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Items of Business | Board Recommendation | |||
Elect ten directors, each to serve for a one-year term | FOR | |||
Advisory vote to approve named executive officer compensation | FOR | |||
Ratify the appointment of our independent registered public accounting firm | FOR |
Time and Date: | 9:00 a.m., Pacific Time, on Thursday, April 4, 2013. | |||||
Location: | KB Home Corporate Office, 10990 Wilshire Boulevard, Los Angeles, CA 90024. | |||||
Items of Business: | (1) Elect ten directors, each to serve for a one-year term; | |||||
(2) Advisory vote to approve named executive officer compensation; and | ||||||
(3) Ratify the appointment of our independent registered public accounting firm. | ||||||
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 can vote at the meeting and at any postponement or adjournment of the meeting if you were a stockholder of record on February 8, 2013. | |||||
Voting: | Please vote as soon as possible, even if you plan to attend the meeting, to ensure that 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, by telephone or by mail. If your shares are held by a broker or financial institution, you must vote your shares as instructed by that broker or financial institution. | |||||
Annual Report: | Copies of our Annual Report on Form 10-K for the fiscal year ended November 30, 2012 (the “Annual Report”), including audited financial statements, are being made available to stockholders concurrently with the accompanying Proxy Statement. We anticipate that these materials will first be made available on or about February 22, 2013. | |||||
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on April 4, 2013: Our Proxy Statement and Annual Report are available at www.kbhome.com/investor/proxy. | ||||||
Table of Contents | |
General Information |
What is the purpose of this Proxy Statement? Your Board of Directors (the “Board”) is furnishing this Proxy Statement to you to solicit your proxy for our 2013 Annual Meeting. The items of business for the meeting are described in the accompanying Notice of 2013 Annual Meeting of Stockholders. This Proxy Statement contains information to help you decide how you want your shares to be voted. We anticipate that this Proxy Statement and a form of proxy or voting instruction form will first be made available on or about February 22, 2013. Who can vote? Holders of record of the 83,546,785 shares of common stock outstanding at the close of business on the record date (February 8, 2013) are entitled to one vote for each share held. The trustee of our Grantor Stock Ownership Trust (the “GSOT”) will vote the 10,615,934 shares the GSOT held on the record date based on the instructions received from our employees who hold unexercised common stock options under our employee equity compensation plans. Accordingly, a total of 94,162,719 shares are entitled to vote at the 2013 Annual Meeting. There is no right to cumulative voting. Who is a “Holder of Record”? If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered the “holder of record” of those shares. If your shares are held in a stock brokerage account or by a financial institution or other holder of record, you are a beneficial owner of those shares held in “street name.” If you are a beneficial owner, this Proxy Statement will use the term “broker” to describe the person or institution that is the holder of record of your shares. | Attending the 2013 Annual Meeting | |||
Date: | Thursday, April 4, 2013. | |||
Place: | KB Home Corporate Office 10990 Wilshire Boulevard Los Angeles, CA 90024. | |||
Entry: | You must have an admission ticket and valid identification, as described below under the heading “Other Matters.” A professional business dress code will be observed. Parking is available at the meeting location. You may be subject to a security check. | |||
Note: | No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted at the meeting. Additional rules of conduct will apply at the meeting. | |||
Proxy Solicitation Costs We will pay the cost to solicit proxies for the 2013 Annual Meeting. In addition to this Proxy Statement, our officers, directors and other employees may solicit proxies personally or in writing or by telephone, facsimile or email for no additional compensation. We will, if requested, reimburse banks, brokerage houses and other custodians, nominees and certain fiduciaries for their reasonable expenses in providing material to their principals. We have hired Georgeson Inc., a professional soliciting organization, to assist us in proxy solicitation and in distributing proxy materials. For these services, we will pay Georgeson a fee of $9,000, plus reimbursement for out-of-pocket expenses. |
Voting Information |
Quorum Requirement: | For stockholders to take action at the 2013 Annual Meeting, a majority of the shares of our common stock outstanding on the record date must be present or represented at the meeting. Abstentions and “broker non-votes” are counted for this purpose. | |
Broker Non-Votes: | A “broker non-vote” arises when a broker does not receive instructions from a beneficial owner and does not have the discretionary authority to vote on an item of business. For the 2013 Annual Meeting, we understand that brokers have discretionary authority to vote only on ratifying the appointment of our independent registered public accounting firm. Therefore, if you are a beneficial owner, you must instruct your broker on how you want your shares to be voted on the other items of business for the 2013 Annual Meeting in order for your shares to be counted for those items. | |
Proxy Voting: | Holders of record may vote by proxy via the Internet, by telephone or by mail as described in the form of proxy or voting instruction form. If you are a beneficial owner, your broker should send you proxy voting materials and instructions, and may do so electronically. | |
Voting in Person: | Holders of record (or someone designated by a signed legal proxy) may vote in person at the 2013 Annual Meeting. If you are a beneficial owner, you must obtain a legal proxy from your broker and present it with your ballot. Voting at the 2013 Annual Meeting will replace any prior proxy voting. | |
Voting By Named Proxies: | The named proxies for the 2013 Annual Meeting — Jeffrey T. Mezger and Brian J. Woram (or their duly authorized designees) — will follow submitted proxy voting instructions. They will vote as the Board recommends as to any submitted instructions that do not direct how to vote on any item, and will vote on any other matters properly presented at the 2013 Annual Meeting in their judgment, including on any motion to postpone or adjourn all or any portion of the 2013 Annual Meeting. | |
Closing of Polls: | Polls will close shortly after the 2013 Annual Meeting is called to order. Holders of record may vote via the Internet and by telephone until 11:59 p.m., Eastern Time, on April 3, 2013. Proxy voting instructions for shares held by the KB Home Common Stock Fund in our 401(k) Savings Plan or the GSOT must be received by 11:59 p.m., Eastern Time, on April 2, 2013. Each broker sets proxy voting deadlines for its beneficial owners. | |
Changing Your Vote: | Holders of record may revoke voting instructions at any time before polls close by submitting a later vote (i) in person at the 2013 Annual Meeting, (ii) via the Internet, by telephone or by mail before the above-listed deadlines, or (iii) to our Corporate Secretary at the address listed below under the heading “Communicating with the Board” by our close of business on April 3, 2013. If you are a beneficial owner, you must contact your broker to revoke any prior voting instructions. There are no dissenters’ rights or rights of appraisal as to any item to be acted upon at the 2013 Annual Meeting. | |
Election of Directors: | To be elected, each director 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 the nominee’s election). Shares that are not present or represented at the 2013 Annual Meeting and abstentions will not affect the election outcome. | |
Voting on Other Items: | Other items of business will be considered approved based upon the affirmative vote of a majority of shares of our common stock present or represented, and entitled to vote thereon, at the 2013 Annual Meeting. Abstentions from voting on these other items of business will have the same effect as an “against” vote. Broker non-votes will have no effect on the voting results for these other items of business. | |
Inspectors of Elections: | We have engaged our transfer agent to count the votes and to act as an independent inspector of election. William A. (Tony) Richelieu, our Corporate Secretary, will also act as an inspector of election. |
Corporate Governance and Board Matters |
• | We report our political contributions to the Nominating/Governance Committee and in our public Sustainability Report. |
Role of the Board of Directors The Board is elected by our stockholders to oversee the management of our business and to assure that the long-term interests of our stockholders are being served. The Board carries out this role subject to Delaware law and our Certificate of Incorporation, By-laws and Corporate Governance Principles. Corporate Governance Principles Our Corporate Governance Principles provide a framework within which we conduct our business and pursue our strategic goals. The Nominating/Governance Committee regularly reviews our Corporate Governance Principles, and the Board approved changes to them effective October 4, 2012 to reflect recent regulatory changes and current Board governance processes. Ethics Policy We expect all of our directors and employees to follow the highest ethical standards when representing KB Home and our interests. To this end, all employees, including our senior executives, and our directors must comply with our Ethics Policy. The Audit Committee regularly reviews our Ethics Policy, and approved changes to it that became effective as of October 29, 2012. The changes updated certain standards of conduct, and clarified standards for employee personal use of KB Home service providers. Executive Sessions of Non-Employee Directors The non-employee directors meet in executive session at each of the Board’s regular meetings. Any non-employee director can request additional executive sessions. Stephen F. Bollenbach, the Non-Executive Chairman of the Board, schedules and chairs the executive sessions. | Board Membership As of the date of this Proxy Statement, the Board has ten members. Except for Mr. Mezger, our President and Chief Executive Officer (“CEO”), no director is a KB Home employee. Board Committees The Board has three standing Committees: • Audit and Compliance (the “Audit Committee”) • Management Development and Compensation (the “Compensation Committee”) • Nominating and Corporate Governance (the “Nominating/Governance Committee”) The Board appoints the members of and has adopted a charter for each Board Committee. The Board and each Board Committee conducts an annual evaluation of its performance. Mr. Mezger does not serve on any Board Committees. Board Meetings and Attendance The Board and its Committees hold regular meetings on a set schedule and may hold interim meetings and act by written consent from time to time as necessary or appropriate. The Board held four meetings during our 2012 fiscal year. Mr. Bollenbach, as the Non-Executive Chairman of the Board, presides over all meetings at which he is present. In our 2012 fiscal year, each director attended at least 75% of the meetings of the Board and the Board Committees on which he or she served during his or her period of service on the Board. We expect directors to attend our annual stockholder meetings. All directors serving at the time attended our 2012 Annual Meeting of Stockholders, which was held on April 12, 2012. |
Director | Audit Committee | Compensation Committee | Nominating/Governance Committee |
Barbara T. Alexander | X | ||
Stephen F. Bollenbach | X | X | |
Timothy W. Finchem | X | X | |
Dr. Thomas W. Gilligan(a) | X | ||
Kenneth M. Jastrow, II | Chair | ||
Robert L. Johnson(b) | X | ||
Melissa Lora | Chair | X | |
Michael G. McCaffery(c) | Chair | ||
Luis G. Nogales | X | X | |
Number of Meetings: | 8 | 7 | 4 |
(a) | Dr. Gilligan was appointed to the Audit Committee on July 18, 2012, the date on which he was elected to the Board, and served on the Audit Committee for the remainder of our 2012 fiscal year. |
(b) | Mr. Johnson served on the Audit Committee during our 2012 fiscal year until April 12, 2012. He was appointed to the Nominating/Governance Committee on April 12, 2012. |
(c) | Mr. McCaffery served on the Audit Committee during our 2012 fiscal year until April 12, 2012. |
Compensation Committee. The Board has delegated its oversight of risks that may arise from our employee compensation arrangements, plans, programs and policies to the Compensation Committee. In carrying out its risk oversight role, the Compensation Committee reviews with our management on an annual basis an overall assessment of our primary employee compensation plans and programs that identifies potential design and implementation risks of those plans and programs, including potential risks relative to relevant business risk areas identified in our annual overall enterprise risk management assessment. The Compensation Committee also carries out its risk oversight role on an ongoing basis through its review and, to the degree appropriate, specific approval of our compensation arrangements, plans, programs and policies as they are being developed by our senior human resources personnel.The Compensation Committee Chair reports to the Board regarding material risks as deemed appropriate.Based on this oversight approach and the identified mitigating factors noted in the box nearby, we do not believe that our present employee compensation arrangements, plans, programs and policies are likely to have a material adverse effect on us. | Mitigating Factors of Compensation Risks | |
• Balanced and competitive mix of salaries, benefits, and annual and long-term incentives aligned with our operational and strategic goals that are designed to attract, retain and motivate a talented team to achieve optimal performance. • The Compensation Committee’s and its outside consultant’s guidance in developing our compensation arrangements, plans, programs and policies, and the Compensation Committee’s review and approval of them. • Policies and procedures, including our equity-based award grant policy (described below under the heading “Equity-Based Award Grant Policy”), and the compensation clawback provisions in our CEO’s Employment Agreement. • The Compensation Committee’s review of our performance and of individual executives’ performance, and appropriate use of discretion to balance and/or contain performance-based compensation payable pursuant to applicable preset objective standards. | ||
The Compensation Committee (a) is responsible for (i) the evaluation and compensation of our CEO; (ii) the compensation of our senior executives (other than our CEO), which consists of our CEO’s direct reports and any designated “executive officers” (as that term is defined in Rule 3b-7 of the Securities Exchange Act of 1934); (iii) oversight of our efforts to attract, develop, promote and retain qualified senior executives; and (iv) the evaluation and determination of non-employee director compensation and benefits; (b) oversees the preparation of the compensation discussion and analysis to be included in our annual proxy statement, recommends to the Board whether to so include the compensation discussion and analysis, and provides an accompanying report to be included in our annual proxy statement; (c) advises the Board on any non-binding vote or similar advisory action by stockholders to approve senior executive compensation; and (d) is charged with the duties and responsibilities in its charter. |
Executive Officer and Non-Employee Director Compensation Processes and Procedures. The Compensation Committee exercises the Board’s authority under our By-laws to fix executive officer and non-employee director compensation. Under this authority, the Compensation Committee annually reviews and approves the goals and objectives relevant to our CEO’s compensation, evaluates his performance in light of those goals and objectives and other criteria, and, either as a committee or together with the other independent directors (as directed by the Board), determines and approves our CEO’s compensation based on the evaluation. The Compensation Committee evaluates, in conjunction with our CEO, the performance of our senior executives, and reviews and approves their compensation. | Compensation Committee Interlocks and Insider Participation |
All current Compensation Committee members served throughout our 2012 fiscal year, and no member was part of a “compensation committee interlock” as described under SEC rules. In addition, none of our executive officers served as a director or member of the compensation committee of another entity that would constitute a “compensation committee interlock.” |
Nominating/Governance Committee. The Nominating/Governance Committee (a) is responsible for (i) providing oversight of our corporate governance policies and practices; (ii) identifying, evaluating and recommending to the Board individuals who are qualified to become directors as described in the box nearby; and (iii) performing ongoing assessments of the Board’s size, operations, structure, needs and effectiveness; (b) reviews and makes recommendations to the Board on proposed changes to our Certificate of Incorporation, By-laws and Corporate Governance Principles; (c) periodically assesses and recommends action with respect to stockholder rights plans and other stockholder protections; (d) reviews and approves “related party transactions,” as further described below under the heading “Certain Relationships and Related Party Transactions;” and (e) is charged with the duties and responsibilities in its charter. The Nominating/Governance Committee has retained professional search firms from time to time to assist it with recruiting potential director candidates to the Board based on criteria the Nominating/Governance Committee provides to each such firm. These firms help identify, evaluate and select director candidates and are typically paid an agreed upon fee plus expenses for their work. Current directors or other persons may recommend candidates to the Nominating/Governance Committee. Dr. Gilligan was recommended as a candidate by current directors prior to his election to the Board on July 18, 2012. A professional search firm was not involved in recruiting him to the Board. Any security holder may recommend a director candidate for the Nominating/Governance Committee’s consideration by submitting the candidate’s name and qualifications to us in care of our Corporate Secretary at the address listed below under the heading “Communicating with the Board.” Director candidates recommended by a security holder are considered in the same manner as any other recommended candidates. | Consideration of Director Candidates |
The Nominating/Governance Committee considers director candidates at regular or special meetings and at any point during the year. In addition to the general qualifications described below under the heading “Director Qualifications,” and the attributes described below in the box titled “Selected Director Attributes,” the Nominating/Governance Committee considers a director candidate’s diversity of background and personal experience. In this context, diversity may encompass race, ethnicity, national origin and gender, geographic residency, educational and professional history, community or public service, expertise or knowledge base and/or other tangible and intangible aspects of a candidate in relation to the personal characteristics of current directors and other potential director candidates. There is no formal policy as to how diversity of background and personal experience is applied, and a candidate’s background and personal experience, while important, do not necessarily outweigh other attributes or factors considered in evaluating any particular candidate. | |
Director Qualifications We believe our directors should possess the highest personal and professional ethics, integrity, judgment and values, and be committed to representing the long-term interests of our stockholders. Our directors should also have an inquisitive and objective perspective, and be able and willing to dedicate the time necessary to Board and Board Committee service. The Nominating/Governance Committee and the Board determined that each individual whom the Board will present at the 2013 Annual Meeting as a director nominee possesses these characteristics. In addition, the Nominating/Governance Committee regularly evaluates the skills and characteristics of current and potential directors, and may consider the attributes noted in the box nearby, among others. Through its evaluation, the Nominating/Governance Committee identified for the Board certain specific skills and qualifications possessed by each director nominee that supported the Board’s determination that each should serve as directors. These qualifications are described below along with other biographical information for each director nominee under the heading “Election of Directors.” | Selected Director Attributes |
• Personal qualities, accomplishments and reputation in the business community. • Financial literacy, financial and accounting expertise and significant business, academic or government experience in leadership positions or at senior policy-making levels. • Geographical representation in areas relevant to our business. • Diversity of background and personal experience. • Fit of abilities and personality with those of current and potential directors in building a Board that is effective, collegial and responsive to the needs of our business. • Independence and an absence of conflicting time commitments. |
• | any transaction in which the total amount involved is equal to or less than $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; and |
• | 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 |
Under the Director Plan, our non-employee directors are entitled to receive an annual retainer, an annual grant of stock options and stock units, and Board Committee-related retainers. Non-employee directors are also entitled to receive meeting fees under certain circumstances, and may elect to receive any cash retainers and meeting fees in the form of stock units. Cash retainers are paid in equal quarterly installments over a Director Year. A “Director Year” is the period between our annual meetings of stockholders. Accordingly, the 2012-2013 Director Year began on April 12, 2012. |
Annual compensation items correspond to a Director Year, and non-employee directors who are elected during a Director Year are entitled to pro-rated annual compensation based on the period remaining in the Director Year of election. The annual grant of stock options and stock units is made on the date of each annual meeting of stockholders to the non-employee directors serving on the Board on that date. A non-employee director who is elected during a Director Year receives a pro-rated grant of stock options and stock units on the date of the director’s first day of service on the Board. |
• Annual Retainer: | $80,000 |
• Annual Grant of Stock Options and Stock Units: | Each valued at $67,500 on the date of grant |
• Annual Board Committee Chair Retainers: | $25,000 (Audit Committee) |
$18,000 (Compensation Committee) | |
$10,000 (Nominating/Governance Committee) | |
• Annual Board Committee Member Retainers: | $10,000 (Audit Committee) |
$7,000 (Compensation Committee) | |
$5,000 (Nominating/Governance Committee) | |
Name | Fees Earned or Paid in Cash ($)(a) | Stock Awards ($)(b) | Option Awards ($)(b) | All Other Compensation ($)(c) | Total ($) | |||||||||
Ms. Alexander | $ | 91,374 | $ | 67,500 | $ | 67,500 | $ — | $ | 226,374 | |||||
Mr. Bollenbach | 304,240 | 147,500 | 67,500 | — | 519,240 | |||||||||
Mr. Finchem | 8,937 | 159,500 | 67,500 | 16,390 | 252,327 | |||||||||
Dr. Gilligan | 45,256 | 50,625 | 50,625 | — | 146,506 | |||||||||
Mr. Jastrow | 97,882 | 67,500 | 67,500 | — | 232,882 | |||||||||
Mr. Johnson | 85,643 | 72,500 | 67,500 | — | 225,643 | |||||||||
Ms. Lora | 10,548 | 177,500 | 67,500 | 9,960 | 265,508 | |||||||||
Mr. McCaffery | 7,371 | 165,500 | 67,500 | — | 240,371 | |||||||||
Mr. Nogales | 107,863 | 67,500 | 67,500 | — | 242,863 |
(a) | Fees Earned or Paid in Cash. These amounts represent the total stock unit dividend equivalent payments made during our 2012 fiscal year and payments of annual and Committee-related retainers based on the elections of non-employee directors to receive such retainers in cash rather than in Director Plan stock units. Non-employee directors with larger stock unit holdings based on their tenure and compensation elections received greater dividend equivalent payments. The amount shown for Mr. Bollenbach also includes his Non-Executive Chairman of the Board retainer. |
(b) | Stock Awards and Option Awards. These amounts represent the aggregate grant-date fair value of the Director Plan stock unit and stock option awards granted to our non-employee directors during our 2012 fiscal year, computed in accordance with Accounting Standards Codification Topic No. 718, “Compensation – Stock Compensation” (“ASC 718”). Dr. Gilligan was granted a pro-rated amount of stock units and stock options on the date of his election to the Board. Below are the amounts of Director Plan stock options and stock units granted to each non-employee director during our 2012 fiscal year based on each director’s compensation elections and Board Committee service. |
Name | Stock Units (#) | Stock Options (#) | ||
Ms. Alexander | 7,978 | 16,458 | ||
Mr. Bollenbach | 17,434 | 16,458 | ||
Mr. Finchem | 18,852 | 16,458 | ||
Dr. Gilligan | 5,118 | 10,491 | ||
Mr. Jastrow | 7,978 | 16,458 | ||
Mr. Johnson | 8,569 | 16,458 | ||
Ms. Lora | 20,980 | 16,458 | ||
Mr. McCaffery | 19,561 | 16,458 | ||
Mr. Nogales | 7,978 | 16,458 |
Name | Stock Units (#) | Stock Options (#) | Total Holdings (#) | |||
Ms. Alexander | 11,029 | 37,563 | 48,592 | |||
Mr. Bollenbach | 38,760 | 127,705 | 166,465 | |||
Mr. Finchem | 73,569 | 38,952 | 112,521 | |||
Dr. Gilligan | 5,118 | 10,491 | 15,609 | |||
Mr. Jastrow | 67,446 | 38,952 | 106,398 | |||
Mr. Johnson | 26,752 | 76,945 | 103,697 | |||
Ms. Lora | 86,251 | 50,172 | 136,423 | |||
Mr. McCaffery | 62,501 | 152,954 | 215,455 | |||
Mr. Nogales | 80,040 | 41,082 | 121,122 |
(c) | All Other Compensation. These amounts represent the premium payments we paid for the life insurance policies we maintain to fund charitable donations under the Directors’ Legacy Program, which is described below. In our 2012 fiscal year, we paid a total of $42,739 in life insurance premiums, including for policies maintained with respect to participants who are former directors. Some of the life insurance policies we maintain for the program did not require premium payments to be made in our 2012 fiscal year. Premium payments, where required, vary depending on participants’ respective ages and other factors. The total dollar amount payable under the program at November 30, 2012, with all participating directors having vested in the full donation amount, was $15.6 million. |
Election of Directors |
Barbara T. Alexander, age 64, has been an independent consultant since January 2004. Prior to that, she was a Senior Advisor to UBS Warburg LLC and predecessor firms from October 1999 to January 2004, and Managing Director of the North American Construction and Furnishings Group in the Corporate Finance Department of UBS from 1992 to October 1999. Ms. Alexander serves as a director of Allied World Assurance Company Holdings, AG, Choice Hotels International, Inc. and QUALCOMM Incorporated. Ms. Alexander previously served as a director of Centex Corporation, Federal Home Loan Mortgage Corporation (Freddie Mac), and Harrah’s Entertainment Inc. Ms. Alexander was selected as one of seven Outstanding Directors in Corporate America in 2003 by Board Alert magazine and was one of five Director of the Year honorees in 2008 by the Forum for Corporate Directors. Notably, she was also one of only three directors of Freddie Mac who were asked to remain on its board after the company was placed into federal conservatorship in 2008 and served as chair of the board’s business and risk committee from December 2008 until the expiration of her term in March 2010. Ms. Alexander joined the Board in 2010. Having served as a director for several public companies, Ms. Alexander has a thorough understanding of and experience with corporate and board functions and processes. She also has extensive and extremely valuable professional experience in financial, operational and strategic planning matters relating to the homebuilding and mortgage banking industries from, among other positions, her decade-long service on the board of Centex, a public homebuilder, and her six years of service as a director of Freddie Mac. | ||
Stephen F. Bollenbach, age 70, is our Non-Executive Chairman of the Board. He was the Co-Chairman and Chief Executive Officer of Hilton Hotels Corporation, a hotel developer and operator, positions he held from May 2004 and February 1996, respectively. He retired from Hilton in October of 2007. Prior to joining Hilton, Mr. Bollenbach was Senior Executive Vice President and Chief Financial Officer for The Walt Disney Company from 1995 to 1996. Before Disney, Mr. Bollenbach was President and Chief Executive Officer of Host Marriott Corporation from 1993 to 1995, and served as Chief Financial Officer of Marriott Corporation from 1992 to 1993. From 1990 to 1992, Mr. Bollenbach was Chief Financial Officer of the Trump Organization. Mr. Bollenbach serves as a director of Time Warner Inc., Macy’s, Inc. and Mondelēz International, Inc. He previously served as a director of American International Group Inc., and Harrah’s Entertainment, Inc. Mr. Bollenbach joined the Board in 2007 and has since served as its Non-Executive Chairman. Mr. Bollenbach has several years of experience and expertise as a senior corporate executive and public company board member, including as a lead independent director, and has demonstrated exemplary leadership as Non-Executive Chairman of the Board. | ||
Timothy W. Finchem, age 65, has been Commissioner of the PGA TOUR, a membership organization for professional golfers, since 1994. He joined the TOUR staff as Vice President of Business Affairs in 1987, and was promoted to Deputy Commissioner and Chief Operating Officer in 1989. Mr. Finchem served in the White House as Deputy Advisor to the President in the Office of Economic Affairs in 1978 and 1979, and in the early 1980’s, co-founded the National Marketing and Strategies Group in Washington, D.C. He joined the Board in 2005. 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. Thomas W. Gilligan, age 58, has served as the Dean of the McCombs School of Business at The University of Texas at Austin since 2008. Prior to his appointment at the McCombs School of Business, Dr. Gilligan held several key administrative roles at the Marshall School of Business at the University of Southern California (USC), including as interim Dean, as the Vice-Dean of Undergraduate Education, as director of the Ph.D. program, and as the Chair of the Finance and Business Economics Department. Dr. Gilligan holds the Centennial Chair in Business Education Leadership. He received his B.A. in 1979 at the University of Oklahoma and his Ph.D. in Economics at Washington University in 1984. He taught Economics at the California Institute of Technology (1984-1987) and during his tenure at USC he held visiting appointments at Stanford University (1989-1990 and 1994) and Northwestern University (1995-1996). He has served as a consultant to businesses in the entertainment, agriculture, service and construction industries, dealing with antitrust and contract issues, as well as pricing strategies. He was the recipient of a National Fellowship at the Hoover Institution of War and Peace and was a staff economist at the Council of Economic Advisers in the White House (1982-1983). He also served in the United States Air Force from 1972-1976. 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. In addition, he is well-known and highly regarded, professionally and personally, in both Texas and Southern California, which are key markets for us. | ||
Kenneth M. Jastrow, II, age 65, is Non-Executive Chairman, Forestar Group Inc., a real estate and natural resources company. He served as Chairman and Chief Executive Officer of Temple-Inland Inc., a manufacturing company and the former parent of Forestar Group, from 2000 to 2007. Prior to that, Mr. Jastrow served as President and Chief Operating Officer in 1998 and 1999, Group Vice President from 1995 until 1998, and as Chief Financial Officer of Temple-Inland from November 1991 until 1999. Mr. Jastrow is also a director of MGIC Investment Corporation and Genesis Energy, LLC, the general partner of Genesis Energy, L.P., a publicly traded master limited partnership. He previously served as a director of Guaranty Financial Group Inc. He joined our Board in 2001. Mr. Jastrow has several years of experience and leadership in the paper, building products, forestry, real estate and mortgage lending industries, providing critical perspective in businesses that impact the homebuilding industry, and on sustainability practices. He also brings a significant knowledge of corporate governance matters from his service on a number of public company boards, and has a substantial presence in Texas, a key market for us. | ||
Robert L. Johnson, age 66, 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, real estate, hospitality, professional sports, film production, gaming, and automobile dealership industries. Prior to forming The RLJ Companies, Mr. Johnson was founder and chief executive officer of Black Entertainment Television (BET), which was acquired by Viacom Inc. in 2001. He continued to serve as chief executive officer of BET until 2006. In July 2007, Mr. Johnson was named by USA Today as one of the 25 most influential business leaders of the past 25 years. Mr. Johnson currently serves on the board of directors or trustees of the Lowe’s Companies, Inc., RLJ Entertainment, Inc., RLJ Lodging Trust, and Strayer Education, Inc. He previously served as a director of RLJ Acquisition, Inc. He joined the Board in 2008. 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. He also has a substantial presence in Washington D.C. and the mid-Atlantic region, which is an important market for us. | ||
Melissa Lora, age 50, is the Chief Financial and Development Officer of Taco Bell Corp., a quick service restaurant chain. Ms. Lora joined Taco Bell Corp. in 1987 and since 2001 has served as Chief Financial Officer. Prior to that, she was Regional Vice President and General Manager from 1998 to 2000 for Taco Bell’s operations throughout the Northeastern United States. She joined the Board in 2004. 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. | ||
Michael G. McCaffery, age 59, is the Chief Executive Officer of Makena Capital Management, an investment management firm. From 2000 to 2006, Mr. McCaffery was President and CEO of the Stanford Management Company (SMC), which was established in 1991 to manage Stanford University’s financial and real estate investments. Previous to joining SMC, Mr. McCaffery was President and Chief Executive Officer of Robertson Stephens Investment Bankers from January 1993 to December 1999, and also served as Chairman from January 2000 to December 2000. He previously served as a director of Thomas Weisel Partners Group, Inc., Venture Lending & Leasing V Inc. and Venture Lending & Leasing IV Inc., and as a trustee of RS Investment Trust. He joined the Board in 2003. Mr. McCaffery has a broad array of business, investment and real estate experience and recognized expertise in financial matters, as well as a demonstrated commitment to good corporate governance. | ||
Jeffrey T. Mezger, age 57, has been our President and Chief Executive Officer since November 2006. 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. He joined the Board in 2006. He is a member of the Executive Board of the USC Lusk Center for Real Estate, is a member of the Policy Advisory Board for the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley Haas School of Business, serves on the Executive Committee of the Policy Advisory Board for the Harvard Joint Center for Housing Studies and is the Chairman of the Executive Committee for the Leading Builders of America. As our CEO, Mr. Mezger has demonstrated dedicated and effective leadership, and ownership of our business strategy and its results. He has also established himself as a leading voice in the industry through his 35 years of experience in the public homebuilding sector. | ||
Luis G. Nogales, age 69, has been the Managing Partner of Nogales Investors, LLC, a private equity investment firm, since 2001. He was Chairman and Chief Executive Officer of Embarcadero Media, Inc. from 1992 to 1997, President of Univision Communications, Inc., from 1986 to 1988, and Chairman and Chief Executive Officer of United Press International from 1983 to 1986. He is a director or trustee of Southern California Edison Co., Edison International, Arbitron Inc. and Cedars-Sinai Medical Center. He joined the Board in 1995. He previously served as a director or trustee of Golden West Broadcasters, Levi Strauss & Co., Lucky Stores, The Bank of California, Coors Brewing Company, Kaufman & Broad S.A. (France), Stanford University, The Ford Foundation, U.S. World Cup Soccer Committee, the Mayo Clinic Trust, and the Pacific Council on International Policy. Mr. Nogales has substantial depth of experience in media and marketing enterprises and with business operations management and financial investments drawn from a diverse background and involvement in an array of industries. His long-time service on the Board has provided critical knowledge of our operations and corporate history. |
Ownership of KB Home Securities |
Non-Employee Directors | Amount and Nature of Beneficial Ownership(a - e) | Percent of Class | ||
Ms. Alexander | 26,000 | * | ||
Mr. Bollenbach | — | * | ||
Mr. Finchem | — | * | ||
Dr. Gilligan | — | * | ||
Mr. Jastrow | — | * | ||
Mr. Johnson | — | * | ||
Ms. Lora | 2,043 | * | ||
Mr. McCaffery | — | * | ||
Mr. Nogales | 7,400 | * | ||
Named Executive Officers | ||||
Jeffrey T. Mezger | 4,402,509 | 4.48 | % | |
Jeff J. Kaminski | 171,485 | * | ||
Albert Z. Praw | 99,112 | * | ||
Brian J. Woram | 208,266 | * | ||
William R. Hollinger | 544,082 | * | ||
All directors and executive officers as a group (16 people) | 5,642,628 | 5.69 | % |
(a) | In addition to the common stock ownership shown in the above table, our non-employee directors hold Director Plan stock units, which have a value equivalent to the value of a share of our common stock, as discussed above under the heading “Director Compensation.” Their respective holdings are as follows: |
Name | Stock Units(#) | |
Ms. Alexander | 11,029 | |
Mr. Bollenbach | 38,760 | |
Mr. Finchem | 73,569 | |
Dr. Gilligan | 5,118 | |
Mr. Jastrow | 67,446 | |
Mr. Johnson | 26,752 | |
Ms. Lora | 86,251 | |
Mr. McCaffery | 62,501 | |
Mr. Nogales | 80,040 |
(b) | Included are the following shares of common stock that can be acquired within 60 days of February 14, 2013 through the exercise of stock options: Mr. Mezger 4,026,116; Mr. Kaminski 150,345; Mr. Praw 56,000; Mr. Woram 167,019; and Mr. Hollinger 446,316; and all current executive officers as a group 4,880,269. |
(c) | Included are shares of restricted common stock in the following amounts: Mr. Mezger 0; Mr. Kaminski 21,140; Mr. Praw 14,479; Mr. Woram 26,247; and Mr. Hollinger 7,702; and all current executive officers as a group 81,274. |
(d) | Ms. Alexander holds 26,000 shares of our common stock in a trust in which she and her spouse are trustees and sole beneficiaries and over which they jointly exercise voting and investment power. |
(e) | Ms. Lora holds 2,043 shares of our common stock in a trust in which she and her spouse are trustees and sole beneficiaries and over which they jointly exercise voting and investment power. |
* | Indicates less than one percent ownership. |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | ||
BlackRock, Inc., et al.(a) | 9,412,634 | 12.20%(b) | ||
40 East 52nd Street, New York, NY 10022 | ||||
FMR LLC and Edward C. Johnson 3d(c) | 9,796,208 | 12.70%(b) | ||
82 Devonshire Street, Boston, Massachusetts 02109 | ||||
KB Home Grantor Stock Ownership Trust(d) | 10,615,934 | 11.27 | % | |
Wells Fargo Institutional Retirement and Trust Executive Benefits | ||||
One West Fourth Street, Winston-Salem, North Carolina 27101 | ||||
The Vanguard Group, Inc.(e) | 3,933,494 | 5.09%(b) | ||
100 Vanguard Blvd., Malvern, PA 19355 |
(a) | The stock holding information is based solely on an amendment to Schedule 13G dated January 9, 2013 that BlackRock, Inc., a parent holding company, filed with the SEC to report its beneficial ownership as of December 31, 2012. Of the amount reported as beneficially owned, BlackRock, Inc. subsidiaries, collectively, had sole voting power as to 9,412,634 shares of our common stock and had sole dispositive power as to 9,412,634 shares, and one such subsidiary, BlackRock Advisors, LLC, beneficially owned more than 5% of our outstanding common stock. |
(b) | The percent of class figures are from the respective Schedule 13G filings by BlackRock, Inc., FMR LLC and Edward C. Johnson 3d, and The Vanguard Group, Inc., and reflect the filers’ respective determinations as of December 31, 2012. |
(c) | The stock holding information is based solely on an amendment to Schedule 13G dated February 13, 2013 that FMR LLC, a parent holding company, filed with the SEC to report the beneficial ownership of FMR LLC and Mr. Edward C. Johnson 3d, FMR LLC’s chairman, at December 31, 2012. Of the amount reported as beneficially owned, Fidelity Management & Research Company (“Fidelity”), an investment advisor to various investment companies and a wholly-owned subsidiary of FMR LLC, beneficially owns 9,787,908 shares of our common stock. Each of Edward C. Johnson 3d and FMR LLC, through its control of Fidelity and the various investment companies, has sole power to dispose of the 9,787,908 shares. Neither FMR LLC nor Edward C. Johnson 3d has the sole power to vote or to direct the voting of these shares. Fidelity carries out the voting of these shares under written guidelines established by such investment companies’ Boards of Trustees. Pyramis Global Advisors Trust Company (“Pyramis”), an indirect wholly-owned subsidiary of FMR LLC and a bank, is the beneficial owner of 8,300 shares as a result of its serving as investment manager of institutional accounts owning such shares. Edward C. Johnson 3d and FMR LLC, through its control of Pyramis, each has sole dispositive power over, and sole power to vote or to direct the voting of, the 8,300 shares. |
(d) | The GSOT holds all of the shares of our common stock shown above 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 reported. Under the trust agreement, our employees who hold unexercised common stock options under our employee equity compensation plans will determine how the GSOT shares are voted. The number of GSOT shares as to which any one employee can direct the vote 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 699,565; Mr. Praw 378,909; Mr. Woram 754,245; and Mr. Hollinger 1,229,793; and all current executive officers as a group (excluding Mr. Mezger) 3,656,310. |
(e) | The stock holding information is based solely on a Schedule 13G dated February 7, 2013 that The Vanguard Group, Inc., an investment advisor to various investment companies, filed with the SEC to report its beneficial ownership as of December 31, 2012. Of the amount reported as beneficially owned, The Vanguard Group, Inc. had sole voting power as to 118,186 shares of our common stock, had sole dispositive power as to 3,818,508 shares, and had shared dispositive power as to 114,986 shares. Vanguard Fiduciary Trust Company and Vanguard Investments Australia, Ltd., each wholly-owned subsidiaries of The Vanguard Group, Inc., beneficially own 114,986 shares of our common stock and 3,200 shares of our common stock, respectively. |
Executive Compensation |
Michael G. McCaffery, Chair | Stephen F. Bollenbach | |
Timothy W. Finchem | Luis G. Nogales |
Compensation Discussion and Analysis |
Adoption of Expanded Guidelines for 2012 Annual Incentive Payouts | ||
In response to our dialogue with stockholders, before the 2012 Annual Meeting, the Compensation Committee voluntarily adopted guidelines for 2012 annual incentive payouts (the “Guidelines”), as discussed below under the heading “2012 Annual Incentives.” The Guidelines clarified and refined the performance-based manner in which the Compensation Committee would exercise its negative discretion to reduce, but not increase, payouts. • Guidelines. The Guidelines were as follows: • For our NEOs to qualify to receive a potential maximum annual incentive payout, we had to achieve at least threshold performance on all three of the applicable measures under the 2012 annual incentive program. Under the original terms of the 2012 program before the Guidelines were adopted, we had to achieve threshold performance on just one measure. • For each threshold performance goal not met, each NEO’s potential maximum payout would be reduced by one-third. If we did not achieve threshold performance on any of the measures, our NEOs would not have received any payouts. • Each NEO’s potential maximum payout would be reduced if our 2012 fiscal year total stockholder return and/or our year-over-year percentage point improvement in our operating margin in 2012 were not in each case in the top quartile relative to our peer group. • The Compensation Committee could apply additional discretion in its business judgment to reduce NEO 2012 annual incentive payouts beyond the reductions described above. • Performance Measure Results. We exceeded threshold performance and, in fact, performed at approximately target levels on each of the three applicable measures. • We delivered 6,282 homes, compared to a target goal of 6,000; posted an applicable pretax loss of $50.5 million, compared to a target goal of $50.0 million; and achieved selling, general and administrative expenses as a percentage of housing revenues of 16.2%, compared to a target goal of 16.0%. • Relative Performance Factor Results. Our relative operating margin improvement was in the second quartile (e.g., between median and the 75th percentile), and our relative total stockholder return was in the third quartile (e.g., between the 25th percentile and median). Therefore, these relative performance outcomes resulted in a 15% reduction from each NEO’s potential maximum payout. • 2012 Annual Incentive Payout Outcomes. Applying the Guidelines based on the above-described performance results, and applying additional discretion to reduce payouts as deemed appropriate, the Compensation Committee and the Board approved a 2012 annual incentive payout to our CEO that was 25% of his potential maximum amount and 45% of his target amount, and payouts to our other NEOs that, in aggregate, were 41% of their potential maximum amounts and 83% of their target amounts, in each case relative to the original terms of the 2012 program. |
Greater Use of Performance-Based Long-Term Incentives | ||
The performance-based long-term incentives granted to our NEOs in 2012 require that we achieve a balanced set of absolute and relative performance goals to vest, as discussed below under the heading “Long-Term Incentives.” The applicable performance measures — return on equity, revenue growth, operating income and operating margin — were selected based on their relationship to our primary goal of achieving profitability. They also have historically shown a positive correlation with stockholder return for public homebuilding companies. • Grants to the CEO. 100% of the CEO’s grants were comprised of performance-based incentives — performance-based restricted stock units and performance cash. The solely performance-based grant reflects an increased emphasis by the Compensation Committee to use performance-based long-term incentives as compared to 2011, in which 63% of the grant-date fair value of our CEO’s long-term incentives was comprised of performance-based options and cash. • Grants to the Other NEOs. Approximately 70% of the grants to the other NEOs were comprised of the same performance-based incentives granted to our CEO, and the remaining portion consisted of time-vested restricted stock. By comparison, in 2011, approximately 44% of the grant-date fair value of the other NEOs’ long-term incentives consisted of performance-based vehicles. |
The 2013 Annual Incentive Program Is More Structured and Reduces CEO Target and Maximum Payouts | ||
• Two financial performance measures determine 80% of the annual incentive payout opportunity for each NEO. The financial performance measures have threshold, target and maximum payout opportunities directly scaled to threshold, target and maximum performance goals. Threshold performance levels are designed to be reasonably achievable, yet uncertain to be met under current and expected market conditions. Target performance levels are designed to require strong management effort to achieve. Maximum performance levels are designed to be difficult to achieve. • A strategic operational performance component determines the remaining 20% of each NEO’s payout opportunity, and will be based on a performance determination by the Compensation Committee that will take into account multiple operational items and individual executive performance. • The target payout level for our CEO is reduced to 150% of his base salary; it was 275% under the original terms of the 2012 program. For our other NEOs, target levels remain at 80% to 100% of base salary. In addition, maximum payout levels are capped at 2.0 times target level. For our CEO, this cap equates to 3.0 times his current base salary, as compared to 5.0 times his base salary under the original terms of the 2012 program. • The Compensation Committee retains the ability to exercise discretion in its business judgment to reduce, but not increase, the largely formula-driven payout results under the performance measures to balance and/or contain payouts as it deems appropriate. |
• Limited Perquisites. We have cut substantially all perquisites for our NEOs and senior executives. Perquisites are limited to relocation assistance to recruit certain new hires, market-competitive supplemental medical and deferred compensation programs and certain death-related benefits, and, for a very few current senior executives, participation in a retirement plan that was closed in 2004. In 2007, we ceased providing personal automobile allowances, as well as reimbursements for automobile fuel cards and insurance, tax preparation and financial/estate planning services. | • No New Tax “Gross-Up” Benefits. In 2011, our Board approved a policy that no officer or employee who is hired or is promoted after April 7, 2011 will receive the tax “gross-up” payment benefit (the “Gross-Up Payment”) under our 2001 Change in Control Severance Plan (the “CIC Plan”) in connection with such hiring or promotion. Consistent with this policy, since April 7, 2011 we have not extended the Gross-Up Payment benefit to any newly hired or promoted officers or employees who would have been eligible to receive the benefit under the terms of the CIC Plan, or to any other officer or employee. | |
• Prohibition on Hedging/Pledging of KB Home Securities. Our senior executives are prohibited from engaging in short sales of our securities and from buying or selling puts or calls on, or any other financial instruments that are designed to hedge or offset decreases or increases in the value of, our securities (including without limitation derivatives, prepaid variable forward contracts, equity swaps, collars and exchange funds). | • Compensation Clawbacks. Under his Employment Agreement, our CEO is required to repay certain compensation he receives if we are required to restate our financial results due to his misconduct, consistent with the Sarbanes-Oxley Act of 2002. In addition, we will recoup incentive-based compensation to the extent required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) and any rules, regulations and listing standards issued under that act. | |
• Severance Pay Limits. In considering our stockholders’ approval of an advisory proposal, in 2008 we adopted a policy under which we will obtain stockholder approval before paying severance benefits to an executive officer above 2.99 times the sum of the executive officer’s then-current base salary and target bonus under any severance arrangement made or materially changed after the policy was adopted. | • Equity-Based Award Grant Policy. Since 2007, all grants of equity-based compensation are subject to our equity-based award grant policy, which sets strict requirements as to the timing and manner in which equity-based awards are made, as well as certain internal controls over the grants of such awards. The policy is discussed below under the heading “Equity-Based Award Grant Policy.” | |
• Stock Ownership Requirement. Our senior executives must comply with stock ownership requirements throughout the period of their employment with us. |
Metric | 2012 Result | 2011 Result | Improvement | ||||||||||
Total revenues | $ | 1,560,115 | $ | 1,315,866 | 19 | % | |||||||
Operating income (loss), ex. inventory impairments and abandonments* | $ | 16,969 | $ | (70,491 | ) | — | % | ||||||
Pretax loss, ex. inventory and joint venture impairments and abandonments* | $ | (50,520 | ) | $ | (101,650 | ) | 50 | % | |||||
Selling, general and administrative expenses as a percentage of housing revenues | 16.2 | % | 19.0 | % | 280 | bps | |||||||
Operating margin, ex. inventory impairments and abandonments* | 1.1 | % | (5.4 | ) | % | 650 | bps | ||||||
Homes delivered | 6,282 | 5,812 | 8 | % | |||||||||
Overall average selling price | $ | 246,500 | $ | 224,600 | 10 | % | |||||||
Net order value | $ | 1,733,146 | $ | 1,511,654 | 15 | % | |||||||
Ending backlog - value | $ | 618,626 | $ | 458,950 | 35 | % |
CEO Total Direct Compensation (2012 vs. 2011) | ||||||||||||||||||||
Year | Base Salary(a) | Annual Incentives(b) | Long-Term Incentives(c) | Total Direct Compensation | ||||||||||||||||
2012 | $ | 1,000,000 | $ | 1,250,000 | $ | 2,475,000 | $ | 4,725,000 | ||||||||||||
2011 | $ | 1,000,000 | $ | 1,950,000 | $ | 1,779,331 | $ | 4,729,331 | ||||||||||||
Variance (%) | — | % | (36 | ) | % | 39 | % | — | % |
2012 Annual Incentive Program Performance Measures and Goals | ||||
Performance Measures | Performance Goals | |||
Threshold | Target | Maximum | ||
Pretax results, ex. inventory impairments/other non-recurring extraordinary items | ($100 million) | ($50 million) | Break-even | |
Homes delivered | 5,000 | 6,000 | 7,000 | |
Selling, general and administrative expenses as a percentage of housing revenues | 17.0% | 16.0% | 15.0% |
Relative Performance Reduction on Annual Incentive Payouts (%) | |||||
Relative Operating Margin Improvement | |||||
Top Quartile | Second Quartile | Third Quartile | Bottom Quartile | ||
Relative TSR Performance | Top Quartile | 0% | 5% | 10% | 15% |
Second Quartile | 5% | 10% | 15% | 20% | |
Third Quartile | 10% | 15% | 20% | 25% | |
Bottom Quartile | 15% | 20% | 25% | 30% |
NEO | 2012 NEO Performance Contributions |
Mr. Mezger | Provided essential leadership that was critical to our achieving 2012 results, including 19% revenue growth, a 35% increase in backlog value, and substantial improvement in pretax income; effectively implemented and executed long-term strategic initiatives to position our business for profitability; and enhanced the KB Home brand and our competitive differentiation by driving our ongoing commitment to be a leading national company in environmental sustainability. |
Mr. Kaminski | Developed a capital structure strategy that successfully ensures liquidity to support our growth plans and business needs and addresses $1 billion of near-term debt maturities; and effectively led our financial planning process. |
Mr. Praw | Played an integral role in developing strategies to leverage existing land assets, and successfully drove our investment and strategic growth initiatives. |
Mr. Woram | Provided strong oversight to our legal team, and was instrumental in our realizing legal and insurance recoveries and resolving a number of significant litigation matters. |
Mr. Hollinger | Provided critical leadership and oversight of our accounting and financial reporting processes, and was central to our efforts to reduce overhead and improve the profitability of our business. |
2012 Annual Incentive Program Payout Levels and Actual Awards | ||||||||||||
NEO | Threshold | Target | Maximum | Actual | ||||||||
Mr. Mezger | $ | 687,500 | $ | 2,750,000 | $ | 5,000,000 | $ | 1,250,000 | ||||
Mr. Kaminski | 137,500 | 550,000 | 1,100,000 | 450,000 | ||||||||
Mr. Praw | 125,000 | 500,000 | 1,000,000 | 400,000 | ||||||||
Mr. Woram | 131,250 | 525,000 | 1,050,000 | 400,000 | ||||||||
Mr. Hollinger | 73,750 | 295,000 | 590,000 | 300,000 |
NEO Long-Term Incentives Granted in 2012 | ||||||||
NEO | PSUs (#) | Restricted Stock (#) | Performance Cash* ($) | |||||
Mr. Mezger | 152,495 | — | $ | 1,000,000 | ||||
Mr. Kaminski | 17,868 | 14,479 | 300,000 | |||||
Mr. Praw | 16,636 | 14,479 | 270,000 | |||||
Mr. Woram | 16,636 | 14,479 | 270,000 | |||||
Mr. Hollinger | 9,242 | 7,702 | 150,000 |
Performance Measure | Performance | Target Award Multiplier |
Average Return on Equity | 15% | 200% |
10% | 100% | |
5% | 25% | |
Below 5% | 0% | |
Relative Revenue Growth (Adjustments to ranking levels and multipliers will be made if there are changes in the peer group size over time) | Rank | Target Award Multiplier |
First or Second | 200% | |
3 | 180% | |
5 | 140% | |
7 | 100% | |
9 | 60% | |
11 | 20% | |
Bottom 2 | 0% |
Our Peer Group | ||
• Beazer Homes • Lennar Corporation • Meritage Homes Corp. • Ryland Group | • DR Horton • MDC Holdings • NVR Incorporated • Standard Pacific | • Hovnanian Enterprises • M/I Homes • PulteGroup, Inc. • Toll Brothers |
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 President and Chief Executive Officer | 2012 | $ | 1,000,000 | $ | — | $ | 2,475,000 | $ | — | $ | 1,250,000 | $ | 800,763 | $ | 66,859 | $ | 5,592,622 | ||||||||
2011 | 1,000,000 | — | — | 1,779,331 | 1,950,000 | 1,153,277 | 63,671 | 5,946,279 | |||||||||||||||||
2010 | 1,000,000 | — | — | 2,295,750 | 2,750,000 | 618,113 | 66,518 | 6,730,381 | |||||||||||||||||
Jeff J. Kaminski Executive Vice President and Chief Financial Officer | 2012 | 550,000 | — | 525,000 | — | 450,000 | — | 41,469 | 1,566,469 | ||||||||||||||||
2011 | 550,000 | — | — | 317,738 | 400,000 | — | 117,607 | 1,385,345 | |||||||||||||||||
2010 | 266,891 | — | 75,000 | 766,797 | 360,000 | — | 51,670 | 1,520,358 | |||||||||||||||||
Albert Z. Praw Executive Vice President, Real Estate and Business Development | 2012 | 500,000 | — | 505,000 | — | 400,000 | — | 9,890 | 1,414,890 | ||||||||||||||||
2011 | 125,000 | — | — | 381,285 | 100,000 | — | 684,953 | 1,291,238 | |||||||||||||||||
Brian J. Woram Executive Vice President and General Counsel | 2012 | 525,000 | — | 505,000 | — | 400,000 | — | 35,577 | 1,465,577 | ||||||||||||||||
2011 | 525,000 | — | — | 305,028 | 375,000 | — | 65,823 | 1,270,851 | |||||||||||||||||
2010 | 202,933 | 751,971 | 132,500 | 907,157 | — | — | 79,262 | 2,073,823 | |||||||||||||||||
William R. Hollinger Senior Vice President and Chief Accounting Officer | 2012 | 365,000 | — | 275,000 | — | 300,000 | 187,232 | 30,327 | 1,157,559 | ||||||||||||||||
2011 | 365,000 | — | — | 152,514 | 300,000 | 261,360 | 28,346 | 1,107,220 | |||||||||||||||||
2010 | 365,000 | — | — | 275,490 | 350,000 | 139,956 | 28,946 | 1,159,392 |
(a) | Salary. 2010 salaries for Messrs. Kaminski and Woram reflect pro-rated amounts, as each joined us during that year. Mr. Praw’s 2011 salary reflects a pro-rated amount, as he re-joined us as a full-time employee during that year. |
(b) | Bonus. Mr. Woram received a hiring bonus when he joined us in 2010 and a guaranteed bonus for our 2010 fiscal year. |
(c) | Stock Awards and Option Awards. These amounts represent the aggregate grant-date fair value of stock awards (consisting of restricted stock and PSUs) and option awards (consisting of stock options) computed in accordance with ASC 718. They do not represent realized compensation. The 2012 stock awards represent the grant-date fair value of restricted stock and the target and probable award of shares of our common stock corresponding to the PSUs granted. The maximum number of shares of common stock that can be awarded through PSUs, assuming that the highest level of performance conditions will be achieved, is 200% of the target number of shares granted. |
(d) | Non-Equity Incentive Plan Compensation. These amounts are the annual incentive compensation payouts to the NEOs. |
(e) | Change in Pension Value and Nonqualified Deferred Compensation Earnings. These amounts do not represent realized compensation; rather, they represent an increase in the present value of accumulated benefits under our Retirement Plan based on an actuarial adjustment related to a decrease in the discount rate. Future changes in discount rates will result in a change in pension value. If the year-over-year discount rate increases, the present value of the Retirement Plan benefits will generally decrease. If the year-over-year discount rate decreases, the present value of the Retirement Plan benefits will generally increase. See below under the heading “Pension Benefits During Fiscal Year 2012.” We do not provide above-market or preferential earnings under our Deferred Compensation Plan. |
(f) | All Other Compensation. The amounts shown consist of the following items: |
• | Matching 401(k) Savings Plan and Supplemental Deferred Compensation Plan Contributions. We provide a dollar-for-dollar match of Deferred Compensation Plan and 401(k) Savings Plan contributions on up to an aggregate amount of 6% of a participant’s base salary. The respective aggregate 2012, 2011 and 2010 fiscal year matching contributions we made |
• | Premium Payments. We paid premiums on supplemental medical expense reimbursement plans and life insurance policies for the benefit of participating executives. These plans and policies are described above under the heading “Other Benefits.” The respective aggregate premiums we paid for our NEOs in our 2012, 2011 and 2010 fiscal years were as follows: Mr. Mezger $11,856, $8,971 and $11,818; Mr. Kaminski $10,426, $9,446 and $4,076; Mr. Praw $9,888, $1,620 and $0; Mr. Woram $10,426, $9,446 and $3,184; and Mr. Hollinger $7,241, $6,446 and $7,046. |
• | Relocation Assistance. In connection with Mr. Kaminski’s hiring and relocation from Detroit to Los Angeles in May 2010, and Mr. Woram’s hiring and relocation from Dallas to Los Angeles in July 2010, we agreed in each case to pay for certain relocation expenses, including temporary housing for up to six months, and for any personal income tax liability associated with such relocation-related payments. Under their respective arrangements, in our 2011 and 2010 fiscal years, Mr. Kaminski received $93,461 and $47,594, respectively, and Mr. Woram received $31,833 and $69,515, respectively. |
• | Consulting Arrangement. For the first nine months of our 2011 fiscal year, Mr. Praw served as an outside consultant and received a total of $683,333 during that time under his consulting arrangement with us. |
Name | Grant Date(a) | Type of Award | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(b) | |||||||||||
Threshold ($) | Target ($) | Maximum ($) | ||||||||||||||||
Mr. Mezger | 2/15/2012 | Annual Incentive | $ | 687,500 | $ | 2,750,000 | $ | 5,000,000 | ||||||||||
11/8/2012 | Performance Units (PSU) | 152,495 | $ | 2,475,000 | ||||||||||||||
11/8/2012 | Performance Cash(c) | 300,000 | 1,000,000 | 3,000,000 | ||||||||||||||
Mr. Kaminski | 2/15/2012 | Annual Incentive | 137,500 | 550,000 | 1,100,000 | |||||||||||||
11/8/2012 | Performance Units (PSU) | 17,868 | 290,000 | |||||||||||||||
11/8/2012 | Restricted Stock | 14,479 | 235,000 | |||||||||||||||
11/8/2012 | Performance Cash(c) | 90,000 | 300,000 | 900,000 | ||||||||||||||
Mr. Praw | 2/15/2012 | Annual Incentive | 125,000 | 500,000 | 1,000,000 | |||||||||||||
11/8/2012 | Performance Units (PSU) | 16,636 | 270,000 | |||||||||||||||
11/8/2012 | Restricted Stock | 14,479 | 235,000 | |||||||||||||||
11/8/2012 | Performance Cash(c) | 81,000 | 270,000 | 810,000 | ||||||||||||||
Mr. Woram | 2/15/2012 | Annual Incentive | 131,250 | 525,000 | 1,050,000 | |||||||||||||
11/8/2012 | Performance Units (PSU) | 16,636 | 270,000 | |||||||||||||||
11/8/2012 | Restricted Stock | 14,479 | 235,000 | |||||||||||||||
11/8/2012 | Performance Cash(c) | 81,000 | 270,000 | 810,000 | ||||||||||||||
Mr. Hollinger | 2/15/2012 | Annual Incentive | 73,750 | 295,000 | 590,000 | |||||||||||||
11/8/2012 | Performance Units (PSU) | 9,242 | 150,000 | |||||||||||||||
11/8/2012 | Restricted Stock | 7,702 | 125,000 | |||||||||||||||
11/8/2012 | Performance Cash(c) | 45,000 | 150,000 | 450,000 |
(a) | Grant Date. The date shown for each award is the date the Compensation Committee approved the award. |
(b) | Grant Date Fair Value of Stock and Option Awards. The grant-date fair value for each award is computed in accordance with ASC 718. |
(c) | The actual amount paid out under these performance cash awards may be more or less than the target amount depending on our annual operating income over a three-year period ending on November 30, 2015 relative to performance goals set by the Compensation Committee for each year of the three-year period. These awards are further described above under the heading “Performance Cash Awards.” |
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 ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(b) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(c) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(c) | ||||||||||||||||||
Mr. Mezger | 10/30/2001 | 431,122 | $ | 13.95 | 10/30/2016 | |||||||||||||||||||||
10/30/2001 | 68,878 | 13.95 | 10/30/2016 | |||||||||||||||||||||||
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 | (d) | 10/24/2018 | ||||||||||||||||||||||
10/24/2003 | 149,333 | 34.05 | (d) | 10/24/2018 | ||||||||||||||||||||||
10/22/2004 | 80,750 | 40.90 | 10/22/2019 | |||||||||||||||||||||||
10/22/2004 | 119,250 | 40.90 | 10/22/2019 | |||||||||||||||||||||||
10/18/2005 | 75,000 | 63.77 | 10/18/2015 | |||||||||||||||||||||||
7/12/2007 | 325,050 | 36.19 | 11/30/2016 | (e) | ||||||||||||||||||||||
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 | 160,000 | 80,000 | 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 | 111,667 | 223,333 | 6.32 | 10/6/2021 | ||||||||||||||||||||||
10/6/2011 | 365,000 | (g) | 6.32 | 10/6/2021 | ||||||||||||||||||||||
11/8/2012 | 152,495 | $ | 2,189,828 | |||||||||||||||||||||||
Mr. Kaminski | 7/15/2010 | 30,011 | 15,006 | 11.26 | 7/15/2020 | |||||||||||||||||||||
7/15/2010 | 6,661 | $ | 95,652 | |||||||||||||||||||||||
10/7/2010 | 78,667 | 39,333 | 11.06 | 10/7/2020 | ||||||||||||||||||||||
10/6/2011 | 41,667 | 83,333 | 6.32 | 10/6/2021 | ||||||||||||||||||||||
11/8/2012 | 14,479 | 207,918 | 17,868 | 256,584 | ||||||||||||||||||||||
Mr. Praw | 10/18/2005 | 6,000 | 63.77 | 10/18/2015 | ||||||||||||||||||||||
10/6/2011 | 50,000 | 100,000 | 6.32 | 10/6/2021 | ||||||||||||||||||||||
11/8/2012 | 14,479 | 207,918 | 16,636 | 238,893 | ||||||||||||||||||||||
Mr. Woram | 7/15/2010 | 53,019 | 26,510 | 11.26 | 7/15/2020 | |||||||||||||||||||||
7/15/2010 | 11,768 | 168,988 | ||||||||||||||||||||||||
10/7/2010 | 74,000 | 37,000 | 11.06 | 10/7/2020 | ||||||||||||||||||||||
10/6/2011 | 40,000 | 80,000 | 6.32 | 10/6/2021 | ||||||||||||||||||||||
11/8/2012 | 14,479 | 207,918 | 16,636 | 238,893 |
Mr. Hollinger | 7/1/2002 | 58,058 | $ | 26.29 | 7/1/2017 | |||||||||||||||||||||
10/7/2002 | 60,000 | 21.51 | 10/7/2017 | |||||||||||||||||||||||
10/24/2003 | 9,334 | 33.24 | (d) | 10/24/2018 | ||||||||||||||||||||||
10/24/2003 | 18,666 | 34.05 | (d) | 10/24/2018 | ||||||||||||||||||||||
10/22/2004 | 24,000 | 40.90 | 10/22/2019 | |||||||||||||||||||||||
10/18/2005 | 6,000 | 63.77 | 10/18/2015 | |||||||||||||||||||||||
10/1/2009 | 68,147 | 15.44 | 10/1/2019 | |||||||||||||||||||||||
8/13/2010 | 79,564 | 19.90 | 10/2/2018 | (f) | ||||||||||||||||||||||
10/7/2010 | 40,000 | 20,000 | 11.06 | 10/7/2020 | ||||||||||||||||||||||
11/9/2010 | 25,662 | 36.19 | 7/12/2017 | (f) | ||||||||||||||||||||||
11/9/2010 | 36,885 | 28.10 | 10/4/2017 | (f) | ||||||||||||||||||||||
10/6/2011 | 20,000 | 40,000 | 6.32 | 10/6/2021 | ||||||||||||||||||||||
11/8/2012 | 7,702 | $ | 110,601 | 9,242 | $ | 132,715 |
(a) | Number of Securities Underlying Unexercised Options-Unexercisable. Stock option awards generally vest in equal installment amounts over a three-year period. |
(b) | Market Value of Shares That Have Not Vested. The market value shown is based on the price of our common stock on November 30, 2012, which was $14.36. |
(c) | Equity Incentive Plan Awards: Number and Market Value of Unearned Units. The awards shown are the PSUs granted to our NEOs in 2012, reflecting target award amounts. The market value shown is based on the price of our common stock on November 30, 2012, which was $14.36. |
(d) | As a result of an internal review of our employee stock option grant practices in 2006, we adjusted the exercise prices of certain of our employee stock options in order to comply with Section 409A of the Code. The exercise price for a certain portion of the stock option grant made on October 24, 2003 was not adjusted. |
(e) | The expiration date for these stock options is set under Mr. Mezger’s Employment Agreement. |
(f) | Through participation in two exchange offers that we conducted in our 2010 fiscal year, these common stock options replaced cash-settled stock appreciation rights (“SARs”) that had been previously granted to the NEO as long-term incentives. Each common stock option has an exercise price equal to the replaced SAR’s exercise price, and the same number of underlying shares, vesting schedule and expiration date as each such SAR. The exchange offers did not include a re-pricing or any other changes impacting the value of the awards to the NEO, no additional grants or awards were made to the NEO, and the issuance of the common stock options did not result in any incremental fair value to the NEO. |
(g) | These are performance options that the Compensation Committee determined vested on January 24, 2013, and therefore one-third (or 121,667 options) of these options vested on that date. The remaining two-thirds (or 243,333 options) will vest ratably over the next two years on the anniversary of the October 6 grant date. |
Name | Option Awards | Stock Awards | ||||||||
Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#)(a) | Value Realized on Vesting ($)(b) | |||||||
Mr. Mezger | — | $ | — | — | $ | — | ||||
Mr. Kaminski | — | — | — | — | ||||||
Mr. Praw | — | — | — | — | ||||||
Mr. Woram | — | — | — | — | ||||||
Mr. Hollinger | — | — | 10,525 | 149,981 |
(a) | Number of Shares Acquired on Vesting. The shares reported in this column represent restricted stock that vested in our 2012 fiscal year. |
(b) | Value Realized on Vesting. The amount shown is the total gross dollar value realized upon the vesting of the restricted stock described above in footnote (a) to this table. Due to tax withholding obligations, however, Mr. Hollinger actually realized a lower total value. |
Name* | Plan Name | Number of Years Credited Service (#)(a) | Present Value of Accumulated Benefit ($)(b) | Payments During Last Fiscal Year ($) | ||||
Mr. Mezger | Retirement Plan | 19 | $ | 10,010,043 | $ | — | ||
Mr. Hollinger | Retirement Plan | 25 | 2,220,137 | — |
(a) | Number of Years of Credited Service. These are as of the valuation date. As of November 30, 2012, each participating NEO is fully vested in his respective Retirement Plan benefit. |
(b) | Present Value of Accumulated Benefit. These amounts represent the actuarial present value of the total retirement benefit that would be payable to each respective NEO under the Retirement Plan as of November 30, 2012. The following key actuarial assumptions and methodologies were used to calculate this present value: the base benefit for each participant is assumed to begin as of the earliest possible date for each participant (generally the later of age 55 or the tenth anniversary of the commencement of participation); the base benefit is adjusted by past and future cost of living adjustments including a 1.7% increase for the fiscal year ending November 30, 2013 and an assumed 2.5% increase thereafter, until the last benefits are paid for each participant. The discount rate used to calculate the present value of the accumulated benefit shown in table was 3.3%, reflecting a year-over-year reduction in prevailing market interest rates. The discount rate used for the 2011 calculation was 4.4%. The lower discount rate resulted in a year-over-year increase in 2012 in the present value of accumulated benefit; however this does not result in any increase in the benefits payable to participants under the Retirement Plan. |
* | Messrs. Kaminski, Praw and Woram are not participants in the Retirement Plan. |
Name* | Executive Contributions in Last Fiscal Year ($)(a) | Registrant Contributions in Last Fiscal Year ($)(b) | Aggregate Earnings in Last Fiscal Year ($)(c) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year End ($)(d) | ||||||||||
Mr. Mezger | $ | 40,000 | $ | 40,000 | $ | 87,727 | $ | — | $ | 901,246 | |||||
Mr. Kaminski | 15,125 | 15,125 | 1,127 | — | 31,377 | ||||||||||
Mr. Woram | 38,250 | 8,531 | 5,164 | — | 72,936 | ||||||||||
Mr. Hollinger | 36,500 | 11,592 | 163,893 | — | 1,639,675 |
(a) | Executive Contributions in Last Fiscal Year. These amounts reflect compensation the NEOs earned in our 2012 fiscal year that they have voluntarily deferred and are included in the Summary Compensation Table. |
(b) | Registrant Contributions in Last Fiscal Year. These amounts are matching contributions we made to the NEOs’ voluntary contributions to our Deferred Compensation Plan and are included in the Summary Compensation Table. |
(c) | Aggregate Earnings in Last Fiscal Year. These amounts do not include any above-market or preferential earnings. Accordingly, these amounts are not reported in the Summary Compensation Table. |
(d) | Aggregate Balance at Last Fiscal Year End. These amounts reflect compensation the NEOs earned in our 2012 fiscal year or in prior years, but which they voluntarily elected to defer receipt, adjusted for changes in the value of their investments and distributions, if any. Messrs. Mezger and Hollinger are vested in the full amount of their respective balances. Mr. Kaminski is vested in $19,610 and Mr. Woram is vested in $60,161 of each of their aggregate balances. |
* | Mr. Praw did not make any Deferred Compensation Plan contributions in our 2012 fiscal year. |
• | a lump sum cash payment equal to 2.0 times the sum of his annual salary plus average annual bonus earned for the prior three years, with the total payment capped at $6,000,000; |
• | under certain circumstances, a pro-rated bonus for the year in which his employment terminates; |
• | health coverage that we pay for up to two years; |
• | with respect to equity compensation granted to him on or after February 28, 2007, (a) two years of additional service credited to compute equity vesting plus full vesting for any equity issued to him in lieu of cash bonuses, and (b) the earlier of 36 months and the original term duration of each equity grant to exercise any such outstanding equity; and |
• | performance shares paid as if the performance period closed on the termination date if the performance period would otherwise close in the next 24 months. |
• | full vesting of unvested equity granted to him on or after February 28, 2007, with earlier equity awards governed by their respective terms and conditions; |
• | performance shares paid as earned with the applicable performance period closing as of the date of the change in control; |
• | full vesting and lump sum cash payment of deferred compensation, retirement or other employee benefits per the relevant arrangements, provided that lump sum payments subject to Section 409A of the Code are permitted only as provided by the specific terms of those arrangements; |
• | if his employment is involuntarily terminated in connection with a change in control (generally, during the period starting three months before and ending twelve months after a change in control), payment of the same severance as provided above in the event of an involuntary termination of employment, except the applicable multiple is 3.0 times the sum of his annual salary and average bonus rather than 2.0 times and the total payment is capped at $12,000,000; and |
• | additional “gross-up” payment to compensate for any excise taxes under Section 280G of the Code (“Section 280G”). |
• | the average of the annual cash bonuses, if any, paid to the participant for the three most recent completed fiscal years prior to the termination of the participant’s employment (or such shorter time as the participant has been employed). |
• | (i) 3.0 times base salary for participants entitled to a severance of 2.0 times the sum of base salary and average bonus, (ii) 2.5 times base salary for participants entitled to a severance of 1.5 times the sum of base salary and average bonus, and (iii) 2.0 times base salary for participants entitled to a severance of 1.0 times the sum of base salary and average bonus. |
• | if in the 18 month period following the change in control his employment is terminated other than for cause or disability, or he terminates his employment for good reason, a severance benefit equal to 2.0 times the sum of his average base salary and average actual annual cash bonus for the three fiscal years prior to the year in which the change in control occurs; |
• | accelerated vesting of any options and the lapse of any restricted period with respect to any restricted stock or other equity awards awarded to him; and |
• | full vesting in any benefits under our Death Benefit Only Plan (which is described below under the heading “Other Change in Control and Employment Termination Provisions”) if he participates in that plan. |
Post-Employment Payments — Mr. Mezger | |||||||||||||||||||||||||||||||||||
Executive Payments and Benefits upon Termination or Change in Control | Voluntary Termination | Involuntary Termination for Cause | Involuntary Termination Without Cause/ Termination for Good Reason | Change in Control Without Termination(a) | Change in Control With Termination for Good Reason or Without Cause(a) | Death | Disability | ||||||||||||||||||||||||||||
Compensation: | |||||||||||||||||||||||||||||||||||
Severance | $ | — | $ | — | 6,000,000 | (b) | $ | — | $ | 10,450,000 | (c) | $ | — | $ | — | ||||||||||||||||||||
Long-term Incentives | |||||||||||||||||||||||||||||||||||
Acceleration of Unvested Equity(d) | |||||||||||||||||||||||||||||||||||
Stock Options | 5,852,197 | (e) | — | 5,852,197 | (e) | 5,852,197 | 5,852,197 | 3,976,192 | 3,976,192 | ||||||||||||||||||||||||||
Vested Equity(d) | |||||||||||||||||||||||||||||||||||
Stock Options | 1,630,803 | 1,630,803 | 1,630,803 | 1,630,803 | 1,630,803 | 1,630,803 | 1,630,803 | ||||||||||||||||||||||||||||
Benefits & Perquisites: | |||||||||||||||||||||||||||||||||||
Retirement Plan | 10,010,043 | (f) | 10,010,043 | (f) | 10,010,043 | (f) | 10,900,912 | (g) | 10,900,912 | (g) | 10,900,912 | (g) | 10,010,043 | (f) | |||||||||||||||||||||
Vested Deferred Compensation(h) | 901,246 | 901,246 | 901,246 | — | 901,246 | 901,246 | 901,246 | ||||||||||||||||||||||||||||
Death Benefit Only Plan | — | (i) | — | (i) | — | (i) |