2017 Sustainability Report

Xylem Board of Directors (l to r): Jerome A. Peribere, former President & CEO of Sealed Air Corporation; Steven R. Loranger, former Chairman, President & CEO of ITT Corporation; Jeanne Beliveau-Dunn, former Vice President & General Manager of Services, Cisco; Sten E. Jakobsson, former President & CEO of ABB AB; Markos I. Tambakeras, Xylem Chairman and former Chairman, President & CEO of Kennametal, Inc.; Robert F. Friel, Chairman, President & CEO of PerkinElmer, Inc.; Patrick K. Decker, President & CEO, Xylem Inc.; Curtis J. Crawford, Ph.D., President & CEO of XCEO, Inc.​; Victoria D. Harker, Chief Financial Officer of TEGNA, Inc.; Surya N. Mohapatra, Ph.D., former Chairman, President & CEO of Quest Diagnostics Inc.

Business Performance

Governance & Risk Management

Xylem is committed to strong and effective corporate governance. We have established governance practices and controls that promote transparency and accountability of management and our Board to our shareholders.

Strong governance starts with our highest governing body, the Xylem Board of Directors, which is led by our independent Chair. We believe having an independent Chair, whose sole job is to lead the Board, allows our CEO to focus his time and energy on the strategy and operations of our company. As of the end of 2017, our Board consisted of 10 members, all of whom were independent with the exception of our Chief Executive Officer.

Our Board is elected annually by our shareholders to oversee how Xylem’s employees and management conduct business under the direction of the Chief Executive Officer and to assure that the interests of the shareholders in the long-term health, success and financial strength of the company are being served. The core responsibility of the Board is to exercise its business judgment to act in what the Board reasonably believes are the best interests of Xylem and its shareholders to build long-term sustainable value. In considering the best interests of Xylem and its shareholders, the Board may also consider the effects of any action on Xylem’s other stakeholders, including its employees, suppliers, customers and communities in which our offices or other facilities are located.

In 2017, we held 10 Board meetings and 20 Committee meetings to make decisions on key strategic issues affecting our company.

Overall, Board and Committee meeting attendance was 96 percent in 2017.

Highlights of Xylem’s corporate governance policies are summarized on page 1 of the company’s 2018 Proxy Statement as filed with the U.S. SEC.

BOARD MEMBER SELECTION AND EVALUATION

The Board regularly reviews Board size and composition, including diversity and tenure, as well as Committee structure, through its Nominating and Governance Committee. This Committee, comprised entirely of independent directors, is responsible for oversight of the company’s programs on sustainability; corporate citizenship; environment; health and safety; anti-harassment; business continuity; cyber risk, including data privacy and security; and ethics and compliance, including anti-corruption and trade compliance.

Our Nominating and Governance Committee is responsible for identifying and recommending qualified director candidates to the Board of Directors. The Committee seeks candidates who possess the attributes and experience necessary to provide a broad range of personal characteristics to the Board, including diversity, management skills, experience in technology and innovation, global business experience, and sustainability experience and commitment.

Our Board actively seeks to consider diverse candidates for membership on the Board, taking into account diversity in terms of viewpoints, professional experience, education and skills, as well as race, gender and nationality. As part of its annual process to identify new candidates to join the Board of Directors, the Nominating and Governance Committee considers whether and to what extent a candidate’s attributes and experiences will individually and collectively complement the existing Board, recognizing that Xylem’s business and operations are diverse and global in nature.

In 2017, the Board elected Jeanne Beliveau-Dunn to the Board, bringing the total number of directors to 10. Ms. Beliveau-Dunn most recently served as Vice President and General Manager of Cisco’s Technical Services, a global organization that supports Cisco’s customers.

Our Board considers recommendations for Director candidates from many sources, including shareholders and third-party search firms, and uses the same criteria for evaluating candidates regardless of the source of the recommendations. The company also provides shareholders with a proxy access right, which permits a shareholder or group of shareholders meeting certain ownership requirements to nominate and include in our proxy materials a qualified Director candidate to be voted on by the shareholders at the annual shareholders’ meeting.

The Xylem Board of Directors conducts an annual self-assessment to evaluate the effectiveness and performance of the Board overall and each of our Committees. This includes an assessment of the Nominating and Governance Committee’s work in overseeing the company’s sustainability program and related activities. In addition, the Nominating and Governance Committee also engages an independent third-party consultant on a periodic basis to meet with each Board member to assist with the qualitative assessment of the Board. The independent consultant presents its findings to the full Board and facilitates a robust discussion focusing on opportunities for improvement. The consultant also provides feedback to individual directors, as applicable.

BOARD COMMUNICATIONS

Xylem’s Board of Directors values the views of our shareholders and believes that building 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 our shareholders on a range of topics related to strategic and operational matters, as well as sustainability, executive compensation and corporate governance. In 2017, we also held an Investor and Analyst Day where the company presented and discussed its long-term strategy and financial objectives. While the company’s regular governance outreach and investor and analyst days remain key components of the company’s shareholder engagement, the Board views engagement as a year-round conversation with shareholders about creating long-term sustainable value. Accordingly, the Board seeks to build a framework for deep, frequent and productive conversations with the company’s shareholders.

Employees are informed of company decisions through regular print and digital newsletters and memos, as well as town halls and webcasts. Shareholders and other external audiences can learn about Xylem through webcasts, investor conferences, earnings calls, the Xylem website, news releases and our company public filings. Our Corporate Governance Principles, Committee Charters and Code of Conduct are publicly available on our website.

Xylem shareholders and other interested parties can contact individual Board members or the entire Board as a group by submitting an email to Independent.Directors@xyleminc.com or a letter directed to our company’s Corporate Secretary at Xylem Inc., 1 International Drive, Rye Brook, New York 10573, USA, with a request to forward the letter to the intended recipient or recipients.

CONFLICTS OF INTEREST

Xylem’s Related Party Transaction Policy governs the treatment of any transaction or proposed transaction between Xylem and its Directors or senior executives. Transactions valued at more than $120,000 involving Directors or its senior executives are required to be approved by our Board’s Nominating and Governance Committee. In 2017, there were no related party transactions that were reportable under U.S. SEC rules and that needed to be approved by the Nominating and Governance Committee.

Proposed new Board memberships and relevant changes in affiliations are reviewed by the Corporate Secretary and the Nominating and Governance Committee for potential conflicts or other concerns.

BOARD AND EXECUTIVE COMPENSATION

Our non-employee Director compensation program is designed to attract and retain experienced and knowledgeable directors and to provide equity-based compensation to align the interests of our directors with those of our shareholders. Each non-employee Director is compensated in two ways: a cash retainer and an equity, stock-based retainer. In 2017, our Board adopted a policy limiting the total annual compensation for non-employee Directors to $750,000. This limit is inclusive of the value of both the annual cash retainer(s) and the grant date fair value of the annual equity award.

Xylem’s senior executives are compensated through a combination of base salary, annual performance-based incentive compensation and long-term performance-based equity awards, including performance share units, restricted stock units and stock options.

The target compensation mix for Xylem’s most highly compensated officers is heavily weighted toward performance-based compensation. In 2017, 87 percent of CEO compensation and an average of 71 percent of compensation for other named executive officers was in the form of annual performance-based incentive compensation and long-term performance-based equity awards. This does not include any one-time at-hire awards or grants.

Xylem has developed share ownership guidelines designed to encourage senior executives and Board members to build their ownership positions in Xylem’s common stock over time. All of our non-employee Directors and senior executives have met or are on track to meet these guidelines.

A successful, sustainable company is always looking ahead. While management has responsibility for managing risk, our Board has responsibility for risk oversight, and our Audit Committee oversees our risk management processes and policies. Risk oversight is an ongoing process and inherent in the company’s strategic and operational decision-making. We consider a wide range of risk factors that could impact our business, from inflation to information technology interruptions. Xylem’s Board of Directors has primary responsibility for overall risk oversight, including the company’s risk profile and management controls. An enterprise-level risk assessment process is conducted by top executives and reviewed by our Board on an annual basis. This assessment includes feedback gathered from the risk-monitoring dashboards completed by the functional and business leaders, as well as the results of a survey of the company’s broader top leadership group.

The Board has delegated responsibility for the oversight of certain categories of risks to designated Board Committees that report back to the full Board:

  • The Audit Committee monitors the company’s overall risk assessment and risk management program, including accounting, controls and financial disclosures.
  • The Leadership Development and Compensation Committee reviews and assesses compensation program risks to ensure that our compensation programs balance appropriate business risk and rewards without encouraging unnecessary or excessive risk-taking behaviors. This Committee also exercises oversight of risk relating to succession planning for executive officers, including the CEO.
  • The Nominating and Governance Committee is responsible for overseeing the company’s sustainability, corporate citizenship, anti-harassment, environmental, health and safety, business continuity and cyber risk programs. This Committee also provides oversight of Xylem’s ethics and compliance programs, including anti-corruption, anti-harassment and trade compliance.
  • The Finance, Innovation and Technology Committee provides oversight of Xylem’s technology and innovation strategy. It also reviews the company’s capital spending and financing strategies, and M&A opportunities.