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Time and Date | 9:00 a.m., Pacific Time, on Thursday, April 13, 2017. | |||||
Location | KB Home Corporate Office, 10990 Wilshire Boulevard, Los Angeles, CA 90024. | |||||
Items of Business | (1) Elect nine directors, each to serve for a one-year term. | |||||
(2) Advisory vote to approve named executive officer compensation. | ||||||
(3) Advisory vote on frequency of the named executive officer compensation advisory vote. | ||||||
(4) Ratify Ernst & Young LLP’s appointment as KB Home’s independent registered public accounting firm for the fiscal year ending November 30, 2017. | ||||||
The accompanying Proxy Statement describes these items in more detail. We have not received notice of any other matters that may be properly presented at the meeting. | ||||||
Record Date | You are entitled to vote at the meeting and at any adjournment or postponement of the meeting if you were a stockholder on February 10, 2017. | |||||
Voting | Please vote as soon as possible, even if you plan to attend the meeting, to ensure your shares will be represented. You do not need to attend the meeting to vote if you vote before the meeting. If you are a holder of record, you may vote your shares via the Internet, telephone or mail. If your shares are held by a broker or financial institution, you must vote your shares using a method the broker or financial institution provides. | |||||
Attending the Meeting | Only stockholders on February 10, 2017, authorized proxy holders of such stockholders and invited guests of the Board of Directors (“Board”) may attend the meeting in person. Picture identification and an admission ticket will be required to attend. The accompanying Proxy Statement describes how to request an admission ticket. We must receive written ticket requests by March 31, 2017. | |||||
Annual Report | Copies of our Annual Report on Form 10-K for the fiscal year ended November 30, 2016 (“Annual Report”), including audited financial statements, are being made available to stockholders concurrently with the accompanying Proxy Statement. We anticipate these materials will first be made available on or about March 3, 2017. | |||||
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on April 13, 2017: Our Proxy Statement and Annual Report are available at www.kbhome.com/investor/proxy. | ||||||
KB HOME 10990 Wilshire Boulevard Los Angeles, CA 90024 (NYSE:KBH) |
PROXY STATEMENT |
TABLE OF CONTENTS |
ANNUAL MEETING OVERVIEW |
Items of Business | Key Meeting Information | ||
Ø Ø Ø Ø | Elect nine directors, each to serve for a one-year term. Advisory vote to approve named executive officer (“NEO”) compensation. Advisory vote on frequency of the NEO compensation advisory vote. Ratify Ernst & Young LLP’s appointment as our independent registered public accounting firm (“Independent Auditor”) for the fiscal year ending November 30, 2017. | Date Time Location To Attend | Thursday, April 13, 2017. 9:00 a.m., Pacific Time. KB Home Corporate Office Los Angeles, CA 90024. You must request an admission ticket to attend the Annual Meeting in person. We must receive written ticket requests by March 31, 2017, as described under “Admission to the Annual Meeting.” |
Name | Year First Elected | Primary Occupation | Committee Membership |
Timothy W. Finchem | 2005 | Board Chair, The First Tee; Former PGA TOUR Commissioner | MDCC NCGC (Chair) |
Dr. Stuart A. Gabriel | 2016 | Director, Richard S. Ziman Center for Real Estate at UCLA; and Professor of Finance and Arden Realty Chair, UCLA Anderson School of Management | ACC |
Dr. Thomas W. Gilligan | 2012 | Director, Hoover Institution on War, Revolution and Peace | ACC NCGC |
Kenneth M. Jastrow, II | 2001 | Former Chairman and CEO, Temple-Inland Inc. | MDCC (Chair) |
Robert L. Johnson | 2008 | Founder and Chairman, The RLJ Companies | MDCC NCGC |
Melissa Lora | 2004 | President, Taco Bell International | ACC (Chair) MDCC |
Jeffery T. Mezger | 2006 | Chairman, President and Chief Executive Officer (“CEO”), KB Home | N/A |
Robert L. Patton, Jr. | 2015 | Partner, Guggenheim Baseball Management LLC | ACC NCGC |
Michael M. Wood | 2014 | Founder and Chairman, Redwood Investments LLC | ACC NCGC |
Your Board recommends a vote “FOR” the election of each director nominee |
2016 Key Financial Results | Total Revenues Homebuilding Operating Income Total Pretax Income Net Income | ñ | 19% 10% 18% 25% | • 2016 Fiscal Year Total Stockholder Return (“TSR”): 13% • 2016 CEO Compensation Increased 1% Year Over Year • 90% of 2016 CEO Compensation Performance-Based • 2016 Say-On-Pay Result: 95% Approval |
2016 Key Operating Results | Annual Net Orders Year-End Backlog Value | ñ | 11% 19% | |
Stockholder Returns | Common Stock Repurchases Cash Dividends | $85.9M $8.6M | ||
Your Board recommends an advisory vote “FOR” approval of NEO compensation |
Your Board recommends an advisory vote for an “ANNUAL” NEO compensation advisory vote |
Your Board recommends a vote “FOR” ratifying Ernst & Young LLP’s appointment |
CORPORATE GOVERNANCE AND BOARD MATTERS |
Corporate Governance Highlights | |
• All directors are independent, except our CEO, and elected annually under a majority voting standard. | • There is Board-level oversight of our political contributions. |
• Our three standing Board committees are entirely composed of independent directors. | • All directors, senior executives and employees must comply with the standards of conduct in our Ethics Policy. |
• Non-employee directors meet in executive sessions at each in-person Board meeting, and any non-employee director can request additional executive sessions. | • Each director attended at least 75% of the meetings of the Board and Board committees on which they served during 2016, except Mr. Patton. |
• All directors, senior executives and employees are prohibited from pledging or hedging their holdings of our securities. | • We expect all directors to attend our annual meeting of stockholders. All directors serving at the time attended our 2016 Annual Meeting of Stockholders on April 7, 2016. |
• Directors and senior executives are subject to strong stock ownership requirements. | • We have one class of voting securities and no supermajority voting requirements (except as provided by Delaware law). |
Lead Independent Director Duties | |
• Preside at all meetings of the Board at which the Chairman is not present, and at all executive sessions of the non-employee directors. | |
• Serve as liaison between the Chairman and the non-employee directors. | |
• Consult with the Chairman, Board committee chairs and other non-employee directors (as appropriate) regarding meeting agendas and schedules to assure that there is sufficient time for discussion of all agenda items, and regarding the content and flow of information to the Board. | |
• Organize and preside at meetings of the non-employee directors at any time and for any purpose. | |
• Provide Board leadership if there is (or there is perceived to be) a conflict of interest with respect to the role of a Chairman who is also the Chief Executive Officer. | |
• If requested by major stockholders, being available to them for consultation and communication as appropriate. | |
• Any such additional responsibilities, duties and functions as set forth in our Corporate Governance Principles or By-Laws, or as may otherwise be determined by the Board from time to time. |
Audit Committee | Compensation Committee | Nominating Committee | |||||||
Members | Lora (Chair) Gabriel Gilligan | Patton Wood | Jastrow (Chair) Bollenbach Finchem | Johnson Lora | Finchem (Chair) Bollenbach Gilligan | Johnson Patton Wood | |||
FY2016 Meetings | 6 | 6 | 5 | ||||||
Key Duties | – Oversees our corporate accounting and reporting practices and audit process, including our Independent Auditor’s qualifications, independence, retention, compensation and performance. – Is authorized to approve our incurring, guaranteeing or redeeming debt, and our entry into certain transactions. | – Evaluates and determines our CEO’s compensation. – Determines the compensation of our CEO’s direct reports. – Oversees an annual review of leadership development and workforce succession plans at all management levels, including for the CEO. – Evaluates and recommends non-employee director compensation and benefits. | – Oversees our corporate governance policies and practices. – Reviews “related party transactions,” as discussed below. – Oversees annual Board and committee performance evaluations. – Identifies, evaluates and recommends qualified director candidates to the Board. | ||||||
Other Items | – Each member is financially literate. Ms. Lora, Dr. Gabriel, Dr. Gilligan and Mr. Wood are each an “audit committee financial expert,” per NYSE listing standards and Securities and Exchange Commission (“SEC”) rules. – It is a separately designated standing audit committee as defined in Section 3(a)(58)(A) of the Securities Exchange Act of 1934. – The Board determined that Dr. Gabriel’s simultaneous service on the audit committees of three other public companies does not impair his ability to serve effectively on the Audit Committee. | – Each member is a “non-employee director” under SEC rules and an “outside director” under Internal Revenue Code (“Code”) Section 162(m). – Is assisted with its duties by our management and an outside consultant, Frederic W. Cook & Co., Inc. (“FWC”). – May delegate its duties to our management, except the authority to grant equity-based awards, or to a Board subcommittee. | – Regularly evaluates the skills and characteristics of current and potential directors, and identified for each individual the Board has nominated for election at the Annual Meeting certain specific skills and qualifications that led to the Board’s determination that each such nominee should serve as a director, as described under “Election of Directors.” | ||||||
Compensation Committee Interlocks and Insider Participation None of our directors or executive officers had any relationship that would constitute a “compensation committee interlock” under SEC rules. |
Audit Committee Role. The Audit Committee oversees our management’s performance of an annual enterprise risk management assessment that identifies significant risks in our business and operations, along with corresponding mitigating factors, and receives periodic updates upon request or as deemed appropriate. The Audit Committee chair reports to the Board on significant risks as deemed appropriate. In addition, at each of its regular meetings, the Audit Committee receives reports from our senior finance, accounting, legal and internal audit executives, and conducts separate executive sessions with each of those executives and with our Independent Auditor to discuss matters relevant to their respective duties and roles, including risk areas. | Compensation Committee Role. The Compensation Committee oversees an annual employee compensation risk assessment performed by FWC together with our management that largely focuses on potential policy and program design and implementation risks. The Compensation Committee also reviews and, as appropriate, approves compensation arrangements developed by our senior human resources personnel. The Compensation Committee chair reports to the Board on significant risks as deemed appropriate. Based on this oversight approach and our most recent annual risk assessment, we do not believe that our present employee compensation policies and programs are likely to have a material adverse effect on us. |
The Nominating Committee reviews any transactions, arrangements or relationships in which we participate and in which a director, director nominee, executive officer or beneficial owner of five percent or more of our common stock (or, in each case, an immediate family member) had or will have a direct or indirect material interest (a “Covered Transaction”), except transactions described at right or as the Board otherwise determines. Covered individuals and stockholders are expected to inform our Corporate Secretary of Covered Transactions, and we collect information from our directors, director nominees and executive officers about their and their family members’ affiliations so that we can review our records for any such transactions. The Nominating Committee will approve or ratify a Covered Transaction if, based on a review of all material facts and feasible alternatives, it deems the transaction to be in our and our stockholders’ best interests. During 2016, the Nominating Committee approved our sale of a home to a trust of which Mr. Mezger is co-trustee for approximately $647,000. The trust did not receive any special terms or consideration with respect to the home sale, other than the standard employee purchase discount for employees with Mr. Mezger’s tenure with us. This home sale was the only Covered Transaction during the year. | Pre-Approved Transaction Categories • Any transaction in which the total amount involved is less than or equal to $120,000. • The employment and compensation (a) of a director or executive officer if the individual’s compensation is reported in our annual proxy statement, or (b) of any other executive officer who is not an immediate family member of one of the foregoing individuals or a director nominee if such executive officer’s compensation was approved, or recommended for approval, by the Compensation Committee. • Any transaction that would not (a) need to be reported under federal securities laws, (b) be deemed to impair a director’s independence under our Corporate Governance Principles or (c) be deemed to be a conflict of interest under our Ethics Policy. • Any transaction where an individual’s interest therein arises solely from ownership of our common stock and all holders of our common stock received the same benefit on a pro-rata basis. |
DIRECTOR COMPENSATION |
Non-Employee Director Compensation | |
Board Retainer | $100,000 |
Equity Grant (value) | $145,000 |
Lead Independent Director Retainer | $40,000* |
Committee Chair Retainers | $25,000 (Audit Committee) $18,000 (Compensation Committee) $15,000 (Nominating Committee) |
Committee Member Retainers | $10,000 (Audit Committee) $7,000 (Compensation Committee) $5,000 (Nominating Committee) |
Meeting Fees | $1,500 (for each additional meeting) |
Name | Fees Earned or Paid in Cash ($)(a) | Stock Awards ($)(b) | All Other Compensation ($) | Total ($) | ||||||||
Mr. Bollenbach | $ | 263,000 | $ | 245,000 | $ | — | $ | 508,000 | ||||
Mr. Finchem | 1,500 | 267,000 | — | 268,500 | ||||||||
Dr. Gabriel | 84,000 | 145,000 | — | 229,000 | ||||||||
Dr. Gilligan | 116,500 | 145,000 | — | 261,500 | ||||||||
Mr. Jastrow | 119,500 | 145,000 | — | 264,500 | ||||||||
Mr. Johnson | 103,000 | 157,000 | — | 260,000 | ||||||||
Ms. Lora | 1,500 | 277,000 | — | 278,500 | ||||||||
Mr. Patton | 28,750 | 260,000 | — | 288,750 | ||||||||
Mr. Wood | 106,750 | 160,000 | — | 266,750 |
(a) | Fees Earned or Paid in Cash. These amounts represent the cash retainers paid to directors per their elections and the additional meeting fees described above. The fee amount for Mr. Bollenbach also includes the Board Chairman and Lead Independent Director |
(b) | Stock Awards. These amounts represent the aggregate grant date fair value of the unrestricted shares of our common stock or stock units granted to our directors on April 7, 2016 computed as described in Note 19 — Employee Benefit and Stock Plans in the Notes to the Consolidated Financial Statements in our Annual Report, except that estimates of forfeitures related to service-based vesting conditions have been disregarded. The table below shows the respective grants of unrestricted shares of our common stock and/or stock units to our directors in 2016 and each director’s total holdings of equity-based compensation awards as of February 24, 2017. |
Name | 2016 Common Stock Grants (#) | 2016 Stock Unit Grants (#) | Total Holdings (#)(i) | |||
Mr. Finchem | — | 18,476 | 166,854 | |||
Dr. Gabriel | 10,034 | — | 10,034 | |||
Dr. Gilligan | 10,034 | — | 58,272 | |||
Mr. Jastrow | 10,034 | — | 145,801 | |||
Mr. Johnson | 10,864 | — | 148,868 | |||
Ms. Lora | — | 19,168 | 207,972 | |||
Mr. Patton | — | 17,992 | 22,412 | |||
Mr. Wood | 1,038 | 10,034 | 36,351 |
(i) | Total Holdings. These amounts reflect the directors’ total respective outstanding holdings of equity-based compensation awards, consisting of grants of unrestricted shares of our common stock, stock units and stock options in the following amounts: Mr. Finchem 0, 111,504 and 55,350; Dr. Gabriel 10,034, 0 and 0; Dr. Gilligan 10,034, 21,349 and 26,889; Mr. Jastrow 10,034, 80,417 and 55,350; Mr. Johnson 20,756, 34,769 and 93,343; Ms. Lora 0, 141,402 and 66,570; Mr. Patton 4,420, 17,992 and 0; and Mr. Wood 1,038, 23,935 and 11,378. Mr. Bollenbach was granted 16,954 unrestricted shares of our common stock and no stock units on April 7, 2016 based on his elections. At the time of his passing in October 2016, Mr. Bollenbach held 26,090 shares of our common stock, 54,264 stock units, which have since been paid out in shares of our common stock, and 144,103 stock options that in each case had been granted to him as compensation during his Board service. Director stock options were last granted in April 2014, as they ceased being a component of director compensation after that date; accordingly, no director stock options have been granted to Dr. Gabriel or Mr. Patton. Some director stock options held by Mr. Johnson (37,993) and Ms. Lora (11,220) have 15-year terms. The remainder have ten-year terms. For directors who leave the Board due to retirement or disability (in each case as determined by the Compensation Committee), or death, their stock options will be exercisable for the options’ respective remaining terms. Otherwise, director stock options must be exercised by the earlier of their respective terms or the first anniversary of a director’s leaving the Board (for 15-year stock options), or the third anniversary of leaving the Board (for ten-year stock options). Based on the directors’ respective elections, each director stock option represents a right to receive shares of our common stock equal in value to the positive difference between the option’s stated exercise price and the fair market value of our common stock on an exercise date, and are therefore settled in a manner similar to stock appreciation rights (and are referred to in this Proxy Statement as “Director SARs”). No Director SARs have been so settled. |
ELECTION OF DIRECTORS |
The Board will present as nominees at the Annual Meeting, and recommends our stockholders elect to the Board, each of the individuals named below for a one-year term ending at the election of directors at our 2018 Annual Meeting of Stockholders. Each nominee has consented to being nominated and has agreed to serve as a director if elected. Each nominee is standing for re-election. Should any of the nominees become unable to serve as a director prior to the Annual Meeting, the individuals named as proxies for the meeting will, unless otherwise directed, vote for the election of another person as the Board may recommend. On the date of the Annual Meeting, if the Board’s nominees are elected, the Board will have nine directors. There are no term limits for directors. | Voting Standard To be elected, each nominee must receive a majority of votes cast in favor (i.e., the votes cast for a nominee’s election must exceed the votes cast against their election). |
Director Resignation Policy. Our Corporate Governance Principles provide that a director nominee who fails to win election to the Board in an uncontested election is expected to tender their resignation from the Board (or to have previously submitted a conditional tender). An “uncontested election” is one in which there is no director nominee that has been nominated by a stockholder in accordance with our By-laws. This election is an uncontested election. If an incumbent director fails to receive the required vote for election in an uncontested election, the Nominating Committee will act promptly to determine whether to accept the director’s resignation and will submit its recommendation for the Board’s consideration. The Board expects the director whose resignation is under consideration to abstain from participating in any decision on that resignation. The Nominating Committee and the Board may consider any relevant factors in deciding whether to accept a director’s resignation. |
Timothy W. Finchem Board Chair, The First Tee; Former PGA TOUR Commissioner | Age: 69 Director Since: 2005 | Other Professional Experience: –PGA TOUR Commissioner (1994-2016) –Deputy Advisor to the President, White House Office of Economic Affairs (1978-1979) –Co-founder, National Marketing and Strategies Group (1980-1986) | ||
Public Company Directorships: –KB Home | ||||
Mr. Finchem has been Board Chair of The First Tee, a nonprofit youth development organization providing educational programs through the game of golf, since it was founded in 1997. He previously served as Commissioner of the PGA TOUR, a membership organization for professional golfers, from 1994 until his retirement in December 2016. He joined the PGA TOUR in 1987, and was promoted to Deputy Commissioner and Chief Operating Officer in 1989. Mr. Finchem has demonstrated success in broadening the popularity of professional golf among the demographic groups that make up our core homebuyers, and has experience in residential community development. He also has a substantial presence in Florida, one of our key markets. | ||||
Dr. Stuart A. Gabriel Director, Richard S. Ziman Center for Real Estate at UCLA; and Professor of Finance and Arden Realty Chair, UCLA Anderson School of Management | Age: 63 Director Since: 2016 | Other Professional Experience: –Director and Lusk Chair, USC Lusk Center for Real Estate (1997-2007) –Associate Professor/Professor, Finance and Business Economics, USC Marshall School of Business (1990-1997) –Economics Staff Member, Federal Reserve Board (1986-1990) | ||
Public Company Directorships: –KB Home –KBS Real Estate Investment Trust, Inc. –KBS Real Estate Investment Trust II, Inc. –KBS Real Estate Investment Trust III, Inc. | ||||
Dr. Gabriel has been since 2007 the director of the Richard S. Ziman Center for Real Estate at UCLA, and Professor of Finance and Arden Realty Chair at the UCLA Anderson School of Management. With Dr. Gabriel’s significant professional experience in and distinguished study of macroeconomics and real estate, mortgage and finance markets, he has considerable knowledge and insight with respect to the economic, regulatory and financial drivers that affect housing and homebuilding at local, regional and national levels. In addition, with his nearly two decades of service in leadership roles at two of the most preeminent academic institutions in the country—UCLA and USC—he has substantial management and administrative expertise, and is highly respected for his perspective on housing and land use matters in California, an important market for us, and nationally. | ||||
Dr. Thomas W. Gilligan Director, The Hoover Institution on War, Revolution and Peace | Age: 62 Director Since: 2012 | Other Professional Experience: –Dean, McCombs School of Business (2008-2015) –Interim Dean, USC Marshall School of Business (2006-2007) –Staff Economist, White House Council of Economic Advisors (1983-1984) | ||
Public Company Directorships: –KB Home –Southwest Airlines Co. | ||||
Dr. Gilligan has been the Tad and Dianne Taube Director of The Hoover Institution on War, Revolution and Peace at Stanford University since September 2015. The Hoover Institution is a public policy research center devoted to the advanced study of economics, politics, history and political economy, as well as international affairs. Dr. Gilligan has deep knowledge of and significant academic credentials in the fields of finance, economics and business administration, and brings extensive leadership skills and experience from his many years of service as a dean at two of the premier post-graduate business schools in the country and his current position as the head of a prominent public policy institution. In addition, he is well-known and highly regarded, professionally and personally, in both Texas and California, which are key markets for us. | ||||
Kenneth M. Jastrow, II Former Chairman and CEO, Temple-Inland Inc. | Age: 69 Director Since: 2001 | Other Professional Experience: –Non-Executive Chairman, Forestar Group Inc., a real estate and natural resources company (2007-2015) –Chairman and Chief Executive Officer, Temple-Inland Inc., a paper, forest products and financial services company (2000-2007) | ||
Public Company Directorships: –KB Home –MGIC Investment Corporation –Genesis Energy, LLC –Forestar Group Inc. (2007-2015) | ||||
Kenneth M. Jastrow, II has extensive experience and leadership in the paper, building products, forestry, real estate and mortgage lending industries, enabling him to provide critical perspective on businesses that impact the homebuilding industry, and on sustainability practices. He also brings significant corporate governance expertise from his service on several public company boards, and has a substantial presence in Texas, a key market for us. | ||||
Robert L. Johnson Founder and Chairman, The RLJ Companies | Age: 70 Director Since: 2008 | Other Professional Experience: –Founder and Chief Executive Officer, Black Entertainment Television (BET), a television and entertainment network (1979-2006) –Museum Council Member, Smithsonian Institution’s National Museum of African American History and Culture | ||
Public Company Directorships: –KB Home –Lowe’s Companies, Inc. –RLJ Entertainment, Inc. –RLJ Lodging Trust –RLJ Acquisition, Inc. (2011-2012) –Strayer Education, Inc. (2003-2016) | ||||
Robert L. Johnson is founder and chairman of The RLJ Companies, an innovative business network that owns or holds interests in a diverse portfolio of companies in the consumer financial services, private equity, investment banking, real estate, hospitality, professional sports, film production, gaming and automobile dealership industries. Prior to forming The RLJ Companies in 2004, Mr. Johnson was founder and chief executive officer of BET, which was acquired by Viacom Inc. in 2001. He continued to serve as chief executive officer of BET until 2006. Mr. Johnson has significant experience in real estate, finance, mortgage banking and brand-building enterprises and a unique and diverse background in a number of industry sectors. | ||||
Melissa Lora President, Taco Bell International | Age: 54 Director Since: 2004 Lead Independent Director Since: 2016 | Other Professional Experience: –Global Chief Financial and Development Officer, Taco Bell Corp. (2012-2014) –Chief Financial Officer, Taco Bell Corp. (2001-2012) –Regional Vice President and General Manager, Taco Bell Corp. (1998-2000) | ||
Public Company Directorships: –KB Home | ||||
Melissa Lora has been since 2013 the President of Taco Bell International, a segment of Taco Bell Corp., which is a division of Yum! Brands, Inc., one of the world’s largest restaurant companies. Ms. Lora is very knowledgeable of and has substantial experience and expertise in financial matters as well as in managing real estate assets. She has made significant contributions to the work of the Audit Committee since joining the Board and has provided strong leadership as its chair since 2008. In November 2016, the Board elected Ms. Lora as Lead Independent Director. | ||||
Jeffrey T. Mezger Chairman, President and Chief Executive Officer, KB Home | Age: 61 Director Since: 2006 Chairman Since: 2016 | Other Professional Experience: –Executive Board Member, USC Lusk Center for Real Estate (2000-present) –Policy Advisory Board Member, Fisher Center for Real Estate and Urban Economics at UC Berkeley Haas School of Business (2010-present) –Policy Advisory Board Member, Harvard Joint Center for Housing Studies (2004 to present; Board Chair 2015-2016) –Founding Chairman, Leading Builders of America (2009-2013; Executive Committee member until 2016) | ||
Public Company Directorships: –KB Home | ||||
Jeffrey T. Mezger has been our President and Chief Executive Officer since November 2006, and was elected Chairman of the Board in 2016. Prior to becoming President and Chief Executive Officer, Mr. Mezger served as our Executive Vice President and Chief Operating Officer, a position he assumed in 1999. From 1995 until 1999, Mr. Mezger held a number of executive posts in our southwest region, including Division President, Arizona Division, and Senior Vice President and Regional General Manager over Arizona and Nevada. Mr. Mezger joined us in 1993 as president of the Antelope Valley Division in Southern California. In 2012, Mr. Mezger was inducted into the California Homebuilding Foundation Hall of Fame. As our CEO, Mr. Mezger has demonstrated consistently strong operational leadership, and ownership of our business strategy and its results. He has also established himself as a leading voice in the industry through his nearly 40 years of experience in the public homebuilding sector. | ||||
Robert L. Patton, Jr. Partner, Guggenheim Baseball Management LLC | Age: 54 Director Since: 2015 | Other Professional Experience: –Board Member, Security Benefit Corporation, a life insurance services company (2010-present) –Advisory Council Member, University of Texas, College of Liberal Arts (2010-present) | ||
Public Company Directorships: –KB Home | ||||
Robert L. Patton, Jr. has been a partner of Guggenheim Baseball Management LLC since 2012. He became part owner of the Los Angeles Dodgers in 2012. Mr. Patton principally operates oil and gas properties in Texas and Kansas and has additional investments in many other sectors, including ranching and insurance. Mr. Patton has several years of experience in a wide range of industries as well as in real estate development, providing significant expertise and insight on investment management, financial planning, operational execution and regulatory compliance. He also has a substantial presence in Southern California and Texas, which are key markets for us. | ||||
Michael M. Wood Founder and Chairman, Redwood Investments LLC | Age: 69 Director Since: 2014 | Other Professional Experience: –Chairman, Winsight, LLC, a business-to-business publishing company (2012-2017) –U.S. Ambassador to Sweden (2006-2009) –Co-Founder and Chief Executive Officer, Hanley Wood LLC, a business-to-business publishing company (1976-2005) | ||
Public Company Directorships: –KB Home | ||||
Michael M. Wood is founder and chairman of Redwood Investments LLC, a Washington, D.C.-based investment company established in 2005 and concentrating in media, real estate and alternative energy. In 2009, Mr. Wood received from the King of Sweden the insignia of Commander Grand Cross, Order of the Polar Star medal given by Sweden’s Royal Family to people of foreign birth who make significant contributions to Sweden. Prior to becoming the U.S. Ambassador to Sweden, Mr. Wood was co-founder and CEO of Hanley Wood LLC, the leading media company in the construction industry and one of the ten largest business-to-business media companies in the U.S. Mr. Wood has extensive knowledge of the homebuilding industry and significant experience in real estate and alternative energy investing, providing substantial insight and expertise with respect to our business operations and our longstanding commitment to sustainability. He also has a distinguished policymaking background. |
OWNERSHIP OF KB HOME SECURITIES |
Non-Employee Directors | Total Ownership(a) | Stock Options(b) | Restricted Stock(b) | |||
Timothy W. Finchem | 166,854 | 55,350 | — | |||
Dr. Stuart A. Gabriel | 10,034 | — | — | |||
Dr. Thomas W. Gilligan | 58,272 | 26,889 | — | |||
Kenneth M. Jastrow, II | 145,801 | 55,350 | — | |||
Robert L. Johnson | 148,868 | 93,343 | — | |||
Melissa Lora | 210,015 | 66,570 | — | |||
Robert L Patton, Jr. | 222,412 | — | — | |||
Michael M. Wood | 36,351 | 11,378 | — | |||
Named Executive Officers | ||||||
Jeffrey T. Mezger | 5,124,347 | 4,540,599 | — | |||
Jeff J. Kaminski | 581,849 | 448,615 | 64,482 | |||
Albert Z. Praw | 382,762 | 266,580 | 45,716 | |||
Nicholas S. Franklin | 88,079 | 38,334 | 39,751 | |||
Brian J. Woram | 560,916 | 417,109 | 44,636 | |||
All directors and executive officers as a group (15 people) | 8,717,989 | 6,785,811 | 242,406 |
(a) | No non-employee director or NEO owns more than 1% of our outstanding common stock, except for Mr. Mezger, who owns 5.2%. All non-employee directors and executive officers as a group own 8.6% of our outstanding common stock. The total ownership amounts reported for each non-employee director includes their respective aggregate equity-based compensation awards, as described under “Director Compensation.” Dr. Gabriel, Ms. Lora, Mr. Wood and Mr. Kaminski each hold their respective reported total ownership amounts in family trusts over which they have shared voting and investment control with their respective spouses. The amounts reported in this column for directors include the following directly owned shares of our common stock: Ms. Lora 2,043; and Mr. Patton 200,000. |
(b) | The reported stock option amounts are the shares of our common stock that can be acquired within 60 days of February 24, 2017 through the exercise of Director SARs (as described under “Director Compensation”), or common stock option awards (for the NEOs). The respective reported Director SAR/stock option and restricted common stock amounts are included in the total ownership amounts reported for each non-employee director and NEO. |
Stockholder(a) | Total Ownership | Percent of Class | |
FMR LLC 245 Summer Street, Boston, MA 02210 | 11,714,176 | 14% | |
BlackRock, Inc. 55 East 52nd Street, New York, NY 10055 | 9,703,137 | 11% | |
KB Home Grantor Stock Ownership Trust(b) Wells Fargo Retirement and Trust Executive Benefits, One West Fourth Street, Winston-Salem, NC 27101 | 9,431,756 | 10% | |
Donald Smith & Co., Inc. 152 West 57th Street, New York, NY 10019 | 6,760,767 | 8% | |
The Vanguard Group, Inc. 100 Vanguard Blvd., Malvern, PA 19355 | 6,148,279 | 7% | |
AQR Capital Management, LLC Two Greenwich Plaza, Greenwich, CT 06830 | 5,913,630 | 7% |
(a) | The stockholders’ respective voting and dispositive power with respect to their reported ownership is presented below, excluding the GSOT. |
FMR LLC(i) | Blackrock, Inc.(ii) | Donald Smith & Co., Inc.(iii) | The Vanguard Group, Inc.(iv) | AQR Capital Management, LLC(v) | ||||||
Sole voting power | 254,076 | 9,517,953 | 6,445,867 | 113,666 | — | |||||
Shared voting power | — | — | — | 11,562 | 5,696,868 | |||||
Sole dispositive power | 11,714,176 | 9,703,137 | 6,760,767 | 6,027,414 | — | |||||
Shared dispositive power | — | — | — | 120,865 | 5,913,630 |
(i) | FMR LLC is a parent holding company. A wholly-owned FMR LLC subsidiary, Fidelity Management & Research Company, an investment adviser to various investment companies (“Fidelity Funds”), votes the shares of our common stock held by the Fidelity Funds under guidelines established by their Boards of Trustees. |
(ii) | Blackrock, Inc. is a parent holding company. A BlackRock, Inc. subsidiary, BlackRock Fund Advisors, beneficially owned five percent or more of our outstanding shares. |
(iii) | Donald Smith & Co., Inc. is an investment adviser to various institutional clients. Of the reported amount, the Donald Smith Long/Short Equities Fund, L.P. had sole voting power as to 28,318 shares and had sole dispositive power as to 6,760,767 shares. |
(iv) | The Vanguard Group, Inc. is an investment adviser to various investment companies. Its subsidiaries, Vanguard Fiduciary Trust Company and Vanguard Investments Australia, Ltd., beneficially own 109,303 and 15,925 shares, respectively. |
(v) | AQR Capital Management, LLC is an investment adviser and wholly-owned subsidiary of AQR Capital Management Holdings, LLC, a parent holding company. The companies jointly reported the beneficial ownership and the voting and dispositive power as shown above. |
(b) | The GSOT’s percent of class figure is relative to the total number of shares of our common stock entitled to vote at the Annual Meeting, as described under “Annual Meeting, Voting and Other Information.” The GSOT holds these shares pursuant to a trust agreement with Wells Fargo Bank, N.A. as trustee. Both the GSOT and the trustee disclaim beneficial ownership of the shares. Under the trust agreement, our employees who hold unexercised common stock options under our employee equity compensation plans determine the voting of the GSOT shares. The number of GSOT shares that any one employee can direct the vote of depends on how many eligible employees submit voting instructions to the trustee. Employees who are also directors cannot vote GSOT shares; therefore, Mr. Mezger cannot direct the vote of any GSOT shares. If all eligible employees submit voting instructions, our other NEOs can direct the vote of the following amounts of GSOT shares: Mr. Kaminski 969,577; Mr. Praw 605,446; Mr. Franklin 287,022; and Mr. Woram 826,936; and all current executive officers as a group (excluding Mr. Mezger) 4,063,674. |
COMPENSATION DISCUSSION AND ANALYSIS |
2016 Fiscal Year Performance Highlights As a national homebuilder, we operate in a dynamic, complex and challenging business environment, and we produced solid results in our 2016 fiscal year against our aggressive performance goals. These results were achieved across several short-term and long-term metrics, and demonstrate strong growth compared to the previous year and over the last three years. We also returned a significant amount of capital to stockholders with an opportunistic stock repurchase program and by maintaining our regular quarterly dividend. | Short-Term Operating Results | Total Revenues Homebuilding Operating Income Total Pretax Income Net Income | ñ | 19% 10% 18% 25% |
Strategic Performance Indicators | ||||
Annual Net Orders Year-End Backlog Value | ñ | 11% 19% | ||
Long-Term Performance Results | 3-Yr. Revenue Growth 3-Yr. Cumulative Operating Income 3-Yr. Cumulative Net Income | Up | 71% $407M $1.1B | |
Stockholder Returns | TSR Common Stock Repurchases Cash Dividends | 13% $85.9M $8.6M |
Pay for Performance — CEO Compensation | |||||
• Our 2016 fiscal year TSR was 13%, while our CEO’s total 2016 compensation increased only 1% from 2015. • Our CEO’s compensation was 90% performance-based. • Our CEO’s long-term incentives were solely performance-oriented equity awards — performance-based restricted stock units (“PSUs”) and common stock options. PSUs constituted 60% of the total grant date fair value (up from 52% in 2015). • Our CEO’s annual incentive award of $3.77 million was performance-based and formula-driven, and reflected our profitability growth and improved asset efficiency in 2016. • Our CEO’s base salary has not changed since 2006. | |||||
Listening to our Stockholders — 95% Say on Pay Approval At our 2016 Annual Meeting of Stockholders, approximately 95% of the shares of our common stock present or represented at the meeting supported our advisory vote on NEO compensation. We believe this high level of support reflected a substantial degree of stockholder confidence in our performance and executive compensation programs, as well as recognition of the positive steps we have taken to modify the design and implementation of our programs over the past few years in response to stockholder feedback. In 2016, we continued our longstanding practice of reaching out to our stockholders, including nearly all of our 25 largest stockholders, and directly engaged with stockholders representing over 50% of our outstanding shares. In evaluating our executive compensation programs during 2016, the Compensation Committee took into account our engagements with stockholders and the support they expressed for our approach to linking executive compensation to our strategic and operational goals as well as to stockholder value creation. As a result, in our 2016 fiscal year, the Compensation Committee decided to retain the core components of our executive compensation programs and to apply the same general principles and philosophy as in the prior fiscal year with respect to its executive compensation decisions. The Compensation Committee welcomes and will continue to consider stockholders’ perspectives on executive compensation in the future. |
KEY FEATURES OF OUR EXECUTIVE COMPENSATION PROGRAMS | |||
What We Do | What We Don’t Do | ||
ü | Engage with and consider stockholder input in designing our executive pay programs. | × | Do not allow re-pricing of stock options without stockholder approval. |
ü | Grant all of our CEO’s total long-term incentives in performance-oriented vehicles. | × | Do not provide new excise tax “gross-ups” to any officer or employee. |
ü | Perform, under Compensation Committee oversight, annual risk assessments to determine that our employee compensation policies and programs are not likely to have a material adverse effect on us. | × | Do not, without stockholder approval, enter into new severance arrangements with executive officers above the limits specified in a longstanding policy, as described under “Severance Arrangements.” |
ü | Link annual NEO incentive pay to objective, pre-established financial performance goals. | × | Do not allow our NEOs (or any employees or non-employee directors) to hedge or pledge their holdings of our securities. |
ü | Engage at the sole direction of the Compensation Committee an independent compensation consultant. | × | Do not provide excessive perquisites; generally limited to market-competitive medical benefits and the opportunity to participate in a deferred compensation plan. |
ü | Maintain robust stock ownership requirements for all NEOs. | × | Do not pay dividends or dividend equivalents on performance-based equity awards before they vest. |
ü | Maintain a relevant peer group. | ||
ü | Maintain clawback policies consistent with current federal law. |
REWARD TYPE | DESCRIPTION | RATIONALE | |
BASE SALARY | • Fixed compensation delivered in cash on a semi-monthly basis. | • A market-aligned component of the overall pay package to provide a baseline level of pay; key to attracting and retaining highly-qualified executives. | |
ANNUAL INCENTIVE PROGRAM | • Our NEOs’ 2016 annual incentive payouts were performance-based and formula-driven, focused on pretax income and asset efficiency measures. | • Motivates achievement of core strategic short-term financial results. | |
LONG-TERM INCENTIVE PROGRAM | PSUs | • Constituted 60% of total grant date fair value for our CEO, and 25% for our other NEOs, both of which increased from 2015. • 2016 grants have three separate three-year performance measures: cumulative adjusted earnings per share, average adjusted return on invested capital, and revenue growth versus our peer group. | • Focuses executives on achievement of long-term operating results and encourages retention. • Establishes strong alignment with long-term stockholder interests through performance-based payouts in shares of our common stock. |
Stock Options | • 40% of total grant date fair value for our CEO and for our other NEOs. | • Value realized only with share price appreciation, which is strongly influenced by performance. | |
Restricted Stock | • 35% of total grant date fair value for our NEOs other than our CEO. | • Encourages retention and provides additional alignment with stockholder interests in conjunction with stock ownership requirements. | |
RETIREMENT PROGRAMS AND PERQUISITES | • A 401(k) plan in which all eligible employees may participate. • Legacy executive retirement and death benefit plans have been closed to new participants for over a decade. • Market-competitive medical, dental and vision benefits and the opportunity to participate in a deferred compensation plan. | • Programs are aligned with market practices. • Focuses executives on earning rewards through performance pay elements, not through entitlements. |
2016 API Performance Levels and Payout Summary | |||
Threshold | Target | Actual Result | |
API Performance Levels | $137.3 million | $183.0 million | $234.1 million |
API Performance Levels Relative to Target | 75% | 100% | 128% |
Payout Level Ratios | 50% | 100% | 100% |
NEO | 2016 NEO Individual Performance Contributions | IPF |
Mr. Mezger | Mr. Mezger once again provided excellent leadership in setting and driving performance against our top strategic objectives. In 2016, our pretax income grew by 18%, our net income rose 25%, and total revenues and year-end backlog value each increased by 19% (in each case compared to 2015 levels). Mr. Mezger also continued to play a critical role in promoting the KB Home brand as both a premier homebuilder and company in sustainability and innovation. | 53.5% |
Mr. Kaminski | Mr. Kaminski effectively managed our corporate liquidity and balance sheet as evidenced by the successful execution of our stock repurchase program in the 2016 first quarter, while we exceeded our target of maintaining a cash neutral position for the year. He also led the development of our comprehensive three-year strategic plan for returns-focused growth, and he improved and refined our investor relations strategy. | 9.9% |
Mr. Praw | Mr. Praw led our efforts in driving land investment and asset management, allowing us to achieve 20% growth in deliveries as compared to 2015, and positioning us to meet our 2017 delivery goals. He also successfully negotiated several land transactions on favorable terms. | 9.1% |
Mr. Woram | Mr. Woram achieved significant cost recoveries via settlements and mediations and ensured responsive and skillful transactional support to our divisions. He also improved our insurance programs both to better mitigate and manage risk, and to help expand our sub-contractor base company-wide. | 8.1% |
2016 Annual Incentive Program Payout Levels and Actual Payouts | |||||||||||||||||||||
NEO | Target | Maximum | API Performance Component Payout(a) | Asset Efficiency Component Payout | Total Payout | ||||||||||||||||
Mr. Mezger | $ | 1,500,000 | $ | 6,000,000 | $ | 1,500,000 | $ | 2,271,237 | $ | 3,771,237 | |||||||||||
Mr. Kaminski | 680,000 | 2,040,000 | 680,000 | 420,285 | 1,100,285 | ||||||||||||||||
Mr. Praw | 565,000 | 1,130,000 | 565,000 | 386,323 | 951,323 | ||||||||||||||||
Mr. Franklin | 615,000 | 1,230,000 | 615,000 | — | 615,000 | ||||||||||||||||
Mr. Woram | 570,000 | 1,140,000 | 570,000 | 343,869 | 913,869 |
(a) | Annex 1 to this Proxy Statement contains a reconciliation of our pretax income calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) to the non-GAAP financial measure of API. |
NEO Long-Term Incentives Granted in 2016 | |||||||||||||||||||||
NEO | PSUs | Restricted Stock | Stock Options | Total ($) | |||||||||||||||||
# | $ | # | $ | # | $ | ||||||||||||||||
Mr. Mezger | 148,057 | $ | 2,400,004 | — | $ | — | 274,952 | $ | 1,600,001 | $ | 4,000,005 | ||||||||||
Mr. Kaminski | 18,507 | 299,998 | 25,910 | 420,001 | 82,486 | 480,003 | 1,200,002 | ||||||||||||||
Mr. Praw | 12,724 | 206,256 | 17,813 | 288,749 | 56,709 | 330,001 | 825,006 | ||||||||||||||
Mr. Franklin | 16,965 | 275,003 | 23,751 | 385,004 | 75,612 | 440,001 | 1,100,008 | ||||||||||||||
Mr. Woram | 11,952 | 193,742 | 16,733 | 271,242 | 53,272 | 310,000 | 774,984 |
• Cumulative Adjusted Earnings Per Share (“AEPS”): | 50% weight, measures profitability trajectory over the period |
• Average Adjusted Return on Invested Capital (“AROIC”): | 20% weight, measures profitability relative to capital deployed |
• Revenue Growth Rank Versus Peers: | 30% weight, measures ability to grow top-line relative to peers |
Performance Measure | PSU Grant Year | Threshold Goal | Target Goal | Maximum Goal |
AEPS | 2014 | $2.52 | $3.04 | $4.00 |
2015 | $2.73 | $3.31 | $4.36 | |
2016 | $3.00 | $3.64 | $4.77 | |
AROIC | 2014 | 2.8% | 3.3% | 4.0% |
2015 | 3.0% | 3.5% | 4.3% | |
2016 | 3.1% | 3.6% | 4.4% |
2013 — 2015 PSU Awards | 2016 PSU Awards | |||
Performance Measure | Performance (Rank) | Target Award Multiplier | Performance (Rank) | Target Award Multiplier |
Relative Revenue Growth (Adjustments to ranking levels and multipliers will be made if there are changes in the peer group composition over time, per the terms of the PSUs) | 1 or 2 | 200% | 1 or 2 | 200% |
3 | 178% | 3 | 180% | |
4 | 156% | 4 | 160% | |
5 | 134% | 5 | 140% | |
6 | 113% | 6 | 120% | |
7 | 90% | 7 | 100% | |
8 | 67% | 8 | 80% | |
9 | 44% | 9 | 60% | |
10 | 21% | 10 | 40% | |
11 or 12 | 0% | 11 | 20% | |
12 or 13 | 0% |
PSU Grant Year | Performance Measure | Performance as of November 30, 2016 |
2014 | AEPS | Between the target and maximum levels |
AROIC | Below the threshold level | |
2015 | AEPS | Approximately at the maximum level |
AROIC | Between the threshold and target levels |
Performance Measure | Performance Goals | Target Award Multiplier |
ROE | 20% and above | 200% |
15% | 100% | |
10% | 25% | |
Below 10% | 0% |
2013 PSU Award Determinations | |||
Performance Measure | Average Annual Performance | Aggregate Total Performance | Target Award Multiplier |
ROE (60% weight) | 32.5% | N/A | 200% |
Relative Revenue Growth (40% weight) | N/A | 4th out of 12 peer companies | 156% |
Cumulative Multiplier | 182% |
2013 PSU Awards | ||
NEO | Target Award(#) | Actual Award(#) |
Mr. Mezger | 100,000 | 182,000 |
Mr. Kaminski | 15,000 | 27,300 |
Mr. Praw | 12,500 | 22,750 |
Mr. Woram | 12,500 | 22,750 |
Our Peer Group | ||
• Beazer Homes USA, Inc. • Hovnanian Enterprises, Inc. • Meritage Homes Corp. • Taylor Morrison Home Corp. | • CalAtlantic Group, Inc. • Lennar Corp. • NVR, Inc. • Toll Brothers, Inc. | • D.R. Horton, Inc. • M.D.C. Holdings, Inc. • PulteGroup, Inc. • Tri Pointe Group, Inc. |
Executive Position | Ownership Guideline |
CEO | 6.0 times base salary |
Other NEOs | 2.0 times base salary |
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT |
Management Development and Compensation Committee | |||
Kenneth M. Jastrow, II, Chair | Timothy W. Finchem | Robert L. Johnson | Melissa Lora |
Name and Principal Position | Fiscal Year | Salary ($)(a) | Bonus ($)(b) | Stock Awards ($)(c) | Option Awards ($)(c) | Non-Equity Incentive Plan Compensation ($)(d) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(e) | All Other Compensation ($)(f) | Total ($) | ||||||||||||||||
Jeffrey T. Mezger Chairman, President and Chief Executive Officer | 2016 | $ | 1,000,000 | $ | — | $ | 2,400,004 | $ | 1,600,001 | $ | 3,771,237 | $ | 115,539 | $ | 70,078 | $ | 8,956,859 | ||||||||
2015 | 1,000,000 | — | 1,984,360 | 1,828,403 | 3,974,964 | — | 69,196 | 8,856,923 | |||||||||||||||||
2014 | 1,000,000 | 125,000 | 2,860,000 | 2,640,000 | 2,824,750 | 830,924 | 68,809 | 10,349,483 | |||||||||||||||||
Jeff J. Kaminski Executive Vice President and Chief Financial Officer | 2016 | 671,250 | — | 719,999 | 480,003 | 1,100,285 | — | 52,893 | 3,024,430 | ||||||||||||||||
2015 | 656,250 | — | 566,960 | 631,431 | 1,386,191 | — | 51,156 | 3,291,988 | |||||||||||||||||
2014 | 620,833 | 62,500 | 550,000 | 550,000 | 1,280,316 | — | 47,459 | 3,111,108 | |||||||||||||||||
Albert Z. Praw Executive Vice President, Real Estate and Business Development | 2016 | 556,250 | — | 495,005 | 330,001 | 951,323 | — | 45,585 | 2,378,164 | ||||||||||||||||
2015 | 541,250 | — | 417,760 | 439,256 | 1,200,439 | — | 43,803 | 2,642,508 | |||||||||||||||||
2014 | 529,167 | 62,500 | 387,500 | 387,500 | 1,123,683 | — | 42,979 | 2,533,329 | |||||||||||||||||
Nicholas S. Franklin Executive Vice President, Strategic Operations | 2016 | 606,250 | — | 660,007 | 440,001 | 615,000 | — | 28,518 | 2,349,776 | ||||||||||||||||
2015 | 379,615 | 106,400 | 566,960 | 631,431 | 393,600 | — | 22,861 | 2,100,867 | |||||||||||||||||
Brian J. Woram Executive Vice President and General Counsel | 2016 | 564,167 | — | 464,984 | 310,000 | 913,869 | — | 46,468 | 2,299,488 | ||||||||||||||||
2015 | 554,166 | — | 417,760 | 439,256 | 1,188,560 | — | 44,731 | 2,644,473 | |||||||||||||||||
2014 | 544,167 | 62,500 | 387,500 | 387,500 | 1,144,114 | — | 43,459 | 2,569,240 |
(a) | Salary. As discussed under “Base Salaries,” annual base salary levels were increased in July 2016 to the following amounts for the respective NEO: Mr. Kaminski $680,000; Mr. Praw $565,000; Mr. Franklin $615,000; and Mr. Woram $570,000. |
(b) | Bonus. In 2015, Mr. Franklin received a bonus in recognition of his assuming additional operational leadership responsibilities for a significant division within our Southern California homebuilding business. For 2014, these amounts reflect additional payments related to a 2011 performance cash award program. Performance cash awards ceased being a component of NEO compensation after the 2012 program’s grants vested in 2015. |
(c) | Stock Awards and Option Awards. These amounts represent the aggregate grant date fair value of stock awards (consisting of both restricted stock and PSUs) and common stock options computed as described in Note 19 — Employee Benefit and Stock Plans in the Notes to the Consolidated Financial Statements in our Annual Report, except that estimates of forfeitures related to service-based vesting conditions have been disregarded. They do not represent realized compensation. The 2016 stock awards represent the grant date fair value of restricted stock and the probable award of shares of our common stock underlying the PSUs granted. The grant date fair value of the PSUs if maximum performance is achieved is as follows: Mr. Mezger $4,800,008; Mr. Kaminski $599,996; Mr. Praw $412,512; Mr. Franklin $550,006; and Mr. Woram $387,484. |
(d) | Non-Equity Incentive Plan Compensation. The 2016 amounts reflect only annual incentive payouts. The amounts for 2015 and 2014 include the sum of applicable annual incentive and performance cash award payouts, as summarized below. |
NEO | Year | Annual Incentive Payout ($) | Performance Cash Award Payout ($) | Total Non-Equity Incentive Plan Compensation ($) | ||||||
Mr. Mezger | 2015 | $ | 2,488,297 | $ | 1,486,667 | $ | 3,974,964 | |||
2014 | 2,034,750 | 790,000 | 2,824,750 | |||||||
Mr. Kaminski | 2015 | 940,191 | 446,000 | 1,386,191 | ||||||
2014 | 885,316 | 395,000 | 1,280,316 | |||||||
Mr. Praw | 2015 | 799,039 | 401,400 | 1,200,439 | ||||||
2014 | 728,683 | 395,000 | 1,123,683 | |||||||
Mr. Franklin | 2015 | 393,600 | — | 393,600 | ||||||
2014 | — | — | — | |||||||
Mr. Woram | 2015 | 787,160 | 401,400 | 1,188,560 | ||||||
2014 | 749,114 | 395,000 | 1,144,114 |
(e) | Change in Pension Value and Nonqualified Deferred Compensation Earnings. These amounts (as applicable) reflect the increase in the actuarial present value of accumulated benefits under our Retirement Plan. These changes are tied to interest rate fluctuations and do not reflect any cash or other compensation received by Mr. Mezger. The respective amounts attributed to the change in actuarial present value in 2016, 2015 and 2014 were $115,539, $(84,667) and $830,924. |
(f) | All Other Compensation. The amounts shown consist only of the following items: |
• | 401(k) Plan and DCP Matching Contributions. The respective aggregate 2016, 2015 and 2014 401(k) Plan and DCP matching contributions we made to our NEOs were as follows: Mr. Mezger $55,900, $55,900 and $55,600; Mr. Kaminski $40,275, $39,375 and |
• | Premium Payments. The respective aggregate premiums we paid for our NEOs in 2016, 2015 and 2014 on supplemental medical expense reimbursement plans and life insurance policies, as described under “Other Benefits,” were as follows: Mr. Mezger $14,178, $13,296 and $13,209; Mr. Kaminski $12,618, $11,781 and $11,709; Mr. Praw $12,210, $11,328 and $11,241; Mr. Franklin $12,618, $6,961 and $0; and Mr. Woram $12,618, $11,781 and $11,709. |
Name | Grant Date(a) | Type of Award | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Possible Payouts Under Equity Incentive Plan Awards(b) | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(c) | |||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||
Mr. Mezger | 2/10/2016 | Annual Incentive | $ | 750,000 | $ | 1,500,000 | $ | 6,000,000 | |||||||||||||||||||
10/6/2016 | PSUs | 34,793 | 148,057 | 296,114 | $ | 2,400,004 | |||||||||||||||||||||
10/6/2016 | Stock Options | 274,952 | $ | 16.21 | 1,600,001 | ||||||||||||||||||||||
Mr. Kaminski | 2/10/2016 | Annual Incentive | 340,000 | 680,000 | 2,040,000 | ||||||||||||||||||||||
10/16/2016 | PSUs | 4,349 | 18,507 | 37,014 | 299,998 | ||||||||||||||||||||||
10/16/2016 | Restricted Stock | 25,910 | 420,001 | ||||||||||||||||||||||||
10/16/2016 | Stock Options | 82,486 | 16.21 | 480,003 | |||||||||||||||||||||||
Mr. Praw | 2/10/2016 | Annual Incentive | 282,500 | 565,000 | 1,130,000 | ||||||||||||||||||||||
10/16/2016 | PSUs | 2,990 | 12,724 | 25,448 | 206,256 | ||||||||||||||||||||||
10/16/2016 | Restricted Stock | 17,813 | 288,749 | ||||||||||||||||||||||||
10/16/2016 | Stock Options | 56,709 | 16.21 | 330,001 | |||||||||||||||||||||||
Mr. Franklin | 2/10/2016 | Annual Incentive | 307,500 | 615,000 | 1,230,000 | ||||||||||||||||||||||
10/16/2016 | PSUs | 3,987 | 16,965 | 33,930 | 275,003 | ||||||||||||||||||||||
10/16/2016 | Restricted Stock | 23,751 | 385,004 | ||||||||||||||||||||||||
10/16/2016 | Stock Options | 75,612 | 16.21 | 440,001 | |||||||||||||||||||||||
Mr. Woram | 2/10/2016 | Annual Incentive | 285,000 | 570,000 | 1,140,000 | ||||||||||||||||||||||
10/16/2016 | PSUs | 2,809 | 11,952 | 23,904 | 193,742 | ||||||||||||||||||||||
10/16/2016 | Restricted Stock | 16,733 | 271,242 | ||||||||||||||||||||||||
10/16/2016 | Stock Options | 53,272 | 16.21 | 310,000 |
(a) | Grant Date. The date shown for each award is the date the Compensation Committee approved the award. |
(b) | Estimated Possible Payouts Under Equity Incentive Plan Awards. If there is a payout of the PSUs, “Threshold” represents the lowest possible payout if threshold performance is achieved for each performance measure, and “Maximum” reflects the highest possible payout (200% of the target award of shares granted). The performance measures are described under “Performance-Based Restricted Stock Units.” If threshold performance is not achieved on all three measures, the NEOs will not receive any payout of the PSUs. |
(c) | Grant Date Fair Value of Stock and Option Awards. The grant date fair value for each award is computed as described in footnote (c) to the Summary Compensation Table. The 2016 stock awards represent the grant date fair value of restricted stock and the probable award of shares of our common stock underlying the PSUs granted as of the grant date. |
Name | Grant Date | Option Awards | Stock Awards | |||||||||||||||||||||
Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#)(a) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(b) | Market Value of Shares or Units of Stock That Have Not Vested ($)(c) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(d) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(d) | ||||||||||||||||
Mr. Mezger | 2/13/2002 | 102,090 | $ | 20.07 | 2/13/2017 | |||||||||||||||||||
5/8/2002 | 44,516 | 25.63 | 5/8/2017 | |||||||||||||||||||||
10/7/2002 | 400,000 | 21.51 | 10/7/2017 | |||||||||||||||||||||
10/24/2003 | 74,667 | 33.24 | (e) | 10/24/2018 | ||||||||||||||||||||
10/24/2003 | 149,333 | 34.05 | (e) | 10/24/2018 | ||||||||||||||||||||
10/22/2004 | 80,750 | 40.90 | 10/22/2019 | |||||||||||||||||||||
10/22/2004 | 119,250 | 40.90 | 10/22/2019 | |||||||||||||||||||||
7/12/2007 | 325,050 | 36.19 | 7/12/2017 | |||||||||||||||||||||
10/4/2007 | 137,500 | 28.10 | 10/4/2017 | |||||||||||||||||||||
10/1/2009 | 489,258 | 15.44 | 10/1/2019 | |||||||||||||||||||||
8/13/2010 | 397,818 | 19.90 | 10/2/2018 | (f) | ||||||||||||||||||||
10/7/2010 | 240,000 | 11.06 | 10/7/2020 | |||||||||||||||||||||
10/7/2010 | 260,000 | 11.06 | 10/7/2020 | |||||||||||||||||||||
11/9/2010 | 412,500 | 28.10 | 10/4/2017 | (f) | ||||||||||||||||||||
10/6/2011 | 335,000 | 6.32 | 10/6/2021 | |||||||||||||||||||||
10/6/2011 | 365,000 | 6.32 | 10/6/2021 | |||||||||||||||||||||
10/10/2013 | 150,000 | 16.63 | 10/10/2023 | |||||||||||||||||||||
10/10/2013 | 182,000 | $ | 2,882,880 | |||||||||||||||||||||
10/9/2014 | 346,866 | 173,434 | 14.62 | 10/9/2024 | ||||||||||||||||||||
10/9/2014 | 195,622 | $ | 3,098,652 | |||||||||||||||||||||
10/8/2015 | 111,000 | 222,000 | 14.92 | 10/8/2025 | ||||||||||||||||||||
10/8/2015 | 133,000 | 2,106,720 | ||||||||||||||||||||||
10/6/2016 | 274,952 | 16.21 | 10/6/2026 | |||||||||||||||||||||
10/6/2016 | 148,057 | 2,345,223 | ||||||||||||||||||||||
Mr. Kaminski | 7/15/2010 | 45,017 | 11.26 | 7/15/2020 | ||||||||||||||||||||
10/7/2010 | 118,000 | 11.06 | 10/7/2020 | |||||||||||||||||||||
10/6/2011 | 125,000 | 6.32 | 10/6/2021 | |||||||||||||||||||||
10/10/2013 | 50,000 | 16.63 | 10/10/2023 | |||||||||||||||||||||
10/10/2013 | 27,300 | 432,432 | ||||||||||||||||||||||
10/9/2014 | 72,264 | 36,132 | 14.62 | 10/9/2024 | ||||||||||||||||||||
10/9/2014 | 22,572 | 357,540 | 15,048 | 238,360 | ||||||||||||||||||||
10/8/2015 | 38,334 | 76,666 | 14.92 | 10/8/2025 | ||||||||||||||||||||
10/8/2015 | 16,000 | 253,440 | 14,000 | 221,760 | ||||||||||||||||||||
10/6/2016 | 82,486 | 16.21 | 10/6/2026 | |||||||||||||||||||||
10/6/2016 | 25,910 | 410,414 | 18,507 | 293,151 |
Name | Grant Date | Option Awards | Stock Awards | |||||||||||||||||||||
Number of Securities Underlying Unexercised Options Exercisable (#) | Number of Securities Underlying Unexercised Options Unexercisable (#)(a) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(b) | Market Value of Shares or Units of Stock That Have Not Vested ($)(c) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(d) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(d) | ||||||||||||||||
Mr. Praw | 10/6/2011 | 150,000 | $ | 6.32 | 10/6/2021 | |||||||||||||||||||
10/10/2013 | 39,000 | 16.63 | 10/10/2023 | |||||||||||||||||||||
10/10/2013 | 22,750 | $ | 360,360 | |||||||||||||||||||||
10/9/2014 | 50,913 | 25,457 | 14.62 | 10/9/2024 | ||||||||||||||||||||
10/9/2014 | 15,903 | 251,904 | 10,602 | $ | 167,936 | |||||||||||||||||||
10/8/2015 | 26,667 | 53,333 | 14.92 | 10/8/2025 | ||||||||||||||||||||
10/8/2015 | 12,000 | 190,080 | 10,000 | 158,400 | ||||||||||||||||||||
10/6/2016 | 56,709 | 16.21 | 10/6/2026 | |||||||||||||||||||||
10/6/2016 | 17,813 | 282,158 | 12,724 | 201,548 | ||||||||||||||||||||
Mr. Franklin | 10/8/2015 | 38,334 | 76,666 | 14.92 | 10/8/2025 | |||||||||||||||||||
10/8/2015 | 16,000 | 253,440 | 14,000 | 221,760 | ||||||||||||||||||||
10/6/2016 | 75,612 | 16.21 | 10/6/2026 | |||||||||||||||||||||
10/6/2016 | 23,751 | 376,216 | 16,965 | 268,726 | ||||||||||||||||||||
Mr. Woram | 7/15/2010 | 79,529 | 11.26 | 7/15/2020 | ||||||||||||||||||||
10/7/2010 | 111,000 | 11.06 | 10/7/2020 | |||||||||||||||||||||
10/6/2011 | 110,000 | 6.32 | 10/6/2021 | |||||||||||||||||||||
10/10/2013 | 39,000 | 16.63 | 10/10/2023 | |||||||||||||||||||||
10/10/2013 | 22,750 | 360,360 | ||||||||||||||||||||||
10/9/2014 | 50,913 | 25,457 | 14.62 | 10/9/2024 | ||||||||||||||||||||
10/9/2014 | 15,903 | 251,904 | 10,602 | 167,936 | ||||||||||||||||||||
10/8/2015 | 26,667 | 53,333 | 14.92 | 10/8/2025 | ||||||||||||||||||||
10/8/2015 | 12,000 | 190,080 | 10,000 | 158,400 | ||||||||||||||||||||
10/6/2016 | 53,272 | 16.21 | 10/6/2026 | |||||||||||||||||||||
10/6/2016 | 16,733 | 265,051 | 11,952 | 189,320 |
(a) | Number of Securities Underlying Unexercised Options-Unexercisable. Stock option awards generally vest in equal installment amounts (i.e., ratably) over a three-year period. |
(b) | Number of Shares or Units of Stock That Have Not Vested. Includes restricted stock grants and the shares of our common stock the Compensation Committee approved for grant on February 15, 2017 pursuant to the 2013 PSUs based on our performance through the performance period, as described under “2013 PSU Awards.” Upon their approval for grant to the recipients, the earned 2013 PSU-related shares became fully vested, with no restrictions on transferability or otherwise. The restricted stock awards granted in 2014 will vest at the conclusion of the three-year vesting period from the grant date. The 2015 and 2016 restricted stock awards will vest in three equal annual installments on October 25, 2017 and 2018, and on October 25, 2017, 2018 and 2019, respectively. |
(c) | Market Value of Shares That Have Not Vested. The market value shown is based on the price of our common stock on November 30, 2016, which was $15.84. |
(d) | Equity Incentive Plan Awards: Number and Market Value of Unearned Units. The awards shown are the PSUs granted to our NEOs in 2014, 2015 and 2016, reflecting target award amounts as of November 30, 2016 and the market price of our common stock on November 30, 2016, was $15.84. These PSUs will vest based on our achievement of certain performance measures over an applicable three-year performance period. |
(e) | As a result of an internal review of our employee stock option grant practices in 2006, we adjusted the exercise prices of certain of our employee stock options in order to comply with Section 409A of the Code. The exercise price for a certain portion of the stock option grant made on October 24, 2003 was not adjusted. |
(f) | Through participation in two exchange offers that we conducted in 2010, these common stock options replaced cash-settled stock appreciation right awards that had been previously granted to the NEO as long-term incentives. Each common stock option has an exercise price equal to the replaced award’s exercise price, and the same number of underlying shares, vesting schedule and expiration date as each replaced award. The exchange offers did not include a re-pricing or any other changes impacting the value of the awards to the NEO, no additional grants or awards were made to the NEO, and the issuance of the common stock options did not result in any incremental fair value to the NEO. |
Name | Option Awards | Stock Awards | ||||||||
Number of Shares Acquired on Exercise (#)(a) | Value Realized on Exercise ($)(b) | Number of Shares Acquired on Vesting (#)(c) | Value Realized on Vesting ($)(d) | |||||||
Mr. Mezger | 500,000 | $ | 1,261,026 | 182,000 | $ | 3,033,940 | ||||