erii20210421_def14a.htm

DEF 14A 1 erii20210421_def14a.htm FORM DEF 14A erii20210421_def14a.htm

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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

Filed by the Registrant☒

Filed by a party other than the Registrant☐

Check the appropriate box:

☐	Preliminary Proxy Statement

☐	Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☒	Definitive Proxy Statement

☐	Definitive additional materials

☐	Soliciting material under Rule 14a-12

Energy Recovery, Inc.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

☒	No fee required.

☐	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1)

Title of each class of securities to which transaction applies:

(2)

Aggregate number of securities to which transactions applies:

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0‑11 (set forth the amount on which the filing fee is calculated and state how it was determined):

(4)

Proposed maximum aggregate value of transaction:

(5)

Total fee paid:

☐	Fee paid previously with preliminary materials:

☐	Check box if any part of the fee is offset as provided by Exchange Act Rule 0‑11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

(1)

Amount previously paid:

(2)

Form, Schedule or Registration Statement No.

(3)

Filing Party:

(4)

Date Filed:

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Energy Recovery, Inc.

1717 Doolittle Drive

San Leandro, CA 94577

NOTICE OF 2021 ANNUAL MEETING OF STOCKHOLDERS

Dear Stockholders of Energy Recovery, Inc.:

We are pleased to invite you to attend our 2021 Annual Meeting of Stockholders to be held on Thursday, June 10, 2021, at 10:00 a.m. Pacific Daylight Time (the “Annual Meeting”). This year’s Annual Meeting will be a virtual meeting of stockholders, conducted via live audio webcast. The virtual format also provides the opportunity for participation by a broader group of our stockholders and enables stockholders to participate fully, and equally, from any location around the world, at little to no cost to you. You can attend the Annual Meeting via the Internet at www.virtualshareholdermeeting.com/ERII2021 by using the 16-digit control number which appears on your Notice Regarding the Availability of Proxy Materials, your proxy card (printed in the box and marked by the arrow), and the instructions that accompanied your proxy materials. You will have the ability to submit questions during the Annual Meeting via the meeting website.

At the Annual Meeting, we will ask you to consider the following proposals:

A proposal to amend the Company’s Amended and Restated Certificate of Incorporation to effect a phased declassification of the Board of Directors over the next three years;

A proposal to elect one (1) Class I director to serve until (i) our 2024 Annual Meeting of Stockholders, or (ii) our 2022 Annual Meeting of Stockholders if Proposal No. 1 above is approved by our stockholders at the Annual Meeting (and in either case, until their respective successors have been elected and qualified, or until the director’s earlier removal or resignation);

A proposal to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021;

A proposal to consider and approve, on a non-binding advisory basis, executive compensation as disclosed in the attached Proxy Statement; and

To transact such other business that may properly come before the Annual Meeting or any adjournment or postponement thereof.

Our Board of Directors has fixed the close of business on April 12, 2021, as the record date for the Annual Meeting. Stockholders of record as of April 12, 2021 may vote at the Annual Meeting or any postponements or adjournments of the meeting. This notice of annual meeting, notice of internet availability, proxy statement, annual report on Form 10-K and form of proxy are being made available on or about April 26, 2021.

It is important that your shares are represented at the Annual Meeting, and regardless of whether you plan to attend, we respectfully request that you vote in advance on the matters to be presented at the Annual Meeting as described in these proxy materials.

You can help us reduce costs and the impact on the environment by electing to receive and access future copies of our proxy statements, annual reports and other stockholder materials electronically by email. If your shares are registered directly in your name with our stock registrar and transfer agent, American Stock Transfer & Trust Company, LLC, you can make this election by going to its website (www.astfinancial.com) or by following the instructions provided when voting over the Internet. If you hold your shares in a brokerage account or otherwise through a third party in “street name,” please refer to the information provided by your broker, bank or other nominee for instructions on how to elect to receive and view future annual meeting materials electronically.

Sincerely,

Robert Yu Lang Mao

President and Chief Executive Officer and Executive Chairman of the Board

San Leandro, California

April 26, 2021

Whether or not you expect to participate in the Annual Meeting, please vote via the Internet, by phone, or complete, date, sign and promptly return the accompanying proxy card or voting instruction card in the enclosed postage-paid envelope so that your shares may be represented at the Annual Meeting.

Important Notice Regarding the Availability of Proxy Materials for the Annual Stockholder Meeting

To Be Held on June 10, 2021: This Proxy Statement, along with the Annual Report on Form 10-K for the fiscal year ended December 31, 2020, is available free of charge at the following website:

www.proxyvote.com.

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PROXY STATEMENT SUMMARY

This summary contains highlights about our Company and the upcoming 2021 Annual Meeting of Stockholders (the “Annual Meeting”). This summary does not contain all of the information that you should consider in advance of the meeting and we encourage you to read the entire proxy statement and the Annual Report on Form 10-K for the year ended December 31, 2020 that accompanies this Proxy Statement before voting.

2021 Annual Meeting of Stockholders

Date and Time: Thursday, June 10, 2021 at10:00 a.m., Pacific Time	Virtual Meeting Access: www.virtualshareholdermeeting.com/ERII2021

Record Date: April 12, 2021	Proxy Mail Date: On or about April 26, 2021

Vote in Advance of the Meeting Over the internet at **www.proxyvote.com; or By telephone at 1-800-690-6903; or By mail — sign, date and return the proxy card or voting instruction form mailed to you.**	Vote During the Meeting Over the internet – See page 3 of the Proxy —“How Do I Vote” for details on how to vote during the Annual Meeting

Voting Matters and Board Recommendations

Matter	Board Recommendation	Page
1. Phased declassification of the Board over three-year period	FOR	11
2. Election of Director	FOR the Director Nominee	13
3. Ratification of public accounting firm	FOR	15
4. A proposal to consider and approve, on a non-binding, advisory basis, executive compensation as disclosed in the Proxy Statement	FOR	17

Phased Declassification of the Board of Directors over Three-Year Period (Proposal No. 1)

The Board of Directors (the “Board”) has directed the submission for stockholder approval an amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) to declassify our Board over a three-year phase out period, which when completed will allow for the election of all directors on an annual basis, beginning with the 2023 Annual Meeting of Stockholders. This requires the affirmative vote of the holders of at least 66 2/3% of the voting power of the then outstanding shares of the Company, voting together as a single class. We recommend that our stockholders approve the amendments to the Certificate of Incorporation at the Annual Meeting.

2021 Director Nominee (Proposal No. 2)

Mr. Ole Peter Lorentzen, a Class I director, has notified the Board that he intends to resign upon the conclusion of his current board term and will not stand for re-election at the Annual Meeting. The Nominating and Corporate Governance Committee and the Board have nominated Olav Fjell for election as a Class I director. Our director nominee has demonstrated his commitment to diligently executing his fiduciary duties on behalf of our stockholders, and we recommend that our stockholders elect the nominee at the Annual Meeting. As a publicly traded company with a principal executive office in California, the Company is subject to the requirements of California Senate Bill 826, which was signed into law on September 30, 2018 (“SB 826”). Under SB 826, the Company was required to have a minimum of one female director by December 31, 2019 and is required to have at least three female directors by December 31, 2021. While the Company was in compliance with SB 826 as of December 31, 2020, the Company will need to increase female representation on the Board prior to December 31, 2021 to meet the requirements of SB 826. The Company intends to fill the Class I director vacancy with one female director prior to December 31, 2021 and will add an additional female director in order to satisfy such requirements.

Name

Age

Director

Since

Principal Occupation

Independent

Committee

Membership

Olav Fjell

2015

Chair of the Boards of Moelven AS, Nofima AS, Concedo ASA, Bene Agere Norden AS, IFE and Franzefoss AS

Audit Committee (Member)

Nominating and Corporate Governance (Member)

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Ratification of Appointment of Deloitte & Touche LLP (Proposal No. 3)

The Board has directed that Deloitte & Touche LLP’s (“Deloitte”) appointment for the fiscal year ended December 31, 2021 be submitted to our stockholders for ratification at the Annual Meeting. Deloitte is well qualified as our independent registered public accounting firm and has a deep understanding of our operations and accounting practices. The Audit Committee considered the qualifications, performance and independence of Deloitte, the quality of its discussions with Deloitte, and the fees charged by Deloitte for the level and quality of services provided during 2020 and determined that the reappointment of Deloitte is in the best interest of the Company and its stockholders. For these reasons, we recommend that our stockholders ratify the appointment of Deloitte as the Company’s independent registered public accounting firm at the Annual Meeting.

Approval of Executive Compensation on an Advisory Basis (Proposal No. 4)

Our CEO and other executive officers have demonstrated their commitment to fair pay and pay for performance. We are committed to effective compensation governance, as demonstrated by the following compensation policies and practices:

What We Do	What We Don’t Do
✔ Substantial Portion of Compensation is At-Risk	✘ No Repricing
✔ Long-Term Vesting	✘ No Gross-Ups
✔ Stock Ownership Guidelines	✘ No Excessive Perquisites
✔ Double Trigger Change in Control	✘ No Executive Retirement Plan Benefits
✔ At-Will Employment of Executive Officers	✘ No Guaranteed Bonuses
✔ Independent Compensation Committee	✘ No Excessive Severance
✔ Independent Compensation Consultant
✔ Risk Assessment
✔ Claw-Back Policy

For these reasons, we recommend that our stockholders approve the advisory vote on the compensation of our executive officers at the Annual Meeting.

Stockholder Engagement and Governance Highlights

We believe that strong corporate governance includes consistent engagement with our stockholders. We engage with stockholders on a variety of topics throughout the year to ensure that we are addressing questions and concerns and to seek input on policies and practices. Our management team, including our CEO, Chief Financial Officer (“CFO”) and VP of Investor Relations, regularly engages in meaningful dialogue with our stockholders through quarterly earnings calls, industry conferences and other channels of communication, which we regularly share with the Board. Stockholders may communicate with our Board as set forth under “Communications between Stockholders and Directors” on page 27.

In addition, our Board regularly assesses and refines our corporate governance policies and procedures to take into account evolving best practices and the valuable feedback of our shareholders and other stakeholders who have provided important external viewpoints that inform our decisions and strategy. For example, at this year’s Meeting, Proposal 1 involves the phased declassification of our Board over a three-year period. Other governance highlights include:

✔ Proxy access rights for shareholders

✔ One class of outstanding shares with each share entitled to one vote

✔ Independent oversight – 6 of 7 directors are independent (all except the CEO)

✔ Independent Lead Director with robust responsibilities

✔ 100% independent Board Committees

✔ Active Board oversight of the Company’s strategy, risk management and ESG

✔ Focus on diversity – goal of adding two additional female directors in 2021

✔ Prohibition on hedging or pledging Company stock

✔ Stringent new clawback policy

✔ Rigorous director and executive stock ownership guidelines

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	Page

Proxy Statement	1
Information About The Annual Meeting	2
Proposals To Be Voted On At The Meeting	7
Proposal No. 1: Amendment of Certificate of Incorporation to Effect a Declassification of the Board of Directors	7
Proposal No. 2: Election of Director	8
Proposal No. 3: Ratification of Appointment of Independent Registered Public Accounting Firm	10
Principal Accountant Fees and Services	10
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm	10
Ratification of Deloitte & Touche LLP	10
Proposal No. 4: Non-Binding Advisory Vote on Executive Compensation	11
Information About the Board of Directors and Corporate Governance Matters	12
Board Leadership and Governance Structure	12
Board of Directors	13
Board Diversity and Tenure	13
Director Independence	13
Relationships Among Directors or Executive Officers	14
Board Self-Evaluation	14
Board Meetings	14
Committees of the Board of Directors	14
Board Role in Risk Management	16
Compensation Committee Interlocks and Insider Participation	17
Communication between Stockholders and Directors	17
Codes of Business Conduct and Ethics	17
Environmental, Social and Governance Program	18
Director Compensation	18
Director Compensation for the Year Ended December 31, 2020	19
Stock Ownership Guidelines	19
Prohibition on Hedging and Pledging Shares	19
Security Ownership of Certain Beneficial Owners and Management	20
Executive Compensation	22
Compensation Discussion and Analysis	22
2020 Corporate Performance Highlights	22
Compensation Philosophy and Objectives	22
Pay Best Practices	23
Executive Compensation Process	24
Independent Compensation Consultant for Compensation Committee	24
Consideration of “Say on Pay” Results	24
Competitive Positioning	25
Base Salaries of Named Executive Officers	25
Annual Cash Incentive Compensation	26
Equity-Based Incentive Compensation	27
2020 Equity-Based Incentive Awards	27
Benefits	28
Change in Control Severance Plan	28
Severance and Termination Compensation	28
Compensation Policies and Practices as They Relate to Risk Management	28
Report of the Compensation Committee	28
Summary Compensation Table	29
Additional Information Regarding Executive Compensation	30
Grants of Plan-Based Awards in 2020	30
Outstanding Equity Awards as of December 31, 2020	31
Option Exercises and Stock Vested in 2020	32
Potential Payments Upon Termination or Change of Control	32
CEO Pay Ratio	35
Report of the Audit Committee	35
Directors, Executive Officers and Corporate Governance	36
Directors	36
Nominees for Director	36
Continuing Directors	37
Executive Officers	38
Related Person Policies and Transactions	39
Requirements for Stockholder Proposals	40
Other Matters	40
Section 16(a) Beneficial Ownership Reporting Compliance	40
Other Matters	40
Annual Reports	41
Appendix A	A-1
Proposed Amendment to the Company’s Amended and Restated Certificate of Incorporation to Provide for the Annual Election of Directors	A-1

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ENERGY RECOVERY, INC.

PROXY STATEMENT

2021 ANNUAL MEETING OF STOCKHOLDERS

To Be Held at 10:00 a.m. Pacific Daylight Time on Thursday, June 10, 2021

This proxy statement and the enclosed form of proxy (“Proxy Statement”) are furnished in connection with the solicitation of proxies by our Board of Directors (the “Board” or “Board of Directors”) for use at the 2021 Annual Meeting of Stockholders of Energy Recovery, Inc., a Delaware corporation, and any postponements, adjournments or continuations thereof (the “Annual Meeting”). The Annual Meeting will be held in a virtual format via live audio webcast on Thursday, June 10, 2021 at 10:00 a.m. Pacific Daylight Time. Stockholders can attend the meeting via the internet at www.virtualshareholdermeeting.com/ERII2021 by using the 16-digit control number which appears on the Notice Regarding the Availability of Proxy Materials, the proxy card (printed in the box and marked by the arrow), and the instructions that accompanied your proxy materials. References in this Proxy Statement to “we,” “us,” “our,” “the Company” or “Energy Recovery” refer to Energy Recovery, Inc.

The Notice of Internet Availability of Proxy Materials (the “Notice”) containing instructions on how to access this Proxy Statement and our Annual Report is first being mailed on or about April 26, 2021 to all stockholders entitled to vote at the Annual Meeting.

THE INFORMATION PROVIDED IN THE “QUESTION AND ANSWER” FORMAT BELOW

IS FOR YOUR CONVENIENCE ONLY AND IS MERELY A SUMMARY OF

THE INFORMATION CONTAINED IN THIS PROXY STATEMENT.

YOU SHOULD READ THIS ENTIRE PROXY STATEMENT CAREFULLY.

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ENERGY RECOVERY, INC.

INFORMATION ABOUT THE ANNUAL MEETING

Q:	What is the purpose of the Annual Meeting

A:	Stockholders of record at the close of business on April 12, 2021 (the “Record Date”) will vote on the following items at the Annual Meeting:

●

to amend the Company’s Certificate of Incorporation to effect a phased declassification of the Board over the next three years;

●

the election of one Class I director to serve until (i) our 2024 Annual Meeting of Stockholders, or (ii) our 2022 Annual Meeting of Stockholders if Proposal No. 1 above is approved by our stockholders at the Annual Meeting (and in either case, until his respective successor has been elected and qualified, or until the director’s earlier removal or resignation);

●

to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021;

●

to hold a non-binding advisory vote on executive compensation; and

●

to transact such other business that may properly come before the Annual Meeting or at any adjournment or postponement thereof.

Q:	Why are you conducting a Virtual Stockholder Meeting

We believe the virtual meeting format enables stockholders to participate fully, and equally, from any location around the world, at little to no cost to them. We designed the format of our Annual Meeting to ensure that our stockholders who attend our Annual Meeting will be afforded the same rights and opportunities to participate as they would at an in-person meeting. Our directors will also attend the meeting virtually.

Q:	What Happens If There Are Technical Difficulties During the Annual Meeting?

We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual annual meeting, voting at the annual meeting or submitting questions at the annual meeting. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the Virtual Shareholder Meeting on the log in page.

Q:	How do I access the Audio Webcast of the Annual Meeting

The live audio webcast of the Annual Meeting will begin promptly at 10:00 a.m. Pacific Time. Online access to the audio webcast will open approximately fifteen (15) minutes prior to the start of the Annual Meeting to allow time for you to log in and test the computer audio system. We encourage our stockholders to access the meeting prior to the start time. To attend the virtual Annual Meeting, log in at www.virtualshareholdermeeting.com/ERII2021. Stockholders will need their unique 16-digit control number which appears on the Notice Regarding the Availability of Proxy Materials, the proxy card (printed in the box and marked by the arrow), and the instructions that accompanied the proxy materials. In the event that you do not have a control number, please contact your broker, bank or other nominee as soon as possible and no later than Wednesday, June 9, 2021, so that you can be provided with a control number and gain access to the meeting.

Q:	How do I vote?

A:	If you are a stockholder of record as of the Record Date, there are four ways to vote:

●

Via the Internet. You may vote by proxy via the Internet by following the instructions found on the proxy card or the Notice.

●

By Telephone. You may vote by proxy by calling the toll-free number found on the proxy card or the Notice.

●

By Mail. You may vote by proxy by filling out the proxy card and returning it in the envelope provided. If you vote by mail, your proxy card must be received by June 9, 2021.

●

At the Virtual Meeting. You may vote live at the Annual Meeting at www.virtualshareholdermeeting.com/ERII2021.

Please note that the Internet and telephone voting facilities will close at 11:59 p.m. Eastern Daylight Time (8:59 p.m. Pacific Daylight Time) on June 9, 2021.

If, as of the Record Date, you are a beneficial owner of shares held in street name, you should have received from your broker, bank, trustee or other nominee instructions on how to vote or instruct the broker to vote your shares, which are generally contained in a “vote instruction form” sent by the broker, bank, trustee or other nominee. Please follow their instructions carefully. Street name stockholders generally may vote by one of the following methods:

●

Via the Internet. You may vote by proxy via the Internet by following the instruction form provided to you by your broker, bank, trustee, or other nominee.

●

By Telephone. You may vote by proxy by calling the toll-free number found on the vote instruction form provided to you by your broker, bank, trustee, or other nominee.

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By Mail. You may vote by proxy by filling out the vote instruction form and returning it in the envelope provided to you by your broker, bank, trustee, or other nominee.

●

At the Virtual Meeting. You may vote live at the virtual Annual Meeting at www.virtualshareholdermeeting.com/ERII2021 using your unique 16-digit control number which appears on the Notice Regarding the Availability of Proxy Materials, the proxy card (printed in the box and marked by the arrow), and the instructions that accompanied the proxy materials.

Q:	How does the Board of Directors recommend I vote on these proposals?

A:	The Board recommends a vote:

●

FOR the amendment of the Certificate of Incorporation to effect a phased declassification of the Board over the next three years;

●

FOR the election of director Olav Fjell;

●

FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021; and

●

FOR the approval of our executive compensation.

Q:	What is included in the proxy materials

The proxy materials include this Proxy Statement and our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on March 12, 2021 (the “Annual Report”). These materials were first made available to you via the Internet on or about April 26, 2021. Our principal executive offices are located at 1717 Doolittle Drive, San Leandro, CA 94577, and our telephone number is (510) 483-7370. We maintain a website at www.energyrecovery.com. The information on our website is not a part of this Proxy Statement.

Q:	Why did I receive a Notice of Internet Availability of Proxy Materials instead of a full set of proxy materials?

In accordance with the rules of the SEC, we have elected to furnish our proxy materials, including this Proxy Statement and the Annual Report, primarily via the Internet. The Notice containing instructions on how to access our proxy materials is first being mailed on or about April 26, 2021 to all stockholders entitled to vote at the virtual Annual Meeting. Stockholders may request to receive all future proxy materials in printed form by mail or electronically by e-mail by following the instructions contained in the Notice. We encourage stockholders to take advantage of the availability of our proxy materials via the Internet to help reduce the environmental impact of our Annual Meetings.

Q:	How many votes do I have?

A:	On each matter to be voted upon, you have one vote for each share of common stock you own as of the Record Date.

Q:	Can I change my vote or revoke my proxy after submitting my proxy?

You may change your vote or revoke your proxy at any time prior to the taking of the vote at the Annual Meeting.

If you are the stockholder of record, you may change your vote by (1) granting a new proxy bearing a later date (which automatically revokes the earlier proxy) using any of the methods described on page 3 of this Proxy Statement (and until the applicable deadline for each method); (2) providing a written notice of revocation to the Company’s Secretary at Energy Recovery, Inc., 1717 Doolittle Drive, San Leandro, CA 94577 prior to your shares being voted; or (3) attending the Annual Meeting and voting at the Annual Meeting. Attendance at the Annual Meeting will not cause your previously granted proxy to be revoked unless you specifically so request or vote at the virtual Annual Meeting.

For shares you hold beneficially in street name, you generally may change your vote by submitting new voting instructions to your broker, bank, trustee, or nominee following the instructions they provided, or, if you have obtained a legal proxy from your broker, bank, trustee, or nominee giving you the right to vote your shares, by attending the virtual Annual Meeting and voting in person.

Q:	What if I return a proxy card but do not make specific choices?

When proxies are properly dated, executed, and returned, the shares represented by such proxies will be voted at the Annual Meeting in accordance with the instructions of the stockholder. If no specific instructions are given, the shares will be voted in accordance with the recommendations of our Board of Directors as described on page 3 of this Proxy Statement. If any matters not described in this Proxy Statement are properly presented at the Annual Meeting, the proxy holders will use their own judgment to determine how to vote your shares. If the Annual Meeting is postponed or adjourned, the proxy holders can vote your shares on the new meeting date as well, unless you have revoked your proxy instructions, as described above under “Can I change my vote or revoke my proxy after submitting my proxy?”

Q:	Who pays for the expenses related to the preparation and mailing of the Proxy Statement?

The Company will bear the costs of soliciting proxies, including the costs for the preparation, assembly, printing, and mailing of the Proxy Statement and related proxy materials. In addition, the Company will reimburse brokerage firms and other nominees representing beneficial owners of shares for their expenses in forwarding solicitation materials to beneficial owners of those shares. We have retained Alliance Advisors as our proxy solicitors, and proxies may be solicited by a representative of that firm. For its services, we will pay Alliance Advisors a fee of $9,500 plus reasonable expenses. Proxies may also be solicited by certain of the Company’s directors, officers, and regular employees, without additional compensation, either personally, by telephone, facsimile, or mail.

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Q:	Who can vote at the Annual Meeting?

Only stockholders of record at the close of business on April 12, 2020, the Record Date, will be entitled to notice of, and to vote at, our Annual Meeting. Each stockholder of record will be entitled to one vote on each matter for each share of common stock held on the Record Date. On the Record Date, the Company had 57,422,485 shares of common stock outstanding, held by 22 holders of record.

Q:	Will there be any other items of business on the agenda?

We do not know of any business to be considered at the Annual Meeting other than the proposals described in this Proxy Statement; however, the proxy holders (who are the management representatives named on the proxy card) may vote using their discretion with respect to any other matters properly presented for a vote at the meeting.

Q:	How many votes are required for the approval of each item?

Proposal No. 1 (declassification of board): An affirmative vote of a at least 66 2/3% of the voting power of the then outstanding shares of the Company, voting together as a single class is required to approve Proposal No. 1, provided that a quorum is present. The Board recommends a vote “FOR” Proposal No. 1.

Proposal No. 2 (election of director): The candidate who receives the greatest number of votes cast at the Annual Meeting will be elected, provided that a quorum is present. The Board recommends a vote “FOR” the nominee.

Proposal No. 3 (ratification of Deloitte & Touche LLP as our independent registered public accountants) and Proposal No. 4 (advisory approval of the Company’s executive compensation): An affirmative vote of a majority of the shares of the Company’s common stock present and entitled to vote is required to approve Proposals No. 3 and No. 4, provided that a quorum is present. The Board recommends a vote “FOR” each of the Proposals No. 3 and No. 4.

Q:	What is the quorum requirement?

A “quorum” of stockholders must be present for us to hold a valid meeting of stockholders. Stockholders representing a majority (more than 50%) of the voting power of our outstanding common stock as of the Record Date, present in person or represented by proxy, constitute a quorum for the transaction of business at the Annual Meeting.

Your shares will be counted towards the quorum only if you submit a valid proxy or if you vote in person at the meeting. Stockholders who submit signed and dated proxies without specifying their votes and broker “non-votes” described below will be counted towards the quorum requirement. If there is no quorum, the chairperson of the meeting or a majority of the votes present at the meeting may adjourn the meeting to another date.

Q:	What is a record holder?

If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, you are considered a “record holder” of those shares. If you are a record holder, you will receive a Notice on how you may access and review the proxy materials on the Internet.

Q:	What is a beneficial owner?

If your shares are held in a stock brokerage account, by a bank, or by another nominee, those shares are registered with American Stock Transfer & Trust Company, LLC in the “street name” of the brokerage account, bank, or other nominee, you are considered the “beneficial owner” of those shares. If you are a beneficial owner, your broker or other nominee will send you a form of voting instructions along with instructions on how to access proxy materials.

As a beneficial owner, you have the right to direct your broker, bank, or other nominee on how to vote your shares by using the voting instruction form included in the mailing or by following the instructions on the voting instruction card for voting via the Internet or telephone.

If there are multiple beneficial owners in the same household, your broker or other nominee may send only one set of voting instructions or copy of the proxy materials to your household. If you are receiving multiple copies of these materials and would like to receive a single copy in the future, please contact your broker, bank, or other nominee to request a single copy in the future.

Q:	How are votes counted?

All shares of common stock represented by valid proxies will be voted in accordance with their instructions. In the absence of instructions, proxies will be voted “FOR” Proposals No. 1, 2, 3 and 4.

Brokers, banks, and other nominees may submit a proxy card for shares of common stock that they hold for a beneficial owner but may decline to vote on certain items because they have not received instructions from the beneficial owner. These are called “Broker Non-Votes” and are not included in the tabulation of the voting results for the election of directors or for purposes of determining the number of votes cast with respect to a particular proposal. Consequently, Broker Non‑Votes will not count as votes cast for purposes of Proposals No. 1, 2, 3 and 4.

Brokers have the discretion to vote such shares for which they have not received voting instructions from the beneficial owners on routine matters but not on non-routine matters. The only routine matter up for vote this year is the ratification of the independent registered public accounting firm (Proposal No. 3).

A broker is prohibited from voting on a non-routine matter unless the broker receives specific voting instructions from the beneficial owner of the shares. The declassification of the board (Proposal No. 1) election of directors (Proposal No. 2) and the advisory vote on executive compensation (Proposal No. 4) are non-routine matters, and your broker cannot vote your shares on these proposals unless you have timely returned applicable voting instructions to your broker.

Abstentions have no effect on the outcome of voting for Proposal No. 2, election of directors. Abstentions are treated as shares present or represented and voting regarding Proposals No. 1, No. 3 and No. 4, so abstentions have the same effect as negative votes on those proposals.

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A summary of the voting provisions, provided a valid quorum is present or represented at the Annual Meeting, for the matters described in “What is the purpose of the Annual Meeting?” is as follows:

*Proposal* *No.*	*Vote*	*Board Voting* *Recommendation*	*Routine* *or Non-* *Routine⁽¹⁾***	*Discretionary* *Voting by* *Broker* *Permitted?*	*Vote* *Required for* *Approval*	*Impact* of *Abstentions*	*Impact of* *Broker Non-* *votes* *(Uninstructed* *Shares)*
1	Declassification of the Board	FOR	Non-routine	No	66 2/3% of the voting power of the then outstanding shares of the Company	Has the same effect as a vote against	No impact
2	Election of the director nominee	FOR	Non-routine	No	Plurality⁽²⁾	No impact	No impact
3	Ratification of independent registered public accountants	FOR	Routine	Yes	Majority of shares present or represented by proxy and entitled to vote	Has the same effect as a vote against	Broker has the discretion to vote
4	Advisory, non-binding approval of executive compensation	FOR	Non-routine	No	Majority of shares present or represented by proxy and entitled to vote	Has the same effect as a vote against	No impact

⁽¹⁾

“Routine” means if you hold your shares in street name, your broker may not vote your shares for you. “Non-routine” means if you hold your shares in street name, your broker may not vote your shares for you.

⁽²⁾

“Plurality” means that the nominees who receive the largest number of votes cast “for” are elected as directors. Accordingly, the nominee receiving the highest number of affirmative votes will be elected as a Class I director to serve (i) until the 2024 Annual Meeting of Stockholders, or (ii) our 2022 Annual Meeting of Stockholders if Proposal No. 1 is approved by our stockholders at the Annual Meeting (and in each case, until his respective successor is duly elected and qualified). Abstentions and broker non‑votes will have no effect on the outcome of the vote.

Q:	Who counts or tabulates the votes?

A:	The votes of stockholders attending the Annual Meeting and voting in person will be counted or tabulated by an independent inspector of election. For our meeting, a representative of Broadridge Investor Communications Solutions, Inc. will tabulate votes cast by proxy and in person.

Q:	How do I access the proxy materials and annual report via the Internet?

A Notice will be mailed or emailed with instructions on how to access proxy materials via the Internet. This Proxy Statement, the 2020 Annual Report, and related proxy materials for the Annual Meeting of Stockholders to be held on June 10, 2021 will also be available electronically at http://ir.energyrecovery.com.

If you have previously chosen to receive the proxy materials via the Internet, you will be receiving an e-mail on or about April 26, 2021 with information on how to access stockholder information and instructions for voting over the Internet. Stockholders of record may vote via the Internet until 11:59 p.m. Eastern Daylight Time (8:59 p.m. Pacific Daylight Time) on June 9, 2021.

If your shares are registered in the name of a brokerage firm and you have not elected to receive proxy materials over the Internet, you may still be eligible to vote shares electronically over the Internet. Many brokerage firms participate in programs that provide eligible stockholders who receive a paper copy of the Proxy Statement and Annual Report the opportunity to vote via the Internet. If your brokerage firm participates in such a program, a form from the broker will provide voting instructions.

Stockholders can elect to view future Proxy Statements and Annual Reports over the Internet instead of receiving paper copies. Stockholders of record wishing to receive future stockholder materials electronically can elect this option by following the instructions provided when voting over the Internet at www.proxyvote.com.

Upon electing to view future Proxy Statements and Annual Reports over the Internet, you will receive an e-mail notification next year with instructions containing the Internet address of those materials. The choice to view future Proxy Statements and Annual Reports over the Internet will remain in effect until you contact your broker or the Company to rescind the instructions. Internet access does not have to be elected each year.

Stockholders who elected to receive this Proxy Statement electronically over the Internet and who would now like to receive a paper copy of this Proxy Statement so that they may submit a paper proxy in lieu of an electronic proxy should contact either their broker or the Company.

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Q:	What should I do if I get more than one proxy or voting instruction card?

Stockholders may receive more than one set of voting materials, including multiple copies of the proxy materials and multiple Notices, proxy cards, or voting instruction cards. For example, stockholders who hold shares in more than one brokerage account may receive separate sets of proxy materials for each brokerage account in which shares are held. Stockholders of record whose shares are registered in more than one name will receive more than one set of proxy materials or one Notice. You should vote in accordance with all of the proxy cards and voting instruction cards you receive relating to our Annual Meeting to ensure that all of your shares are counted.

Q:	I share an address with another stockholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials?

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for Proxy Statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single Proxy Statement addressed to those stockholders. This process is commonly referred to as “house-holding.”

Brokers with account holders who are Energy Recovery stockholders may be house-holding our proxy materials. A single set of proxy materials may be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that it will be house-holding communications to your address, house-holding will continue until you are notified otherwise or until you notify your broker or The Company that you no longer wish to participate in house-holding.

If, at any time, you no longer wish to participate in house-holding and would prefer to receive a separate Proxy Statement and Annual Report, you may (1) notify your broker, (2) direct your written request to: Investor Relations, Energy Recovery, Inc., 1717 Doolittle Drive, San Leandro, CA 94577 or (3) contact our Investor Relations department by email at IR@energyrecover.com or by telephone at (281) 962-8105. Stockholders who receive multiple copies of the Proxy Statement or Annual Report at their address and would like to request house-holding of their communications should contact their broker. In addition, we will promptly deliver, upon written or oral request to the address or telephone number above, a separate copy of the Annual Report and Proxy Statement to a stockholder at a shared address to which a single copy of the documents was delivered.

Q:	What if I have questions about my Energy Recovery shares or need to change my mailing address?

A:	You may contact our transfer agent, American Stock Transfer & Trust Company, LLC, by telephone at (800) 937-5449 (U.S.) or (718) 921-8124 (outside the U.S.), or by email at info@amstock.com, if you have questions about your Energy Recovery shares or need to change your mailing address.

Q:	Where can I find the voting results of the Annual Meeting?

We will announce preliminary voting results at the Annual Meeting. We will also disclose voting results on a Current Report on Form 8-K that we will file with the SEC within four business days after the Annual Meeting. If final voting results are not available to us in time to file a Current Report on Form 8‑K within four business days after the Annual Meeting, we will file a Current Report on Form 8‑K to publish preliminary results and will provide the final results in an amendment to this Current Report on Form 8-K as soon as they become available.

PROPOSALS TO BE VOTED ON AT THE MEETING

Proposal No. 1: Amendment of Certificate of Incorporation to Effect a Declassification of the Board of Directors

Currently, the Company’s Certificate of Incorporation provides for a classified Board divided into three classes of directors, with each class elected for a three-year term. The classification of the Board results in staggered elections, with each class of directors standing for election every third year. One class consists of two members whose terms expire upon the election and qualification of their successors at the Annual Meeting (“Class I”), one class consists of three members whose terms expire at the 2022 Annual Meeting of Stockholders (“Class II”), and one class consists of two members whose terms expire at the 2023 Annual Meeting of Stockholders (“Class III”).

After careful consideration, the Board has determined that it is advisable and in the best interests of the Company and its stockholders to amend our Certificate of Incorporation to declassify the Board to allow the Company’s stockholders to vote on the election of the entire Board on an annual basis, rather than on a staggered basis.

The general description of the proposed amendments to our Certificate of Incorporation set forth in this Proposal No. 1 is qualified in its entirety by reference to the text thereof, which is attached as Appendix A to this proxy statement.

Declassification of the Board

If this Proposal No. 1 is approved by the Company’s stockholders at the Annual Meeting, the declassification of the Board will be phased in over a three-year period as follows:

●

at the Annual Meeting of stockholders, the Class I director will be elected to hold office for a term of one year;

●

at the 2022 Annual Meeting of Stockholders, each of the Class I directors and the Class II directors will be elected to hold office for a term of one year; and

●

at the 2023 Annual Meeting of Stockholders, and at each annual meeting of stockholders thereafter, all directors will stand for election for one-year terms.

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Under the proposed amendments, the annual election of directors will be phased in gradually to assure a smooth transition. The proposed amendments will not shorten the term of a current director. If this Proposal No. 1 is approved by the requisite vote of the Company’s stockholders, any director elected to fill a vacancy that did not arise from an increase in the size of the Board will hold office for the term that remains for the applicable vacating director, and any director elected to fill a vacancy that resulted from an increase in the size of the Board will be elected to serve until the next annual meeting of stockholders.

If this Proposal No. 1 is not approved by the requisite vote of the Company’s stockholders, the Board will remain classified, with each class of directors serving a term expiring at the annual meeting of stockholders held in the third year following the year of their election.

If this Proposal No. 1 is passed by the requisite vote of the Company’s stockholders, it will become effective when the Company files the amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware, which the Company intends to do promptly following the 2021 Annual Meeting.

Considerations of the Board

The Company has historically had a classified board structure in which directors have been divided into three classes and one class is elected each year to serve a three-year term. The Board has historically believed that this classified board structure promotes continuity and stability of strategy, ensures that a potential acquirer in a takeover situation negotiates with the Board, and facilitates the ability of the Board to focus on creating long-term stockholder value. The Board also is aware that the current trend in corporate governance is leading away from classified boards in favor of electing all directors annually and also recognizes that a classified board structure may reduce directors’ accountability to stockholders because such a structure does not enable stockholders to express a view on each director’s performance by means of an annual vote. Moreover, many institutional investors believe that the election of directors is the primary means for stockholders to influence corporate governance policies and to hold management accountable for implementing those policies.

In determining whether to support declassification of the Board, the Board carefully considered these factors and has determined that it is advisable and in the best interests of the Company and its stockholders to declassify the Board.

Vote Required

The affirmative vote of at least 66 2/3% of the voting power of the then outstanding shares of our stock that are present in person or by proxy and entitled to vote at the Annual Meeting.

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ADOPTION OF THE PROPOSED AMENDMENTS TO OUR CERTIFICATE OF INCORPORATION TO PROVIDE FOR THE ANNUAL ELECTION OF DIRECTORS.

The management proxy holders will vote all duly submitted Proxies FOR the adoption of the proposed amendments to our Certificate of Incorporation unless duly instructed otherwise.

Proposal No. 2: Election of Director

The Company’s Nominating and Governance Committee has nominated, and our Board has designated, Mr. Olav Fjell to stand for election as a Class I director at the Annual Meeting. Mr. Fjell is standing for re-election. Mr. Ole Peter Lorentzen, a Class I director, has notified the Board that he intends to resign upon the conclusion of his current board term and will not stand for re-election at the Annual Meeting.

As a publicly traded company with a principal executive office in California, the Company is subject to the requirements of California Senate Bill 826, which was signed into law on September 30, 2018. Under SB 826, the Company was required to have a minimum of one female director by December 31, 2019, and is required to have at least three female directors by December 31, 2021. While the Company was in compliance with SB 826 as of December 31, 2020, the Company will need to increase female representation on the Board prior to December 31, 2021 to meet the requirements of SB 826. The Company intends to fill the Class I director vacancy with one female director prior to December 31, 2021 and will add an additional female director in order to satisfy such requirements.

Term of Office

If Proposal No. 1 is approved by the Company's stockholders at the Annual Meeting, upon the filing of the amendment to the Certificate of Incorporation, the classification of the Board of Directors will be phased out over the next three annual meetings of stockholders as described in Proposal No. 1, such that:

(i)

at the Annual Meeting, the Class I director will be elected to hold office for a term of one year,

(ii)

at the 2022 Annual Meeting of Stockholders, each of the Class I directors and Class II directors will be elected to hold office for a term of one year, and

(iii)

at the 2023 Annual Meeting of Stockholders, and at each annual meeting of stockholders thereafter, all directors will be elected to hold office for a term of one year, and thereafter the classification of the Board of Directors will terminate in its entirety.

If elected, the Class I director nominee will serve a term of 1 year on our Board, until our 2022 Annual Meeting of Stockholders or until his successor is duly elected and qualified in accordance with our by-laws.

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If Proposal No. 1 is not approved by the Company’s stockholders at the Annual Meeting, and if elected, the Class I director nominee will serve a term of three years on our board of directors, until our 2024 Annual Meeting of Stockholders or until his successor is duly elected and qualified in accordance with our by-laws.

The nominee is currently a director of the Company and he has consented, if elected as a director of the Company, to serve until his term expires.

In the event that any nominee of the Company is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill the vacancy. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them in such a manner as will assure the election of as many of the nominees listed below as possible. In such event, the specific nominees to be voted for will be determined by the proxy holders. The Board has no reason to believe that the person named below will be unable or unwilling to serve as a director, if elected. The nominee for director who receives the greatest number of votes will be elected.

A plurality of the shares voted for the nominee at the meeting is required to elect the nominee as a director.

Set forth below are the name, age, and certain biographical information relating to the Class I director nominee as of April 26, 2021.

DIRECTOR NOMINEE

Education: M.S.c. in Business Administration and Economics (sivilokonom), Norwegian School of Economics and Business Administration

Director Since: 2015

Current Board Committees:

Audit Committee (Member)

Nominating and Corporate Governance Committee (Member)

Olav Fjell joined our Board of Directors in June 2015. Mr. Fjell is a seasoned business leader with experience in the oil and gas industry, finance industry, and high tech engineering industry. He is Chair of the Boards of Moelven AS, Nofima AS, Concedo ASA, Bene Agere Norden AS, IFE and Franzefoss AS. He is Deputy Chair of Lotos Exploration and Production Norge and member of the Board of Turbulent Flux AS. Mr. Fjell was the Chief Executive Officer of Statoil from 1999 to 2003, Lindorff from 2005 to 2007 and of Hurtigruten from 2007 to 2012. He has also served as the Chief Executive Officer of Postbanken and been part of the senior management teams at Kongsberg Våpenfabrikk and DNB. Mr. Fjell holds a M.Sc. in Business Administration and Economics (sivilokonom) from Norwegian School of Economics and Business Administration. The Board selected Mr. Fjell because of his extensive and broad executive experience, both as a Chief Executive Officer and through directorships in Norwegian businesses and his experience in the oil and gas industry.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE “FOR” THE ELECTION OF OLAV FJELL AS CLASS I DIRECTOR.

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Proposal No. 3: Ratification of Appointment of Independent Registered Public Accounting Firm

The Audit Committee has appointed Deloitte & Touche LLP, as our independent registered public accounting firm for the fiscal year ending December 31, 2021. Deloitte & Touche LLP was retained by us on April 11, 2018, as announced in our Current Report on Form 8-K, filed on April 13, 2018. A representative of Deloitte & Touche LLP is expected to be present at the virtual Annual Meeting. The representative will have an opportunity to make a statement and to respond to any questions.

The Audit Committee recognizes the importance of maintaining the independence of the Company’s independent auditor, both in fact and appearance. Each year, the Audit Committee evaluates the qualifications, performance and independence of the Company’s independent auditor and determines whether to re-engage the current independent auditor. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the auditors, the auditors’ (global) capabilities and the auditors’ technical expertise and knowledge of the Company’s operations and industry. Based on this evaluation, the Audit Committee has retained Deloitte & Touche LLP as the Company’s Independent Auditor for fiscal year 2021. The members of the Audit Committee and the Board believe that, due to Deloitte & Touche LLP’s knowledge of the Company and of the industries in which the Company operates, it is in the best interests of the Company and its stockholders to retain Deloitte & Touche LLP to serve as the Company’s independent auditor during 2021.

During the years ended December 31, 2020 and 2019, neither the Company nor anyone on its behalf has consulted with Deloitte & Touche LLP with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report nor oral advice was provided to the Company that Deloitte & Touche LLP concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K) or a “reportable event” (as defined in Item 304(a)(1)(v) of Regulation S-K).

The report of Deloitte & Touche LLP on the Company’s consolidated financial statements for the years ended December 31, 2020 and 2019 did not contain an adverse opinion or a disclaimer of an opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

Principal Accountant Fees and Services

The following table sets forth all fees accrued or paid to Deloitte & Touche LLP, our independent registered public accountants for fiscal years ended December 31, 2020 and 2019.

	2020		2019
Audit Fees ⁽¹⁾	$	990,579	$	850,000
Audit-Related Fees ⁽²⁾		7,354		10,000
Tax Fees ⁽³⁾		189,453		168,081
All Other Fees ⁽⁴⁾		1,895		1,895
Total	$	1,189,281	$	1,029,976

⁽¹⁾

Audit Fees consist of fees for professional services rendered in connection with the audit of our annual consolidated financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the independent registered public accountants in connection with statutory and regulatory filings or engagements for those fiscal years.

⁽²⁾	Audit-related Fees consist of professional services rendered for assurance and related services reasonably related to the performance of the audit or review of our financial statements.

⁽³⁾	Tax Fees consist of fees for professional services rendered for tax compliance, tax advice and tax planning.

⁽⁴⁾	All Other Fees consist of product and services other than those reported above.

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

The Audit Committee pre-approves audit, audit-related, tax, and all other services provided by our independent registered public accountants, Deloitte & Touche LLP and will not approve services that are impermissible under applicable laws and regulations. The pre-approval of services may be delegated to one or more of the Audit Committee’s members, but the decision of that member to pre-approve specific services must be reported to the full Audit Committee at its next scheduled meeting. In the fiscal years ended December 31, 2020 and 2019, all fees identified above under the captions “Audit Fees” that were billed by Deloitte & Touche LLP for 2020 and 2019, were approved by the Audit Committee in accordance with SEC requirements.

In the fiscal years ended December 31, 2020 and 2019, there were no other professional services provided by Deloitte & Touche LLP, other than those listed above, that would have required our Audit Committee to consider their compatibility with maintaining the independence of Deloitte & Touche LLP.

Ratification of Deloitte & Touche LLP

Although ratification is not required, the appointment of Deloitte & Touche LLP as the Company’s independent auditors for fiscal year 2021 is being submitted for ratification at the Annual Meeting because the Board believes doing so is a good corporate governance practice. Furthermore, the Audit Committee will take stockholders’ opinions regarding the appointment of Deloitte & Touche LLP into consideration in future deliberations. If Deloitte & Touche LLP’s appointment is not ratified at the Annual Meeting, the Audit Committee will consider the engagement of other independent auditors. The Audit Committee may terminate Deloitte & Touche LLP’s engagement as the Company’s independent accountants without the approval of the Company’s stockholders whenever the Audit Committee deems appropriate.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT

STOCKHOLDERS VOTE “FOR” RATIFICATION

OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY’S

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR

THE YEAR ENDING DECEMBER 31, 2021

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Proposal No. 4: Non-Binding Advisory Vote on Executive Compensation

The Compensation Discussion and Analysis beginning on page 20 of this Proxy Statement describes the Company’s executive compensation program and the compensation decisions made by the Compensation Committee for our fiscal year ended December 31, 2020, with respect to the executive officers named in the Summary Compensation Table on page 27. The Board of Directors is asking our stockholders to cast a non-binding advisory vote to approve the following resolution:

“RESOLVED, that the stockholders of Energy Recovery, Inc. approve, on an advisory basis, the compensation of the executive officers named in the Summary Compensation Table for 2020, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC (which disclosure includes the Compensation Discussion and Analysis, the compensation tables (other than the pay ratio), and the related footnotes and narratives accompanying the tables).”

The Board is asking our stockholders to vote “FOR” this proposal because it believes that the policies and practices described in the Compensation Discussion and Analysis section of this Proxy Statement are necessary to achieve the Company’s primary objective of the executive compensation program, that of attracting, retaining, and motivating the talent we need to meet and/or exceed the strategic, operational, and financial goals of the Company. Additionally, we want to reward superior performance and align the long-term interests of our executives with our stockholders.

This proposal, commonly known as a “Say on Pay” proposal, gives you, as a stockholder, the opportunity to express your views on our executive compensation programs and policies and the compensation paid to the executive officers named in the Summary Compensation Table.

The Company’s current policy is to hold a Say on Pay vote each year. We expect to hold another advisory vote with respect to executive compensation at the annual meeting of stockholders to be held in 2022.

Although your vote on this proposal is advisory and non-binding, the Compensation Committee values the views of our stockholders and will take into account the outcome of the vote when considering future compensation decisions for our named executive officers. We are providing this advisory vote pursuant to Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”

THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR

NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THE COMPENSATION DISCUSSION

AND ANALYSIS, THE ACCOMPANYING COMPENSATION TABLES AND THE RELATED

NARRATIVE DISCLOSURE INCLUDED IN THIS PROXY STATEMENT.

INFORMATION ABOUT THE BOARD OF DIRECTORS AND CORPORATE GOVERNANCE MATTERS

Board Leadership and Governance Structure

ERI is committed to maintaining superior governance practices, and we regularly assess and refine our corporate governance policies and procedures to take into account evolving best practices.

The Board is responsible for establishing and maintaining the most effective leadership structure for the Company. Historically, the Board has determined that the roles of the Chairman of the Board and the Chief Executive Officer should be separate, with the Chairman an independent director, because that structure affords independent Board leadership and allows the Chief Executive Officer to concentrate on the Company’s business. Nevertheless, the Board believes it is appropriate to retain the discretion and flexibility to change the structure from time to time as needed to provide appropriate leadership for the Company given the specific circumstances then facing the Company.

The Board is currently led by Mr. Robert Mao, our Chairman, President and Chief Executive Officer, and Ms. Pamela Tondreau, our Lead Independent Director. The Company believes that our current structure is appropriate at this time as it strikes a balance between effective and efficient Company leadership and oversight by the independent directors.

The Board believes that having Mr. Mao serve as both Chairman and Chief Executive Officer is the most effective leadership structure for the Company at this time. Energy Recovery is at an inflection point in its development as it transitions from a company focused on a single industry since its inception, desalination, to one focused on leveraging its unique IP to develop its PX technology into a more diverse set of industries. In addition, the Company is focused on rapid growth, evolving from a small niche company, to larger more diversified one which demands a new look at operations to assure success. Mr. Mao has over 30 years of experience in the technology and telecommunications industry worldwide, with extensive experience in incubating new and developing technologies, and prior service as a director of other large public companies. This experience makes him uniquely well positioned to lead the Company’s business, operations and strategy during this transition.

The combination of the Chief Executive Officer and Chairman roles allows consistent communication and alignment throughout the Company, assuring effective and efficient implementation of corporate strategy and is important in unifying our team members, including the members of the Board, behind a single vision. The combination of the Chief Executive Officer and Chairman roles is balanced by our strong Lead Independent Director position, by the independence of all our other directors, each of whom has significant business experience and by the three principal committees of the Board, each of which consists solely of independent directors.

The Lead Independent Director is an important element of ensuring strong independent Board leadership. We believe the Lead Independent Director provides the Company and the Board with the same independent leadership, oversight and benefits that would be provided by an independent chairman. Our Lead Independent Director is chosen by the independent Directors. In May 2020, Ms. Pamela Tondreau was elected the Lead Independent Director, succeeding Mr. Arve Hanstveit. Ms. Tondreau has been a member of the Board since 2019 and she currently serves as the Chairman of the Compensation Committee and a member of the Nominating and Corporate Governance Committee. Ms. Tondreau’s extensive corporate and legal experience make her qualified to serve as Lead Independent Director of our Board.

The Lead Independent Director’s duties include consulting with our Chairman and Chief Executive Officer and presiding over meetings of the Board at which the Chairman is not present, including executive sessions of the Board and the independent directors. The Lead Independent Director’s duties also include facilitating discussions among independent directors on key issues and concerns outside of Board meetings, serving as a liaison between the Chairman and the other directors, reviewing information to be sent to the Board, collaborating with the Chairman and other members of Company management to set meeting agendas and Board information, assisting the chairs of the committees of the Board as requested, and performing such other functions and responsibilities as requested by the Board or the independent directors from time to time. In performing the duties described above, the Lead Independent Director is expected to consult with, and does consult with, the chairs of the appropriate Board committees.

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Board of Directors

The number of directors is fixed by our Board of Directors, subject to the terms of our Charter and the Company’s Amended and Restated Bylaws (the “Bylaws”). Our Board of Directors currently consists of seven directors.

In accordance with our Charter and the Bylaws, our Board of Directors is divided into three classes with staggered three-year terms. Prior to the Annual Meeting, the Board consisted of:

Committee Memberships

Director

Class I

Class II

Class III

Audit

Compensation

Nominating &

Corporate

Governance

Mr. Alexander J. Buehler

Chairman

Member

Mr. Olav Fjell

Member

Mr. Sherif Foda

Member

Mr. Arve Hanstveit

Member

Mr. Ole Peter Lorentzen

Member

Chairman

Mr. Robert Yu Lang Mao

Ms. Pamela Tondreau

Chairman

Member

However, Mr. Lorentzen, a Class I director, has notified the Board that he will not stand for re-election upon the completion of his current term. Therefore, immediately following the Annual Meeting, our directors will be divided among the three classes as follows:

●

Class I directors – Mr. Fjell’s term will expire at the Annual Meeting and he is standing for election at the Annual Meeting for a term that will expire (1) if the stockholders approve Proposal No. 1 at the Annual Meeting, at the annual meeting of stockholders to be held in 2022, or (2) if the stockholders do not approve Proposal No. 1 at the Annual Meeting, at the annual meeting of stockholders to be held in 2024;

●

Class II directors – Messrs. Foda, Hanstveit and Tondreau’s terms will expire at the annual meeting of stockholders to be held in 2022; and

●

Class III directors – Messrs. Buehler and Mao’s terms will expire at the annual meeting of stockholders to be held in 2023.

Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one third of the directors.

Board Diversity and Tenure

Our Board believes that diversity is an important aspect of an effective board. The Nominating and Corporate Governance Committee seeks to recommend individuals to the Board with, among other things, a diversity of skills, experience, expertise and perspective appropriate for the business and operation of the Company. We recognize the benefits of racial and gender diversity in the boardroom, including better reflecting our diverse customer and employee base and the healthy debate that stems from different viewpoints that may result from diverse backgrounds. Accordingly, our Board is diverse in many ways, with differing geographic, business and racial backgrounds. Over forty percent of our Board members are diverse based on gender or ethnicity.

We believe that fresh perspectives and new ideas are critical to a forward-looking and strategic Board. At the same time, given the extremely complex nature of our business, it is equally important to benefit from the valuable experience and institutional knowledge that longer-serving directors bring to the boardroom. Our two newest Directors, Pamela Tondreau and Sherif Foda, joined the Board in 2019 and 2016 respectively. Mr. Buehler, Mr. Fjell and Mr. Lorentzen joined the Board in 2015. Mr. Mao and Mr. Hanstveit joined our Board in 2010 and 1995, respectively. The Board strongly believes that the current mix of directors provides the Company with an appropriate balance of knowledge, experience and capability, allowing us to leverage deep company experience and knowledge in addition to new viewpoints and innovative ideas among newer directors. Five out of our seven Directors have served on our Board for less than six years.

Director Independence

The Nominating and Corporate Governance Committee and the Board undertake an annual review of director independence. The Nominating and Corporate Governance Committee and the Board evaluated all business and charitable relationships between the Company and the Company’s non-employee directors and all other relevant facts and circumstances. Based on information provided by each director concerning his background, employment, and affiliations, including family relationships, our Board of Directors has affirmatively determined that, except for Mr. Mao who is currently serving as an employee, none of our directors have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules and regulations of the SEC, and the listing standards of The Nasdaq Stock Market (the “Applicable Rules”). In making these determinations, our Board of Directors considered the current and prior relationships that each director has with our Company and all other facts and circumstances our Board of Directors deemed relevant in determining their independence.

The Board of Directors also has determined that each director is a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act, and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code, as amended.

The Board’s standards for determining director independence meet or exceed the applicable rules of the SEC and Nasdaq listing standards. In determining whether a director is “independent”, the Board considers whether the individual:

●

is not an executive officer or employee of the Company or any other individual having a relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director;

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is not, and has not at any time during the past three years been, employed by the Company;

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has not accepted, and does not have any spouse, parent, child or sibling, whether by blood, marriage or adoption, any person residing in such individual’s home, or any relative supported financially (each, a “Family Member”) who has accepted, any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the determination of independence, other than (A) compensation for Board or committee service, (B) compensation paid to a Family Member who is an employee (other than an executive officer) of the Company, or (C) benefits under a tax-qualified retirement plan or non-discretionary compensation;

●

is not a Family Member of an individual who is, or at any time during the past three years was, employed by the Company as an executive officer;

●

is not, and does not have a Family Member who is, a partner in, or a controlling stockholder or an executive officer of, any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more, other than (A) payments arising solely from investments in the Company’s securities and (B) payments under non-discretionary charitable contribution matching programs;

●

is not, and does not have a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the Company served on the compensation committee of such other entity;

●

is not, and does not have a Family Member who is, a current partner of the Company’s outside auditor, and was not, and does not have a Family Member who was, a partner or employee of the Company’s outside auditor who worked on the Company’s audit at any time during any of the past three years; and

●

satisfies any additional requirements for independence promulgated from time to time by NASDAQ.

Relationships Among Directors or Executive Officers

There are no family relationships among any of the directors or executive officers of the Company.

Board Self-Evaluation

Our Nominating and Corporate Governance Committee charter provides that the Nominating and Corporate Governance Committee must conduct a periodic assessment of the performance of the Board, including the committees, and provide the results to the full Board for discussion. The purpose of the review is to increase the effectiveness of the Board as a whole and of each of the committees. The assessment includes an evaluation of the Board and each committee’s contribution as a whole, of specific areas in which the Board, the applicable committee and/or management believe better contributions could be made and of the overall make-up and composition of the Board and its committees.

Board Meetings

The Board conducts its business through meetings of the full Board and committees of the Board. The Board regularly meets in executive session with only independent directors of the Board present. During 2020, the Board held 11 meetings. During 2020, no director attended fewer than 75% of all the meetings of the Board or its committees on which he or she served after becoming a member. The Company encourages, but does not require, its directors to attend the annual meeting of stockholders.

Committees of the Board of Directors

The Board has three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. The primary responsibilities, membership and meeting information for the committees of our Board during 2020 are summarized below. A copy of the charter of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee is available on our website at www.energyrecovery.com under the links “Investor Relations” – “Corporate Governance.”

Audit Committee

Members: All Independent

Alexander Buehler (Chair)

Olav Fjell

Arve Hanstveit

Meetings in 2020: 4

The Board has unanimously determined that each member of the Audit Committee meets Nasdaq’s “financial sophistication” requirements, and that Mr. Buehler has the financial education and experience to qualify as an “Audit Committee financial expert” within the meaning of SEC regulations.

Key Responsibilities:

● Oversees and reports to the Board with respect to the quality and integrity of the Company’s financial statements, accounting, and financial reporting processes, and audits of the financial statements and internal controls over financial reporting

● Appoints, compensates, and evaluates the qualifications, independence, and performance of the independent auditor

● Oversees the performance of the internal audit function

● Establishing policy standards and guidelines for the Company’s risk assessment and risk management

● Monitors the Company’s compliance with legal and regulatory requirements, including the Company’s disclosure controls and procedures, and the Company’s anonymous whistleblower hotline

● Reviews and approves related party transactions

● Reviews cyber-security and other risks relevant to the Company’s information system controls and security

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Compensation Committee
Members: All Independent Pamela Tondreau (Chair) Alexander Buehler Sherif Foda Arve Hanstveit Ole Peter Lorentzen Meetings in 2020: 7 The Board has determined that each member is independent under Nasdaq rules and the Company’s Corporate Governance Guidelines and is a “non-employee director” as defined by Rule 16b-3 under the Exchange Act.		Key Responsibilities: ● Reviews and approves the Company’s overall compensation philosophy ● Designs and administers the Company’s executive compensation programs and policies that are aligned with business and compensation objectives ● Evaluate the performance of the Chief Executive Officer and approve his compensation and other terms of employment ● Determines and approves the annual compensation of the executive officers and Section 16 officers ● Administers the Company’s incentive and stock plans, including establishing guidelines, interpreting plan documents, selecting participants, approving grants and awards and making other decisions regarding the operation of such plans ● Reviews and makes recommendations to the Board concerning director compensation ● Retain outside advisors; directly retains and oversees its independent compensation consultant ● Reviews our compensation policies and practices to determine areas of resulting risk
Nominating and Corporate Governance Committee
Members: All Independent Ole Peter Lorentzen (Chair) Olav Fjell Sherif Foda Pamela Tondreau Meetings in 2020: 6 The Board has determined that each member is independent under NASDAQ rules.		Key Responsibilities: ● Identifies and recommends to the Board, nominees to serve on the Board ● Monitors the independence of directors of the Board and Board Committees ● Oversees the Board and Board Committees annual evaluation process ● Develops and oversees compliance with the Company’s corporate governance functions, including the procedures for compliance with significant applicable legal, ethical and regulatory requirements that impact corporate governance ● Reviews and makes recommendations to the Board with respect to corporate governance matters generally

The Nominating and Corporate Governance Committee considers and makes recommendations to the Board regarding any stockholder recommendations for candidates to serve on the Board. Our Bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the Board. In order to nominate a candidate for director, a stockholder must give timely notice in writing to our Secretary and otherwise comply with the provisions of our Bylaws. To be timely, a stockholder’s notice to our Secretary must be delivered to or mailed and received at our principal executive offices, in the case of an annual meeting, not later than the close of business on the 120^th day, nor earlier than the close of business on the 150^th day, prior to the anniversary date on which we first mailed our Proxy Statement to stockholders in connection with the immediately preceding annual meeting. If no annual meeting was held in the previous year or the annual meeting is called for a date that is not within 25 days before or after such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business the 10^th day following the day on which such notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever occurs first. In the case of a special meeting of stockholders called for the purpose of electing directors, notice must be delivered to or mailed and received not later than the close of business on the 10^th day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever occurs first.

Stockholder nominations must also include the information required by our Bylaws. Under the Bylaws, information as to each person whom the stockholder proposes to nominate for election as a director must include (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the corporation that are owned beneficially or of record by the person, (iv) whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest or other transaction has been entered into by or on behalf of the person, or any affiliates or associates of such person, with respect to stock of the corporation, (v) whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of stock of the corporation) has been made by or on behalf of the person, or any affiliates or associates of such person, the effect or intent of any of the foregoing being to mitigate loss to, or to manage risk or benefit of stock price changes for, such person, or any affiliates or associates of such person, or to increase or decrease the voting power or pecuniary or economic interest of such person, or any affiliates or associates of such person, with respect to stock of the corporation, (vi) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, (vii) the written consent of such person to being named as a nominee and to serving as a director if elected, (viii) the written representation and agreement of such person required by Section 3.16 of the Bylaws, and (ix) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant SEC regulations. The stockholder giving notice must also provide certain other information required under our Bylaws.

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A stockholder who wishes to nominate a candidate to serve on the Board should carefully review the applicable provisions of our Bylaws. Any such nomination must be made in accordance with the procedures outlined in, and include the information required by, the Bylaws. The nomination must be addressed to 1717 Doolittle Drive, San Leandro, California 94577 Attn: Secretary. You can obtain a copy of our Bylaws by writing to the Secretary at this address.

In addition, our Bylaws permit certain of our stockholders who have beneficially owned 3% or more of our outstanding common stock continuously for at least three years to submit nominations to be included in the Company’s proxy materials for a number not to exceed the greater of two (2) or twenty percent (20%) of the total number of directors then serving. Notice of proxy access director nominations for the 2022 Annual Meeting of Stockholders must be delivered to our Corporate Secretary at our principal executive offices no earlier than November 27, 2022, and no later than the close of business on December 27, 2022. The notice must set forth the information required by our Bylaws with respect to each proxy access director nomination that eligible stockholder or stockholders intend to present at the 2022 Annual Meeting of Stockholders and must otherwise be in compliance with our Bylaws.

While the Nominating and Corporate Governance Committee does not have a written policy regarding diversity in identifying nominees for directors, the committee takes diversity into account when looking for best available candidates to serve on the Board. In the past, when new directors have been added to our Board, the Board or Nominating and Corporate Governance Committee has endeavored to select director candidates who have business, scientific, or regulatory specializations; technical skills; or other backgrounds that increased the range of experience and diversity of perspectives within our Board in ways that pertain to our current and future business goals. The Committee also considers diversity in terms of gender, ethnic background, and national origin.

There are no differences in the manner in which the Nominating and Corporate Governance Committee evaluates nominees for director based on whether the nominee is recommended by a stockholder or by the Nominating and Corporate Governance Committee itself.

In reviewing potential candidates for the Board, the Nominating and Corporate Governance Committee considers numerous factors including:

●

whether or not the person has any relationships that might impair his or her independence, such as any business, financial, or family relationships with the Company, its management, its stockholders, or their affiliates;

●

whether or not the person serves on boards of, or is otherwise affiliated with, competing companies;

●

whether or not the person is willing to serve as, and willing and able to commit the time necessary for the performance of the duties of, a director of the Company; and

●

the contribution that the person can make to the Board and the Company, with consideration given to the person’s experience in the fields of energy, technology, and manufacturing as well as leadership or entrepreneurial experience in business or education.

Of greatest importance is the individual’s integrity and ability to bring to the Company experience and knowledge in areas related to the Company’s current and future business. The Board intends to continue using these criteria to evaluate candidates for election to the Board.

Board Role in Risk Management

The goal of the Company’s risk management process is to understand and manage material risks impacting our business. Management is responsible for identifying and managing the risks, while directors provide oversight to management in this process, which is designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance to enhance stockholder value. A fundamental part of risk management is not only understanding the risks we face and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate. Management is responsible for establishing our business strategy, identifying and assessing the related risks and establishing appropriate risk management practices.

The Board of Directors

The Board, either directly or through one or more of its committees, reviews our business strategy and management’s assessment of the related risk and discusses with management the appropriate level of risk. The Board relies on each Board committee to oversee management of specific risks related to that committee’s function. While the Board is responsible for setting, monitoring, and maintaining the Company’s risk management policies and practices, the Company’s executive officers, and members of our management team, are responsible for implementing and overseeing our day-to-day risk management processes.

Certain risks are reviewed and discussed with the entire board, such as (but not limited to):

● Significant commercial risks

● Capital market risks

● Material legal or reputational matters

● Mergers and acquisitions

● Strategy

● Competitive developments

● Risks related to ESG

Audit Committee

Our Audit Committee is primarily responsible for overseeing the Company’s risk management processes on behalf of the Board. The Audit Committee charter provides that the Audit Committee should discuss and consider the process by which senior management of the Company and the relevant departments assess and manage the Company’s exposure to risk and discuss the Company’s major financial risk exposure and the steps management has taken to monitor, control, and report such exposures. In addition, the Audit Committee reports to the Board of Directors, which also considers the Company’s risk profile. The Audit Committee and the Board of Directors obtain input from management regarding the most significant risks facing the Company, the Company’s risk management strategy, and that the risks undertaken are consistent with the Board’s tolerance for risk.

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Risks reviewed and discussed by the Audit Committee include (but not limited to):

●

Financial statements and financial risk exposures

Tax strategy and related risks

Business ethics and anti-corruption program

Significant commercial risks

●

Oversight of overall risk management processes and policies

Accounting, controls and financial disclosures

Cybersecurity and information security related risks

Compensation Committee

The Compensation Committee oversees compensation risk management by participating in the creation of, and approving, compensation structures that create incentives that encourage an appropriate level of risk-taking behavior consistent with our business strategy.

●

Executive compensation philosophy and program design

Executive development and leadership

Diversity and inclusion

●

Talent management

CEO succession planning

Senior Management succession planning

Turnover and employee risks

Role of Independent Directors

In addition to the oversight provided by our full Board of Directors, Audit Committee, Compensation Committee, executive officers and the members of our management team, our independent directors hold regularly scheduled executive sessions as often as they deem appropriate, but in any event at least four times each year. These executive sessions provide an additional avenue through which we monitor the Company’s risk exposure and policies regarding risk management.

Cybersecurity

We rely on our information technology (“IT”) and data systems in connection with many of our business activities. As the role of technology in our business expands, so too does the importance of cybersecurity. We take protecting our brand, systems, data, intellectual property, and customer and employee information, seriously. We actively monitor and manage our IT for security risks (e.g., cybersecurity risks), and look to mitigate these risks through enterprise-wide programs, annual employee training and vulnerability assessments. We have made, and continue to make, investments in a skilled IT workforce and leadership, and critical technologies.

Our enterprise-wide programs include endpoint security and encryption, network intrusion prevention and detection, a system for managing and installing patches for third-party applications, and security information and event management (“SIEM”) systems that monitor our infrastructure and alert our security operations center of potential cybersecurity issues. We strictly regulate and limit all access to servers and networks at our facilities. Local network access is restricted by domain authentication, using stringent access control lists and virtual local area networks (“VLAN”). Multi-factor authentication is used to build an additional layer of security for remote-work access to critical applications. Our information security department regularly performs penetration testing and we engage a third-party penetration testing company to conduct penetration tests to identify and remediate any issues.

Under our enterprise-wide approach to risk management, cybersecurity is “high-level” risk that is reported to, and overseen by, our Audit Committee of the Board of Directors, which consists of three non-employee independent directors, of which one of these directors has information systems experience. In addition to the enterprise-wide initiatives, we purchase cybersecurity insurance to protect against a wide range of costs that could be incurred in connection with cybersecurity-related incidents. We continually strengthen and enhance our programs and controls around people, process and technology, and apply risk-based strategies to enhance prevention, detection, and response efforts

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee was at any time during fiscal year 2020 or at any other time, an officer or employee of the Company, or had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K. None of our current executive officers serve on the Compensation Committee or the Board of Directors of another entity whose executive officer(s) serve(s) on the Company’s Compensation Committee or Board of Directors.

Communication between Stockholders and Directors

Our Board currently does not have a formal process for stockholders to send communications to the Board. The Company, however, makes every effort to ensure that the views of stockholders are heard by the Board or individual directors and that the Company responds to stockholders on a timely basis. The Board does not recommend that formal communication procedures be adopted at this time because it believes that informal communications are sufficient to convey questions, comments, and observations that could be useful to the Board. Stockholders wishing to formally communicate with the Board may send communications directly to Secretary, Energy Recovery, Inc., 1717 Doolittle Drive, San Leandro, California 94577.

Codes of Business Conduct and Ethics

Our employees, including our principal executive officer and principal financial and accounting officer, and our directors are governed by a code of ethics of the Company (the “Codes of Ethics”). The Codes of Ethics require our employees and directors to conduct Company business in the highest legal and ethical manner. The Codes of Ethics meet the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K and the requirements of a code of business conduct and ethics under applicable Nasdaq listing standards. The full texts of the Codes of Ethics and further details regarding the scope of each of the Codes of Ethics are available on our website at www.energyrecovery.com under the links “Investor Relations”—“Corporate Governance.” Any amendments to or waivers from the Codes of Ethics will be posted at this location on our website as required by applicable SEC and Nasdaq rules.

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Environmental, Social and Governance Program

While our business has always been aligned with sustainability issues such as addressing global water scarcity and improving energy efficiency, the launch of a formal Environmental, Social and Governance (ESG) program in 2020 reflects our commitment to continuous improvement as we strive to become a more sustainable and resilient business. Ultimately, we believe that the strategic integration of ESG principles into how we operate as a company will leverage our end products’ inherent value proposition of creating a more sustainable future. This approach can help us achieve our ultimate goal of balancing long-term growth with strong governance, responsible business policies and practices, and positive environmental impact.

Our corporate governance structure is highly focused on effectively managing risk and preserving long-term, sustainable value for the benefit of our shareholders, our employees, and the broader ecosystem in which we operate. Relevant ESG topics, risks, issues, and considerations – largely informed by related stakeholder feedback and the use of the Sustainable Accounting Standards Board and Global Reporting Initiative frameworks, as well as the Sustainable Development Goals (SDGs) – are managed at the Board level and are not currently assigned to a specific committee. As the formal assessment of key ESG risks and opportunities has been elevated as a corporate priority and is relatively new to us as an organization, Energy Recovery’s Board decided these responsibilities should not be assigned to a particular committee at this time, but instead reviewed by the Board in its entirety.

As our ESG program and related initiatives evolve, the Board will play a key role in assessing our areas of greatest influence within the larger sustainability landscape and will be involved in the creation and subsequent execution of related goals. ESG topics, issues, and considerations relevant to Energy Recovery are discussed at each Board meeting, which occur at least four times per year, and have been formally incorporated into Board meeting agendas since 2019.

In September 2020, we released our inaugural ESG report, detailing our multi-pronged approach to accelerating environmental sustainability, managing and mitigating ESG related risks, and working to continually improve our performance across all ESG dimensions. To further guide our journey forward, we have aligned ourselves with the SDGs, a framework of global commitments to create a fairer and more sustainable world by 2030. Given our global involvement in the production of clean water and our focus on developing products to improve environmental sustainability, we play a role in advancing certain SDGs. Specifically, we have identified three SDGs with which our vision, products and operations best align: Clean Water and Sanitation (SDG 6), Affordable and Clean Energy (SDG 7), and Industry, Innovation and Infrastructure (SDG 9). We believe alignment with these SDGs will guide us in maximizing our role in the larger global effort towards a more sustainable future.

Just as our company is dedicated to accelerating the environmental sustainability of our customers’ operations, we are committed to investing in our talent and culture, ensuring the health, safety, and well-being of our employees and workplaces, and supporting the communities in which we operate and live. Our ability to retain 93% of employees with 38% headcount growth in fiscal year 2019, the reporting year of our most recent ESG report, is a testament to the commitment we have to our employees and the support provided to them in their professional development. We focus on empowering and enabling our team to continually improve, in turn driving development of high-impact solutions for our customers. In addition, we have launched several social investment initiatives including an employee donation match program and partnerships with non-profit organizations that align with our core values and serve on the front lines of our local and global communities. For more information on our social investment program, please visit our website at http://bit.ly/ERI-SIP.

Although we are early in our ESG journey, Energy Recovery’s efforts have been recognized by the investment research firm MSCI, who upgraded our ESG rating from BBB to A in early 2021. We’ve scored above industry average on several key issues including opportunities in clean tech and labor management.

As we further develop our ESG program, we plan to undertake a materiality and goal setting process to establish targets and key performance indicators for select topics, in addition to evaluating opportunities to increase our level of disclosure and reporting depth. Our goal is to communicate the results of our materiality assessment and ESG goals in our next ESG report, scheduled for publication in Q3 2021.

Our ESG report, in its entirety, can be found on our website at https://bit.ly/ERI-ESG.

Director Compensation

Directors who are non-employees of the Company received the following fees for their services on the Board during the year ending December 31, 2020:

●

$50,000 annual retainer paid in quarterly installments for services as a member of the Board;

●

$15,000 annual retainer paid in monthly installments for services as Lead Independent Director;

●

$15,000 annual retainer paid in quarterly installments for services as Chairman of the Audit Committee;

●

$10,000 annual retainer paid in quarterly installments for services as Chairman of the Compensation Committee; and

●

$5,000 annual retainer paid in quarterly installments for services as Chairman of the Nominating and Corporate Governance Committee.

Our non-employee directors also receive:

●

an annual grant of stock options of common stock valued (based on market prices on the date of grant) at $85,000, with 100% vesting on the first anniversary of the vesting commencement date.

On the date of the 2020 Annual Meeting of Stockholders, each continuing non-employee director received an option grant to purchase $85,000 of the Company’s common stock. As an employee, Mr. Mao was not eligible to receive any annual retainers or stock grants for serving as our Chairman. The options have a one-year vesting period and become fully vested in June 2021, subject to the director providing service to the Board through such date.

Our non-employee director compensation program for 2020 was substantially similar to 2019, with the exception of the addition of an annual retainer to our Lead Independent Director of $15,000.

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Director Compensation for the Year Ended December 31, 2020

The table below summarizes the compensation paid to non-employee directors for the year ended December 31, 2020. Directors who are also our employees receive no additional compensation for their service as a director. During the fiscal year ended December 31, 2019, Mr. Mao was an employee of the Company. Mr. Mao’s compensation is discussed in “Executive Compensation”.

Director	Fees Earned and Paid in Cash		Option Awards ⁽¹⁾		Total
Mr. Alexander J. Buehler⁽²⁾	$	65,000	$	85,000	$	150,000
Mr. Sherif Foda		50,000		85,000		135,000
Mr. Olav Fjell		50,000		85,000		135,000
Mr. Arve Hanstveit ⁽³⁾		55,430		85,000		140,430
Mr. Ole Peter Lorentzen⁽⁴⁾		55,000		85,000		140,000
Ms. Pamela Tondreau ⁽⁵⁾		61,445		85,000		146,445
TOTAL	$	336,875	$	510,000	$	846,875

⁽¹⁾

The amount in the Option Awards column sets forth the fair value on the grant date of the options awards granted in 2020 as calculated in accordance with FASB ASC Topic 718 without regard to estimated forfeitures. The method and assumptions used to calculate the fair value on the grant date of our equity awards is discussed in Note 11 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ending December 31, 2020. As of December 31, 2020, the number of shares underlying unvested stock options held by each of the directors was 18,669 shares.

⁽²⁾	Mr. Buehler is a director and the Chairman of the Audit Committee.

⁽³⁾	Mr. Hanstveit is a director and served as the Chairman of the Compensation Committee through July 16, 2020. His compensation for this position has been prorated.

⁽⁴⁾	Mr. Lorentzen is a director and the Chairman of the Nomination and Corporate Governance Committee. Mr. Lorentzen has notified the Board that he will not stand for re-election upon the completion of his current term.

⁽⁵⁾	Ms. Tondreau is a director and was appointed lead independent director and Chairman of the Compensation Committee on July 16, 2020. Her compensation for these positions has been prorated.

Our non-employee directors are also reimbursed for travel, lodging and other reasonable expenses incurred in connection with their attendance at Board of Directors or committee meetings.

Stock Ownership Guidelines

The Board believes that our non-employee directors and executive officers should own and hold shares of our common stock to further align their interests with the long-term interests of stockholders and further promote our commitment to sound corporate governance. Toward this end, in April 2016, the Board adopted guidelines with respect to ownership levels of the Company’s common stock of our CEO, other executive officers, and members of our Board. The guidelines state that our CEO, other executive officers, and each director must beneficially own Common Stock having a value equal to:

●

For our CEO, three times his annual base salary;

●

For our other executive officers, one time his or her annual base salary; and

●

For each non-employee director, three times the amount of the annual cash retainer paid to directors for general service on the Board.

The guidelines were established to promote a long-term perspective in managing the Company and align the interests of our stockholders, executives, and directors.

For purposes of determining ownership under these guidelines we include shares of common stock actually owned by the covered individual or family members, certain indirect forms of ownership, such as stock held in a grantor trust for the benefit of the covered individual, as well as the net exercise or “spread” value of vested stock options. Unvested options or restricted stock units (“RSUs”) and the unvested portion of any performance-based restricted stock or other equity-based award are not included. Directors and executive officers were given a period of three years from the adoption of the original guidelines to meet these ownership requirements while newly appointed directors or executive officers are given a period of five years from their date of appointment to meet these requirements. Covered individuals are required to hold 25% of the net shares acquired from all equity awards after deducting shares sold to cover the exercise price and/or taxes until the applicable guideline is reached. As of December 31, 2020, all of our directors and executive officers were either exceeding the minimum stock ownership requirements or were on track to comply in the relevant timeframe.

Prohibition on Hedging and Pledging Shares

Our insider trading policy provides that Company employees and directors may not engage purchase financial instruments (including prepaid variable forward contracts, equity swaps, puts, calls, straddles, collars and exchange funds) that are designed to hedge or offset any decrease in the market value of the Company’s equity securities and entering into other transactions with the same economic effect, including short sales involving the Company’s securities. Our insider trading policy further prohibits Company employees and directors from entering into borrowing or other arrangements involving non-recourse pledge of Company securities. Finally, we do not permit our directors or employees to sell a security future with respect to Company securities that establishes a position that increases in value as the value of the underlying Company security decreases.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of April 12, 2021 for (i) each person or group of affiliated persons who is known by the Company to beneficially own more than 5% of the Company’s common stock, (ii) each of the Company’s directors, (iii) each of the officers appearing in the “Summary Compensation Table” on Page 45 and (iv) all directors and executive officers as a group.

We have determined beneficial ownership in accordance with the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially own, subject to community property laws where applicable. To our knowledge, no person or entity except as set forth below, is the beneficial owner of more than 5% of the voting power of our common stock as of the close of business on April 12, 2021. The address of each executive officer and director is c/o Energy Recovery, Inc., 1717 Doolittle Drive, San Leandro, CA 94577.

	Shares Beneficially Owned ⁽¹⁾		Percent of Class ⁽²⁾
5% or Greater Common Stockholders:
Arvarius AS c/o Marius Skaugen ⁽³⁾ Parkv.57 c/o B. Skaugen AS 0256 Oslo, Norway		7,532,490		13.1	%
Ludvig Lorentzen AS ⁽⁴⁾ Postboks A, Bygdoy, 0211 Oslo, Norway		6,200,000		10.8	%
Trigran Investment, Inc. ⁽⁵⁾ 630 Dundee Road, Suite 230 Northbrook, IL 60062		5,540,420		9.6	%
Sundt AS ⁽⁶⁾ Dronningen 1, 2087 Oslo, Norway		4,400,000		7.7	%
BlackRock, Inc. ⁽⁷⁾ 55 East 52nd Street New York, NY 10055		3,266,530		5.7	%
Directors, Named Executive Officers, and Current Group:
Ole Peter Lorentzen ⁽⁴⁾		6,990,189		12.2	%
Arve Hanstveit ⁽⁸⁾		1,141,983		2.0	%
Robert Yu Lang Mao ⁽⁹⁾		470,333		0.8	%
Joshua Ballard ⁽¹⁰⁾		174,150		0.3	%
Alexander J. Buehler ⁽¹¹⁾		159,855		0.3	%
Olav Fjell ⁽¹²⁾		151,406		0.3	%
Emily Smith ⁽¹³⁾		147,444		0.3	%
Farshad Ghasripoor ⁽¹⁴⁾		68,177		0.1	%
Rodney Clemente⁽¹⁵⁾		10,147		*
Sherif Foda ⁽¹⁶⁾		55,319		*
Pamela Tondreau ⁽¹⁷⁾		28,964		*
All named executive officers and directors as a group (11 persons) ⁽¹⁸⁾		9,397,967		16. 4	%

* Less than 0.1%

⁽¹⁾

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options and warrants held by that person that are currently exercisable, or exercisable within 60 days after April 12, 2021, are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of each other person.

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⁽²⁾	Percent of class is based on the number of shares of Common Stock outstanding as of April 12, 2021, the Record Date, which were 57,422,485 shares.

⁽³⁾

Based on a Schedule 13G/A and a Form 4 filed with the SEC on March 19, 2010 and April 30, 2010, respectively, which together showed 7,641,103 shares beneficially owned by Arvarius AS and 7,641,103 shares beneficially owned by Mr. Skaugen, the controlling stockholder of Arvarius. Each reported shared voting and dispositive power over the shares respectively reported for that beneficial owner. The shares reported by Arvarius included 800,000 shares that could be acquired under exercisable warrants. Subsequent to the foregoing reports, warrants to purchase 200,000 shares were exercised in December 2013 for 180,276 shares, the remaining warrants to purchase 19,724 shares of this exercise were cancelled and considered payment for the exercise. Warrants to purchase 400,000 shares were exercised in July 2014 for 311,111 shares, the remaining warrants to purchase 88,889 shares of this exercise were cancelled and considered payment for the exercise. Warrants to purchase 200,000 shares were exercised in July 2015.

⁽⁴⁾

Based on a Form 4 jointly-filed by Ole Peter Lorentzen and Ludvig Lorentzen AS with the SEC on May 14, 2020, which reported 6,200,000 shares directly held by Ludvig Lorentzen AS, 640,334 shares held by companies directly owned by its controlling shareholder, Mr. Lorentzen, and options to purchase 149,855 shares of common stock that are exercisable within 60 days of April 12, 2021.

⁽⁵⁾

Based on a Schedule 13G/A filed with the SEC on February11, 2021, which reported 5,540,420 shares beneficially owned by Trigran Investments, Inc., Douglas Granat, Lawrence A. Oberman, Steven G. Simon, Bradley F. Simon, and Steven R. Monieson having shared voting power and shared dispositive power of 5,540,420 shares.

⁽⁶⁾

Based on a Schedule 13G/A filed with the SEC on February 16, 2018, which reported 4,400,000 shares beneficially owned by Sundt AS, CGS Holdings AS, Helene Sundt AS, Christian Gruner Sundt, Else Helene Sundt, Leiv Askvig, and Jacob Asif Iqbal having shared voting power and shared dispositive power of 4,400,000 shares.

⁽⁷⁾	Based on a Schedule 13G filed with the SEC on February 2, 2021, which reported 3,266,530 shares beneficially owned by BlackRock, Inc. having sole voting power.

⁽⁸⁾

Consists of 924,733 shares held by Mr. Hanstveit; 120,000 shares held by Mr. Hanstveit’s daughters; and options to purchase 97,250 shares of common stock that are exercisable within 60 days of April 12, 2021. Mr. Hanstveit has shared voting and investment power over the shares that are owned by his daughters.

⁽⁹⁾	Consists of 217,611 shares held by Mr. Mao as trustee of The R. Mao Trust and options to purchase 252,722 shares of common stock that are exercisable within 60 days of April 12, 2021.

⁽¹⁰⁾	Consists of 6,979 shares held by Mr. Ballard, and options to purchase 167,171 shares of common stock that may be exercised within 60 days of April 12, 2021.

⁽¹¹⁾	Consist of 10,000 shares held by Mr. Buehler and options to purchase 149,855 shares of common stock that may be exercised within 60 days of April 12, 2021.

⁽¹²⁾	Consists of 18,000 shares held by Mr. Fjell and options to purchase 133,406 shares of common stock that may be exercised within 60 days of April 12, 2021.

⁽¹³⁾	Consists of 10,386 shares held by Ms. Smith and options to purchase 137,058 shares of common stock that are exercisable within 60 days of April 12, 2021 by Ms. Smith.

⁽¹⁴⁾	Consists of 27,075 shares held by Mr. Ghasripoor and options to purchase 41,102 shares of common stock that may be exercised within 60 days of April 12, 2021.

⁽¹⁵⁾	Consists of 10,147 shares of common stock that are exercisable within 60 days of April 12, 2021 by Mr. Clemente.

⁽¹⁶⁾	Consists of options to purchase 55,319 shares of common stock that are exercisable within 60 days of April 12, 2021 by Mr. Foda.

⁽¹⁷⁾	Consists of option to purchase 28,964 shares of common stock that are exercisable within 60 days of April 12, 2021 by Ms. Tondreau.

⁽¹⁸⁾	Consists of 9,397,967 shares held by 5 executive officers and 6 directors as a group and options to purchase 1,222,849 shares of common stock that may be exercised within 60 days of April 12, 2021.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes our executive compensation philosophy and programs, compensation decisions made under those programs, and the factors considered in making those decisions for our “named executive officers,” who, for 2020, were:

Robert Yu Lang Mao	President and Chief Executive Officer
Josh Ballard	Chief Financial Officer
Rodney Clemente	Senior Vice President, Water
Emily Smith	Senior Vice President, Corporate Development and Operations
Farshad Ghasripoor	Chief Technology Officer

Mr. Mao was appointed as the President and Chief Executive Officer on May 5, 2020 and served as the interim President and Chief Executive Officer from November 1, 2019. Mr. Ballard has been Chief Financial Officer since August 13, 2018. Mr. Clemente has been the Senior Vice President, Water since December 22, 2019. Prior that, he served as the Vice President, Water since July 31, 2018 and the Vice President of Global Desalination Operations since April 29, 2015. Ms. Smith has been the Senior Vice President, Corporate Development and Operations since December 22, 2019. Prior to that Ms. Smith was the Vice President of Marketing since November 2015. Ms. Smith joined the Company in August 2011, where she has held several positions spanning multiple disciplines, including Senior Director of Corporate Development, Director of Financial Planning & Analysis and the Strategic Analyst to the CEO. Ms. Smith resigned from the Company on April 20, 2021. Mr. Ghasripoor has been serving in his present position of Chief Technology Officer since November 16, 2017. Prior to that he served as the Managing Director, Engineering.

The Compensation Committee of the Board of Directors has principal responsibility for establishing, implementing, and monitoring adherence to our compensation philosophy and objectives. The Compensation Committee’s duties include evaluating the performance and advising the Board on the compensation of our Chief Executive Officer, recommending director compensation, and setting the compensation of our other executive officers, as well as performing oversight of our compensation arrangements, plans, policies, and programs for employees in general.

2020 Corporate Performance Highlights

We are an energy solutions provider to industrial fluid flow markets worldwide. Our fiscal year 2020 corporate performance highlights include the following:

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Total revenue of $119.0 million, an increase of 37% year-over-year; highest revenue in Company history.

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Water revenue of $92.1 million, an increase of 26% year-over-year; 5^th consecutive year of record revenue.

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Healthy product gross margin of 69.3% despite Covid-19 challenges.

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Operating cash flow of $16.9 million; 6^th consecutive year of positive operating cash flow and more than 3x growth over 2019.

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Net income of $26.4 million, or $0.47 per diluted share; 5^th consecutive year of profitability.

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Maintained commanding market share in seawater reverse osmosis desalination energy recovery solutions.

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Launched our new Ultra PX™ energy recovery device for industrial wastewater treatment.

SEC Form DEF 14A filed by Energy Recovery, Inc.