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Items of Business | Board Recommendation | ||||
Elect eight 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 |
• | We increased our total revenues by 14%, following 34% growth in 2013 |
• | We expanded our housing gross profit margin to 18.1% from 16.7%, an improvement of 140 basis points |
• | We grew our pretax income by $56.5 million from 2013, and by $174.0 million from 2012 |
• | We posted year-end stockholders’ equity of $1.60 billion, up from $536.1 million at the end of 2013 |
• | We ended our 2014 fiscal year with 227 new home communities open for sales, a 19% year-over-year increase. Over the last two years, we have expanded our community count by 32% |
• | We increased our year-end backlog value to $914.0 million at November 30, 2014, an increase of 34% year over year, representing our highest year-end level since 2007 |
• | We invested $1.47 billion in land acquisition and development to support our future home delivery pipeline |
• | We achieved the reversal of $825.2 million of our deferred tax asset (“DTA”) valuation allowance, significantly strengthening our balance sheet |
Time and Date: | 9:00 a.m., Pacific Time, on Thursday, April 2, 2015. | |||||
Location: | KB Home Corporate Office, 10990 Wilshire Boulevard, Los Angeles, CA 90024. | |||||
Items of Business: | (1) Elect eight 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 6, 2015. | |||||
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, 2014 (“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 20, 2015. | |||||
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on April 2, 2015: Our Proxy Statement and Annual Report are available at www.kbhome.com/investor/proxy. | ||||||
TABLE OF CONTENTS |
KB HOME 10990 Wilshire Boulevard Los Angeles, CA 90024 |
ANNUAL MEETING AND VOTING INFORMATION |
Holders of Record | Beneficial Holders | Plan Participant Holders | |
How to Vote: | If your shares are registered directly in your name with our transfer agent, Computershare Inc., you may vote by mail, telephone or Internet by following the instructions on your mailed or electronic proxy card you receive from Computershare. | If your shares are held in “street name” by a broker or other holder of record, you may vote by mail, telephone or Internet by following the instructions on the mailed or electronic voting instruction form you receive from your broker or other holder of record. | If you have shares in the KB Home Stock Fund in our 401(k) Savings Plan or the GSOT, you may vote by mail, telephone or Internet by following the instructions on your mailed or electronic proxy card you receive from Computershare. |
Voting Deadline: | You may vote via the Internet and by telephone until 11:59 p.m., Eastern Time, on April 1, 2015. | Each broker (or other holder of record) sets proxy voting deadlines for its beneficial owners. | You may vote via the Internet and by telephone until 11:59 p.m., Eastern Time, on March 31, 2015. |
Voting in Person: | You (or someone designated by a signed legal proxy) may vote in person at the Annual Meeting. | You must obtain a legal proxy from your broker or other holder of record and present it with your ballot. | You must obtain a legal proxy from the applicable plan trustee and present it with your ballot. |
Changing Your Vote: | You may revoke voting instructions before polls close by submitting a later vote in person, or by mail, telephone or Internet before the above-listed deadline. | If you are a beneficial owner, you must contact your broker or other holder of record to revoke any prior voting instructions. | You may revoke voting instructions before polls close by submitting a later vote in person, or by mail, telephone or Internet before the above-listed deadline. |
Voting Standards: | Per our By-Laws, 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 Annual Meeting and abstentions will not affect the election outcome. Other properly presented items of business will be considered approved based upon the affirmative vote of a majority of the shares of our common stock present or represented, and entitled to vote thereon, at the 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. |
Holders of Record | Beneficial Holders | ||
A copy of a form of proxy or voting instruction form or a Notice of Internet Availability showing your name and address. If you are appointing an authorized proxy representative, also include the representative’s name, mailing address and contact telephone number and a copy of the signed legal proxy. | A copy of a voting instruction form from a broker (or other holder of record) showing your name and address, or a broker letter verifying record date ownership and a copy of a brokerage account statement showing your KB Home stock ownership on the record date. |
CORPORATE GOVERNANCE AND BOARD MATTERS |
• All directors are independent (except our President and Chief Executive Officer (“CEO”)), and are elected annually under a majority voting standard. | • Non-employee directors meet in executive sessions at each in-person Board meeting, and any non-employee director can request additional executive sessions. | |
• Our standing Board Committees are entirely composed of independent directors. | • There is Board-level oversight of our political contributions, which are reported in our public Sustainability Report. | |
• We have one class of voting securities and no supermajority voting requirements. | • Directors and employees are prohibited from pledging or hedging their holdings of our securities. | |
• Directors and senior executives are subject to equity ownership requirements. | • All directors serving at the time attended our 2014 Annual Meeting of Stockholders, which was held on April 3, 2014. |
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 (our state of incorporation), and in accordance with our Certificate of Incorporation, By-Laws, Ethics Policy and Corporate Governance Principles. As of the date of this Proxy Statement, the Board has ten members. Mr. Jeffrey T. Mezger, our CEO, is the only member who is an employee. The Board held five meetings during our 2014 fiscal year. Each director attended at least 75% of the meetings of the Board and of the Board Committees on which he or she served during the year. We expect directors to attend our annual stockholder meetings. | Key Governance Documents • Corporate Governance Principles: provide the primary framework within which we conduct our business and pursue our strategic goals. • Ethics Policy: establishes the ethical standards we expect our directors, senior executives and employees to follow when representing KB Home. To this end, all employees, including our senior executives, and our directors must comply with our Ethics Policy. |
Audit Committee | FY2014 Meetings: 6 | |
Members | Primary Duties | |
Melissa Lora (Chair) Dr. Thomas W. Gilligan Luis G. Nogales Michael M. Wood Each member is financially literate. Ms. Lora is an “audit committee financial expert,” per NYSE listing standards and Securities and Exchange Commission (“SEC”) rules. Mr. Wood was appointed to this Committee on January 22, 2014. | The Audit Committee is charged with the duties and responsibilities in its charter, which include general oversight of our accounting and reporting practices and audit process, including our independent registered public accounting firm’s qualifications, independence, retention, compensation and performance; and is authorized to act on the Board’s behalf with respect to our incurring, guaranteeing or redeeming debt and approving our entry into certain transactions. Per its Charter, the Audit Committee reviewed and approved updates to our Ethics Policy that became effective as of October 31, 2014. The Audit Committee is a separately designated standing audit committee as defined in Section 3(a)(58)(A) of the Securities Exchange Act of 1934. Our common stock is listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “KBH.” |
Compensation Committee | FY2014 Meetings: 5 | |
Members | Primary Duties | |
Michael G. McCaffery (Chair) Stephen F. Bollenbach Timothy W. Finchem Kenneth M. Jastrow, II Robert L. Johnson Luis G. Nogales Each member is a “non-employee director” under SEC rules and is an “outside director” under Section 162(m) of the Internal Revenue Code (“Code”). Messrs. Jastrow and Johnson were appointed to this Committee on April 3, 2014. | The Compensation Committee is charged with the duties and responsibilities in its charter, which include the evaluation and compensation of our CEO; the compensation of our CEO’s direct reports; and the evaluation and determination of non-employee director compensation and benefits. In its oversight of executive and non-employee director compensation, the Compensation Committee seeks assistance from our management and has retained an outside compensation consultant, Frederick W. Cook & Co., Inc. (“FWC”). FWC’s services to the Compensation Committee are described below under the heading “Role of Compensation Consultants.” | Compensation Committee Interlocks and Insider Participation No member was part of a “compensation committee interlock” as described under SEC rules, and none of our executive officers served as a director or member of another entity’s compensation committee that would constitute a “compensation committee interlock.” |
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, and to approve the rules and procedures of, employee participation in, and grants and awards under our employee compensation and benefits arrangements, plans (including our employee equity compensation plans), programs and policies. 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 CEO’s direct reports, and reviews and approves their compensation. The Compensation Committee, from time to time, reviews and makes recommendations to the Board regarding non-employee director compensation and benefits. The Compensation Committee may delegate to a subcommittee or to our management any duties and responsibilities as the Compensation Committee deems to be appropriate and in our best interests, but it cannot delegate to our management the authority to grant equity-based awards. |
Nominating/Governance Committee | FY2014 Meetings: 4 | |
Members | Primary Duties | |
Timothy W. Finchem (Chair) Stephen F. Bollenbach Dr. Thomas W. Gilligan Robert L. Johnson Melissa Lora Michael M. Wood Messrs. Gilligan and Wood were appointed to this Committee on, and Mr. Jastrow served as its Chair until, April 3, 2014. | The Nominating/Governance Committee is charged with the duties and responsibilities in its charter, which include overseeing our corporate governance policies and practices; reviewing “related party transactions,” as discussed below; overseeing the annual Board and Board Committee performance evaluations; and identifying, evaluating and recommending qualified director candidates to the Board. The Nominating/Governance Committee also regularly evaluates the skills and characteristics of current and potential directors, and identified for each present director nominee certain specific skills and qualifications that supported the Board’s determination that each should serve as a director. These qualifications and other biographical information are described below under “Election of Directors.” |
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 Annual Meeting as a director nominee possesses these characteristics. Under our Corporate Governance Principles, there are no term limits for directors. In January 2015, the Board increased the director retirement age specified in our Corporate Governance Principles from 72 to 75 to enable the Board and our stockholders to continue to benefit from the broad experience, significant skills and valuable contributions that directors at or approaching the prior age limit are able to provide. The Nominating/Governance Committee evaluates and recommends individuals for election to the Board at regular or special meetings and at any point during the year, taking into consideration the attributes listed at right, among other factors. Individuals may be nominated by current directors, and the Nominating/Governance Committee has retained professional search firms from time to time to assist it with director recruitment. Security holders may propose director nominees by following the procedures set forth in our By-Laws, which require, among other things, timely advance written notice to our Corporate Secretary of any potential nominee that contains specified information about the nominee and the nominating stockholder. Security holder director nominees are considered in the same manner as any other potential nominees. | 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. 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 nominees. There is no formal policy as to how diversity of background and personal experience is applied, and a nominee’s background and personal experience, while important, do not necessarily outweigh other any other attributes or factors; • 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; and • Independence and an absence of conflicting time commitments. |
Audit Committee Role. The Audit Committee annually oversees an overall enterprise risk management assessment performed by our management that identifies significant risk areas to our business and corresponding mitigating factors, controls or actions, and it requests or receives periodic updates as it or our management deem necessary or appropriate. The Audit Committee Chair reports to the Board regarding identified significant risks as deemed appropriate. In addition, at each of its regular meetings, the Audit Committee receives reports from each of our senior finance, accounting, legal and internal audit executives, and meets in separate executive sessions with each such executive and with representatives of our independent registered public accounting firm. | Compensation Committee Role. The Compensation Committee annually oversees a risk assessment of our employee compensation policies and programs performed by FWC in conjunction with our management that is focused on potential design and implementation risks from those policies and programs. 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 compensation arrangements as they are being developed by our senior human resources personnel. The Compensation Committee Chair reports to the Board regarding significant risks as deemed appropriate. Based on this oversight approach and the outcome of the most recent annual risk assessment, we do not believe that our present employee compensation arrangements, plans, programs and policies are likely to have a material adverse effect on us. |
Pursuant to its charter, the Nominating/Governance Committee must review and approve or ratify any transaction, arrangement or relationship (or series of similar transactions, arrangements or relationships) in which we participate and in which a director, a director nominee, an executive officer or a 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 within the categories described at right or as otherwise determined by the Board. Our directors, executive officers, and stockholders who beneficially own five percent or more of our common stock are expected to inform our Corporate Secretary of Covered Transactions, and we collect information from our directors and executive officers about their affiliations and affiliations of their family members so that we can review our records for any such transactions. The Nominating/Governance Committee will approve or ratify a Covered Transaction if, based on a review of all material facts of the transaction and feasible alternatives, the Nominating/Governance Committee deems the transaction to be in our and our stockholders’ best interests. The Nominating/Governance Committee determined that there were no Covered Transactions during our 2014 fiscal 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; 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 |
2009 Director Program | Amended Director Program | |
Board Retainer | $80,000 | $100,000 |
Equity Grant | $135,000, equal split of SARs and stock units | $145,000, KB Home common stock or stock units |
Committee Chair Retainers | $25,000 (Audit Committee) $18,000 (Compensation Committee) $10,000 (Nominating/Governance Committee) | $25,000 (Audit Committee) $18,000 (Compensation Committee) $15,000 (Nominating/Governance Committee) |
Committee Member Retainers | $10,000 (Audit and Compliance) $7,000 (Compensation Committee) $5,000 (Nominating/Governance Committee) | $10,000 (Audit and Compliance) $7,000 (Compensation Committee) $5,000 (Nominating/Governance Committee) |
Meeting Fees | $1,500, only for an additional meeting(s) | $1,500, only for an additional meeting(s) |
2009 Director Program Compensation Elements Board and Board Committee Retainers. These retainers were paid in quarterly cash installments over a Director Year. A non-employee director could elect instead to receive these retainers in the form of stock units granted on the same date as the below-described equity grant. The differences in Board Committee retainers reflect the Board’s judgment of each Board Committee’s respective workload. A Board Committee Chair does not also receive the member retainer for the same Board Committee. Equity Grant. Each non-employee director serving at the time of the annual meeting of stockholders received a grant of stock options and stock units, each valued at $67,500, on the first date of a Director Year. Each stock option represented a right to receive a cash payment equal to the difference between its exercise price and the closing price of our common stock on an exercise date, making it akin to a stock appreciation right (“SAR”). Each stock unit represented a right to receive a cash payment equal to the fair market value of one share of our common stock on a payment date. Based on their elections in 2013 and 2014 that followed from amendments to the Director Plan, each non-employee director will receive an equivalent value of shares of our common stock in settlement of his or her SARs and stock units, which is expected to significantly reduce the degree of variability in the expense that had previously been associated with such awards when they were cash-settled. Per the Board’s authorization, we repurchased open market shares of our common stock in 2013 to effect stock unit settlements, respectively apportioning those shares to each non-employee director (who receive dividends from their apportioned shares). The Board has also authorized us to repurchase additional shares or issue stock payment awards under our 2014 Equity Incentive Plan to effect SAR settlements, though none have been settled. The non-employee directors’ elections changed only the settlement method for the awards and did not impact the value to the directors. 2009 Director Program SARs and stock units vested one year after grant, and the SARs have a 10-year term. A non-employee director must own at least $250,000 in value of our common stock or common stock equivalents to exercise SARs, unless the director earlier leaves the Board, and must exercise SARs by the earlier of their respective terms or the third anniversary of leaving the Board. Based on non-employee directors’ elections, stock units will only be paid out upon a director’s leaving the Board. Meeting Fees. Such fees were potentially payable for attendance at Board or Board Committee meetings beginning with the third additional meeting above its number of regularly-scheduled meetings. No such fees were paid in 2014. |
Amended Director Program Compensation Elements Board and Board Committee Retainers. These retainers will be paid in quarterly cash installments over a Director Year. A non-employee director may elect instead to receive these retainers in the form of shares of our common stock or in the form of stock units, in either case granted on the same date as the below-described equity grant. Equity Grant. Each non-employee director serving at the time will be entitled to receive a grant of shares of our common stock valued at $145,000 on the first date of a Director Year and will receive dividends on those shares, or can elect instead to be credited with an equal number of stock units. However, if a director has not satisfied the stock ownership requirement by the applicable deadline (described below under the heading “Stock Ownership Requirements”), the director will only be entitled to be credited with stock units. In addition, the director may not sell or otherwise dispose of any shares of our common stock or any common stock equivalents until the director satisfies the stock ownership requirement. Each stock unit represents the right to receive one share of our common stock on the earlier of a change in control or the date a non-employee director leaves the Board. For each stock unit held, a non-employee director will receive cash payments at the same time and in the same amount as any dividend paid on a share of our common stock. Meeting Fees. Such fees are payable for attendance at Board or Board Committee meetings beginning on the first additional meeting above its number of regularly-scheduled meetings, up to five such additional meetings. Eligibility for fees for attending more than five additional meetings is subject to the approval of the Chairman/respective Chair. |
Name(a) | Fees Earned or Paid in Cash ($)(b) | Stock Awards ($)(c) | Option Awards ($)(c) | All Other Compensation ($)(d) | Total ($) | ||||||||||
Mr. Bollenbach | $ | 300,000 | $ | 147,500 | $ | 67,500 | $ | — | $ | 515,000 | |||||
Mr. Finchem | 60,000 | 84,500 | 67,500 | 16,390 | 228,390 | ||||||||||
Dr. Gilligan | 93,750 | 67,500 | 67,500 | — | 228,750 | ||||||||||
Mr. Jastrow | 87,750 | 67,500 | 67,500 | 13,545 | 236,295 | ||||||||||
Mr. Johnson | 80,000 | 79,500 | 67,500 | — | 227,000 | ||||||||||
Ms. Lora | — | 177,500 | 67,500 | 9,960 | 254,960 | ||||||||||
Mr. McCaffery | — | 165,500 | 67,500 | 13,545 | 246,545 | ||||||||||
Mr. Nogales | 97,000 | 67,500 | 67,500 | — | 232,000 | ||||||||||
Mr. Wood | 93,750 | 67,500 | 67,500 | — | 228,750 |
(a) | Mr. Wood was elected to the Board on January 22, 2014 and therefore did not serve on the Board during our entire 2014 fiscal year. |
(b) | Fees Earned or Paid in Cash. These amounts represent payments of Board and Board Committee retainers based on non-employee directors’ elections to receive such retainers in cash. The amount shown for Mr. Bollenbach also includes a $300,000 Chairman of the Board retainer. As Chairman, Mr. Bollenbach is not eligible for any Board Committee retainers. |
(c) | Stock Awards and Option Awards. These amounts represent the aggregate grant-date fair value of the Director Plan SARs and stock units granted to our non-employee directors during our 2014 fiscal year, computed in accordance with Accounting Standards Codification Topic No. 718, “Compensation—Stock Compensation” (“ASC 718”), 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. Below are the amounts of Director Plan SARs and stock units granted to each non-employee director during our 2014 fiscal year based on the directors’ elections and respective Board Committee service. All such grants were made on April 3, 2014. |
Name | Stock Units (#) | Director Plan SARs (#) | ||
Mr. Bollenbach | 8,380 | 9,157 | ||
Mr. Finchem | 4,800 | 9,157 | ||
Dr. Gilligan | 3,835 | 9,157 | ||
Mr. Jastrow | 3,835 | 9,157 | ||
Mr. Johnson | 4,516 | 9,157 | ||
Ms. Lora | 10,084 | 9,157 | ||
Mr. McCaffery | 9,402 | 9,157 | ||
Mr. Nogales | 3,835 | 9,157 | ||
Mr. Wood | 3,835 | 9,157 |
Name | Stock Units (#) | Director Plan SARs (#) | Total Holdings (#) | |||
Mr. Bollenbach | 54,264 | 144,103 | 198,367 | |||
Mr. Finchem | 76,205 | 55,350 | 131,555 | |||
Dr. Gilligan | 12,213 | 26,889 | 39,102 | |||
Mr. Jastrow | 71,281 | 55,350 | 126,631 | |||
Mr. Johnson | 34,769 | 93,343 | 128,112 | |||
Ms. Lora | 104,907 | 66,570 | 171,477 | |||
Mr. McCaffery | 79,896 | 169,352 | 249,248 | |||
Mr. Nogales | 87,135 | 57,480 | 144,615 | |||
Mr. Wood | 4,765 | 11,378 | 16,143 |
(d) | All Other Compensation. These amounts represent premiums we paid for the life insurance policies we maintain with respect to Messrs. Finchem, Jastrow and McCaffery and Ms. Lora, respectively, in connection with the Directors’ Legacy Program, which is described below. In our 2014 fiscal year, we paid a total of $69,829 in premiums for the life insurance policies we maintain to fund charitable donations under the Directors’ Legacy Program, including for the policies maintained with respect to Messrs. Finchem, Jastrow and McCaffery and Ms. Lora and participants who are former directors. Some of the life insurance policies we maintain for the Directors’ Legacy Program did not require premium payments to be made in our 2014 fiscal year. Premium payments, where required, vary depending on participants’ respective ages and other factors. The total amount payable under the Directors’ Legacy Program at November 30, 2014, with all participating directors having vested in the full donation amount, was $15.3 million. |
ELECTION OF DIRECTORS |
At the Annual Meeting, the Board will present as nominees and recommend the election to the Board of each of the individuals named below for a one-year term ending with the election of directors at our 2016 Annual Meeting. Each nominee is currently a director, has consented to being nominated and has agreed to serve as a director if elected. Mr. Nogales, our longest-tenured director with two decades of service on the Board, and Mr. McCaffery, after serving for 12 years, will each leave the Board effective as of the date of the Annual Meeting. 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, following the election of directors, the Board will have eight members. | Voting Standard 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). |
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 his or her 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/Governance Committee will act promptly to determine whether to accept the director’s resignation and will submit its recommendation for consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding that resignation. The Nominating/Governance Committee and the Board may consider any relevant factors in deciding whether to accept a director’s resignation. |
Stephen F. Bollenbach, age 72, 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., Moelis & Company 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 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 Chairman of the Board. | ||
Timothy W. Finchem, age 67, 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 60, 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. He joined the Board in 2012. 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 67, is the non-executive Chairman of Forestar Group Inc., a real estate and natural resources company. 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 joined the 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 68, 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 52, has been President of Taco Bell International since 2013, responsible for the international operations of Taco Bell Corp., a global quick service restaurant chain. Ms. Lora joined Taco Bell in 1987, serving as its Chief Financial Officer from 2001 to 2012, and then as its Global Chief Financial and Development Officer from 2012 to 2014. Ms. Lora also was Regional Vice President and General Manager from 1998 to 2000 for Taco Bell Corp.’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. | ||
Jeffrey T. Mezger, age 59, 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 as Chairman of the Policy Advisory Board for the Harvard Joint Center for Housing Studies and was the founding Chairman of the Executive Committee for the Leading Builders of America. In 2012, Mr. Mezger was inducted into the California Homebuilding Foundation Hall of Fame. 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 37 years of experience in the public homebuilding sector. | ||
Michael M. Wood, age 67, is Founder and Chairman of Redwood Investments LLC, a Washington, DC investment company established in 2005 and concentrating in media, real estate and alternative energy. From 2006-2009, Mr. Wood was the U.S. Ambassador to Sweden where he made cooperation between the U.S. and Sweden in alternative energy technology his top priority. In recognition for this work, in 2009, the King of Sweden bestowed on Mr. Wood the insignia of Commander Grand Cross, Order of the Polar Star, a medal given by Sweden’s Royal Family to people of foreign birth who make significant contributions to Sweden. Prior to becoming ambassador, 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 is also Chairman of CSP Business Media, LLC, a private business-to-business publishing company serving the convenience retailing, restaurant, and on-the-go food industries, and serves on the Board of Trustees for The American-Scandinavian Foundation in New York and the Board of Directors of Capital Partners for Education in Washington, DC. He joined the Board in 2014. 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 longstanding commitment to sustainability. He is also a prominent and respected professional in Washington DC, an important market for us, and has a distinguished policymaking background. |
OWNERSHIP OF KB HOME SECURITIES |
Stockholder(a) | Total Beneficial Ownership(b) | Percent of Class | Stock Options(c) | Restricted Common Stock(d) | |||
FMR LLC, et al.(e) 245 Summer Street, Boston, MA 02210 | 11,822,940 | 12.9% | — | — | |||
BlackRock, Inc., et al.(f) 55 East 52nd Street, New York, NY 10022 | 10,043,615 | 10.9% | — | — | |||
KB Home Grantor Stock Ownership Trust(g) Wells Fargo Retirement and Trust Executive Benefits One West Fourth Street, Winston-Salem, NC 27101 | 10,335,461 | 10.1% | — | — | |||
The Vanguard Group, Inc.(h) 100 Vanguard Blvd., Malvern, PA 19355 | 5,417,216 | 5.9% | — | — | |||
The TCW Group, Inc.(i) 865 South Figueroa Street, Los Angeles, CA 90017 | 4,610,676 | 5.0% | — | — | |||
Non-Employee Directors(j) | |||||||
Stephen F. Bollenbach | 198,367 | * | 144,103 | 8,380 | |||
Timothy W. Finchem | 131,555 | * | 55,350 | 4,800 | |||
Dr. Thomas W. Gilligan | 12,213 | * | — | 3,835 | |||
Kenneth M. Jastrow, II | 126,631 | * | 55,350 | 3,835 | |||
Robert L. Johnson | 128,112 | * | 93,343 | 4,516 | |||
Melissa Lora | 173,520 | * | 66,570 | 10,084 | |||
Michael G. McCaffery | 249,248 | * | 169,352 | 9,402 | |||
Luis G. Nogales | 152,015 | * | 57,480 | 3,835 | |||
Michael M. Wood | 4,765 | * | — | 3,835 | |||
Named Executive Officers | |||||||
Jeffrey T. Mezger | 5,259,175 | 4.9% | 4,882,782 | — | |||
Jeff J. Kaminski | 359,286 | * | 304,684 | 42,398 | |||
Brian J. Woram | 393,179 | * | 313,529 | 33,229 | |||
Albert Z. Praw | 236,405 | * | 169,000 | 33,229 | |||
William R. Hollinger | 625,297 | * | 513,483 | 18,801 | |||
Directors and executive officers as a group (15 people) | 8,231,854 | 7.5% | 6,973,039 | 143,406 |
(a) | Except for the GSOT, the beneficial ownership and percent of class figures for the listed Stockholders are taken from their respective Schedule 13G or Schedule 13G/A filings with the SEC and reflect their respective determinations of their ownership as of December 31, 2014. |
(b) | The amounts reported in this column for the NEOs include the following directly owned shares of our common stock: Mr. Mezger 376,393; Mr. Kaminski 12,204; Mr. Woram 46,421; Mr. Praw 34,176; Mr. Hollinger 93,013; and all executives officers as a group 590,531. |
(c) | The amounts in this column are the shares of common stock that can be acquired within 60 days of February 16, 2015 through the exercise of Director Plan SARs (for the non-employee directors) or stock option awards (for the NEOs). These amounts are included in the amounts reported for each individual in the Total Beneficial Ownership column. Dr. Gilligan and Mr. Wood have not satisfied the stock ownership requirement to exercise their Director Plan SARs. |
(d) | For the non-employee directors, the amounts in this column are Director Plan stock units that will vest on the date of the Annual Meeting. These amounts are included in the amounts reported for each non-employee director in the Total |
(e) | The stock holding information is based solely on a Schedule 13G/A dated February 13, 2015 that FMR LLC, a parent holding company, filed with the SEC to report the beneficial ownership of FMR LLC, Mr. Edward C. Johnson 3d, FMR LLC’s chairman, and Ms. Abigail P. Johnson, FMR LLC’s vice chairman, chief executive officer and president. Of the reported amount, a wholly-owned FMR LLC subsidiary, Fidelity Management & Research Company (“Fidelity”), an investment adviser to various investment companies, together with subsidiaries Pyramis Global Advisors Trust Company and Strategic Advisers, Inc., had sole dispositive power as to 11,822,940 shares and had sole voting power as to 45,434 shares. Fidelity votes these shares under guidelines established by its Boards of Trustees. |
(f) | The stock holding information is based solely on a Schedule 13G/A dated January 9, 2015 that BlackRock, Inc., a parent holding company, filed with the SEC to report its beneficial ownership. Of the reported amount, BlackRock, Inc. subsidiaries, collectively, had sole voting power as to 9,850,421 shares and had sole dispositive power as to 10,043,615 shares, and a subsidiary, BlackRock Fund Advisors, beneficially owned more than 5% of our outstanding shares. |
(g) | 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 902,516; Mr. Woram 840,826; Mr. Praw 548,631; and Mr. Hollinger 1,156,740; and all current executive officers as a group (excluding Mr. Mezger) 3,846,246. |
(h) | The stock holding information is based solely on a Schedule 13G/A dated February 9, 2015 that Vanguard Group, Inc., an investment adviser to various investment companies (“VGI”), filed with the SEC to report its beneficial ownership. Of the reported amount, VGI had sole voting power as to 115,408 shares, had sole dispositive power as to 5,309,708 shares, and had shared dispositive power as to 107,508 shares. Vanguard Fiduciary Trust Company and Vanguard Investments Australia, Ltd., each VGI subsidiaries, beneficially own 107,508 and 7,900 shares, respectively. |
(i) | The stock holding information is based solely on a Schedule 13G dated February 12, 2015 that The TCW Group, Inc., a parent holding company (“TGI”), filed with the SEC to report beneficial ownership on behalf of the TGI Business Unit. Of the reported amount, the TGI Business Unit had shared voting power as to 224,666 shares and had shared dispositive power as to 4,610,676 shares. |
(j) | Ms. Lora holds 2,043 shares of our common stock and the Director Plan stock units reflected in the amount reported for her in the Total Beneficial Ownership column in a trust in which she and her spouse are trustees and beneficiaries and over which they jointly exercise voting and investment power. Mr. Wood holds the Director Plan stock units reflected in the amount reported for him in the Total Beneficial Ownership column in a trust in which he and his spouse are trustees and over which they jointly exercise voting and investment power, and he is the sole beneficiary as to the stock units. |
COMPENSATION DISCUSSION AND ANALYSIS |
• | Jeffrey T. Mezger, our President and Chief Executive Officer; |
• | Jeff J. Kaminski, our Executive Vice President and Chief Financial Officer; |
• | Brian J. Woram, our Executive Vice President and General Counsel; |
• | Albert Z. Praw, our Executive Vice President, Real Estate and Business Development; and |
• | William R. Hollinger, our Senior Vice President and Chief Accounting Officer. |
• | Short-Term Operating Results |
• | Strategic Performance Indicators |
• | Long-Term Performance Results |
KEY FEATURES OF OUR EXECUTIVE COMPENSATION PROGRAMS | |||
What We Do | What We Don’t Do | ||
ü | Engage with stockholders and consider their input in designing our executive compensation programs | × | Do not allow re-pricing of stock options without stockholder approval |
ü | Link a large majority of annual incentive pay to objective, pre-established financial performance goals, while also taking into account the strategic objectives that lead to long-term success for our business | × | Do not provide new tax “gross-ups” to any officer or employee |
ü | Grant the majority of our CEO’s total long-term incentive grant value in vehicles that require performance for him to realize value | × | Do not, without stockholder approval, provide 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 |
ü | Maintain stock ownership guidelines for all NEOs | × | Do not allow our NEOs to hedge or pledge company securities as collateral for loans |
ü | Award equity under a policy that has strict controls on grant processes and timing | × | Do not provide perquisites to our NEOs beyond market-competitive medical, dental and vision benefits and the opportunity to participate in a deferred compensation plan |
ü | Engage at the sole direction of the Compensation Committee its independent compensation consultant | ||
ü | Maintain a relevant peer group | ||
ü | Have clawback policies consistent with the Sarbanes-Oxley Act of 2002 and the 2010 Dodd-Frank Wall Street Reform Act | ||
ü | Conduct, under Compensation Committee oversight, annual risk assessments to determine that our compensation plans do not have a material adverse effect on us |
Category | Performance Highlights | 2014 Pay Outcomes | ||
Short-Term (Fiscal 2014) Operating Results | ñ | • We grew our revenues to $2.40 billion, a 14% increase over the prior year• We increased our housing gross profit margin to 18.1%, up from 16.7% a year ago• We generated $94.9 million in pretax income, an increase of $56.5 million, or 148%, from 2013• We achieved net income of $918.4 million, compared to $40.0 million in the prior year, driven by the increase in pretax income and our reversal of a substantial portion of our DTA valuation allowance | • The adjusted pretax income and revenue results drove the majority of our NEOs’ 2014 fiscal year annual incentive payouts• With aggressive targets for both metrics, we outperformed our pretax income target by more than 6%, but performed below our revenue target by approximately 4%• Based on these results, our NEOs earned payouts for the financial component of their annual incentives in the range of 102%—114% of target | |
Strategic Performance Indicators | ñ | • Our 2014 fiscal year-end community count increased by 19% from the prior year, and by 32% compared to two years ago• We posted a 2014 year-end backlog value of $914.0 million, up 34% year over year, representing our highest year-end level since 2007• Our DTA enables us to potentially shelter, on a cash basis, more than $2 billion of future earnings from income taxes | • The solid foundation for future growth provided by our expanded community count and the DTA valuation allowance reversal supported strong payouts to our NEOs for the strategic component of their annual incentives• Each NEO maximized this strategic component, resulting in total annual incentive payouts of approximately 136% of target | |
Long-Term Performance Results | ñ | • We have increased operating income by $220.1 million over the last three years• Our stockholders’ equity increased to $1.60 billion at November 30, 2014, up from $536.1 million at November 30, 2013, marking our highest year-end stockholders’ equity since 2007• We have generated total stockholder returns (including reinvested dividends) of 145% over the past three years, which is approximately in the 60th percentile of our peer group | • Payouts in 2014 related to a long-term performance cash award were 183% of target based on our adjusted operating income performance over the last three years• Since 2011 and continuing through 2014, 100% of our CEO’s long-term incentive grants are subject to performance and/or stock price appreciation before value is realized. For his 2014 long-term incentives:◦ The majority of the total grant value was in performance shares that may vest after three years based on our results in one relative and two absolute performance measures◦ The remaining portion of the total grant value was in stock options |
CEO PAY COMPONENT | 2013 VALUE | 2014 VALUE | CONSIDERATIONS |
BASE SALARY | $1,000,000 | $1,000,000 | • No increase since 2006, placing more emphasis on variable pay tied to performance |
ANNUAL INCENTIVES | $2,725,500 | $2,034,750 | • We set aggressive targets for both financial metrics—we exceeded our pretax income target by more than 6%, but fell approximately 4% below our revenue target, resulting in a lower payout value than for 2013 |
LONG-TERM INCENTIVE PLAN CASH AWARD (OTHER NON-EQUITY INCENTIVES) | $0 | $790,000 | • Payout of three-year award granted in 2011 • The award was earned based on an adjusted operating income improvement of nearly $250 million over the performance period |
CHANGE IN PENSION VALUE | $0 | $830,924 | • This value is an actuarial-based change, tied to interest rate fluctuations, and does not reflect any cash or other compensation received by Mr. Mezger in our 2014 fiscal year |
BONUS | $500,000 | $125,000 | • Reflect payouts related to long-term incentives |
STOCK AND OPTION AWARDS | $2,707,660 | $5,500,000 | • Increase in total grant value for retention and performance • 100% of grants are subject to performance and/or stock price appreciation before value is realized |
ALL OTHER COMPENSATION | $67,884 | $68,809 | • No changes in benefits |
ANNUAL TOTAL DIRECT COMPENSATION | $6,433,160 | $8,534,750 | • Includes only the following annual CEO compensation elements: (i) base salary, (ii) annual incentives and (iii) stock and option awards |
TOTAL | $7,001,044 | $10,349,483 | • Reflects all CEO compensation elements, including: (i) change in pension, (ii) cash long-term incentive payouts and bonus for prior years and (iii) all other compensation |
REWARDS ELEMENT | 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 | • 65-75% of our NEOs’ 2014 annual incentives were based on pretax income and revenues • Remainder of the 2014 annual incentive opportunities were aligned with our Strategic Performance Indicators | • Motivates achievement of key short-term financial results • Utilizes balanced incentive goals with annual and medium-term time frames to promote sustainable pretax income growth and stockholder value creation | |
LONG-TERM INCENTIVE PROGRAM (“LTIP”) | Performance-Based Restricted Stock Units (“PSUs”) | • 52% of total grant value for our CEO, 20% for our other NEOs • 2014 fiscal year grants have three, longer-term performance measures: three-year earnings per share growth, three-year return on invested capital, and three-year revenue growth versus our peer group | • Focuses executives on achievement of long-term operating results • Establishes strong alignment with long-term stockholder interests through performance-based payouts in shares of our common stock |
Stock Options | • 48% of total grant value for our CEO and our other NEOs | • Value realized only with stock price appreciation, which is strongly influenced by performance | |
Restricted Stock | • 30% of total grant value for our NEOs other than our CEO | • Provides additional alignment with stockholder interests and encourages retention | |
RETIREMENT PROGRAMS AND PERQUISITES | • 401(k) Savings Plan in which all eligible employees may participate • Closed legacy executive retirement and death benefit plans to new participants several years ago • Market-competitive medical, dental and vision benefits and the opportunity to participate in a deferred compensation plan, as further described below | • Programs are aligned with market practices • Focuses executives on earning rewards through performance pay elements, not through entitlements |
NEO | Target Annual Incentive Payout as Percent of NEO Base Salary | Financial Component Percentage of Payout | Financial Component Maximum Leverage | Strategic Component Percentage of Payout | Strategic Component Maximum Leverage |
Mr. Mezger | 150% | 75% | 3x | 25% | 2x |
Mr. Kaminski | 100% | 65% | 2x | 35% | 2x |
Mr. Woram | 100% | 65% | 2x | 35% | 2x |
Mr. Praw | 100% | 65% | 2x | 35% | 2x |
Mr. Hollinger | 80% | 65% | 2x | 35% | 2x |
2014 Annual Incentive Program Payout Levels and Actual Awards | ||||||||||||||||||||
NEO | Threshold | Target | Maximum | Actual | ||||||||||||||||
Mr. Mezger | $ | 375,000 | $ | 1,500,000 | $ | 4,125,000 | $ | 2,034,750 | ||||||||||||
Mr. Kaminski | 162,500 | 650,000 | 1,300,000 | 885,316 | ||||||||||||||||
Mr. Woram | 137,500 | 550,000 | 1,100,000 | 749,114 | ||||||||||||||||
Mr. Praw | 133,750 | 535,000 | 1,070,000 | 728,683 | ||||||||||||||||
Mr. Hollinger | 77,600 | 310,400 | 620,800 | 422,773 |
2014 Fiscal Year Annual Incentive Program Financial Performance Measures and Goals and Results | |||||
Financial Performance Measures | Performance Goals | Actual Result | Achievement Level | ||
Threshold | Target | Maximum | |||
Adjusted Pretax Income* | $100.0 million | $150.0 million | $200.0 million | $159.4 million | 138% (CEO) 119% (Other NEOs) |
Total revenues | $2.25 billion | $2.50 billion | $2.75 billion | $2.40 billion | 70% |
NEO | 2014 NEO Performance Contributions |
Mr. Mezger | Mr. Mezger provided outstanding leadership, most notably in setting and driving performance against our top strategic objectives that, among other things, contributed to restoring our profitability and positioning us with momentum for additional growth in revenues and profits going forward. In 2014, our year-over-year pretax income grew by 148%, our net order value rose by 20%, and our ending community count expanded by 19%. He also played a critical role in promoting the continued enhancement of the KB Home brand as a leader in innovation in sustainable building practices. |
Mr. Kaminski | Mr. Kaminski oversaw the successful completion of a concurrent public underwritten common stock offering and senior notes issuance that generated more than $500 million of incremental capital for investment in the business. He also led an in-depth review of company-wide selling, general and administrative expenses. He also continued to drive enhancements in the financial performance of our operating divisions through disciplined monthly reviews, among other steps. |
Mr. Woram | In 2014, Mr. Woram’s major accomplishments included successes in transactional support, litigation management, risk mitigation and significant litigation cost recoveries. He continues to provide strong oversight to our legal team, and he was successful this year in strengthening his group through the hiring of talented individuals to improve the ability of the team to support our transactional needs. |
Mr. Praw | Mr. Praw led our efforts in driving community count growth through successful land acquisitions, putting us in position to meet our 2015 and 2016 home delivery goals. In addition, he established new protocols to improve the community opening process in all divisions to help generate more efficient inventory turns and deliver better returns on investment from our new home communities. |
Mr. Hollinger | Mr. Hollinger played a primary and important role in the $825.2 million DTA valuation allowance reversal, which nearly tripled our stockholders’ equity and significantly reduced our debt-to-capital ratio. In addition, he provided extensive support for our capital market transactions in 2014, and provided critical leadership in our financial reporting process, including the effectiveness and integrity of our financial, internal and disclosure controls and procedures. |
NEO Long-Term Incentives Granted in 2014 | |||||||||||||||||||||||
NEO | PSUs | Restricted Stock | Stock Options | Total ($) | |||||||||||||||||||
# | $ | # | $ | # | $ | ||||||||||||||||||
Mr. Mezger | 195,622 | $ | 2,860,000 | — | — | 520,300 | $ | 2,640,000 | $ | 5,500,000 | |||||||||||||
Mr. Kaminski | 15,048 | 220,000 | 22,572 | $ | 330,000 | 108,396 | 550,000 | 1,100,000 | |||||||||||||||
Mr. Woram | 10,602 | 155,000 | 15,903 | 232,500 | 76,370 | 387,500 | 775,000 | ||||||||||||||||
Mr. Praw | 10,602 | 155,000 | 15,903 | 232,500 | 76,370 | 387,500 | 775,000 | ||||||||||||||||
Mr. Hollinger | 6,156 | 90,000 | 9,234 | 135,000 | 44,344 | 225,000 | 450,000 |
• Earnings Per Share Growth: | 50% weight, measures our growth in profitability over the three-year period |
• Return on Invested Capital: | 20% weight, measures our profitability relative to the capital deployed |
• Revenue Growth Rank Versus Peers: | 30% weight, assesses our ability to grow our top-line relative to our peers |
Performance Measure | 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) | First or Second | 200% |
3 | 180% | |
5 | 140% | |
7 | 100% | |
9 | 60% | |
11 | 20% | |
Bottom 2 | 0% |
2011 Performance Cash Awards | |||||
Financial Performance Measure | Performance Goals | Actual Result | Payout Result to Target | ||
Threshold | Target | Maximum | |||
Adjusted Operating Income, FY12 | ($15.0 million) | $10.0 million | $22.5 million | $8.3 million | 93% |
Adjusted Operating Income, FY13 | $68.0 million | $100.0 million | $116.0 million | $128.8 million | 200% |
Adjusted Operating Income, FY14 | $149.0 million | $170.0 million | $191.0 million | $189.0 million | 182% |
Total | 158% |
NEO | Target | Program Payout | Additional Amount | Overall Payment | ||||||||
Mr. Mezger | $ | 500,000 | $ | 790,000 | $ | 125,000 | $ | 915,000 | ||||
Mr. Kaminski | 250,000 | 395,000 | 62,500 | 457,500 | ||||||||
Mr. Woram | 250,000 | 395,000 | 62,500 | 457,500 | ||||||||
Mr. Praw | 250,000 | 395,000 | 62,500 | 457,500 | ||||||||
Mr. Hollinger | 150,000 | 237,000 | 37,500 | 274,500 |
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 |
Executive Position | Ownership Guideline |
CEO | 6.0 times base salary |
Executive Vice President | 2.0 times base salary |
Senior Vice President | 1.0 times base salary |
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT |
Michael G. McCaffery, Chair | Stephen F. Bollenbach | |
Timothy W. Finchem | Kenneth M. Jastrow, II | |
Robert L. Johnson | Luis G. Nogales |
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 | 2014 | $ | 1,000,000 | $ | 125,000 | $ | 2,860,000 | $ | 2,640,000 | $ | 2,824,750 | $ | 830,924 | $ | 68,809 | $ | 10,349,483 | ||||||||
2013 | 1,000,000 | 500,000 | 1,663,000 | 1,044,660 | 2,725,500 | — | 67,884 | 7,001,044 | |||||||||||||||||
2012 | 1,000,000 | — | 2,475,000 | — | 1,250,000 | 800,763 | 66,859 | 5,592,622 | |||||||||||||||||
Jeff J. Kaminski Executive Vice President and Chief Financial Officer | 2014 | 620,833 | 62,500 | 550,000 | 550,000 | 1,280,316 | — | 47,459 | 3,111,108 | ||||||||||||||||
2013 | 570,833 | 260,000 | 498,900 | 348,220 | 952,200 | — | 45,848 | 2,676,001 | |||||||||||||||||
2012 | 550,000 | — | 525,000 | — | 450,000 | — | 41,469 | 1,566,469 | |||||||||||||||||
Brian J. Woram Executive Vice President and General Counsel | 2014 | 544,167 | 62,500 | 387,500 | 387,500 | 1,144,114 | — | 43,459 | 2,569,240 | ||||||||||||||||
2013 | 531,250 | 242,000 | 415,750 | 271,612 | 800,820 | — | 42,356 | 2,303,788 | |||||||||||||||||
2012 | 525,000 | — | 505,000 | — | 400,000 | — | 35,577 | 1,465,577 | |||||||||||||||||
Albert Z. Praw Executive Vice President, Real Estate and Business Development | 2014 | 529,167 | 62,500 | 387,500 | 387,500 | 1,123,683 | — | 42,979 | 2,533,329 | ||||||||||||||||
2013 | 510,417 | 100,000 | 415,750 | 271,612 | 780,675 | — | 12,376 | 2,090,830 | |||||||||||||||||
2012 | 500,000 | — | 505,000 | — | 400,000 | — | 9,890 | 1,414,890 | |||||||||||||||||
William R. Hollinger Senior Vice President and Chief Accounting Officer | 2014 | 383,333 | 37,500 | 225,000 | 225,000 | 659,773 | 184,649 | 31,318 | 1,746,573 | ||||||||||||||||
2013 | 371,250 | 260,000 | 232,820 | 149,735 | 503,728 | — | 31,519 | 1,549,052 | |||||||||||||||||
2012 | 365,000 | — | 275,000 | — | 300,000 | 187,232 | 30,327 | 1,157,559 |
(a) | Salary. As discussed above under the heading “Base Salaries,” the annual base salaries of our NEOs other than the CEO were increased in July 2014 to the following levels: Mr. Kaminski $650,000; Mr. Woram $550,000; Mr. Praw $535,000; and Mr. Hollinger $388,000. |
(b) | Bonus. For 2014, these amounts reflect additional payments related to the 2011 performance cash award program, as described above under the heading “2011 Performance Cash Awards.” For 2013, these amounts reflect payments of three-year restricted cash award grants to the NEOs other than Mr. Praw. Mr. Praw received a discretionary bonus for 2013 that was approved by the Compensation Committee. |
(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 option awards (consisting of stock options) computed in accordance with ASC 718, 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 2014 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 $5,720,000; Mr. Kaminski $440,000; Mr. Woram $310,000; Mr. Praw $310,000; and Mr. Hollinger $180,000. |
(d) | Non-Equity Incentive Plan Compensation. These amounts in 2014 include the sum of 2014 fiscal year annual incentive and 2011 performance cash award payouts. The 2013 and 2012 amounts reflect only annual incentive payouts. The table below summarizes the breakdown of each component in 2014. |
NEO | 2014 Annual Incentive Payout | 2011 Performance Cash Award Payout | Total Non-Equity Incentive Plan Compensation | ||||||
Mr. Mezger | $ | 2,034,750 | $ | 790,000 | $ | 2,824,750 | |||
Mr. Kaminski | 885,316 | 395,000 | 1,280,316 | ||||||
Mr. Woram | 749,114 | 395,000 | 1,144,114 | ||||||
Mr. Praw | 728,683 | 395,000 | 1,123,683 | ||||||
Mr. Hollinger | 422,773 | 237,000 | 659,773 |
(e) | Change in Pension Value and Nonqualified Deferred Compensation Earnings. These amounts 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 the NEOs in any of the three fiscal years in the table. The amounts attributed to the change in actuarial present value of Retirement Plan benefits are as follows: |
NEO | Fiscal Year | Increase (Decrease) in Actuarial Present Value of Retirement Plan Benefits | ||
Mr. Mezger | 2014 | $ | 830,924 | |
2013 | (709,566) | |||
2012 | 800,763 | |||
Mr. Hollinger | 2014 | 184,649 | ||
2013 | (153,364) | |||
2012 | 187,232 |
(f) | All Other Compensation. The amounts shown consist of the following items: |
• | 401(k) Savings Plan and Deferred Compensation Plan Matching Contributions. The respective aggregate 2014, 2013 and 2012 fiscal year 401(k) Savings Plan and Deferred Compensation Plan matching contributions we made to our NEOs were as follows: Mr. Mezger $55,600, $55,300 and $55,000; Mr. Kaminski $35,750, $32,425 and $30,125; Mr. Woram $31,750, $28,613 and $23,531; Mr. Praw $29,125, $0, $0; and Mr. Hollinger $23,000, $22,275 and $21,900. |
• | Premium Payments. The respective aggregate premiums we paid for our NEOs in our 2014, 2013 and 2012 fiscal years on supplemental medical expense reimbursement plans and life insurance policies, as described above under the heading “Other Benefits,” were as follows: Mr. Mezger $13,209, $12,582 and $11,856; Mr. Kaminski $11,709, $11,099 and $10,426; Mr. Woram $11,709, $11,099 and $10,426; Mr. Praw $11,241, $10,614 and $9,888; and Mr. Hollinger $8,318, $7,816 and $7,241. |
Name | Grant Date(a) | Type of Award | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Possible Payouts Under Equity Incentive Plan Awards(b) | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(c) | |||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||||
Mr. Mezger | 2/12/2014 | Annual Incentive | $ | 375,000 | $ | 1,500,000 | $ | 4,125,000 | |||||||||||||||||||
10/9/2014 | PSUs | 45,971 | 195,622 | 391,244 | $ | 2,860,000 | |||||||||||||||||||||
10/9/2014 | Stock Options | 520,300 | $ | 14.62 | 2,640,000 | ||||||||||||||||||||||
Mr. Kaminski | 2/12/2014 | Annual Incentive | 162,500 | 650,000 | 1,300,000 | ||||||||||||||||||||||
10/9/2014 | PSUs | 3,536 | 15,048 | 30,096 | 220,000 | ||||||||||||||||||||||
10/9/2014 | Restricted Stock | 22,572 | 330,000 | ||||||||||||||||||||||||
10/9/2014 | Stock Options | 108,396 | 14.62 | 550,000 | |||||||||||||||||||||||
Mr. Woram | 2/12/2014 | Annual Incentive | 137,500 | 550,000 | 1,100,000 | ||||||||||||||||||||||
10/9/2014 | PSUs | 2,491 | 10,602 | 21,204 | 155,000 | ||||||||||||||||||||||
10/9/2014 | Restricted Stock | 15,903 | 232,500 | ||||||||||||||||||||||||
10/9/2014 | Stock Options | 76,370 | 14.62 | 387,500 | |||||||||||||||||||||||
Mr. Praw | 2/12/2014 | Annual Incentive | 133,750 | 535,000 | 1,070,000 | ||||||||||||||||||||||
10/9/2014 | PSUs | 2,491 | 10,602 | 21,204 | 155,000 | ||||||||||||||||||||||
10/9/2014 | Restricted Stock | 15,903 | 232,500 | ||||||||||||||||||||||||
10/9/2014 | Stock Options | 76,370 | 14.62 | 387,500 | |||||||||||||||||||||||
Mr. Hollinger | 2/12/2014 | Annual Incentive | 77,600 | 310,400 | 620,800 | ||||||||||||||||||||||
10/9/2014 | PSUs | 1,447 | 6,156 | 12,312 | 90,000 | ||||||||||||||||||||||
10/9/2014 | Restricted Stock | 9,234 | 135,000 | ||||||||||||||||||||||||
10/9/2014 | Stock Options | 44,344 | 14.62 | 225,000 |
(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 number of shares granted). The performance measures are described above under the heading “Long-Term Incentives.” 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 in accordance with ASC 718, as described in footnote (c) to the Summary Compensation Table. The 2014 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 ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(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 | 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 | |||||||||||||||||||||
11/8/2012 | 152,495 | $ | 2,679,337 | |||||||||||||||||||||
10/10/2013 | 50,000 | 100,000 | 16.63 | 10/10/2023 | ||||||||||||||||||||
10/10/2013 | 100,000 | 1,757,000 | ||||||||||||||||||||||
10/9/2014 | 520,300 | 14.62 | 10/9/2024 | |||||||||||||||||||||
10/9/2014 | 195,622 | 3,437,079 | ||||||||||||||||||||||
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 | |||||||||||||||||||||
11/8/2012 | 4,826 | $ | 84,793 | 17,868 | 313,941 | |||||||||||||||||||
10/10/2013 | 16,667 | 33,333 | 16.63 | 10/10/2023 | ||||||||||||||||||||
10/10/2013 | 15,000 | 263,550 | 15,000 | 263,550 | ||||||||||||||||||||
10/9/2014 | 108,396 | 14.62 | 10/9/2024 | |||||||||||||||||||||
10/9/2014 | 22,572 | 396,590 | 15,048 | 264,393 | ||||||||||||||||||||
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 | |||||||||||||||||||||
11/8/2012 | 4,826 | 84,793 | 16,636 | 292,295 | ||||||||||||||||||||
10/10/2013 | 13,000 | 26,000 | 16.63 | 10/10/2023 | ||||||||||||||||||||
10/10/2013 | 12,500 | 219,625 | 12,500 | 219,625 | ||||||||||||||||||||
10/9/2014 | 76,370 | 14.62 | 10/9/2024 | |||||||||||||||||||||
10/9/2014 | 15,903 | 279,416 | 10,602 | 186,277 |
Mr. Praw | 10/18/2005 | 6,000 | $ | 63.77 | 10/18/2015 | |||||||||||||||||||
10/6/2011 | 150,000 | 6.32 | 10/6/2021 | |||||||||||||||||||||
11/8/2012 | 4,826 | $ | 84,793 | 16,636 | $ | 292,295 | ||||||||||||||||||
10/10/2013 | 13,000 | 26,000 | 16.63 | 10/10/2023 | ||||||||||||||||||||
10/10/2013 | 12,500 | 219,625 | 12,500 | 219,625 | ||||||||||||||||||||
10/9/2014 | 76,370 | 14.62 | 10/9/2024 | |||||||||||||||||||||
10/9/2014 | 15,903 | 279,416 | 10,602 | 186,277 | ||||||||||||||||||||
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 | 60,000 | 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 | 60,000 | 6.32 | 10/6/2021 | |||||||||||||||||||||
11/8/2012 | 2,567 | 45,102 | 9,242 | 162,382 | ||||||||||||||||||||
10/10/2013 | 7,167 | 14,333 | 16.63 | 10/10/2023 | ||||||||||||||||||||
10/10/2013 | 7,000 | 122,990 | 7,000 | 122,990 | ||||||||||||||||||||
10/9/2014 | 44,344 | 14.62 | 10/9/2024 | |||||||||||||||||||||
10/9/2014 | 9,234 | 162,241 | 6,156 | 108,161 |
(a) | Number of Securities Underlying Unexercised Options-Unexercisable. Stock option awards generally vest in equal installment amounts over a three-year period. |
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