2016 Sustainability Report

2016 Sustainability Report

Business Performance

Governance
& Risk Management

At Xylem, we believe that good corporate governance is non-negotiable. We have created a business structure and have controls in place that promote corporate fairness, transparency and accountability.

Strong governance starts with our highest governing body, the Xylem Board of Directors. In 2016, we held 11 Board meetings and 21 Committee meetings to make decisions on key strategic issues affecting our company and to represent the interests of all Xylem stakeholders. All directors are independent with the exception of our Chief Executive Officer. We believe that having an independent Chairman, whose sole job is to lead the Board, allows our CEO to focus his time on the strategy and operations of our company. Overall Board and Committee meeting attendance was 98 percent in 2016.

Effective May 2017, Xylem’s Board of Directors had nine members as a result of Edward Ludwig’s decision not to stand for re-election.

Highlights of Xylem’s corporate governance policies are summarized on page 1 of the company’s 2017 Proxy Statement as filed with the 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 reviewing the company’s sustainability, corporate citizenship, safety, health and environmental affairs, business continuity and cyber risk programs. This Committee also provides oversight of Xylem’s ethics and compliance programs, 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 necessary to provide a broad range of personal characteristics to the Board, including diversity, management skills, technological, business and global experience, and sustainability experience and commitment.

We consider a wide range of risk factors that could impact our business, from inflation to information technology interruptions.

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.

Our Board considers recommendations for Director candidates from many sources and uses the same criteria for evaluating candidates regardless of the source of the recommendations. The company provides shareholders a proxy access right. Proxy access gives certain shareholders the right to nominate a qualified Director candidate on the company’s proxy card to be voted upon by the shareholders as part of the annual shareholder meeting.

The Xylem Board of Directors conducts an annual self-assessment to evaluate its performance overall and at the Committee level. 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 will also engage an independent third-party consultant on a periodic basis to meet with each Board member to assist with the qualitative assessment of the Board, which is then presented to the full Board.

Board Communications
Xylem’s Board of Directors values the views of our shareholders and believes that building positive relationships 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 provide a steady flow of communications about the company’s direction, decisions and priorities. Our Corporate Governance Principles, Committee Charters and Code of Conduct are publicly available on our website.

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 also learn about Xylem through webcasts, investor conferences, earnings calls, the Xylem website, news releases and our company public filings.

Xylem shareholders and other interested parties can contact individual Board members, Board Committees 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.

Xylem’s Board of Directors values the views of our shareholders and believes that building positive relationships is critical to our long-term success.

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 2016, there were no related party transactions that were reportable under 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
All non-employee Directors are compensated in two ways: a cash retainer and an equity, stock-based retainer. The equity retainer links each Director’s interests with both shareholder interests and Xylem’s long-term performance. Likewise, 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 2016, 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.

Risk Management
At Xylem, we believe that a successful, sustainable company is always looking ahead. 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 and 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 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.