director individually. The advisor presents her/his/their findings to the full Board and facilitates a robust discussion focusing on opportunities for improvement. The advisor also provides feedback to individual directors, as applicable. The most recent engagement of an independent third party advisor was for the 2018 assessment.

Board Composition and Refreshment

Board Tenure

 

When assessing the appropriate balance of experience, continuity and fresh perspectives with respect to director nominees and candidates, the Board considers, among other factors, length of tenure. The average tenure of the director nominees is approximately 6.3 years. Following the Annual Meeting, assuming all director nominees are elected, there will be four directors, comprising ~36% of the Board, who joined within the past four years, adding valuable fresh perspectives to the Board’s deliberations. The remaining seven directors, comprising ~64% of the Board, have served between 7 and 10 years and bring a wealth of experience and knowledge concerning Xylem.

The Board has established a retirement age policy of 72 for directors, as reflected in our Corporate Governance Principles. The Board believes that it is important to monitor its composition, skills and needs in the context of the Company’s long-term strategic goals. The Board further believes that it is important to balance refreshment with the need to retain directors who have, over time, developed significant insights into the Company, its operations and evolution, and who continue to make valuable contributions that benefit our shareholders and other stakeholders.

Board Refreshment

On a regular basis, careful consideration is given to the composition of our Board in order to maintain an appropriate mix of experiences and qualifications, introduce fresh perspectives and broaden and diversify the views and backgrounds represented on the Board. The Nominating & Governance Committee is responsible for identifying and evaluating potential director candidates, reviewing the Board and committee composition and making recommendations to the Board. The Nominating & Governance Committee seeks to identify candidates who possess the experience, skills, qualifications and attributes that will provide a broad range of personal characteristics to the Board, including diversity of thought and background, experience in technology and innovation, and global business experience. In fulfilling its refreshment responsibilities, the Board and the Nominating & Governance Committee use an evergreen process as follows:

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The Nominating and Governance Committee engages in a year-round recruitment process to identify and evaluate new director candidates. In evaluating candidates, the Committee considers whether and to what extent attributes and experiences will individually and collectively complement the existing Board. The Committee also considers the impact on Board composition from upcoming director retirements, as well as Xylem’s strategy and evolving, diverse and global businesses and operations. The Nominating & Governance Committee regularly reviews the board size, diversity profile and composition, including tenure and retirements given the Board’s mandatory retirement age of 72. The average tenure of the director nominees is approximately 7XX years. The Nominating and Governance Committee engages in a year-round recruitment process to identify and evaluate new director candidates. In evaluating candidates, the Committee considers whether and to what extent attributes and experiences will individually and collectively complement the existing Board. The Committee also considers the impact on Board composition from upcoming director retirements, as well as Xylem’s strategy and evolving, diverse and global businesses and operations. The Nominating & Governance Committee considers the periodic rotation of committee members and committee chairs in order to enhance perspectives and broaden and diversify the views and experiences. The Nominating and Governance Committee engages in a year-round recruitment process to identify and evaluate new director candidates. In evaluating candidates, the Committee considers whether and to what extent attributes and experiences will individually and collectively complement the existing Board. The Committee also considers the impact on Board composition from upcoming director retirements, as well as Xylem’s strategy and evolving, diverse and global businesses and operations. Through its annual assessment process, the Board evaluates whether the mix of directors is appropriate given the Company’s strategy and continuing evolution. The Nominating and Governance Committee engages in a year-round recruitment process to identify and evaluate new director candidates. In identifying and  evaluating candidates, the Nominating & Governance Committee considers whether and to what extent attributes and experiences will individually and collectively complement the existing Board, including . The Committee also considers the impact on Board composition from upcoming director retirements, as well as Xylem’s evolving strategy and evolving, diverse and global businesses and operations. The Nominating and Governance Committee engages in a year-round recruitment process to identify and evaluate new director candidates. In evaluating candidates, the Committee considers whether and to what extent attributes and experiences will individually and collectively complement the existing Board. The Committee also considers the impact on Board composition from upcoming director retirements, as well as Xylem’s strategy and evolving, diverse and global businesses and operations. All new directors participate in a comprehensive orientation program to provide them with a strong foundation in Xylem’s strategic and financial performance, executive compensation program, culture, approach to sustainability and corporate governance policies and practices.

Board Diversity

Xylem and its Board believe diversity in the boardroom is critical to the success of the Company and its ability to create long-term value for our shareholders and other stakeholders. As set forth in our Corporate Governance Principles, our Board actively seeks to consider a diverse group of candidates for membership on the Board, taking into account diversity in terms of viewpoints, professional experience, education and skills as well as race, ethnicity, gender and nationality. Our Board is committed to actively seeking highly-qualified women and individuals from minority groups to include in our pool of candidates from which Board nominees are selected as part of each Board search. Our Nominating & Governance Committee reviews its effectiveness in balancing diversity considerations when assessing the composition of the Board, and our entire Board considers diversity when conducting the annual Board assessment. After extensive searches, over the past four years we have added four directors that bring additional diverse and fresh perspectives as well as deep experience to our Board:

 

Jeanne Beliveau-Dunn (2017) brings experience in innovation and technology, including commercialization, as well as talent management.

 

Jorge Gomez (2019) brings global perspectives and expertise in finance, strategy and risk management.

 

Lila Tretikov (2020) brings global perspectives and experience in innovation and technology, including artificial intelligence and business transformation.

 

Uday Yadav (2020) brings global perspectives and leadership experience, together with expertise in operations, strategy and industrial transformation.

Our 11 director nominees reflect the Board’s careful approach to succession planning, resulting in a balanced mix of attributes, skills, experiences, diverse viewpoints and backgrounds in our boardroom. Approximately 55% of our nominees identify as women or as ethnically/racially diverse, and ~55% identify national origins outside the US:

 

3 of 11

Nominees are

women

 

 

3 of 11

Nominees are

ethnically or

racially diverse

 

6 of 11

Nominees with

origins outside

the U.S.

 

The Nominating & Governance Committee considers recommendations of director candidates from many sources, including shareholders and third-party search firms. Shareholders wishing to propose a candidate for consideration may do so by submitting the proposed candidate’s full name and address, resume and biographical information to the attention of our Corporate Secretary at Xylem Inc., 1 International Drive, Rye Brook, New York 10573. The Nominating & Governance Committee and Board use the same criteria for evaluating candidates regardless of the referral source.

 

Xylem 2021 Proxy Statement  |  33


Director Orientation and Continuing Education

We have a comprehensive orientation program for all new directors with respect to their role as directors and as members of the particular Board committees on which they will serve. This orientation program includes one-on-one meetings with management and extensive written materials to provide new directors with a strong foundation in Xylem’s strategic plans, industry, business, financial performance, executive compensation program and corporate governance policies and practices. The orientation program also includes visits to Xylem sites, which our newest directors, Ms. Tretikov and Mr. Yadav, look forward to once pandemic-related safety concerns and travel restrictions abate.

Our Board believes that director education is vital to the ability of its directors to fulfill their roles and supports directors’ continuous learning. Accordingly, we have continuing education programs to help directors enhance their skills and knowledge in order to better perform their duties and recognize, and deal appropriately with, issues, risks and opportunities that may arise. These programs are typically part of regular Board and committee meetings and may be provided by management or qualified third parties on various topics. The directors also periodically visit Xylem sites; such visits provide them with an opportunity to see firsthand the execution and impact of the Company’s strategy, and engage with Xylem employees to deepen their understanding of our business, products, services and solutions, competitive landscape and corporate culture. In addition, the Board encourages directors to participate in external continuing education programs. The Company pays for all reasonable expenses for directors attending such programs.

 

Board Meetings

Attendance

Regular attendance at Board meetings and attendance at each annual meeting of shareholders is expected of each director. In 2020, there were 10 Board meetings and 20 committee meetings. Average attendance of our directors at Board and applicable committee meetings in 2020 (held during the period that each director served) was more than 98% and none of the director nominees attended fewer than 95% of the total number of Board and applicable committee meetings. All of our directors were present at the virtual Annual Meeting held in 2020.

 

Site Visits: We encourage our directors to visit our sites, and we periodically hold meetings at various sites so that our directors can meet with employees, customers and other stakeholders, and visit our facilities. In 2020, due to pandemic-related safety concerns and travel restrictions, our Board was unable to conduct its planned site visits but looks forward to resuming site visits once pandemic-related safety concerns abate.

Executive Sessions

The independent directors hold regularly scheduled executive sessions without Company management present. In 2020, there were six meetings during which such sessions were held; Markos I. Tambakeras, independent Board Chair through the 2020 Annual Meeting presided over three of these executive sessions; and Robert F. Friel, who assumed the role of independent Board Chair following the 2020 Annual Meeting, presided over three of these sessions. During these executive sessions, the directors discussed the Company’s management of COVID-19 impacts, strategy, management and director succession planning, and other key governance topics.

Management Participation in Board and Committee Meetings

Key members of management regularly attend and participate in Board meetings, presenting on important topics. Regular attendees include the Chief Financial Officer, the Chief Sustainability Officer, General Counsel and Corporate Secretary, the Chief Human Resources Officer, the Chief Innovation, Technology and Product Management Officer, the Chief Strategy and Digital Officer, and the segment and regional Presidents. In addition, other senior leaders and executives also participate periodically in the Board and committee meetings.

 

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Board Committees

 

Our Board has established four committees to assist in discharging its duties: the Audit & Finance Committee, the Innovation & Technology Committee, the Leadership Development & Compensation Committee and the Nominating & Governance Committee. Written charters for each of these committees are approved and adopted by the Board, and are reviewed at least annually and updated, as appropriate. Each committee’s charter is available on our website at www.xylem.com by selecting “Investors” and then “Corporate Governance.” Outlined below are the Board committees with brief descriptions of each committee’s membership and responsibilities.

 

AUDIT & FINANCE COMMITTEE

Chair: Victoria D. Harker

Members: Jorge M. Gomez, Sten E. Jakobsson, Markos I. Tambakeras and Uday Yadav

# 2020 Meetings: 8

 

Purpose

The Audit & Finance Committee’s purpose and responsibilities are set forth in its charter, which is reviewed at least annually and updated, as appropriate (most recently in April 2020), to address changes in regulatory requirements, authoritative guidance, evolving oversight practices and investor feedback. The primary purposes of the Audit & Finance Committee are to assist with Board oversight of the Company’s financial reporting processes, compliance with legal and regulatory requirements and matters relating to its financial condition.

 

Responsibilities

The responsibilities of the Committee are set forth in its charter and include the following:

Determining the appointment, compensation, evaluation and termination of the Company’s independent auditors.

Reviewing and discussing with management and the independent auditors the annual audited financial statements and quarterly financial statements of the Company.

Overseeing the performance of the Company’s internal audit function.

Reviewing the scope of audits to be performed by the internal audit function and monitoring progress.

Reviewing the Company’s financing strategy and activities, investment policies and matters relating to its financial condition.

Discussing policies with respect to risk assessment and risk management.

Reviewing significant findings or unsatisfactory internal audit reports or audit problems or difficulties encountered by independent auditors in the course of the audit work.

Reviewing major issues regarding the Company’s accounting principles and internal controls.

Reviewing the business ethics and anticorruption program and implementation and effectiveness of the Company’s Code of Conduct.

 

Additional information on the Audit & Finance Committee’s processes and procedures for consideration of the ratification of our independent auditor can be found in the Audit & Finance Committee Report on page 19.

 

Independence and Financial Expertise

The Board of Directors has determined that each of the five members of the Audit & Finance Committee meets the independence requirements of the NYSE, SEC rules and regulations, and our Corporate Governance Principles. All members of the Audit & Finance Committee are financially literate and the Board of Directors has determined that two Audit & Finance Committee members, Jorge M. Gomez and Victoria D. Harker, are “audit committee financial experts” under SEC rules.

 

 

 

 

 

Xylem 2021 Proxy Statement  |  35


INNOVATION & TECHNOLOGY COMMITTEE

Chair: Steven R. Loranger

Members: Jeanne Beliveau-Dunn, Surya N. Mohapatra, Ph.D., Jerome A. Peribere and Lila Tretikov

# 2020 Meetings: 3

 

Purpose

The primary purpose of the Innovation & Technology Committee is to assist the Board in its oversight of the Company’s innovation and technology strategy, priorities, and investments.

 

Responsibilities

The responsibilities of the Committee are set forth in its charter and include the following:

Reviewing the Company’s technology and innovation priorities in the context of overall corporate and innovation strategies and progress against those priorities.

Reviewing the Company's annual technology and innovation plans and investments in R&D and progress against those plans.

Reviewing the Company’s key programs, processes and structures related to technology and innovation and approach to disruption and commercialization.

Reviewing the Company's approach to management and development of technical talent.

Reviewing the Company’s approach to product safety.

 

NOMINATING & GOVERNANCE COMMITTEE

Chair: Markos I. Tambakeras

Members: Robert F. Friel, Jorge M. Gomez, Victoria D. Harker, Sten E. Jakobsson

# 2020 Meetings: 3

 

Purpose

The primary purpose of the Nominating & Governance Committee is to ensure the Board of Directors is appropriately constituted to meet its fiduciary obligations to our shareholders, and to take a leadership role in shaping the corporate governance of the Company.

 

Responsibilities

The responsibilities of the Committee are set forth in its charter and include the following:

Developing, reviewing, updating and recommending corporate governance principles to the Board.

Evaluating and making recommendations to the Board of Directors concerning the composition, governance and structure of the Board of Directors.

Determining the composition of Board committees, including the chairs.

Evaluating and making recommendations to the Board of Directors concerning the qualifications and retirement age of directors.

Administering the annual Board and committee assessments.

Identifying, evaluating and proposing nominees for election to the Board of Directors and conducting searches for prospective Board members.

Reviewing corporate governance developments, including shareholder engagement strategy.

Overseeing specialty compliance programs and risks, including environmental, health and safety, business continuity, trade compliance, conflict minerals and harassment prevention.

Reviewing the Company’s corporate social responsibility and sustainability programs and related activities.

 

Independence

The Board of Directors has determined that each member of the Nominating & Governance Committee meets the independence requirements of the NYSE listing standards, applicable SEC rules and our Corporate Governance Principles.

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LEADERSHIP DEVELOPMENT & COMPENSATION COMMITTEE

Chair: Jerome A. Peribere

Members: Jeanne Beliveau-Dunn, Steven R. Loranger, Surya N. Mohapatra, Ph.D.

 

# 2020 Meetings: 6

 

Purpose

The primary purpose of the Leadership Development & Compensation Committee (“LDCC”) is to provide oversight of compensation, benefits, development and succession for the CEO, executive officers and other CEO direct reports.

 

Roles & Responsibilities

The responsibilities of the Committee are set forth in its charter and include the following:

Approving and overseeing administration of the Company’s executive compensation program including incentive plans and equity-based compensation plans.

Setting annual performance goals and strategic objectives for the CEO and evaluating CEO performance against such goals, in conjunction with the Board.

Approving individual compensation actions for executive officers and other direct reports to the CEO.

Overseeing the establishment and administration of the Company’s benefit programs and severance policies for executive officers and other direct reports to the CEO.

Overseeing succession planning for executive officers and other direct reports to the CEO, and the Company's leadership and development programs.

Making recommendations to the Board of Directors concerning the compensation of directors.

Overseeing the Company's talent management programs and initiatives, including diversity and inclusion.

Engage an outside compensation consultant and review and assess the consultant’s performance and independence, on an annual basis

 

Independence and Outside Directors

The Board of Directors has determined that each member of the LDCC meets the independence requirements of the NYSE (including those applicable specifically to compensation committee members) and our Corporate Governance Principles. The Board has also determined that all four members of the LDCC are “non-employee directors” under the SEC’s rules.

 

Compensation Committee Interlocks and Insider Participation

During fiscal year 2020 and as of the date of this Proxy Statement, none of the members of the LDCC has been or is an officer or employee of the Company, and no executive officer of the Company has served on the compensation committee or board of any company that employed any member of the Company’s LDCC or Board of Directors.

 

Compensation Risk Oversight

To assist the Board with its risk oversight responsibilities, the LDCC regularly considers the risks associated with the Company's compensation programs.  In addition, each year our management team undertakes a comprehensive review of the Company's compensation policies and practices and presents the results of this review to the LDCC. Following the presentation of the results of the 2020 review, the LDCC concluded that the overall structure of our compensation program is designed with the appropriate balance of risk and reward in relation to our overall business strategy, and that there were no compensation-related risks reasonably likely to have a material adverse effect on the Company. The following table summarizes the risk mitigation factors for each element in our executive compensation program:


 

Xylem 2021 Proxy Statement  |  37


Compensation Element

Risk Mitigation Factors

Base Salary

Fixed component

Represents a relatively small percentage of total compensation

Annual

Incentive Plan

Determined based on multiple performance factors to align executives globally on key business priorities

Regular assessment of the pay and performance relationship of Annual Incentive Plan performance targets and range of potential payouts for appropriate pay-for-performance alignment

Final payouts made after a validation process to confirm business results and applicable earned payout

Capped performance scores and awards payable to any individual

Payouts for senior executives are subject to a clawback policy

Long-Term

Incentive Plan

Long term incentive plan (“LTIP”) awards are valued on the effective date of the grant

Balanced mix of performance metrics (an internal absolute metric and an external relative metric) intended to facilitate pay-for-performance based on Company goals and directly linked to delivering shareholder value

Regular assessment of the relationship of LTIP performance targets and range of potential payouts to enable appropriate pay-for-performance alignment

Re-pricing or exchange of stock options without shareholder approval prohibited

Stock ownership guidelines applicable to senior leaders (see “Stock Ownership Guidelines” section)

Payouts for executive officers and other CEO direct reports are subject to a clawback policy

Strong insider trading policy, including prohibition of hedging, pledging or shorting of our common stock

 

See “Compensation Discussion and Analysis” section for additional information on the LDCC’s role and responsibilities.

 

LEADERSHIP DEVELOPMENT & COMPENSATION COMMITTEE REPORT

 

The Leadership Development & Compensation Committee reviewed and discussed with management the Compensation Discussion and Analysis included in this Proxy Statement. Based on this review and discussion, the Leadership Development & Compensation Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Leadership Development & Compensation Committee of the Company’s Board of Directors:

Jerome A. Peribere, ChairSteven R. Loranger

Jeanne Beliveau-DunnSurya N. Mohapatra, Ph.D.

 

Communicating With The Board Of Directors

The Board has established a process to facilitate communication between shareholders and other interested parties with the Company’s independent directors. Communications intended for the Board, or for any individual member or members of the Board, should be sent by:

 

Mail:

E-mail:

 

 

 

 

 

Xylem Inc.

Independent.Directors@xylem.com

 

Attn: Corporate Secretary

 

 

 

1 International Drive

 

 

 

Rye Brook, NY 10573

 

 

 

In general, any shareholder communication delivered to us for forwarding to the Board or specific directors will be forwarded in accordance with the shareholder’s instructions. Correspondence addressed to “Non-Employee Directors” will be forwarded to our independent Board Chair. Junk mail, advertisements, resumes, spam and surveys will not be forwarded to the Board or directors. Abusive, threatening or otherwise inappropriate materials will also not be forwarded.

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Commitment to Sustainability

At Xylem, sustainability is at the center of who we are and what we do.  As a leading global water technology company, we address one of the world’s most urgent sustainability challenges – responsible stewardship of our shared water resources. Technology is playing an increasingly important role in helping the world solve water issues. We have a long history of innovation, and are focused on the powerful capabilities of smart technology, integrated management and data analytics.

Our Board of Directors, primarily through its Nominating & Governance Committee, provides oversight of the Company’s approach to sustainability and corporate social responsibility.  In addition, the LDCC oversees the Company’s approach to continuously improving diversity and inclusion as well as talent development. The Board and its committees regularly discuss with management our approach to sustainability, including risks and opportunities, and implications for the Company’s strategy.

Xylem approaches business sustainability as a way to generate economic value while also creating value for society, thus meeting the needs of both. We leverage sustainability in our decision-making toward long-term value creation for our shareholders, customers, employees and communities in which we operate. Xylem is helping to create a water-secure world while creating social and economic value in the following three ways:

 

Serving Our Customers

 

We provide innovative technologies, solutions and expertise that help our customers solve major water challenges like water affordability, scarcity and resilience.

Building a Sustainable Company

 

We know that in order to be a company that advances sustainability, we need a strong foundation and to execute with discipline today while also focusing on the future. We adhere to and champion responsible business practices, including promoting diversity and inclusion, and look to be a standard-setter in all that we do.

Empowering Communities

 

We are a company that is committed to creating both economic and social value. We strive every day to have a social impact and solve water for communities in need, including those affected by water-related disasters, recognizing that water challenges dramatically affect the quality of life and economic prospects for millions of people around the globe every day.

 

Serving Our Customers  We provide innovative technologies, solutions and expertise that help our customers solve major water challenges like water affordability, scarcity and resilience.  Building a Sustainable Company   We know that in order to be a company that advances sustainability, we have to be a company with a strong foundation that executes with discipline today while also focusing on the future. We adhere to and champion responsible business practices, including promoting diversity and inclusion, and look to be a standard-setter in all that we do.  Empowering Communities  We are a company that is committed to creating both economic and social value. We strive every day to create social impact and solve water for communities in need, including those impacted by water-related disasters, recognizing that water challenges dramatically affect the quality of life and economic prospects for millions of people around the globe every day.  

We appreciate the important role we play in helping our customers meet their own sustainability goals. Our products and solutions allow our customers to transport, treat, and test water more sustainably than in the past. This also enables our customers to realize greater water and energy efficiencies, to have access to more affordable solutions and to build communities that are more resilient against the adverse impacts of climate change.

A shared value approach requires business, environmental and social aims to mutually thrive. Our shared value approach is designed to increase economic and social value by:

 

Helping our customers solve major water challenges associated with water scarcity, affordability and resilience against the effects of climate change;

 

Minimizing negative environmental and social impacts from our operations;

 

Creating programmatic and alternative business model strategies that benefit society and the communities in which they are implemented;

 

Elevating awareness of global water issues through strategic partnerships; and

 

Providing education and access to safe water to enable healthy lives and build resilient communities through our corporate social responsibility program, Xylem Watermark.  

In furtherance of our shared value approach, in 2019 we announced an ambitious slate of 2025 goals against which we are measuring our progress. Our 2019 Sustainability Report: “Water for a Healthy World” is available on Xylem’s website where you can learn more about our 2025 goals. Our 2025 Sustainability goals are aligned with the United Nations Sustainable Development Goals (“UNSDGs”), not only to substantiate our contribution to achieving global

 

Xylem 2021 Proxy Statement  |  39


objectives, but also to underscore our commitment to building a sustainable future. While Xylem embraces all 17 of the UNSDGs, we have a special focus on SDG6: Clean Water and Sanitation.  

Xylem is currently assessing the risks and opportunities related to the impact of climate change on our business. We are in the process of performing a climate scenario analysis under the Task Force on Climate-related Financial Disclosures (TCFD) framework, and are working to expand the Sustainability Accounting Standards Board (SASB) aligned-disclosures in our Sustainability Report.

Xylem Watermark, our corporate social responsibility program, has a mission to provide education and access to safe water to enable healthy lives and build resilient communities. With approximately 7,500 employees participating in 2020, our employee-led volunteerism enhances the Company’s commitment to employee retention, recruiting, and collaboration in the communities in which we live and work. Xylem Watermark’s expansion strategy, which includes an integrated stakeholder engagement and disaster response model, continues to position us to engage a larger ecosystem to empower communities globally. In 2020, Xylem Watermark supported communities heavily affected by COVID-19 with additional philanthropic donations, production and distribution of personal protective equipment, and partnership with industry organizations to raise awareness of the impacts COVID-19 has had on our industry.

In 2020, we completed a $1 billion Green Bond offering, the proceeds of which will be allocated to projects that help improve water accessibility, water affordability and water systems resilience, thus further aligning our sustainability and financing strategies. This follows our 2019 execution of the first sustainable improvement loan in the US General Industrial Sector, which ties the Company’s borrowing rates to our Sustainalytics rating, an important barometer of Xylem’s continued commitment to sustainability. Further underscoring Xylem’s continued commitment to sustainability, a part of the individual component of the 2020 Annual Incentive Compensation for both our President & CEO and our Senior Vice President, Chief Sustainability Officer, General Counsel and Corporate Secretary was tied to Xylem’s sustainability performance as rated by Sustainalytics. In addition, the individual component of the 2020 Annual Incentive Compensation for our segment Presidents included safety performance of their businesses as measured by injury frequency and risk reduction index. In 2021, the Company is augmenting its approach to sustainability-linked compensation for all of our NEOs, as well as a broader group of executives, with a special, one-time grant of performance share units tied to goals that are based on 5 of our strategically transformative 2025 sustainability goals.

Xylem’s ongoing commitment to sustainability and the results we have achieved have led to our inclusion on several of the world’s most prestigious sustainability equity indexes. In 2020, Xylem scored an A- from CDP in both the Climate Change and Water ratings, in recognition of our actions to optimize energy consumption and water usage, reduce CO2 emissions and water withdrawals, and mitigate the business risks of climate change and water insecurity. In 2020, Xylem’s sustainability progress was also assessed in the MSCI and ISS indexes.

We are also proud signatories to the following:

 

American Business Act on Climate Pledge

 

Business Roundtable Pledge.

 

CDP Climate Change and Water Security

 

Charta der Vielfalt (Germany)

 

Human Rights Campaign Foundation’s Global Business Coalition

 

Human Rights Campaign Foundation’s Business Coalition for the Equality Act

 

Time to Vote

 

United Nations Global Compact

 

United Nations CEO Water Mandate

 

United Nations Women’s’ Empowerment Principles

 

United Nations (UN75) Uniting Business Statement

 

“We Are Still In” Declaration

 

World Business Council for Sustainable Development WASH at the Workplace

As a signatory to each of these compacts, pledges and mandates, Xylem is committed to continuous progress against their core elements; this helps us better understand and manage our own opportunities and risks in the environmental, social and governance arena.

40  | Xylem 2021 Proxy Statement


 

 

STOCK OWNERSHIP

Certain Beneficial Owners

Set forth below is information regarding any person known to the Company as of February 16, 2021 to be the beneficial owner of more than five percent of our outstanding common stock as of December 31, 2020. As of December 31, 2020, the Company had 180,331,995 shares of common stock outstanding. In providing the information below, we have relied on information filed with the SEC by the beneficial owners.

 

Name and Address of Beneficial Owner

 

Amount and Nature of

Beneficial Ownership

 

 

Percent

of Class

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  BlackRock, Inc. (1)

  55 East 52nd Street

  New York, New York 10055

 

 

18,252,469

 

 

 

10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  The Vanguard Group (2)

  100 Vanguard Boulevard

  Malvern, Pennsylvania 19355

 

 

18,653,103

 

 

 

10.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Aristotle Capital Management, LLC (3)

  11100 Santa Monica Boulevard, Suite 1700

  Los Angeles, California 90025

 

 

9,073,140

 

 

 

5.03

 

 

 

 

 

 

 

 

 

 

 

(1)

As of December 31, 2020, BlackRock, Inc. had sole voting power with respect to 14,463,297 shares and sole dispositive power with respect to 18,252,469 shares. The foregoing information is based solely on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on January 27, 2021.

(2)

As of December 31, 2020, The Vanguard Group had sole dispositive power with respect to 17,872,740 shares, shared voting power with respect to 290,281 shares and shared dispositive power with respect to 780,363 shares. The foregoing information is based solely on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 10, 2021.

(3)

As of December 31, 2020, Aristotle Capital Management, LLC had sole voting power with respect to 7,079,509 shares and sole dispositive power with respect to 9,073,140 shares. The foregoing information is based solely on a Schedule 13G/A filed by Aristotle Capital Management, LLC with the SEC on February 2, 2021.

 

Directors and Named Executive Officers

The following table shows the number of shares of our common stock beneficially owned by each director and NEO, and by all current directors and executive officers as a group as of February 15, 2021. The percentage calculations below are based on an outstanding share number of 180,358,493. The number of shares beneficially owned by each director or NEO has been determined under the rules of the SEC, which provide that beneficial ownership includes any shares as to which a person has the power to vote, or the power to transfer, and any shares the person has the right to acquire within 60 days by the exercise of any stock option or other right. Unless otherwise indicated, each individual has sole voting and investment power, or shares those powers with his/her/their spouse.

 

Xylem 2021 Proxy Statement  |  41


 

Name of Beneficial Owner

 

Total Shares

Beneficially

Owned (1)(2)

 

 

Percentage

of

Class

Jeanne Beliveau-Dunn

 

 

3,858

 

 

*

Patrick K. Decker

 

 

1,058,564

 

 

*

Robert F. Friel

 

 

21,027

 

 

*

Jorge M. Gomez

 

 

1,848

 

 

*

Victoria D. Harker

 

 

20,382

 

 

*

Sten E. Jakobsson

 

 

19,107

 

 

*

Steven R. Loranger3

 

 

100,949

 

 

*

Surya N. Mohapatra

 

 

35,247

 

 

*

Jerome A. Peribere

 

 

19,981

 

 

*

Markos I. Tambakeras4

 

 

38,062

 

 

*

Lila Tretikov

 

 

 

 

*

Uday Yadav

 

 

 

 

*

Matthew Pine

 

 

8,636

 

 

*

E. Mark Rajkowski5

 

 

70,007

 

 

*

Sandra E. Rowland

 

 

9,222

 

 

*

Colin R. Sabol

 

 

78,990

 

 

*

Hayati Yarkadas

 

 

7,066

 

 

*

All Current Directors and Executive Officers as a Group (20 persons)

 

 

1,632,865

 

 

*

*Less than 1%

____________

(1)

The shares shown include the following vested but deferred restricted stock units (“RSUs”): Jeanne Beliveau-Dunn, 1,831; Robert F. Friel, 3,249; Surya N. Mohapatra, 1,355; Steven R. Loranger, 12,595; and all directors as a group, 19,030.

(2)

The shares shown include the following shares that directors and NEOs have the right to acquire within 60 days of February 15, 2021:  Patrick K. Decker, 138,701 shares; Matthew Pine, 8,636 shares; Sandra E. Rowland 9,222 shares; Colin R. Sabol, 25,227 shares; Hayati Yarkadas 7,066 shares and all directors and NEOs as a group, 188,852 shares.

(3)

Shares shown for Steven R. Loranger include 58,898 shares held by a family trust of which Mr. Loranger is the trustee and disclaims beneficial ownership, and 29,456 shares that were transferred to the Steve and Betsy Loranger Foundation in 2020.

(4)

Shares shown for Markos I. Tambakeras include 38,062 shares held by a family trust of which Mr. Tambakeras and his spouse are co-trustees.

(5)

E. Mark Rajkowski retired from the Company on December 31, 2020.

Stock Ownership Guidelines

The LDCC has adopted stock ownership guidelines to encourage directors, NEOs and our most senior executives to build their ownership positions in our common stock over time. We believe that stock ownership guidelines are an important governance feature because they promote senior executive and director commitment to the Company, strengthen the alignment between executive compensation and shareholder interests, minimize excessive risk-taking to achieve short-term returns at the expense of long-term value creation, and build an ownership mentality among the Company’s senior executives and directors. Our guidelines currently provide for the stock ownership levels for directors and senior executives as follows:

Chief Executive Officer

5 X Annual Base Salary

Chief Financial Officer

3 X Annual Base Salary

Senior Vice Presidents

2 X Annual Base Salary

Chief Accounting Officer

1 X Annual Base Salary

Directors

5 X Annual Cash Retainer

 

It is expected that all shares acquired through the vesting of RSUs or performance share units (“PSUs”) and through the exercise of stock options will be held until the applicable ownership level is met. In addition to this expectation, the Company requires SVPs subject to the guidelines to retain a minimum of 50% of the net (after-tax) shares acquired through the vesting of RSUs and PSUs to meet the applicable ownership level.

Compliance with the guidelines is monitored periodically. We take the individual’s tenure into account in determining compliance. A director or senior executive is given 5 years from the date she/he/they first become subject to a particular level of stock ownership to meet the applicable requirement. As of February 15, 2021, all directors and senior executives have met, or are on track to meet, the ownership guidelines.

42  | Xylem 2021 Proxy Statement


 

Insider Trading Prohibition and Policy on Rule 10b5-1 Trading Plans

Our executive officers, other CEO direct reports and directors are subject to our robust insider trading policy. The policy includes earnings-related blackout periods, as well as Company-initiated blackout periods from time to time, as circumstances may warrant. Our insider trading policy allows executive officers, other CEO direct reports and directors to enter into Rule 10b5-1 trading plans for sales of Company securities.

Prohibition on Hedging, Pledging and Shorting Xylem Stock

Our insider trading policy prohibits employees, including executive officers, and directors from engaging in any hedging transactions with respect to Company securities. This includes the purchase of any financial instrument (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) designed to hedge or offset any decrease in the market value of Company securities. Our insider trading policy also prohibits short sales of Company securities and derivative or speculative transactions in Company securities and the pledging, or using as collateral, Company securities in order to secure personal loans or other obligations

 

DIRECTOR COMPENSATION

Our non-employee director compensation program is designed to attract and retain experienced and knowledgeable directors. Compensation for our non-employee directors is set by the Board at the recommendation of the LDCC.  

Guiding Principles

Our director compensation program is based on the following principles:

 

Fairly compensate directors for their time and effort with a compensation program consistent with peer companies.

 

Pay directors solely in the form of cash and equity.

 

Align the interests of our directors with our shareholders by providing at least 50% of the total value in equity and establishing robust stock ownership guidelines.

 

Impose pay limits on non-employee director compensation.

 

Have a transparent process by which directors can determine the compensation program in a deliberate and objective way.

Each non-employee director receives an annual cash retainer and an annual equity award in the form of RSUs, which are granted on the annual meeting date and vest the day before the next annual meeting. To reflect their additional responsibilities, the chair of each committee receives an additional cash retainer. The independent Board Chair receives an additional retainer consisting of cash and RSUs. Mr. Decker, as an employee director, does not receive any compensation for his service as a director.

Review Process

The Board delegated to the LDCC the responsibility to review and recommend any proposed changes in non-employee director compensation. In connection with such review, the LDCC periodically engages its external compensation consultant, Pearl Meyer, to assist with benchmarking and analysis regarding non-employee director compensation (generally every three years). The compensation review consists of analysis of competitive market data from the peer group used for our executive compensation benchmarking, and a selected group of general industry companies that are similarly situated to us from a revenue and market capitalization perspective.  

The last review was conducted in 2019 and the Board decided for 2020 to increase the annual equity award from $140,000 to $150,000 to remain competitive with our peer group, and also to implement an excess meeting fee policy, under which an excess meeting fee will be paid to each non-employee director that attends more than 30 meetings per calendar year (including Board and committee meetings). No changes were made to the non-employee director compensation for the 2021 plan year.

The following table sets forth our 2020 and 2021 non-employee director compensation.

 

Xylem 2021 Proxy Statement  |  43


Compensation Element

 

Amount

 

Standard Board Compensation

 

 

 

 

Annual Cash Retainer*

 

$

100,000

 

Annual Equity Award

 

$

150,000

 

Excess Meeting Fee

 

$2,000 for in-person attendance

$1,000 for telephonic attendance

 

Board and Committee Chair Retainers

 

 

 

 

Independent Board Chair*

 

$

135,000

 

 

 

($67,500 in cash; $67,500 in RSUs)

 

Audit & Finance Committee Chair*

 

$

20,000

 

All other committee chairs*

 

$

15,000

 

 

   *In light of the uncertainty created by the COVID-19 pandemic, on May 14, 2020 the Board approved a temporary 20% reduction of the annual cash retainer fees payable to non-employee directors, including the additional cash retainer fee for service as Board Chair or a committee chair, as applicable, for service during the period from June 1, 2020 through December 31, 2020.

Director Compensation Limit Policy  

Our Board compensation policy limits the total annual compensation for non-employee directors to $750,000 per year.  This limit is inclusive of the value of the applicable annual cash retainer(s), excess meeting fees (if any) and the grant date fair value of the annual equity award.

Deferred Compensation Plan for Directors

Directors have the ability to defer their cash retainers and/or their RSUs. Directors may defer their cash retainers until a specified distribution date, or until retirement or earlier death. Directors may also choose how deferred amounts will be valued until paid; they may choose to have the deferred amount credited with a fixed rate of interest, or to have the deferred amount adjusted periodically based on the value of our common stock. Directors may defer settlement of RSUs until termination of service on the Board or an earlier date specified by the director.

Other Board Compensation

The Company reimburses directors for certain expenses incurred in connection with attending Board, committee and shareholder meetings, including travel, hotel accommodations, meals and other reasonable incidental expenses for the director (and his/her/their spouse or domestic partner, if specifically invited to attend). The Company may also from time to time provide directors and their spouses or domestic partners token gifts of nominal value. Directors are reimbursed for reasonable expenses associated with other Company-related business activities, including participation in director education programs.

Directors are eligible to participate in the Company’s matching gifts program on the same terms as our employees. Under this program, the Company will match or, in certain cases, double match, up to $10,000 in annual donations made to Xylem’s Watermark Fund or its non-profit partners.

Indemnification and Insurance

We indemnify our directors to the fullest extent permitted by law and maintain insurance to protect the directors from liabilities, including certain instances where the Company could not otherwise indemnify them. All directors are covered under a non-contributory group travel insurance policy that provides travel assistance benefits and services, including medical insurance, evacuation coverage and accidental death and dismemberment coverage.  Non-employee directors also participate in a non-contributory group life insurance plan that provides $100,000 of coverage.

44  | Xylem 2021 Proxy Statement


 

DIRECTOR COMPENSATION TABLE

 

Name

 

Fees Earned or

Paid in Cash

($)(1)

 

 

Stock

Awards

($)(2)

 

 

Total

($)

 

  Jeanne Beliveau-Dunn

 

 

88,332

 

 

 

150,007

 

 

 

238,339

 

  Curtis J. Crawford(3)

 

 

33,330

 

 

 

 

 

 

33,330

 

  Robert F. Friel

 

 

130,457

 

 

 

217,531

 

 

 

347,988

 

  Jorge M. Gomez

 

 

88,332

 

 

 

150,007

 

 

 

238,339

 

  Victoria D. Harker

 

 

105,998

 

 

 

150,007

 

 

 

256,005

 

  Sten E. Jakobsson

 

 

88,332

 

 

 

150,007

 

 

 

238,339

 

  Steven R. Loranger

 

 

101,582

 

 

 

150,007

 

 

 

251,589

 

  Surya N. Mohapatra

 

 

88,332

 

 

 

150,007

 

 

 

238,339

 

  Jerome A. Peribere

 

 

101,582

 

 

 

150,007

 

 

 

251,589

 

  Markos I. Tambakeras

 

 

119,082

 

 

 

150,007

 

 

 

269,089

 

  Lila Tretikov

 

 

33,330

 

 

 

112,500

 

 

 

145,830

 

  Uday Yadav

 

 

33,330

 

 

 

112,500

 

 

 

145,830

 

(1)

The amounts represent cash compensation earned in respect of service on our Board, as applicable, in fiscal year 2020. These amounts reflect the temporary 20% reduction in the cash retainer fees payable to non-employee directors, including for service as Board Chair or a committee chair, as applicable, for service during the period June 1, 2020 to December 31, 2020. The Board approved this temporary reduction in cash retainer fees on May 14, 2020 in light of the uncertainty created by the COVID-19 pandemic. Ms. Tretikov and Mr. Yadav were appointed to the Board effective July 29, 2020, and their annual cash retainer fees were therefore pro-rated and also subject to the 20% reduction through December 31, 2020. Fees earned may be paid, at the election of the Director, in cash or deferred cash. Non-employee directors may irrevocably elect deferral into an interest-bearing cash account or an account that tracks the performance of Xylem common stock.

(2)

Annual Stock Awards were issued as RSUs. For stock awards to all non-employee directors other than Ms. Tretikov and Mr. Yadav, the grant date fair value for RSUs was $58.21 per share, which was the closing price of Xylem’s common stock on May 13, 2020 (date of grant). For Ms. Tretikov and Mr. Yadav, the grant date fair value for RSUs was $80.30 per share, which was the closing price of Xylem’s common stock on August 11, 2020 (date of grant). The number of RSUs granted was determined by dividing the amount of the equity award by the closing price of Xylem’s common stock on the date of grant. Non-employee directors receive dividend equivalents on the RSUs but have no other rights as shareholders with respect to the RSUs until vesting.

(3)

Dr. Crawford retired from the Board of Directors effective May 12, 2020.

DIRECTOR STOCK AND OPTION AWARDS OUTSTANDING AT 2020 FISCAL YEAR END

The following table reflects stock awards for non-employee directors outstanding as of December 31, 2020 (no stock options were outstanding).

 

Name

 

Outstanding

Stock Awards(1)

Outstanding Other Deferred Shares(2)

  Jeanne Beliveau-Dunn(3)

 

 

 

2,577

 

 

 

 

1,831

 

 

  Robert F. Friel(3)

 

 

 

3,737

 

 

 

 

3,249

 

 

  Jorge M. Gomez(3)

 

 

 

2,577

 

 

 

 

 

 

 

  Victoria D. Harker

 

 

 

2,577

 

 

 

 

 

 

 

  Sten E. Jakobsson

 

 

 

2,577

 

 

 

 

 

 

 

  Steven R. Loranger(3)

 

 

 

2,577

 

 

 

 

12,595

 

 

  Surya N. Mohapatra

 

 

 

2,577

 

 

 

 

1,385

 

 

  Jerome A. Peribere

 

 

 

2,577

 

 

 

 

 

 

 

  Markos I. Tambakeras

 

 

 

2,577

 

 

 

 

 

 

 

  Lila Tretikov

 

 

 

1,401

 

 

 

 

 

 

 

  Uday Yadav(3)

 

 

 

1,401

 

 

 

 

 

 

 

 

(1)

Amounts shown reflect unvested RSUs granted to non-employee directors for Board service in the 2020-2021 year, starting May 13, 2020. Ms. Tretikov and Mr. Yadav, however, were appointed to the Board on July 29, 2020, and therefore the amount shown for each reflects unvested RSUs from the pro-rated annual stock award granted on August 11, 2020.

 

(2)

The amounts shown reflect vested but deferred RSU's that the non-employee director previously elected to defer in Xylem's Deferred Compensation Plan for Directors.

 

(3)

The non-employee director elected to defer the 2020 stock award in Xylem's Deferred Compensation Plan for Directors.

 

 

Xylem 2021 Proxy Statement  |  45


COMPENSATION DISCUSSION AND ANALYSIS

This section describes the compensation programs and philosophy for our Named Executive Officers (“NEOs”) in 2020:

 

NEO

Position

Patrick K. Decker

President & Chief Executive Officer (“CEO”)

Sandra E. Rowland (1)

Senior Vice President ("SVP") & Chief Financial Officer (“CFO”)

Matthew Pine (2)

SVP & President, Applied Water Systems (“AWS”) and Americas Commercial Team (“ACT”)

Colin R. Sabol

SVP & President, Measurement and Control Solutions (“MCS”)

Hayati Yarkadas (2)

SVP & President, Water Infrastructure (“WI”) and Europe Commercial Team (“EUCT”)

E. Mark Rajkowski (3)

Former SVP & CFO

(1)

Ms. Rowland joined the Company to serve as CFO on October 1, 2020.

(2)

Messrs. Pine and Yarkadas joined the Company on March 16, 2020.

(3)

Mr. Rajkowski served as SVP & CFO until September 30, 2020, and thereafter as advisor until his retirement on December 31, 2020.

 

Executive Summary

Business Performance for 2020

 

Key Results for 2020

 

     Revenue was $4.88 billion

     Net Income was $254 million and Earnings Per Share was $1.40

     Adjusted Net Income* was $374 million and Adjusted Earnings Per Share* was $2.06

     Operating Cash Flow Conversion was 325$ and Free Cash Flow Conversion* was 181%

*Non-GAAP financial measures that exclude certain items. For a description and reconciliation of the items excluded from these measures, other than Free Cash Flow Conversion, relative to our reported GAAP financial results, please refer to pages 33-34 of Xylem’s Annual Report on Form 10-K for the year ended December 31, 2020. For a description and reconciliation of the items excluded from Free Cash Flow Conversion relative to our GAAP financial results, please refer to pages 12 and 17 of Xylem’s Current Report on Form 8-K for the quarter and fiscal year ended December 31, 2020.

While the pandemic affected our financial performance, we raised our level of execution and continued to solve customers’ greatest water and resource challenges in their time of extreme need. We put resilient infrastructure in place to keep our colleagues safe and connected and our essential operations running. We were able to steadily improve performance through the second half of the year and achieve solid results thanks to our focus on serving customers, operational execution and cost discipline. We have many important competitive strengths that have helped us stand out, including our global presence, diversified end markets and broad portfolio of innovative offerings. Our digital solutions offer new opportunities to create impact as customers seek ways to optimize their operations and make water and energy infrastructure more affordable, efficient and resilient. We are ready to navigate ongoing uncertainty in 2021 and drive growth with our continued efforts and commitment.

In 2020, through the unprecedented challenges posted by the COVID-19 pandemic, we made meaningful progress against our strategic priorities:

We evolved to better serve customer needs. We are leveraging our digital solutions to bring consultative offerings to solve customers’ system-level water challenges through digital transformation. We also increased our priority and focus on aftermarket and services to enhance our capabilities globally.

We further improved our efficiency and ability to drive synergy as one company.  Our global supply chain team delivered $150 million in gross productivity savings from procurement and continuous improvement initiatives. We held >1,800 continuous improvement events to reduce complexity, better serve customers and simplify work. 

We advanced our innovation and technology capabilities. We put a consistent structure in place for our global Centers of Excellence and increased usage of their expertise. We made meaningful progress on our advanced digital solutions including a 70% increase in backlog by the end of 2020.

46  | Xylem 2021 Proxy Statement


 

We continued to invest in developing our people. We introduced a range of new virtual learning and development opportunities, and adapted existing programs to continue to develop our current and future leaders. As part of our commitment to diversity and inclusion, we introduced a hiring toolkit for managers to help attract the most talented and diverse candidates, and held unconscious bias training for key leaders across the Company.

We reinforced our longstanding commitment to sustainability by putting it at the core of our strategy. We expanded our sustainability function to accelerate integration of sustainability and social value creation in every aspect of how we operate. We issued a $1 billion Green Bond which enables us to further link our business strategy with sustainability. 

We mobilized to help our colleagues, customers and communities during the COVID-19 pandemic. We introduced new pay benefits programs, along with expanded global employee assistance programs to support wellbeing. We launched new and upgraded technologies to better enable re