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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

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California Water Service Group

California Water Service Company, Hawaii Water Service Company,
New Mexico Water Service Company, Washington Water Service
Company, CWS Utility Services, and HWS Utility Services

1720 North First Street
San Jose, CA 95112-4598
(408) 367-8200

April 8, 2014

Dear Fellow Stockholder:

        You are cordially invited to attend our Annual Meeting of Stockholders at 9:30 a.m. on May 20, 2014, at the executive offices of California Water Service Group, located at 1720 North First Street in San Jose, California.

        Enclosed are a notice of matters to be voted on at the meeting, our Proxy Statement, a proxy card and our 2013 Annual Report.

        Whether or not you plan to attend, your vote is important. Please vote your shares, as soon as possible, in one of three ways: Internet, telephone, or mail. Instructions regarding Internet and telephone voting are included on the proxy card or voting instruction card. If you choose to vote by mail, please follow the instructions on the proxy card or voting instruction card.

        In a continuing effort to conserve natural resources and reduce costs, we produced a summary annual report again this year, opting not to duplicate the financial information that continues to be provided in our Form 10-K filed with the Securities and Exchange Commission. We care about what you think of the report. Please send your feedback to annualreport@calwater.com.

        Thank you for your investment in the California Water Service Group.

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2014 ANNUAL MEETING OF STOCKHOLDERS

NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

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        This Proxy Statement, dated April 8, 2014, relates to the solicitation of proxies by the Board of Directors of California Water Service Group (Group) for use at our 2014 Annual Meeting of Stockholders, which is scheduled to be held on May 20, 2014. We expect to begin mailing this Proxy Statement to stockholders on or about April 8, 2014.

        For directions to the Annual Meeting, please refer to page 62 of this Proxy Statement.

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CALIFORNIA WATER SERVICE GROUP

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

        The 2014 Annual Meeting of Stockholders (Annual Meeting) of California Water Service Group (Group) will be held on Tuesday, May 20, 2014, at 9:30 a.m., at the executive offices of California Water Service Group, located at 1720 North First Street in San Jose, California. At the meeting, stockholders will consider and vote on the following matters:

1.

Election of the ten directors named in the proxy statement;



2.

An advisory vote to approve executive compensation;



3.

Ratification of the selection of Deloitte & Touche LLP as the Group's independent registered public accounting firm for 2014;



4.

Approval of the Group's Amended and Restated Equity Incentive Plan; and



5.

Such other business as may properly come before the meeting.

        The Board of Directors has fixed the close of business on March 25, 2014, as the record date for the determination of holders of common stock entitled to notice of and to vote at the Annual Meeting.

        Please submit a proxy as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. You may submit your proxy: (a) by Internet, (b) by telephone, or (c) by U.S. Postal Service mail. You may revoke your proxy at any time prior to the vote at the Annual Meeting. Of course, in lieu of submitting a proxy, you may vote in person at the Annual Meeting; provided, however, that if you hold your shares in street name, you must request a legal proxy from your stockbroker in order to do so. For specific instructions, please refer to "Questions and Answers About the Proxy Materials and the Annual Meeting" in this Proxy Statement and the instructions on the proxy card.

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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDERS MEETING TO BE HELD ON MAY 20, 2014

        Electronic copies of the Group's Form 10-K, including exhibits, and this Proxy Statement will be available on the Group's website at http://www.calwatergroup.com.

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

What am I voting on?

•

Election of the ten directors named in the proxy statement to serve until the 2015 Annual Meeting;



•

An advisory vote to approve executive compensation;



•

Ratification of the selection of Deloitte & Touche LLP as the Group's independent registered public accounting firm for 2014;



•

Approval of the Group's Amended and Restated Equity Incentive Plan.

Who may attend the Annual Meeting?

        All stockholders of the Group may attend.

Who is entitled to vote?

        Stockholders of record on the record date. The Board has fixed March 25, 2014 as the record date (Record Date) for stockholders entitled to notice of, and to vote at, the Annual Meeting.

How many votes do I get?

        Each share of common stock is entitled to one vote.

What constitutes a quorum?

        A majority of the outstanding shares—present at the Annual Meeting or represented by persons holding valid proxies—constitutes a quorum. If you submit a valid proxy card, your shares will be considered in determining whether a quorum is present.

        Without a quorum, no business may be transacted at the Annual Meeting. However, whether or not a quorum exists, a majority of the voting power of those present at the Annual Meeting may adjourn the Annual Meeting to another date, time and place.

        At the Record Date, there were 2,253 stockholders of record. There were 47,809,225 shares of our common stock outstanding and entitled to vote at the Annual Meeting.

Can I still use cumulative voting for the election of directors?

        No. Stockholders previously approved an amendment to the Group's Certificate of Incorporation to eliminate cumulative voting in order to adopt majority voting in uncontested director elections.

How are the directors elected?

        Our bylaws provide for a majority voting standard for the election of directors in uncontested elections. Under this majority voting standard, each director must be elected by the affirmative vote of a majority of the votes cast with respect to the director. A majority of the votes cast means that the number of votes cast "FOR" a candidate for director exceeds the number of votes cast "AGAINST" that candidate for director. As a result, abstentions will not be counted in determining which nominees receive a majority of votes cast since abstentions do not represent votes cast for or against a candidate. If you hold your

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shares through a stockbroker (or other nominee), the stockbroker does not have authority to vote your shares in the election of directors without instructions from you. Shares that your stockbroker does not vote ("broker non-votes") are not considered votes cast for or against a candidate, and they will not be counted in determining which nominees receive a majority of votes cast. In accordance with our director resignation policy, the Nominating/Corporate Governance Committee has established procedures for an incumbent candidate for director who does not receive the required votes for re-election to tender his or her resignation. The Nominating/Corporate Governance Committee will recommend to the Board whether to accept or reject the offer, or whether other action should be taken. The Board will act on the Nominating/Corporate Governance Committee's recommendation within 90 days after certification of the election results. We will promptly publicly disclose the Board's decision regarding the resignation offer, including the rationale for rejecting the resignation offer, if applicable.

Who are the Board's nominees?

        The nominees are Terry P. Bayer, Edwin A. Guiles, Bonnie G. Hill, Martin A. Kropelnicki, Thomas M. Krummel, M.D., Richard P. Magnuson, Linda R. Meier, Peter C. Nelson, Lester A. Snow, and George A. Vera. All the nominees are current Board members. See "Proposal No. 1—Election of Directors" for biographical information and qualifications.

What are the Board's voting recommendations?

        "FOR" each of the nominees to the Board (Proposal No. 1);

        "FOR" the proposal regarding an advisory vote to approve executive compensation (Proposal No. 2);

        "FOR" the ratification of the selection of Deloitte & Touche LLP as the Group's independent registered public accounting firm for 2014 (Proposal No. 3);

        "FOR" the approval of the Group's Amended and Restated Equity Incentive Plan (Proposal No. 4).

How do I vote?

        If you are a stockholder of record (that is, you hold your shares in your own name), you may vote on the Internet, by telephone, by mail, or in person at the meeting. Different rules apply if your stockbroker or another nominee holds your shares for you (see below).

You may vote on the Internet.

        You do this by following the "Vote by Internet" instructions on the proxy card. If you vote on the Internet, you do not have to mail in your proxy card.

You may vote by telephone.

        You do this by following the "Vote by Phone" instructions on the proxy card. If you vote by telephone, you do not have to mail in your proxy card. You must have a Touch-Tone phone to vote by telephone.

You may vote by mail.

        You do this by signing the proxy card and mailing it in the enclosed, prepaid and addressed envelope. If you mark your voting instructions on the proxy card, your shares will be voted as you instruct.

        If you return a signed card but do not provide voting instructions, your shares will be voted:

•

For the ten named director nominees;



•

For the advisory vote to approve executive compensation;

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•

For the ratification of the selection of Deloitte & Touche LLP as the Group's independent registered public accounting firm for 2014;



•

For the approval of the Group's Amended and Restated Equity Incentive Plan.

You may vote in person at the meeting.

        We will hand out written ballots to anyone who wants to vote at the meeting. If you hold your shares in street name, you must request a legal proxy from your stockbroker in order to vote at the meeting.

What if I change my mind after I return my proxy?

        You may revoke your proxy and/or change your vote at any time before the polls close at the Annual Meeting. You may do this by:

•

Signing another proxy with a later date;



•

Voting on the Internet or by telephone (your latest Internet or telephone proxy is counted);



•

Voting again at the meeting; or



•

Notifying the Corporate Secretary, in writing, that you wish to revoke your previous proxy. We must receive your notice prior to the vote at the Annual Meeting.

Will my shares be voted if I do not return my proxy?

        If you are a stockholder of record, and you do not return your proxy, your shares will not be voted unless you attend the meeting and vote in person.

What happens if my shares are held by my stockbroker (or other nominee)?

        If your shares are held by a stockbroker (or other nominee), you will receive a voting instruction card so that you can instruct your stockbroker on how to vote your shares. If you do not return your voting instruction card, then your stockbroker, under certain circumstances, may vote your shares.

        Specifically, stockbrokers have authority under exchange regulations to vote your uninstructed shares on certain "routine" matters. For "non-routine" matters, no votes will be cast on your behalf if you do not instruct your stockbroker on how to vote. If you wish to change the voting instructions that you gave to your stockbroker, you must ask your stockbroker how to do so.

        If you do not give your stockbroker voting instructions, the stockbroker may either:

•

Proceed to vote your shares on routine matters and refrain from voting on non-routine matters; or



•

Leave your shares entirely unvoted.

        Shares that your stockbroker does not vote (broker non-votes) will count towards the quorum only. We encourage you to provide your voting instructions to your stockbroker. This ensures that your shares will be voted at the meeting.

As to my stockbroker voting, which proposals are considered "routine" or "non-routine"?

        The ratification of the selection of Deloitte & Touche LLP as the Group's independent registered public accounting firm for 2014 (Proposal No. 3) is routine. A stockbroker may generally vote on routine matters if the stockbroker has not received voting instructions from you with respect to such matters.

        The election of directors (Proposal No. 1), the advisory vote to approve executive compensation (Proposal No. 2) and the approval of the Group's Amended and Restated Equity Incentive Plan (Proposal No. 4) are matters considered "non-routine" under applicable rules. A stockbroker cannot vote without your instructions on non-routine matters.

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What is the voting requirement to approve each of the proposals?

How are broker non-votes and abstentions treated?

        Broker non-votes and abstentions are counted for purposes of determining whether a quorum is present. Only "FOR" and "AGAINST" votes are counted for purposes of determining the votes received in connection with the proposal relating to the election of directors (Proposal No. 1), and therefore broker non-votes and abstentions have no effect on that proposal. Stockbrokers may not vote your shares on Proposal No. 1without instructions from you. The affirmative vote of the majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting is required to approve Proposal No. 2, Proposal No. 3 and Proposal No. 4. In addition, the New York Stock Exchange listing standards contain separate approval requirements with respect to the Group's Amended and Restated Equity Incentive Plan (Proposal No. 4). Under the New York Stock Exchange Listing Standards, approval of Proposal No. 4 requires the affirmative vote of the majority of votes cast. Abstentions have the effect of a vote "AGAINST" on all three of these proposals. Stockbrokers may vote your shares on Proposal No. 3 (but not on Proposals No. 2 and No. 4) without instructions from you. Shares resulting in broker non-votes, if any, are not entitled to vote and will have no effect on the outcome of these proposals.

Who will count the vote?

        Representatives of Broadridge Financial Services, Proxy Services, will serve as the inspector of elections and count the votes.

What does it mean if I get more than one proxy card?

        It means that you have multiple accounts at the transfer agent and/or with stockbrokers. Please sign and return all proxy cards to ensure that all your shares are voted.

What percentage of stock do the directors and executive officers own?

        Together, directors and officers own approximately 1.5% of our common stock. See "Stock Ownership of Management and Certain Beneficial Owners" for more details elsewhere in this Proxy Statement.

Who are the largest common stockholders?

        As of December 31, 2013, the largest stockholder was Lazard Asset Management LLC, which beneficially owned 3,490,552 shares of common stock, representing 7.31% of our aggregate outstanding stock. BlackRock, Inc. beneficially owned 2,926,402 shares of common stock, representing 6.10% of our aggregate outstanding stock as of such date. The Vanguard Group, Inc. beneficially owned 2,675,616 shares of common stock, representing 5.60% of our aggregate outstanding stock as of such date. To the best of our knowledge, no other stockholders held more than 5% of our common shares as of such date.

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What is the deadline for submitting stockholder proposals for the Group's proxy materials for next year's Annual Meeting?

        Any proposals that stockholders intend to submit for inclusion in the Group's 2015 proxy materials must be received by the Corporate Secretary of the Group by December 9, 2014. A proposal and any supporting statement together may not exceed 500 words. Please submit the proposal to the Corporate Secretary, California Water Service Group, 1720 North First Street, San Jose, California 95112-4598.

How can a stockholder propose a nominee for the Board or other business for consideration at a stockholders' meeting?

        Any stockholder of record who is entitled to vote at a stockholders' meeting may propose a nominee for the Board or propose other business for consideration at the meeting. The bylaws contain the requirements for doing so. The bylaws are posted on the Group's website at http://www.calwatergroup.com. Physical copies of these documents are also available upon request to the Corporate Secretary, California Water Service Group, 1720 North First Street, San Jose, CA 95112-4598. Briefly, a stockholder must give timely prior notice of the matter to the Group. The notice must be received by the Corporate Secretary at the Group's principal place of business by the 150th day before the first anniversary of the prior year's Annual Meeting. For the 2015 Annual Meeting, to be timely, notice must be received by the Corporate Secretary not later than the close of business on December 21, 2014. If we move the date of the meeting by more than thirty days before or more than sixty days after the date of the previous meeting, notice is due not later than the close of business on the later of the 150th day before the Annual Meeting or the 10th day after we publicly announce the holding of the meeting. If the Group's Corporate Secretary receives notice of a matter after the applicable deadline, the notice will be considered untimely. In that case, or where notice is timely but the stockholder fails to satisfy the requirements of Rule 14a-4 under the Securities Exchange of 1934, the persons named as proxies may exercise their discretion in voting with respect to the matter when and if it is raised at the meeting.

        The bylaws specify what the notice must contain. Stockholders must comply with applicable law with respect to matters submitted in accordance with the bylaws. The bylaws do not affect any stockholder's right to request inclusion of proposals in the Group's Proxy Statement under the rules of the Securities and Exchange Commission (SEC).

How can a stockholder or other interested party contact the independent directors, the director who chairs the Board's executive sessions or the full Board?

        Stockholders or other interested parties may address inquiries to any of the Group's directors, to the lead director (who chairs the Board's executive sessions), or to the full Board, by email to stockholdercommunication@calwater.com or by writing to them in care of the Corporate Secretary, California Water Service Group, 1720 North First Street, San Jose, California 95112-4598. All such communications are sent directly to the intended recipient.

Can I make comments and/or ask questions during the Annual Meeting?

        Yes. Stockholders wishing to address the meeting are welcome to do so by adhering to the following guidelines:

1.

Stockholders may address the meeting when recognized by the Chairman or President & Chief Executive Officer (CEO).



2.

Each stockholder, when recognized, should stand and identify himself or herself.



3.

Stockholder remarks must be limited to matters before the meeting and may not exceed two minutes in duration per speaker.

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        No cameras, video or recording equipment will be permitted at the meeting. Many cellular phones have built-in digital cameras, and while these phones may be brought into the meeting, the camera function may not be used at any time.

Where and when will I be able to find the results of the voting?

        Preliminary results will be announced at the Annual Meeting. We will publish the final results in a current report on Form 8-K to be filed with the SEC within four business days of the Annual Meeting.

BOARD STRUCTURE

        This section briefly describes the structure of the Board and the functions of the principal committees of the Board. The Board has adopted Corporate Governance Guidelines that, along with the charters of the Board committees, provide a framework for the governance of the Group. The Corporate Governance Guidelines and the charters for the Audit, Organization and Compensation, Finance and Risk Management, and Nominating/Corporate Governance committees are posted on the Group's website at http://www.calwatergroup.com. Physical copies of these documents are also available upon request to the Corporate Secretary, California Water Service Group, 1720 North First Street, San Jose, California 95112-4598.

        The Group's policy is that all directors must be able to devote the required time to carry out director responsibilities and should attend all meetings of the Board and of committees on which they sit.

Leadership Structure

        Upon the retirement of Peter C. Nelson as CEO, the roles of Chairman of the Board and CEO were separated. Martin A. Kropelnicki was appointed President & CEO effective September 1, 2013, and Mr. Nelson has continued in his role as Chairman of the Board. At that time, the Board determined that separating the roles of Chairman of the Board and CEO is the most appropriate leadership structure for the Group, taking into account numerous factors bearing upon the issue, including the Board's historical practice (which has predominantly been to separate the roles), its assessment of the Group's leadership and the Group's current and anticipated needs. The Board believes that one reason for the historical success of its leadership model is that the Chairman of the Board has had significant experience as part of the Group's senior management. The Board believes that Mr. Nelson's 17-plus years of service as the former President & CEO of the Group and his additional background in the public utilities industry make him best positioned to lead the Board as it oversees and monitors implementation of the Group's business strategy, considers risks related to strategy and business decisions, and performs its oversight function with respect to the Group's operations.

        The Board also has established the position of lead director because the Board supports having an independent director in a board leadership position at all times. The lead director is an independent director who is elected by the independent directors to serve for a period of at least one year. Mr. Richard P. Magnuson currently serves as lead director. As set forth in the Corporate Governance Guidelines, the lead director's responsibilities and authority include:

•

Presiding over executive sessions of the non-management and independent directors and having the authority to call executive sessions;



•

Presiding at meetings of the Board in the absence of the Chairman of the Board;



•

Approving Board meeting agendas and schedules;



•

Approving information sent to the Board;



•

Serving as liaison between the Chairman of the Board and the independent directors; and

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Being available for consultation and communication with major stockholders upon request.

Risk Oversight

        Under the Corporate Governance Guidelines, the full Board oversees the Group's processes for assessing and managing risk. The Board does not view risk in isolation but considers risk as part of its regular consideration of business decisions and business strategy. The Board exercises its risk oversight function through the Board as a whole and through its committees. Each of the Board committees considers the risks within its areas of responsibility and identified in its charter. The Finance and Risk Management Committee reviews the Group's major risk exposures and the steps management has taken and proposes to take to monitor and control such exposures. The Audit Committee reviews with management risks related to financial reporting and internal controls. At least annually, the Finance and Risk Management Committee discusses the Group's risk assessment and risk management with the Audit Committee. The Organization and Compensation Committee reviews enterprise risks to see that our compensation plans and programs do not encourage management to take unreasonable risks relating to our business. The Nominating/Corporate Governance Committee oversees risks related to matters of corporate governance, including director independence and Board performance.

        The Group has a management level Enterprise Risk Management Committee (ERMC) that reports directly to the Finance and Risk Management Committee. The ERMC is co-chaired by the Group's President & CEO with the Chief Financial Officer, and five other officers from various functions are members. The ERMC identifies and prioritizes key risks and recommends the implementation of appropriate mitigation measures, as needed. The ERMC meets at least semi-annually and reports regularly to the Finance and Risk Management Committee and the President & CEO. The ERMC reports to the Audit Committee no less frequently than annually. Further review or reporting on risks is conducted as needed or as requested by the Board or committee.

Committees

        AUDIT:    Reviews the Group's auditing, accounting, financial reporting and internal audit functions. Also, the Audit Committee is directly responsible for the appointment, compensation and oversight of the independent registered public accounting firm, although stockholders are asked to ratify the Audit Committee's selection of this firm. All members are independent as defined in the listing standards of the New York Stock Exchange and meet the additional independence requirements for audit committee members imposed by the Sarbanes-Oxley Act and the rules of the SEC thereunder.

        The Board has determined that George A. Vera, chair of the Audit Committee, is an audit committee financial expert and is independent under the standards applicable to Audit Committee members. This means that the Board believes Mr. Vera has:

(i)

An understanding of generally accepted accounting principles and financial statements;



(ii)

The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;



(iii)

Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Group's financial statements, or experience actively supervising one or more persons engaged in such activities;



(iv)

An understanding of internal control over financial reporting; and



(v)

An understanding of Audit Committee functions.

        Designation of a person as an audit committee financial expert does not result in the person being deemed an expert for any purpose, including under Section 11 of the Securities Act of 1933. The

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designation does not impose on the person any duties, obligations or liability greater than those imposed on any other audit committee member or any other director and does not affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors.

        ORGANIZATION AND COMPENSATION:    Reviews the Group's executive compensation, employee benefit plans and programs, including their establishment, modification and administration. All members are independent as defined in the listing standards of the New York Stock Exchange, including additional independence requirements for committee members that are effective beginning with the 2014 Annual Meeting. The Organization and Compensation Committee has taken steps to analyze the current risk profile of the Group's executive and broad-based compensation programs. In its evaluation, the Organization and Compensation Committee review took into account the fact that the Group operates in a highly regulated environment and thus maintains strong internal controls, which factors tend to mitigate against undue risk.

        As a result of this evaluation, the Group does not believe that the Group's compensation practices and programs create risks that are reasonably likely to have a material adverse effect on the Group, nor does it believe that the Group's executive compensation practices and programs are designed to promote risk taking.

        Compensation Consultant:    The Organization and Compensation Committee retained Towers Watson to advise it on marketplace trends in executive compensation, management proposals for the 2013 compensation program and officer compensation decisions. Towers Watson evaluated equity compensation programs generally. Towers Watson also consulted with the Nominating/Corporate Governance Committee about its recommendations to the Board on director compensation. Meridian Compensation Partners (Meridian) has been retained for advice on 2014 officer compensation.

        Towers Watson was directly accountable to the Organization and Compensation Committee, as is Merdian. To maintain the independence of their advice, Towers Watson did not provide any services for the Group other than those described above, and Meridian did not do so either. In addition, the Organization and Compensation Committee conducted a conflict of interest assessment, considering the following six factors with respect to Towers Watson and Meridian: (i) the provision of other services to us each by Towers Watson and Merdian; (ii) the amount of fees received from us by Towers Watson, as a percentage of the total revenue of Towers Watson, and the amount of fees received from us by Meridian, as a percentage of total revenue of Meridian; (iii) the policies and procedures each of Towers Watson and Meridian that are designed to prevent conflicts of interest; (iv) any business or personal relationship between the consultants at Towers Watson and Meridian with whom we work and any members of the Organization and Compensation Committee; (v) any of our stock owned by the Towers Watson consultants or the Meridian consultants; and (vi) any business or personal relationship of Towers Watson, the Towers Watson consultants, Meridian, or the Meridian consultants with any of our executive officers, and no conflict of interest was identified.

        For a description of the processes and procedures used by the Organization and Compensation Committee for the consideration and determination of executive compensation, see "Compensation Discussion & Analysis" elsewhere in this Proxy Statement.

        FINANCE AND RISK MANAGEMENT:    Assists the Board in reviewing the Group's financial policies, risk management strategies and capital structure. All members are independent as defined in the listing standards of the New York Stock Exchange.

        NOMINATING/CORPORATE GOVERNANCE:    Reviews the Group's director compensation and assists the Board by (i) identifying candidates and nominating individuals qualified to become Board members and (ii) developing and recommending a set of corporate governance principles applicable to the Group. All members are independent as defined in the listing standards of the New York Stock Exchange.

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        During 2013, there were nine regular meetings of the Board, five meetings of the Audit Committee, four meetings of the Organization and Compensation Committee, two meetings of the Finance and Risk Management Committee, and two meetings of the Nominating/Corporate Governance Committee. The Executive Committee did not meet in 2013 and was dissolved by the Board in late 2013. The incumbent directors attended 99% of all Board and applicable committee meetings in 2013 (held during the period that each director served). Mr. Kropelnicki was elected effective September 1, 2013, and Ms. Bayer did not serve on the Board in 2013.

Independence of Directors

        As discussed in the Group's Corporate Governance Guidelines, a substantial majority of the Board is made up of independent directors. Currently, the Group's independent directors are Terry P. Bayer, Edwin A. Guiles, Bonnie G. Hill, Thomas M. Krummel, M.D., Richard P. Magnuson, Linda R. Meier, Lester A. Snow, and George A. Vera. Douglas M. Brown, who retired from the Board at the 2013 Annual Meeting, was also an independent director. Under the listing standards of the New York Stock Exchange, a director is independent if he or she has no material relationship, whether commercial, industrial, banking, consulting, accounting, legal, charitable or familial, with the Group, either directly or indirectly as a partner, stockholder or officer of an entity that has a material relationship with the Group. The Board makes an affirmative determination regarding the independence of each director annually, based on the recommendation of the Nominating/Corporate Governance Committee. The Board has adopted standards to assist it in assessing the independence of directors, which are set forth in the Corporate Governance Guidelines. Under these standards, the Board has determined that a director is not independent if:

•

The director has a material relationship (including, among others, commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships) with companies that comprise the Group;



•

The director is, or has been within the last three years, an employee of any company that comprises the Group or an immediate family member is, or has been within the last three years, an executive officer of any company that comprises the Group;



•

The director or any immediate family member has received personally during any twelve-month period within the past three years more than $120,000 in direct compensation from companies that comprise the Group, other than director or committee fees and pension or other forms of deferred compensation for prior service (compensation received by an immediate family member for service as an employee, other than an executive officer, of the Group is not considered for purposes of this standard);



•

The director or an immediate family member is a current partner of the Group's internal or external auditor; the director is a current employee of such a firm; the director's immediate family member is a current employee of such a firm who works personally on the Group's audit or the director or an immediate family member was in the last three years a partner or employee of such a firm and personally worked on the Group's audit within that time;



•

The director or an immediate family member has been employed within the last three years as an executive officer of a company whose Organization and Compensation Committee includes or included at the same time an executive officer of the Group;



•

The director is an employee or has an immediate family member who is an executive officer of a customer or vendor or other party that has made payments to or received payments from companies that comprise the Group for property or services in an amount that exceeded the greater of $1 million or 2% of the party's consolidated gross revenues in any of the past three years; or



•

The director, or the director's spouse, is an executive officer of a non-profit organization to which the Group makes, or in the past three years has made, payments that, in any single fiscal year,

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exceeded the greater of $1 million or 2% of the non-profit organization's consolidated gross revenues.

        The Board has determined that none of the following relationships, in itself, is a material relationship that would impair a director's independence:

•

Being a residential customer of any subsidiary of the Group;



•

Being an executive officer or employee, or being otherwise affiliated with, a commercial customer from which the Group's consolidated gross revenues in any of the last three years are or were not more than the greater of (i) 1% of the Group's consolidated gross revenues for the year or (ii) $500,000;



•

Being an executive officer or employee of a supplier or vendor that has or had consolidated gross revenues from the Group in any of the last three years of not more than the lesser of (i) 1% of the Group's consolidated gross revenues for the year or (ii) $500,000;



•

Having a 5% or greater ownership interest or similar financial interest in a supplier or vendor that has or had consolidated gross revenues from the Group in any of the last three years of not more than the lesser of (i) 1% of the Group's consolidated gross revenues for such year or (ii) $500,000; and



•

Being a director of any of the Group's subsidiaries.

        Directors inform the Board as to their relationships with the Group and provide other pertinent information pursuant to questionnaires that they complete, sign and certify on an annual basis. The Board reviews such relationships to identify impairments to director independence and in connection with disclosure obligations. For those directors who reside in a service territory of California Water Service Company and are customers, the Board determined that it is not a material relationship that would impair their independence under the above standards.

Director Qualifications and Diversity

        The Board believes that the Board, as a whole, should possess a combination of skills, professional experience, and diversity of backgrounds necessary to oversee the Group's business. In addition, the Board believes that there are certain attributes that every director should possess, as reflected in the Board's membership criteria. Accordingly, the Board and the Nominating/Corporate Governance Committee consider the qualifications of directors and director candidates individually and in the broader context of the Board's overall composition and the Group's current and future business and operations.

        The Nominating/Corporate Governance Committee is responsible for developing and recommending Board membership criteria to the Board for approval. The Board and the Nominating/Corporate Governance Committee seek a variety of occupational and personal backgrounds on the Board in order to obtain a range of viewpoints and perspectives and to enhance the diversity of the Board. An annual evaluation of the Board's composition enables the Board and Nominating/Corporate Governance Committee to update the skills and experience they seek in the Board as a whole, and in individual directors, as the Group's needs evolve and change over time and to assess diversity. In identifying director candidates from time to time, the Board and the Nominating/Corporate Governance Committee may identify specific skills and experience that it believes the Group should seek in order to constitute a balanced and effective board.

        The Group seeks directors having the following specific qualifications:

•

Evidence of leadership in his or her particular field;



•

Broad experience and sound business judgment;

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•

Expertise in an area of importance to the Group and its subsidiaries;



•

The ability to work in a collegial Board environment;



•

High personal and professional ethics and integrity;



•

The ability to devote the required time to carry out director responsibilities;



•

The ability and willingness to contribute special competencies to Board activities, including appointment to Board committees;



•

Freedom from conflicts of interest that would interfere with serving and acting in the best interests of the Group and its stockholders; and



•

Evidence of being a high caliber individual who has achieved a level of prominence in his or her career; for example, a CEO or highest level financial officer of a sizeable organization, a director of a major corporation, or a prominent civic or academic leader.

        Additionally, Section 2.9 of the Group's bylaws contains requirements that a person must meet to avoid conflicts of interest that would disqualify that person from serving as a director.

        Board membership should reflect diversity in its broadest sense. The Group seeks directors who represent a diversity of backgrounds and experiences that will enhance the quality of the Board's deliberations and decisions. The Board, as a whole, should possess a combination of skills, professional experience and backgrounds necessary to oversee the Group's business. The Board assesses the diversity of skills, experience and backgrounds represented on the Board as part of the annual Board self-evaluation process.

Identification of Director Nominees

        The Group identifies new director candidates through a variety of sources. The Nominating/Corporate Governance Committee will consider director candidates recommended by stockholders in the same manner it considers other candidates, as described in "Board Structure—Director Qualifications and Diversity" elsewhere in this Proxy Statement. Stockholders seeking to recommend candidates for consideration by the Nominating/Corporate Governance Committee should submit a recommendation in writing describing the candidate's qualifications and other relevant biographical information and provide confirmation of the candidate's consent to serve as director. Please submit this information to the Corporate Secretary, California Water Service Group, 1720 North First Street, San Jose, California 95112-4598.

        Stockholders may also propose director nominees by adhering to the advance notice procedure described under "Questions and Answers About the Proxy Materials and the Annual Meeting—How can a stockholder propose a nominee for the Board or other business for consideration at a stockholders' meeting?" elsewhere in this Proxy Statement.

Executive Sessions of the Board

        Under the Group's Corporate Governance Guidelines, the non-management directors meet at least four times each year in executive session without management present, and the independent directors meet in executive session at least once a year. The lead director, Mr. Richard P. Magnuson, chairs these sessions.

Retirement Age of Directors

        The Group has established a mandatory retirement age for directors. A director must retire no later than the Annual Meeting that follows the date of the director's 75th birthday. An employee director must

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retire as an employee no later than the Annual Meeting that follows the date of his or her 70th birthday, but may remain on the Board at the discretion of the Board.

Annual Meeting Attendance

        All directors are expected to attend each Annual Meeting of the Group's stockholders, unless attendance is prevented by an emergency. All of the Group's directors who were in office at that time attended the Group's 2013 Annual Meeting.

Other Governance Best Practices

        The Group has adopted other practices that we believe reflect our commitment to good corporate governance including:

No Hedging and Pledging Policies

        In accordance with our Insider Trading Policy, our directors and executive officers are prohibited from (i) hedging their ownership of Group stock, including trading in options, puts, calls, or other derivative instruments related to Group stock or debt and (ii) pledging their ownership of Group stock.

Executive Compensation Recovery ("Clawback") Policy

        The Board has adopted an executive compensation recovery, or "clawback," policy requiring the reimbursement of excess incentive-based compensation provided to the Group's officers in the event of certain restatements of the company's financial statements. A more detailed description of the Executive Compensation Recovery Policy appears in the "Compensation Discussion and Analysis" section of this Proxy Statement.

Stock Ownership Requirements

        Our Board has adopted stock ownership requirements for officers and directors. These stock ownership requirements were adopted to promote a long-term perspective in managing the Group and to help align the interests of our stockholders, officers and directors. As of March 9, 2014, 13 of our non-employee directors and officers already met or exceeded their ownership requirements. Our new director and new officers have five years to meet the requirements. A complete description of the stock ownership requirements for directors and officers appears in the "Compensation Discussion and Analysis" section of this Proxy Statement.

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        Our directors as of March 25, 2014, are as follows:

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PROPOSAL NO. 1—ELECTION OF DIRECTORS

        Upon the recommendation of the Nominating/Corporate Governance Committee, the Board has nominated for election at the 2014 Annual Meeting of Stockholders a slate of ten nominees. All of the nominees have served as directors since the last Annual Meeting except for Terry P. Bayer and Martin A. Kropelnicki. Ms. Bayer was recommended to the Nominating/Corporate Governance Committee by a third-party search firm and elected to the Board effective March 1, 2014. Mr. Kropelnicki was appointed CEO of the Group and elected to the Board effective September 1, 2013. All directors are elected annually to serve until the next annual meeting or until their respective successors are elected.

Nominee Qualifications

        When an incumbent director is up for re-election, the Nominating/Corporate Governance Committee reviews the performance, skills and characteristics of such incumbent director before making a determination to recommend that the Board nominate him or her for re-election.

        The Nominating/Corporate Governance Committee believes that all of the ten director nominees listed below are highly qualified and have the skills and experience required for membership on our Board. A description of the specific experience, qualifications, attributes and skills that led our Board to conclude that each of the nominees should serve as a director follows the biographical information of each nominee below.

Vote Required

        Each director must be elected by the affirmative vote of a majority of the votes cast. A majority of the votes cast means that the number of votes cast "FOR" a candidate for director exceeds the number of votes cast "AGAINST" that candidate for director.

Recommendation of the Board

        Our Board of Directors unanimously recommends that you vote "FOR" the election of each of the following nominees:

Terry P. Bayer
Director since March, 2014
Age 63

        Ms. Bayer is the Chief Operating Officer (COO) for Molina Healthcare, Inc., a managed care company that provides Medicaid and Medicare related solutions to meet the health care needs of low-income individuals and families. She has held that position since 2005. She was previously Executive Vice-President of Health Plan Operations and also held management positions at FHP and AccentCare, Inc. Ms. Bayer previously served on the Board of Directors of Apria Healthcare Group, Inc. from 2006-2008 where she served as the chair of the compliance committee and served as a member of the compensation comittee. She holds a Juris Doctor Degree from Stanford University, a Master's Degree in Public Health from the University of California, Berkeley, and a Bachelor's Degree in Communications from Northwestern University.

        Ms. Bayer brings senior leadership, financial and operational expertise to the Board from her service as the COO of Molina Healthcare, Inc., a public company. She has many years of experience as an operating executive with a strong focus on government program compliance and administration as well as customer service. Her significant background and experience in health care supports the Board's efforts in overseeing and advising on employee health matters. Her previous experience as a director of Apria Healthcare Group. Inc. and a committee member also allows her to contribute to the Group.

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Edwin A. Guiles
Director since 2008
Age 64

        Mr. Guiles has been a director of Cubic Corporation since 2008. He was formerly Executive Vice-President of Corporate Development at Sempra Energy. From 2000 to 2006, he was Chairman and CEO of San Diego Gas & Electric (SDG&E) and Southern California Gas Company (SoCal Gas), Sempra Energy's California regulated utilities. He held a variety of management positions at SDG&E since joining that company in 1972. Mr. Guiles is also a director and past chairman of the California Chamber of Commerce. He has a Mechanical Engineering Degree from the University of Arizona.

        Mr. Guiles is a former chairman & CEO with a strong public utility background. He has corporate governance experience through his service on the boards of SDG&E, SoCal Gas and Cubic Corporation, a public company. He brings to the Board valuable senior management and operational expertise from his 37 years at Sempra Energy, SDG&E and SoCal Gas. Additionally, Mr. Guiles' in-depth knowledge of public utility regulation provides the Board with crucial insight.

Bonnie G. Hill
Director since 2003
Age 72

        Ms. Hill is the president of B. Hill Enterprises, LLC, a consulting firm specializing in corporate governance and board organization. She is also co-founder of Icon Blue, a brand marketing company. From 1997 to 2001, she was President & CEO of Times Mirror Foundation and Senior Vice-President, Communications and Public Affairs, of The Los Angeles Times. She is a director of AK Steel Holdings Corp., Home Depot, Inc. and Yum Brands, Inc. She was formerly a director of Hershey Foods Corporation and is a member of the Investors Advisory Group of the Public Company Accounting Oversight Board. She is a trustee of the RAND Corporation.

        Through her experience as a former chair of the SEC's Consumer Affairs Advisory Committee, and as a former director of the National Association of Securities Dealers Regulation Board, Ms. Hill brings to the Board significant public policy, regulatory and governance expertise. Her business experience as well as her service on the boards of a variety of public companies over the past 20 years demonstrates her extensive knowledge of the complex financial and operational issues that public companies face.

Martin A. Kropelnicki
Director since 2013
Age 47

        Mr. Kropelnicki is President & CEO of the Group. Mr. Kropelnicki joined the Group as Chief Financial Officer (CFO) and Treasurer in 2006 and was named the President and COO in 2012. He was appointed CEO of the Group effective September 1, 2013. He has over 25 years of experience in finance, including 15-plus years as a CFO at public companies and has held executive positions at PowerLight Corporation, Hall Kinion & Associates, Deloitte & Touche Consulting Group and Pacific Gas & Electric Company. He holds a Bachelor of Arts Degree and Master of Arts Degree in Business Economics from San Jose State University.

        Mr. Kropelnicki is well positioned to lead the Group's management team and give guidance and perspective to the Board. His experience as the former CFO of the Group provides expertise in both corporate leadership and financial management. His 15-plus years as a CFO of public companies and other management experience enables him to offer valuable perspectives on the Group's corporate planning and budgeting along with operational and financial reporting.

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Thomas M. Krummel, M.D.
Director since 2010
Age 62

        Dr. Krummel is the Susan B. Ford Surgeon-in-Chief at the Lucile Packard Children's Hospital and the Emile Holman Professor and Chair of the Department of Surgery at Stanford University School of Medicine. A leader in his field, he has been honored with the Henry J. Kaiser Family Foundation Award for Excellence in Clinical Teaching; the John Austin Collins, M.D. Memorial Award for Outstanding Teaching and Dedication to Resident Training; and the Lucile Packard Children's Hospital Recognition of Service Excellence.

        Dr. Krummel brings to the Board experience with professional training and development as well as a familiarity with medical, public health, and science issues. He offers the Board unique insight on public health matters, including healthcare policy and legislation, drinking water quality, and employee health.

Richard P. Magnuson
Director since 1996
Age 58

        Mr. Magnuson is a private venture capitalist and is lead director. Mr. Magnuson holds an undergraduate degree in economics, a law degree and a master's degree in business administration from Stanford University. From 1984 to 1996, he was a general partner of Menlo Ventures, a venture capital firm. He has served on the boards of the following public companies: Rogue Wave Software (acquired by Quovadx), IKOS Systems, Inc. (acquired by Mentor Graphics) and OrCAD, Inc. (acquired by Cadence Design Systems). He is currently a director of one privately held company and has also served on the boards of several other privately held companies in the past.

        With his legal and venture capital backgrounds, Mr. Magnuson brings valuable financial and business strategy expertise to the Board. His past experience on the boards of other public companies, and his insight on financial and operational matters, adds value to the Board. His past and current Board service also provides insight on corporate governance practices.

Linda R. Meier
Director since 1994
Age 73

        Ms. Meier is a member of the Stanford University Hospital Board of Directors and past chair of the strategic planning committee of the Bing Concert Hall. She was co-chair of the "The Stanford Challenge" and chair of outreach programs from 2005-2011. She is a former director of Greater Bay Bancorp and chaired its Marketing Committee. Previously, she was a founding board member of the University National Bank and Trust Company, where she chaired the compensation and marketing committees. From 1992-1997, Ms. Meier was chair of the Stanford University Hospital Board of Directors. From 1984-1994, she was a trustee of Stanford University, Vice-President of the Board of Trustees from 1991-1994 and chair of community outreach at Stanford University Hospital.

        Ms. Meier has demonstrated management capabilities and knowledge of operational issues facing large organizations. Her years of philanthropic and non-profit experience provide an important perspective to the Board and a valuable link to our community. Her past experience on the boards of other public companies, including her chairmanship of marketing and compensation committees, adds value to the Board as well.

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Peter C. Nelson
Director since 1996
Age 66

        Mr. Nelson is Chairman of the Board of the Group and its subsidiaries. He is a director of the California Chamber of Commerce, chair of the Chamber's Water Resources Committee and a past president of the National Association of Water Companies (NAWC).

        Mr. Nelson has a strong record of operational and strategic leadership in the public utility business, including his 17-plus years of experience as the former President & CEO of the Group. An engineer by training with a graduate degree in business administration, he gained extensive senior executive experience at Pacific Gas & Electric Company. He has a vast understanding of the water industry from his role as the former President & CEO of the Group and from his leadership roles representing the water profession nationally at NAWC as well as in California at the State Chamber of Commerce.

Lester A. Snow
Director since 2011
Age 62

        Mr. Snow has served as Secretary of the California Natural Resources Agency, Director of the California Department of Water Resources, Regional Director of the U.S. Bureau of Reclamation, Executive Director of the CALFED Bay-Delta Program, and General Manager of the San Diego County Water Authority. He is Executive Director of the California Water Foundation, an initiative of the Resources Legacy Fund and Foundation. He holds a Master of Science Degree in Water Resources Administration from the University of Arizona and a Bachelor of Science Degree in Earth Sciences from Pennsylvania State University.

        Mr. Snow brings more than 30 years of water and natural resource management experience to the Board. His distinguished public service career enables him to assist the Board in addressing water and environmental issues as well as regulatory and public policy matters. Additionally, his executive experience in the public sector provides the Board with critical insight on a variety of operational and financial matters.

George A. Vera
Director since 1998
Age 70

        Mr. Vera retired in May, 2011 as Vice-President and CFO of the David and Lucile Packard Foundation. Until 1997, he was an audit partner at Arthur Andersen, LLP. He is now employed as the principal executive officer with the Carroll Investment Company, a private investment management firm.

        Mr. Vera is an experienced financial leader with the skills necessary to chair our Audit Committee. He brings many years of accounting experience as a former audit partner that is critical to the Board. His former position with the David and Lucile Packard Foundation provides him with extensive knowledge in dealing with financial and accounting matters. His current position with Carroll Investment Company continues to build his experience in dealing with investment and financial matters.

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STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

Ownership of Directors and Executive Officers

        The Group's Corporate Governance Guidelines, available on the Group's website at http://www.calwatergroup.com, include the stock ownership requirements for non-employee directors and officers. The requirements were adopted to promote a long-term perspective in managing the Group and to help align the interests of our stockholders, officers, and directors. A more complete description of the stock ownership requirements appears in the "Compensation Discussion and Analysis" section of this Proxy Statement.

        Individuals are required to achieve the relevant ownership threshold within five years following adoption of the requirements or five years after commencing service, whichever is later.

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        The following table shows the common stock ownership of our directors and officers as of March 9, 2014. All directors and executive officers have sole voting and investment power over their shares (or share such powers with their spouses).

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Ownership of Largest Stockholders

        As of December 31, 2013, the Group's records and other information available from outside sources indicated that the following stockholders were the beneficial owner of more than five percent of the outstanding shares of our common stock.

        The information below is as reported in filings made by third parties with the SEC. Based solely on the review of our stockholder records and public filings made by the third parties with the SEC, the Group is not aware of any other beneficial owners of more than five percent of the common stock.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Securities Exchange Act of 1934, requires our directors, executive officers, and holders of more than 10% of our common stock to file with the SEC reports regarding their ownership, and changes in ownership of our securities.

        Based solely on its review of the copies of forms furnished to the Group, or written representations that no annual forms (SEC Form 5) were required, the Group believes that during the fiscal year ended December 31, 2013, our directors and executive officers filed all reports on a timely basis except for Paul G. Townsley, Vice-President, Regulatory Matters and Corporate Relations. The Form 3 due in connection with his appointment as an executive officer and a Form 4 reporting on his 2013 restricted stock award (RSA) were inadvertently late.

COMPENSATION DISCUSSION AND ANALYSIS

        This Compensation Discussion and Analysis (CD&A) describes the material elements of the Group's executive compensation program for 2013. This section focuses on the compensation of the Group's principal executive officer, principal financial officer, and the three other most highly compensated executive officers for 2013 referred to herein as "named executive officers (NEOs)" or "executives."

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Role of the Organization and Compensation Committee

        The Organization and Compensation Committee (Committee), which is comprised entirely of independent directors, is responsible for overseeing the Group's compensation plan and programs for executives and executive succession. After a review of compensation levels, the Committee recommends to the Board compensation levels and incentive performance objectives for executives for the 12-month period beginning January 1st of each year. The Committee starts its planning and review process in September of each preceding year and typically concludes its process in November. After year-end, the Committee certifies which performance objectives have been met for the prior year and determines the value of each executive's performance awards.

New Executive Compensation Program

        Following our 2012 Annual Meeting of Stockholders, we began to implement substantial changes to our executive compensation program to add both long-term and short-term performance-based compensation, focusing on better linking the Group's performance (as measured by key customer service and financial objectives) to executive compensation. The changes to our executive compensation program since fiscal 2012, which are discussed in more detail elsewhere in this CD&A, include adopting:

•

Beginning in 2014, short-term performance-based compensation in the form of annual cash bonuses;



•

50% of long-term equity incentive compensation in the form of restricted stock units (RSUs) subject to performance-based vesting criteria, and 50% in the form of time-based restricted stock awards (RSAs);



•

Performance-based RSUs with a 3-year performance period and vesting only upon meeting or exceeding in proportion to the target metric for each of the following: return on equity, utility plant investment, customer service and water quality;



•

Stock ownership requirements of five times the annual salary for the CEO and one and one-half times the annual salary for other officers;



•

No-hedging and no-pledging policies for officers and for members of the Board; and



•

A compensation recovery or "clawback" policy.

Changes in Response to Stockholder Feedback

        We received approximately 93% of the votes cast on the advisory vote in favor of our executive compensation ("Say-on-Pay Vote") for fiscal year 2012, taken at the 2013 Annual Meeting of Stockholders. The Committee believes the high level of support for fiscal 2012 was the result of changes implemented in late 2012 and 2013 and has continued to apply the same effective principles when making compensation decisions for 2014, as described more fully below.

        Following the 2012 Say-on-Pay Vote, we increased our efforts to solicit feedback from stockholders to better understand their views. Senior management, under the direction of the Board and the Committee, reached out to nine major stockholders that held an aggregate of 27% of the Group's outstanding common stock. We engaged in a dialogue with them to better understand how stockholders view our executive compensation program and market best practices. We also held a meeting with one of the largest proxy advisory firms to determine if its views were similar to the views expressed by the Group's major stockholders.

        The Committee, with the assistance of an independent compensation consultant, Towers Watson, then undertook an in-depth analysis of our executive compensation program, including reviewing market practices at peer companies. The Committee considered the views expressed by these stockholders and

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reviewed the results with the Board and senior management over several months. While these stockholder views varied, a common theme emerged from the dialogues. Stockholders asked that the existing link between pay and performance of the Group be enhanced. Many stockholders recognized the Group's strong performance over the years but cited the absence of performance-based incentive compensation to better align executives' interests with those of stockholders. Yet these stockholders also recognized the regulatory hurdles for recovering performance-based incentive compensation in customer rates. For this reason, these stockholders and the proxy advisory firm expressed an interest in long-term equity incentive compensation with performance objectives that balance the interests of customers with stockholders.

        In response, the Committee made several changes to our executive compensation program structure in late 2012 and 2013. Among other changes, we introduced long-term performance-based equity compensation awards for 2013 to strengthen the link between pay and the Group's performance. The value of these awards is based on Group performance, with the actual number of shares earned at the end of a three-year performance period based on operations objectives (customer service, water quality, and safety (a new metric that will be used for awards in fiscal 2014)) and pre-set financial objectives.

        Beginning in 2014, to further strengthen the link between pay and the Group's performance, we have introduced a short-term performance-based cash incentive compensation program for officers. The Committee believes that a mix of short-term and long-term incentive compensation will reward and motivate near-term performance, while at the same time providing significant incentives to keep executives focused on longer-term corporate goals that support both stockholders and customers.

        We believe that the adopted changes are responsive to the views expressed by our stockholders and that our executive compensation program is better aligned with the interests of our stockholders and customers. The Committee recognizes that best practices in executive compensation continue to evolve and will continue to monitor developments in this area. The Committee plans to continue regular solicitation of stockholder feedback on our executive compensation program.

Recap of 2013 Group Performance

        Our financial and business results for 2013 included the following: Net income was $47.3 million and diluted earnings per share was $1.02. Earnings per share reflect the issuance of 5.75 million shares of Group common stock in March 2013. 2013 financial performance was better than expected given it was the third year of the regulatory/rate case cycle of the Group's largest subsidiary, California Water Service Company. Our officer team made considerable progress on our strategic corporate goals and objectives that are critical to our business. We also met or exceeded our four 2013 performance objectives—return on equity, utility plant investment, customer service, and water quality.

New CEO and Pay Overview

        Effective September 1, 2013, the Board elected Martin A. Kropelnicki as our new President & CEO. He was also elected to the Board for a term expiring at the 2014 Annual Meeting of Stockholders. At the same time, the Board separated the roles of Chairman and CEO. Peter C. Nelson, who retired from his position as CEO effective September 1, 2013, will remain as non-executive chairman and as a member of the Board. The leadership transition led to the following Board decisions on annual CEO pay for 2013:

        Martin A. Kropelnicki, Prior to his appointment as the Group's CEO effective September 1, 2013, Mr. Kropelnicki was President & COO of the Group. His 2013 compensation is based on his contributions as President & COO from January through August, and as the new Group CEO from September through December. Mr. Kropelnicki's total annual compensation for 2013 is $908,060, which is lower than his 2012 compensation of $1,204,047, and below Mr. Nelson's 2013 compensation of $1,292,226. Mr. Kropelnicki's reduction in annual compensation from 2012 and 2013 was attributable to a reduction in the present value of the pension benefit during 2013, which resulted from an increase in the plan's discount rate. Please refer to the Summary Compensation table for additional detail.

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        Peter C. Nelson,    Mr. Nelson, the Group's CEO since 1996, made significant contributions to the Group's performance in 2013—via the impact of his long tenure and actions he took in 2013 prior to his retirement. Based on the 2013 performance objectives, the Committee granted Mr. Nelson an equity incentive award valued at $257,832. Together with the $883,088 salary that he was paid in 2013, his 2013 total compensation as the former CEO was $1,178,692, which is lower than his 2012 compensation.

Compensation Philosophy for Executives

        The Group's overall philosophy is to provide compensation that attracts, retains, and motivates talented executives, rewards excellent job performance, overall leadership, and provides for fair, reasonable, and competitive total compensation that aligns executives' interests with the interests our stockholders and customers. In order to strengthen alignment between the Group's executives, customers and stockholders, a significant portion of the equity grants are in the form of long-term equity grants payout of which are dependent on the achievement of both financial and customer service objectives.

        Effective January 1, 2014, to further enhance alignment, the compensation mix will also include short-term performance-based cash incentive compensation program for officers. The Committee believes that a balance of fixed and variable compensation, with short-term and long-term compensation elements, maintains a strong link between the NEOs' compensation and the Group's performance as well as promotes the interests of both stockholders and customers.

        Overall, we believe our executive compensation program is achieving the intended results. We believe our compensation is competitive in the industry and has resulted in the attraction and retention of officers who contribute to the Group's success. In addition, the program creates a strong linkage between pay and performance though our long-term equity and annual bonus performance awards without encouraging imprudent risk taking by the Group's officers.

Best Practices

        The following compensation practices have been embedded in our executive compensation program and demonstrate the Group's commitment to good corporate governance with respect to executive compensation:

•

No Employment Agreements:  Other than participation in the Executive Severance Plan, none of the executives are party to individual employment or severance agreements.



•

No Single-Trigger Change in Control Benefits:  The Group does not provide for single-trigger change in control benefits. The Group's Executive Severance Plan provides for change in control severance benefits upon a termination of employment following a change in control. In addition, the Group's equity incentive plan provides for the option of additional vesting of equity awards in the event of a termination of employment following a change in control, though neither the Stock Appreciation Rights (SARs) nor the RSA grants to date have included this option.



•

No Tax Gross-Ups on Perquisites:  None of the executives are entitled to tax gross-ups for perquisites or other personal benefits.



•

Limited Perquisites:  As detailed below, the Group provides executives with only limited perquisites consisting of a company car and related excess liability insurance.



•

Stock Ownership Requirements:  Stock ownership requirements for all directors and officers were adopted to promote a long-term perspective in managing the Group and to help align the interests of our stockholders, officers, and directors.



•

No Hedging and Pledging:  Our directors and officers are prohibited from hedging their ownership of Group stock, including trading in options, puts, calls, or other derivative instruments related to Group stock or debt, in accordance with an anti-hedging prohibition in our insider trading policy

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adopted in 2012. Our directors and officers are also prohibited from pledging their ownership of Group stock in accordance with an anti-pledging provision in our insider trading policy.

•

Executive Compensation Recovery ("Clawback") Policy:  The Board has adopted an executive compensation recovery or "clawback" policy requiring the reimbursement of excess incentive-based compensation provided to the Group's officers in the event of certain restatements of the Company's financial statements.



•

Use of Independent Compensation Consultant:  An independent compensation consultant is retained by and reports directly to the Committee.

Elements of Compensation

        The material elements of the Group's executive compensation program for 2013 included:

•

Salary;



•

Performance and Time-Based Equity Compensation;



•

Basic and Supplemental Pension Plan Benefits;



•

Deferred Compensation Plan Benefits; and



•

Limited Perquisites.

        In addition to the above, effective January 1, 2014, we have introduced annual cash incentive bonuses for officers as part of the Group's 2014 executive compensation program. The Committee believes that our executive compensation program will provide a good mix of short-term and long-term compensation that supports the business strategies and creates long-term stockholder value. The Committee will periodically re-evaluate the mix of fixed and variable compensation, including the proportions of incentive compensation awarded as cash-based and equity-based awards. Additionally, the Committee continues to monitor our program on an annual basis to ensure that the new structure will not incentivize excessive risk-taking.

        In determining compensation, the Committee is mindful that as a holding company for a California regulated utility, the Group's financial performance is substantially dependent upon the California Public Utilities Commission (CPUC) plus other factors, which to a large extent are beyond the control of executives. Therefore, the Committee's decisions regarding overall compensation are determined largely by evaluation of factors that are within the executives' control and its comparisons with peer groups. As discussed below, the metrics used to determine the vesting of long-term performance equity compensation for executives are appropriate metrics that will drive executive performance in a manner beneficial to both stockholders and customers and not encourage imprudent risk-taking. In addition, for the reasons discussed below, we will use similar metrics to determine the annual cash incentive bonuses for our officers in 2014.

Salary

        The Group provides a significant portion of executives' total compensation in the form of base salaries that compensate executives for performance of primary roles and responsibilities. The Committee reviews base salaries for executives annually and determines whether or not to recommend adjustments. To assist the Committee in this review, the Group's President & CEO provides an assessment of performance and makes recommendations regarding base salary adjustments to the Committee for each of the executives other than himself based on the competitive data and the other factors described below under "Determining Executive Compensation."

        As noted below under "Determining Executive Compensation," the Committee targets base salaries for each executive that are appropriate for the skills, capabilities, and performance each individual

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contributes for the executive's position as established by reference to the competitive data described below. As noted above, the Group did not use annual cash incentive bonuses for 2013. However, because annual incentives are a common component of executive compensation in the surveys included in the competitive data, for 2013 the Group compared base salary levels for its executives to the target total cash compensation (base salary plus actual target bonus) for similar positions within the competitive data (rather than comparing the executive's base salaries to the base salaries within the competitive data). Each of the executive's base salaries for 2013 were within the competitive range (defined as plus or minus 20% from the median compensation level) of actual target total cash compensation, except Mr. Ferraro whose base salary was above the competitive range for his position because of his long tenure with the Group, his unique expertise and continued contributions in regulatory matters, and his corporate development responsibilities, each of which is greater than those usually afforded to executives in his position with other investor-owned public utilities.

        Each year officers of the Group, including the NEOs, establish a number of corporate goals and objectives for the Group that promote the interests of customers, employees, and stockholders. The objectives chosen are communicated internally within the Group and monitored quarterly. The compensation of our current President & CEO and NEOs is based on progress against certain of these key corporate goals by the Group. For 2013, the following corporate goals of the Group were used to evaluate 2014 compensation for our current President & CEO and NEOs:

        1.     Group Operating Result and Stockholder Value—Achieve planned operating results as defined in the 2013 Corporate Goals and Objectives.

        Achieved Results for Group Operating Results—Manage the controllable elements of administration and general, other operations, and maintenance expenses within budget. During 2013, the Company achieved the majority of its goals of maintaining operations while keeping controllable costs within budget. Completed projects included a new capital budget process to reduce and monitor costs, a new rate case filing plan with a longer planning horizon, and revised electronic procurement with contractor authorizations to improve monthly invoice tracking and reporting.

        2.     Stockholder Value—The following major objective was set for 2013:

•

Achieve budgeted earnings per share

        Achieved Results for Stockholder Value—For 2013, the Group achieved the following result for the major objective in this category:

•

Earnings per share of $1.02, or 121% of target, which represents a return on equity of 8.81%

        The Committee gave consideration to factors that affected the Group's operating results that are described in the Group's annual report on Form 10-K.

        3.     Regulation—Successfully conclude 2012 General Rate Case for California.

        Achieved Results for Regulation—On October 30, 2013, an all-party settlement was filed in the 2012 General Rate Case Application for California. If approved by the CPUC, the settlement authorizes increases in rates by approximately $45 million in 2014, $10 million in 2015, $10 million in 2016, and up to $19 million upon completion and regulatory approval of "advice letter" capital projects. The settlement includes a health care balancing account that provides protection from uncertainties arising from continuing changes in medical costs and insurance along with increases in maintenance expenses to reflect our enhanced maintenance and capital programs.

        4.     Successfully Transition Change in CEO and Other Executive Positions—Facilitate new CEO transition and officer succession.

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        Achieved Results for Successful Transition—Martin A. Kropelnicki, formerly President & COO, was elected President & CEO effective September 1, 2013. The following are changes in officer positions for 2013:

•

Paul G. Townsley was hired as Vice-President, Regulatory Matters and Corporate Relations, effective March 1, 2013. Mr. Townsley is a former divisional Vice-President of EPCOR Water USA and served as President of American Water Works Company subsidiaries.



•

Timothy D. Treloar, formerly Director of Water Quality and former Bakersfield District Manager for the Group's largest subsidiary, California Water Service Company, was promoted to Vice-President, Operations effective August 1, 2013.



•

Robert R. Guzzetta, formerly Vice-President, Operations, became Vice-President, Engineering and Water Quality, effective August 1, 2013.



•

Michael B. Luu, formerly Director of Information Technology for California Water Service Company, was promoted to Vice-President, Customer Service and Information Technology, effective August 1, 2013.

        5.     Strategic Projects—Implement key strategic projects in operations and customer service areas.

        Achieved Results for Strategic Projects—During 2013, the Group completed key strategic projects in the areas of operations and customer service, including:

•

Full implementation of new website/customer service portal enhancements for California. Portal enhancements include on-line bill payment, on-line requests for new service and automated service turn on/off requests.



•

Expanded mobile workforce pilot with automated dispatch of service work orders to five California service areas that resulted in significant increases in productivity and other efficiencies.

        Once the Committee assesses the business results for each goal, the Committee then reviews and discusses the overall performance of each executive and the competitive data provided by the independent consultant retained by the Committee. Once reviewed and overall agreed upon, the Committee recommends to the Board the base salaries for the executives (including the CEO). The following table shows the base salaries for each executive for 2012, 2013 and 2014:

        These increases are intended to compensate the individuals for job performance and overall leadership while being within the "competitive range" of the market data for similar positions (which "competitive range" is described in more detail below). Mr. Kropelnicki's salary reflects his final base salary rate for 2013 based on his promotion to President & CEO. His actual salary earned for 2013 is set forth in the Summary Compensation Table.

Performance and Time-Based Equity Compensation

        The purpose of the Group's long-term equity incentive compensation is to align executive compensation with the interests of both stockholders and customers, to create incentives for executive

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recruiting and retention, to encourage long-term performance by the Group's executives, and to promote stock ownership and therefore alignment with stockholder interests. Historically, the Committee has not used equity awards as a significant portion of executive compensation. Risk is taken into account in determining the aggregate amount of incentive compensation and performance criteria, including assessment of risk management and risk mitigation.

        As with base salaries, the Committee reviewed the competitive range of long-term equity compensation and total direct compensation (long-term equity compensation plus base salary and annual bonus) for similar positions within the competitive data in making decisions regarding long-term equity compensation awards for 2013. However, the Committee also believes that, in the interest of fostering the Group's "One-Team" approach for the officer team, which strengthens teamwork and collaboration within the executive team, the annual equity incentive awards granted to each of the Group's executives (other than the President & CEO) should be the same for each. The Committee recommended awarding the President & COO and CEO (now retired) a greater value of equity awards in 2013 than the other officers because of their substantially greater level of responsibility and ability to influence the Group's operational results. The new President & CEO, appointed effective September 1, 2013, received an increase in equity for 2013 from his 2013 President & COO equity award. In addition, for our former CEO, the grant value for 2013 was greater than the grant values for 2012, as a result of the Committee's review of the competitive data and its desire to bring long-term equity incentive compensation values within the competitive range for similar positions.

        Each year the Committee reviews market data from the independent consultant (as described in more detail below) and establishes the total value of the equity compensation awards to be granted to the CEO and the other executives. For 2013, these values were $500,000 (former CEO), $310,000 (President & COO) and $120,000 for other executives. The new President & CEO, effective September 1, 2013, was granted a one-time $45,000 equity award in addition to his $310,000 President & COO 2013 equity award. All equity awards were 50% in the form of time-based RSAs vesting over three years and 50% in the form of performance-based RSUs with a three-year performance period.

        Beginning in 2013, 50% of long-term equity awards granted to our executives are in the form of RSUs subject to performance-based vesting criteria and 50% are in the form of time-based RSAs. The performance-based RSUs provide for a three-year performance period and provide for vesting based solely upon the achievement of objective performance criteria. The shares will be awarded at the end of a three-year performance period, subject to the executive's continued employment through such date, only to the extent the performance criteria are met over that period. The performance criteria are tied to the following metrics.

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Total 2013 RSU achievement = (200%+75%+25%+100%)/4 = 100%

•

WATER QUALITY:  This metric is based only upon performance of the Group's largest subsidiary, California Water Service Company (Cal Water). Cal Water is regulated by the U.S. Environmental Protection Agency (EPA) and the California Department of Public Health, which also enforces EPA drinking water standards. A primary drinking water standard violation is related to public health, either acute or long-term. A secondary drinking water standard violation is related to taste or aesthetics, such as excessive iron and manganese, and can generate customer complaints. Performance is evaluated based on number of violations of primary and secondary drinking water standards.



•

CUSTOMER SERVICE:  A combination of CPUC standards and internal company performance indicators, including answering phone calls within 30 seconds, responding to customer complaints, reading meters and billing accuracy, comprise the target for this metric applicable only to Cal Water. The nine CPUC customer service standards are found in the CPUC's General Order 103-A. The metric is evaluated each quarter for the California service areas. Performance is evaluated based on compliance with CPUC standards, with additional credit given for achievement in our more stringent internal goals.



•

PLANT ADDITIONS:  The annual Board-approved capital expenditures budget is the target for this metric. Investment in plant is a driver of stockholder return and a key component of providing reliable, high-quality water service to customers. This metric is updated each year to reflect the annual approved capital program and budget for the Group and its subsidiaries.



•

RETURN ON EQUITY (ROE):  The return on equity authorized by the CPUC is the target for this metric. Return on equity is defined using net income divided by average common stockholders' equity. This metric measures the effectiveness of the Group's financial management and regulatory strategy. It provides for a substantial increase in the award for performance above the authorized ROE (20% increase for a 5 basis points (bps) increase in ROE) and a more graduated downside measure (20% decrease in award for a 50 bps decrease in ROE) due to the regulatory mechanisms in place which limit the possibility of achieving high returns on equity.

Achievement of 2013 Performance Objectives

        The Committee certified that the following RSU performance goals for 2013 were achieved:

        WATER QUALITY:    Cal Water did not record any violations of primary or secondary drinking water standards in 2013.

        Achieved:    200%

        CUSTOMER SERVICE:    Cal Water achieved CPUC standard customer service performance in its service areas in 98% of measurements. No additional credit was given for meeting Cal Water internal targets. The target for this metric was 99% of performance.

        Achieved:    75%

        UTILITY PLANT:    The Group invested more than $115 million in utility plant. The target for this metric was the Board approved capital spending of $130 million for 2013. Spending was slowed due to resources allocated to support the California general rate case process.

        Achieved:    25%

        RETURN ON EQUITY:    The Group achieved an 8.81% return on average common equity in 2013. However, the Committee noted that common equity in part supports construction work in progress (CWIP), which is subject to interest during construction (IDC) in lieu of a return on equity in most

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regulatory jurisdictions. Excluding the equity-funded CWIP, the Group earned 9.77% on average common equity. Without one-time tax items, the Group would have earned 8.59% on average common equity net of CWIP. In light of these circumstances, the Committee approved 100%.

        Achieved with adjustment:    100%

2014 Compensation

Incentive Equity Awards for 2014

        In November of 2013, the Committee, after reviewing competitive data for each executive, approved the total value of the equity compensation awards, in the form of restricted stock and RSUs, to be granted to our current President & CEO and other executives for 2014. These values were $500,000 (President & CEO) and $120,000 (other executives), vesting over three years respectively, with 50% subject to the achievement of performance metrics and 50% subject only to continued employment.

        On March 4, 2014, the Committee granted to our current President & CEO 10,923 shares and each of the other executives 2,622 shares in the form of 50% RSAs and 50% RSUs.

Annual Performance-Based Cash Bonuses for 2014

        As noted above, effective January 1, 2014, we introduced a short-term performance-based cash incentive compensation program for officers, with targeted payouts dependent upon achievement of certain performance-objectives. The Committee believes that a mix of short-term and long-term incentive compensation will reward and motivate near-term performance, while at the same time providing significant incentives to keep executives focused on longer-term corporate goals that support both stockholders and customers.

Basic and Supplemental Pension Plan Benefits

        In addition to the tax-qualified defined benefit plan that covers all permanent employees, the Group provides supplemental retirement benefits to executive officers under the Supplemental Executive Retirement Plan (SERP). The SERP is structured such that benefits are paid to executives on a "pay as you go" basis. The SERP is an unfunded, unsecured obligation of the Group and is designed to assist in attracting and retaining key executives while providing a competitive, total compensation program. The current portion of the SERP expense is also fully recoverable in customer rates, including changes in SERP valuation due to market interest rate changes, meaning the cost of the SERP expense is not borne by our stockholders. Furthermore, the plan is designed primarily to make up for limitations imposed by the Internal Revenue Code (Code) on allocations and benefits that may be paid to executives under the Group's tax-qualified plan. Because the tax code restricts benefits under the tax-qualified plan, executives otherwise would not be eligible to receive the retirement benefits that are proportional to the benefits received by our employees that generally are based on compensation.

Deferred Compensation Plan

        The Group maintains a deferred compensation plan for its directors, officers, and qualified managers. The plan is intended to promote retention by providing eligible employees, including the executive officers, with a long-term savings opportunity on an income tax-deferred basis. This plan is voluntary and funded by the individuals who elect to participate in the program. There are no company-matching contributions.

401(k) Plan

        All employees satisfying the eligibility requirements are entitled to participate in our 401(k) plan and receive matching contributions from the Group. Pursuant to the plan, executive officers are entitled to contribute up to the statutory limit set by the Internal Revenue Service and the Group matches 75% for

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each dollar contributed up to a maximum company match of six percent of each such executive officer's base salary.

Limited Perquisites

        As part of the Group's automobile policy, the Group's officers have the use of a company-owned automobile, including excess liability insurance. The Committee believes that the provision of a company-owned automobile allows the officers to work more efficiently because many of the geographic areas served by the Group are most effectively reached by automobile as opposed to other forms of transportation, such as airlines. Any personal mileage incurred by the executive is taxed as additional compensation in accordance with IRS regulations. Other than this automobile benefit, the Committee's general philosophy is not to provide perquisites and other personal benefits of substantial value to the officers.

Severance Arrangements

        None of the executive officers is a party to an individual employment agreement with the Group that provides for severance benefits. In addition, we do not provide executive officers with single-triggered change in control benefits.

        Consistent with the Group's compensation philosophy, the Committee believes that the interests of stockholders are best served if the interests of senior management are aligned with those of the Group's stockholders. To this end, the Group provides change in control severance benefits to executive officers under the Group's Executive Severance Plan to reduce any reluctance of the executive officers to pursue or support potential change in control transactions that would be beneficial to stockholders. The Group adopted the plan in 1998, and its purpose is to promote the continued employment and dedication of executives without distraction in the face of a potential change in control transaction. The Executive Severance Plan provides severance pay equal to three times base salary to each of the executive officers if their employment is terminated without good cause or they resign for good reason during the two-year period following a change in control.

        In the event of a termination not in connection with a change in control, each executive officer is covered by the Group's general severance policy stating that each non-union employee of Group whose employment is terminated without cause is entitled to severance pay of either one week's pay after completing two years of service or two weeks' pay after completing five or more years of service, provided in each case that at least two weeks' notice is given. Under the Group's policies, all officers are entitled to a pay-out of six weeks of vacation time upon termination of employment.

Determining Executive Compensation

        Each year the Committee reviews, assesses, and recommends to the Board all compensation for executives after determining that the compensation for these individuals is competitive relative to companies of comparable size, complexity, location and business nature (see below for additional discussion of this comparison). In addition, the Committee approves the retention, fees, and termination of any compensation consultant or compensation consulting firm used to assist in the evaluation of director and executive compensation. With respect to 2013 compensation decisions, the Committee retained the services of an independent compensation consultant, Towers Watson, for investigation into and advice on compensation for executive officers. The Committee believes that having an independent evaluation of compensation is a valuable tool for the Committee, the Group and stockholders. Towers Watson is not engaged to perform any additional work for the Group. The Committee retained Towers Watson for a number of purposes, including:

•

Constructing and reviewing compensation comparisons from readily available published survey and public filings data; and

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Performing a competitive assessment of the Group's compensation programs, practices, and levels for its directors, executive officers and other senior officers.

        The Committee made a number of compensation recommendations, including those pertaining to the executives that were based on the competitive assessments provided by and through consultation with Towers Watson. The Committee's recommendations were made, however, entirely by the Committee, using its sole discretion.

        Total compensation level for executives is based on one or more of the following factors:

•

The individual's duties and responsibilities within the Group;



•

The individual's experience and expertise;



•

The compensation levels for the individual's peers within the Group;



•

Compensation levels for similar positions based on a review of published compensation surveys; and



•

The levels of compensation necessary to recruit, retain, and motivate executives.

        In order to determine competitive compensation practices for 2013, the Committee relied, in part, on published compensation data from the following sources:

•

Towers Watson Data Services—2012 Top Management Database;



•

Towers Watson 2012 Compensation Data Bank—Energy Services Industry; and



•

Mercer Human Resources Consulting—2012 Executive Benchmark Database.

        The Committee also reviewed proxy data for individual companies in making compensation decisions. The individual companies are referred to in this proxy statement as the "Peer Group." The 11 companies comprising the Peer Group are generally either gas, water, or multi-utility-based organizations that are one-half to two times the annual revenue size of the Company. On September 26, 2012, the Committee approved the following companies for inclusion in the Peer Group for 2013 for determining competitive compensation levels:

        Towers Watson utilized the data from these sources (competitive data) to compile the competitive pay information comparing each officer's compensation to market levels for the executive's position.

        After consideration of the competitive data, the Committee makes decisions regarding each individual executive's target total compensation opportunities based on the Group and individual performance and the need to attract, motivate, and retain an experienced and effective management team. The Committee examined the relationship of each executive's base salary, long-term equity incentives and total compensation (base salary plus long-term equity incentives) to the competitive data from several perspectives by reviewing the following:

•

The competitive data without any adjustments;



•

Annual incentive or bonus valued at 50% of the median of the market competitive data;



•

The lower range of minus 20% from the median of the market competitive data;

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•

Target total direct compensation reduced by 20% from the median of the market competitive data; and



•

Actual cash compensation reduced by 20% from the median of the market competitive data.

        In making compensation recommendations for the 2013 fiscal year for the executives, the Committee's general objective was to set total compensation within a "competitive range" for each executive's position based on the competitive data. The Committee considers the "competitive range" to mean that compensation levels are within plus or minus 20% of the median compensation levels as determined by reference to the competitive data. Actual compensation decisions for the executive officers were, however, influenced by a variety of additional factors, including considerations of each individual's experience, expertise, performance and leadership, the Group's performance, and internal equity among the executive officers. With respect to 2014 compensation planning, the Committee retained the services of Meridian Compensation Partners as the independent compensation consultant.

Other Compensation Policies

Stock Ownership Requirements

        In 2012, the Board adopted requirements for our officers, and members of our Board to own shares of our stock to further align their interests with those of our stockholders. The requirements were adopted to promote a long-term perspective in managing the Group and to help align the interests of our stockholders, executives, and directors. Each officer and non-employee director must directly own Group stock having a market or intrinsic value (i.e., paper gain for vested, unexercised stock options), whichever is higher, equal to:

•

For our CEO, five times his annual base salary;



•

For all other officers, one and one-half times his or her annual base salary; and



•

For each non-employee director, five times his or her annual cash retainer (requirements do not apply to uncompensated non-employee directors).

        Individuals subject to these requirements are required to achieve the relevant ownership threshold within five years following adoption of the requirements or five years after commencing service, whichever is later. For officers, the Committee will review compliance with these requirements on an annual basis. The Nominating/Corporate Governance Committee will review compliance with these requirements for non-employee directors on annual basis.

Anti-hedging and No Pledging Policy

        In 2012, the Board adopted an insider trading policy that prohibits our officers and directors from participating in put or call options transactions, hedging and pledging transactions or other inherently speculative transactions with respect to Group stock. We adopted this policy as a matter of good corporate governance, and because by prohibiting such transactions for executives, the compensatory value of equity awards on both the upside and the downside remains strong.

Executive Compensation Recovery ("Clawback") Policy

        In 2012, the Board also adopted an executive compensation recovery, or "clawback," policy requiring the reimbursement of excess incentive-based compensation provided to the Group's officers in the event of certain restatements of the company's financial statements. The policy allows the Company to clawback incentive-based compensation from executive officers who were actually involved in the fraud or misconduct that triggered the accounting restatement to the extent that the compensation was in excess of what would have been paid under the accounting restatement. This policy is applicable to all incentive-based

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compensation paid after implementation of the policy, and it covers the three-year period preceding the date on which the company is required to prepare the accounting restatement.

Tax and 162(m) Implications

        When designing compensation policies and setting compensation levels, the Group considers the potential tax treatment of the compensation, but the primary factor influencing program design is the support of business objectives. The Committee has reviewed the Group's compensation structure in light of Section 162(m) of the Code (Section 162(m)), which limits the amount of compensation that the Group may deduct for federal income tax purposes for any year to $1,000,000 for our CEO and each of our next four highest compensated executives. There are certain exceptions to this limit, one of which is for "performance-based compensation," as defined under Section 162(m). RSAs granted by the Group do not qualify as "performance- based compensation," and thus do count against the $1,000,000 deductibility limit. In 2013, no executive officer's compensation exceeded the limitation set by Section 162(m) except for our former CEO (now retired), whose compensation was $1,094,011. Except to the extent that the former CEO's compensation exceeded $1,000,000, all compensation paid to the non-CEO executives in 2013 was intended to be tax-deductible.

        In designing our executive compensation decisions for 2014, we carefully consider the effect of Section 162(m) together with our factors relevant to our business needs. As we implement the performance-based awards into our compensation program, we will generally intend our performance-based awards to be eligible to qualify as tax-deductible to the Group, but we have the flexibility to pay the non-deductible compensation when necessary to achieve our executive compensation objectives.

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Summary Compensation Table

        The table below summarizes the total compensation paid or earned by our current President & CEO, now retired CEO, CFO, and the three most highly compensated executive officers of the Group for the fiscal year ended December 31, 2013, 2012 and 2011.

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Grants of Plan-Based Awards

For Fiscal Year Ended 2013

        The table below sets forth certain information with respect to awards granted during the fiscal year ended December 31, 2013, to each of our executive officers and retired CEO.

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Outstanding Equity Awards at Fiscal 2013 Year-End