DEF 14A of Horton D R Inc /De/, Dec 19, 2019

DEF 14A of Horton D R Inc /De/

Filed Dec 19, 2019 · FY20190001193125-19-319220

Open on EDGAR

  1. ELECTION OF DIRECTORS

    ELECTION OF DIRECTORS Our Board of Directors currently consists of six members, five of whom who were elected at the 2019 Annual Meeting and one, Maribess L. Miller, who was appointed by the Board in November 2019. Each of our directors will serve until the 2020 Annual Meeting and until their successors have been elected and qualified. The Nominating and Governance Committee recommended to the Board of Directors our six directors as director nominees, each of whom is listed below under the heading “Nominees for Director.” After review and consideration by the Board of Directors, the Board nominated Donald R. Horton, Barbara K. Allen, Brad S. Anderson, Michael R. Buchanan, Michael W. Hewatt and Maribess L. Miller, as recommended by the Nominating and Governance Committee, for election as directors of D.R. Horton at the 2020 Annual Meeting. Unless otherwise specified in the accompanying proxy, the shares voted by proxy will be voted for each of the persons named below as nominees for election as directors. Nominees who are elected as directors will be elected for one-year terms and will serve until the next annual meeting of stockholders and their successors have been elected and qualified. We do not know of any reason why any of the nominees would be unable to serve. However, if any of the nominees is unable to serve or for good cause will not serve as a director at the time of the 2020 Annual Meeting, the Board may designate a substitute nominee or reduce the size of the Board. If the Board designates a substitute nominee, the persons named as proxies may vote “FOR” that substitute nominee. The D.R. Horton Bylaws require that to be elected, a director nominee must receive a majority of the votes cast with respect to such nominee in uncontested elections (the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee). In a contested election, where the number of nominees exceeds the number of directors to be elected (which is not the case at the 2020 Annual Meeting), the directors will be elected by a plurality of the shares present in person or by proxy and entitled to vote on the election of directors. Under the Corporate Governance Principles of the Company, any director who is not elected is required to tender his or her resignation to the Chairman of the Board within a reasonable time following certification of the vote. The Nominating and Governance Committee, which is composed of only independent directors, will consider the resignation offer and make a recommendation to the Board as to whether to accept or reject the resignation offer, or whether other action should be taken. The Board will act on the Nominating and Governance Committee’s recommendation within 90 days following certification of the election results. Thereafter, the Board will promptly publicly disclose in a report filed with the Securities and Exchange Commission (“SEC”) its decision regarding the director’s resignation offer (including the reason(s) for rejecting the resignation offer, if applicable).

  2. The Board of Directors Unanimously Recommends that Stockholders Vote “FOR”

    The Board of Directors Unanimously Recommends that Stockholders Vote “FOR” Each of the Following Director Nominees.

  3. Nominees for Director

    Nominees for Director The following is a summary of certain information regarding the nominees for election as directors. DONALD R. HORTON, age 69, director since 1991. Mr. Horton has been executive Chairman of the Board of D.R. Horton since it was formed in July 1991, and he was President and CEO from July 1991 through November 1998. He has been involved in the real estate and homebuilding industries since 1972, and he was the founder, sole or principal stockholder, director and president of each of D.R. Horton’s predecessor companies since their respective organization, which date from 1978 to 1990. Key Director Qualifications. Mr. Horton’s 41 years of extensive experience in the homebuilding industry provides valuable leadership to the Board and to the Company. Mr. Horton brings to the Board his experience as founder of the Company, Chairman of the Board and former CEO and President of the Company and its predecessor companies. Mr. Horton is also the largest individual stockholder of the Company. As founder of the Company, Mr. Horton has a unique understanding of all phases of the homebuilding business. Mr. Horton’s leadership and strategic vision provide the Board and the Company with distinct advantages in the homebuilding industry. BARBARA K. ALLEN, age 73, director since 2014. Ms. Allen has significant experience researching, analyzing and making investment decisions related to housing-related companies. Ms. Allen retired from Avondale Partners in July 2006 where she was a Partner and Housing, Construction and Retailing Analyst. From February 1997 through December 2004, she was the Home Construction, Building Materials, Home Furnishing and DIY (Do It Yourself) Retailing Analyst for Natexis Bleichroeder, Inc. Ms. Allen was a Vice President, Equity Research for Donaldson, Lufkin & Jenrette from January 1993 through January 1996. She served in other roles at Oppenheimer & Company, Kidder, Peabody, Inc., and Prudential Securities prior to January 1993. Ms. Allen has been a member of the Audit, Compensation and Nominating and Governance Committees since 2014. Key Director Qualifications. Ms. Allen’s extensive experience working as an analyst and consultant with housing-related companies provides valuable knowledge to the Board with regard to strategic decisions, including investment, operating and financing matters. BRAD S. ANDERSON, age 58, director since 1998. Mr. Anderson has been an Executive Vice President of CBRE Group, Inc., formerly CB Richard Ellis, Inc., an international real estate brokerage company, since 2009, and he has held various positions in Phoenix, Arizona with its predecessor, CB Commercial Real Estate Group, Inc., since January 1987. He served as Interim Chairman of the Board of Continental Homes Holding Corp. from October 1997 through April 1998, when it merged with D.R. Horton, and he became a director of D.R. Horton at that time. Mr. Anderson is also a member of the Board of Directors and a member of the audit committee of KS StateBank, a private bank. Mr. Anderson has been a member of both our Audit and Compensation Committees since 1998, and he has been a member of the Nominating and Governance Committee since November 2003. Key Director Qualifications. Mr. Anderson’s extensive experience working with an international real estate brokerage company allows him to bring beneficial insight and perspective to the Board, as a number of factors that affect the real estate brokerage industry also affect the homebuilding industry. Mr. Anderson also brings to the Board his valuable experience of formerly serving on another public homebuilding company’s board and serving on the Company’s Board and its Committees since 1998. MICHAEL R. BUCHANAN, age 72, director since 2003. Mr. Buchanan has significant commercial banking experience with several banking institutions serving the real estate and homebuilding sectors. He retired from commercial banking in March 2002. From March 2002 to March 2003, Mr. Buchanan was engaged as a senior advisor to Banc of America Securities. From 1998 to March 2002, Mr. Buchanan was a Managing Director of Bank of America, an executive officer position in which he was head of its national real estate banking group. From 1990 to 1998, Mr. Buchanan was an Executive Vice President of NationsBank, which later merged with Bank of America. Mr. Buchanan was appointed to our Board’s Audit Committee in July 2003, Nominating and Governance Committee in November 2003 and Compensation Committee in January 2004. Key Director Qualifications. Mr. Buchanan is a highly experienced commercial banker who served the real estate and homebuilding sectors. His experience in these areas allows him to provide the Board with both a broad-based and a granular perspective on the homebuilding industry. Mr. Buchanan also brings his experience of having served on a board of a real estate investment trust, thereby providing the Board with additional perspective on the real estate industry and serving on a board of directors. MICHAEL W. HEWATT, age 70, director since 2005. Mr. Hewatt, a certified public accountant, retired in 2018 from his accounting services practice in which he provided auditing and tax services since 1980. From 1971 to 1979, Mr. Hewatt worked in the tax and audit areas at Coopers & Lybrand (now PricewaterhouseCoopers LLP) and was an audit manager for five years during that period. Mr. Hewatt is a member of the American Institute of Certified Public Accountants, former member of the board of directors of the Texas Society of Certified Public Accountants and former President of the Texas Society of Certified Public Accountants — Fort Worth Chapter. Mr. Hewatt has been a director of D.R. Horton since 2005 and has been a member of the Audit, Compensation and Nominating and Governance Committees since that time. Key Director Qualifications. Mr. Hewatt has extensive experience working as a certified public accountant for a national and local firm. This experience enables Mr. Hewatt to provide valuable perspective on accounting, auditing and tax matters to the Board and its Committees. MARIBESS L. MILLER, age 66, director since November 2019. Ms. Miller, a certified public accountant, gained significant experience working on public and private auditing and consulting engagements during her 34 year career at PricewaterhouseCoopers (“PwC”). Ms. Miller worked for PwC from 1975 to 2009. She was a PwC practice partner from 1984 until her retirement in 2009. From 1986 through 1995, Ms. Miller served as managing partner in PwC’s Southwest Region Healthcare Audit Practice, and she became managing partner of PwC’s US Healthcare Audit Practice from 1995 to 1998. From 1998 to 2002, Ms. Miller was PwC’s practice leader in the Southwest Region Consumer, Industrial and Energy practice. From 2002 to 2009, Ms. Miller was PwC’s North Texas Market Managing Partner. Ms. Miller currently serves on the board of directors of Zix Corporation, a NASDAQ listed publicly-traded company. She was appointed to this board position in 2010, and she also serves on the audit committee, as chair, and serves as a member of its compensation committee. Ms. Miller also currently serves on the board of directors of Triumph Bancorp, NASDAQ listed publicly-traded company. She was appointed to this board position in 2014, and she also serves on its nominating and governance committee, as chair, and serves as a member of its audit committee. Key Director Qualifications. Ms. Miller has extensive experience in the auditing and consulting field working for PwC on public and private company audit and consulting engagements. Ms. Miller also gained significant leadership experience as a managing partner for PwC in several key positions throughout her 34 year career. Ms. Miller also has significant board experience serving on the board of directors of public and private companies, including serving in leadership positions on committees of these boards.

  4. Compensation of Directors

    Compensation of Directors Our Board of Directors approves the annual compensation and fees paid to our non-management directors, each of whom, other than Ms. Miller who was appointed after our 2019 fiscal year-end, is listed in the “Director Compensation for Fiscal 2019” table. The Board’s goal is to set non-management director compensation at a reasonable level of cash and equity compensation. The total annual compensation of directors has varied primarily due to the granting of long-term equity awards in certain years. Our Chairman, a member of executive management, does not receive any additional compensation for serving on the Board of Directors. Director Fees Paid in Cash. In fiscal 2019, each non-management director received $15,000 for each Board meeting attended in person or by telephone conference, paid quarterly and not to exceed $60,000 per year. In addition, each non-management director who served on a committee of the Board of Directors received an annual fee of $5,000 per committee, paid quarterly, and each non-management director who served as the Chair of a committee of the Board of Directors received an annual fee of $2,500 per committee, paid quarterly. Director Retainer Fees Paid in Restricted Stock Units. In the past, our non-management directors have received retainer fees paid in restricted stock units that vest annually in equal installments over three years. The retainer fees paid in restricted stock units are granted in 3-year increments. In January 2019, Ms. Allen, Mr. Anderson, Mr. Buchanan and Mr. Hewatt each received 12,000 of such retainer fee restricted stock units. Restricted Stock Units. Each of Ms. Allen, Mr. Anderson, Mr. Buchanan and Mr. Hewatt received a grant of 2,350 restricted stock units in November 2018 as reflected in the Director Compensation table below. These restricted stock units vest ratably over five years. In addition, when a new non-management director joins our Board, the Board of Directors may award restricted stock units to the new non-management director. Upon joining the Board in November 2019, Ms. Miller was awarded 5,000 restricted stock units, which vest ratably over five years. Expenses and Health Care Plan. Each non-management director is entitled to reimbursement for reasonable expenses relating to his or her service on the Board and any committee, including travel, meals and other related expenses. Each non-management director is also eligible to participate in the Company’s broad- based health care plan and Ms. Allen, Mr. Anderson, Mr. Buchanan and Mr. Hewatt each elected to participate in the plan in fiscal 2019.

  5. Director Compensation for Fiscal 2019

    Director Compensation for Fiscal 2019

  6. Director Compensation for Fiscal 2019

    | Name(1) | Fees Earned or Paid in Cash(2) | Stock Awards(3) | Option Awards(4) | All Other Compensation | Total | | Barbara K. Allen | $75,000 | $507,454 | — | — | $582,454 | | Brad S. Anderson | $77,500 | $507,454 | — | — | $584,954 | | Michael R. Buchanan | $77,500 | $507,454 | — | — | $584,954 | | Michael W. Hewatt | $77,500 | $507,454 | — | — | $584,954 |

  7. Director Compensation for Fiscal 2019

    | The Company pays director fees to only non-management directors.(1) |

  8. Director Compensation for Fiscal 2019

    | Amounts represent non-management director fees paid in cash during fiscal 2019.(2) |

  9. Director Compensation for Fiscal 2019

    | Amounts represent the grant date fair value of $33.64 per unit for the 2,350 restricted stock units granted to each non-management director on November 26, 2018 and the grant date fair value of $35.70 per unit for the 12,000 restricted stock units granted to each such director on January 23, 2019. The 12,000 restricted stock units relate to the director retainer fee and are awarded in 3-year increments. The grant date fair value of the restricted stock units was determined in accordance with the accounting guidance for share-based payments. The Company recognizes expense for these awards over the respective vesting period.(3) |

  10. Director Compensation for Fiscal 2019

    As of September 30, 2019, each non-management director held the following number of unvested restricted stock units:

  11. Director Compensation for Fiscal 2019

    | Name | Unvested Restricted Stock Units | | Barbara K. Allen | 18,439 | | Brad S. Anderson | 18,439 | | Michael R. Buchanan | 18,439 | | Michael W. Hewatt | 18,439 |

  12. Director Compensation for Fiscal 2019

    | The non-management directors did not receive stock option awards during fiscal 2019. As of September 30, 2019, each non-management director held the following number of outstanding vested and unvested stock options:(4) |

  13. Director Compensation for Fiscal 2019

    | | Outstanding Stock Options | | | Name | Vested | Unvested | | Barbara K. Allen | — | — | | Brad S. Anderson | 12,500 | — | | Michael R. Buchanan | — | — | | Michael W. Hewatt | 8,000 | — |

  14. Overview

    Overview Our Compensation Committee strives to design a fair and competitive compensation program for executive officers that will attract, motivate and retain highly qualified and experienced executives, reward superior performance and provide incentives that are based on the performance of the Company, with an overall emphasis on maximizing our long-term stockholder value. Our executive compensation program consists of several components, including base salaries, cash bonuses, performance-based equity awards, time-based equity awards, deferred compensation plans and retirement benefits. This compensation discussion and analysis provides information regarding our compensation objectives, the relationship between the components of our compensation program and our objectives, and factors considered by the Compensation Committee in establishing fiscal 2019 compensation levels for our named executive officers. Our fiscal 2019 named executive officers are:

  15. Executive Compensation Objectives

    | • | award compensation that recognizes valuable short and long-term individual performance as well as the Company’s overall performance; and |

  16. Executive Compensation Objectives

    | • | align our executives’ interests with those of our stockholders with the goal of maximizing long-term stockholder value. |

  17. Components of Compensation

    | • | Short-Term Incentive Bonus (based on achieving pre-tax income) |

  18. Components of Compensation

    | • | Discretionary Performance Bonus |

  19. Components of Compensation

    | • | Restricted Stock Units based on Performance Goals (achieving four performance goals over a three-year period) |

  20. Components of Compensation

    | • | Restricted Stock Units based on Time (continuous employment over a three or five-year period) |

  21. 2019 Advisory Vote on Executive Compensation

    | • | Adopted “double trigger” accelerated vesting in the event of a change in control for future time-based equity awards granted to our executive officers commencing in fiscal 2020. See heading “Double Trigger Acceleration of Vesting in Change in Control” on page 41. |

  22. 2019 Advisory Vote on Executive Compensation

    | • | Placed a limit or cap on the amount of Pre-Tax Income Performance Bonus that may be paid for the fiscal year. See heading “2019 Fiscal Year - Pre-Tax Income Performance Bonus” on page 29. |

  23. Use of Compensation Peer Group Data

    Use of Compensation Peer Group Data The Compensation Committee utilizes compensation data from our peer group of publicly-traded homebuilding companies to analyze compensation decisions in light of current market conditions and practices and to ensure that our compensation decisions are reasonable in comparison to our peer group and the value of our executives to the Company. However, the Compensation Committee does not attempt to position compensation at any specified level or ranking within our peer group. In fiscal 2019, the peer group compensation data was compiled by the Compensation Committee Chairman and the Company’s Corporate Counsel and Secretary using information from Equilar’s database and from the data in executive compensation discussions and tables in publicly filed proxy statements. When determining peer group averages, rankings and medians, we include our Company and each company in our peer group in the rankings and computations. Our peer group may change from year to year based on the discretion of the Compensation Committee or other events such as mergers and acquisitions. Our Compensation Committee considers factors such as market capitalization, competition in our markets and mergers and consolidations when determining our peer group. Our peer group for fiscal 2019 remained unchanged from fiscal 2018 and consisted of the following publicly-traded homebuilding companies that had market capitalizations ranging from approximately $2.1 billion to $17.6 billion at September 30, 2019. Our market capitalization on that date was $19.4 billion.

  24. Use of Compensation Peer Group Data

    | Peer Group | | | KB Home | PulteGroup | | Lennar | Taylor Morrison | | M.D.C. Holdings | Toll Brothers | | Meritage Homes | TRI Pointe Group | | NVR | |

  25. Outline of Executive Compensation Actions

    Outline of Executive Compensation Actions For fiscal 2019, the Compensation Committee took actions on matters related to executive compensation as outlined below. These executive compensation components are discussed in more detail under the referenced headings in this “Compensation Discussion and Analysis” section. Base Salaries – The Board and Compensation Committee set and paid base salaries. See the heading “Base Salaries – Named Executive Officers” below. Cash Bonuses – The Compensation Committee reviewed and awarded cash bonuses in fiscal 2019. See the headings “2019 Fiscal Year – Pre-Tax Income Performance Bonus Results and Payout” on page 30 and “2019 Fiscal Year – Annual Discretionary Performance Bonus” on page 30. Performance Restricted Stock Units – The Compensation Committee reviewed the level of performance goals achieved for the 2019 Performance RSUs and settled these awards in shares of common stock for Mr. Horton, Mr. Auld and Mr. Murray. See the heading “2019 Performance Restricted Stock Units – Ranking Results and Vesting at September 30, 2019” on page 33. Time-Based Restricted Stock Units – The Compensation Committee approved and granted time-based RSUs to our executive officers and other key employees in fiscal 2019. See the heading “Equity Compensation: Performance and Time-Based” on pages 31 and 32.

  26. Cash Compensation: Base Salaries and Performance Bonuses

    Cash Compensation: Base Salaries and Performance Bonuses

  27. 2019 Fiscal Year – Pre-Tax Income Performance Bonus

    2019 Fiscal Year – Pre-Tax Income Performance Bonus Chairman, Chief Executive Officer and Chief Operating Officer. During fiscal 2019, in furtherance of our compensation philosophy to award incentive bonuses based on performance, Mr. Horton, Mr. Auld and Mr. Murray each had the opportunity to earn a performance bonus based on the amount of pre-tax income (the “Pre-Tax Income Performance Bonus”) earned by the Company during the year. “Pre-tax income” means consolidated income before income taxes, as publicly reported by the Company in its consolidated financial statements prepared in accordance with generally accepted accounting principles. The Pre-Tax Income Performance Bonus focuses Mr. Horton, Mr. Auld and Mr. Murray on generating and growing pre-tax income and profitability. We believe that through achieving strong pre-tax income and profit our Company will also achieve strong financial and operating results as reflected in the table under the heading “Key results in fiscal years 2019, 2018 and 2017” on page 24. In addition, we believe our pre-tax income results have led to the strong performance in our stockholders’ equity, book value per common share and total market capitalization, which ties pre-tax income and profitability results to key stock metrics that are important to our stockholders, thereby aligning the interests of our executives with the interests of our stockholders. The maximum payout or cap related to a Pre-Tax Income Performance Bonus in fiscal 2019 was based on the pre-tax income percentages in the table below. Although the 2018 Incentive Plan (see “Incentive Bonus Plans” on page 41) has a higher maximum bonus limit, the Compensation Committee limited or placed a cap on the maximum Pre-Tax Income Performance Bonus for fiscal 2019 based on the percentages in the table below. The Compensation Committee sets these percentages each year at the beginning of the fiscal year. The Compensation Committee has discretion to adjust the Pre-Tax Income Performance Bonus downward, but not upward, therefore the limit or cap cannot be exceeded. The maximum percentage of pre-tax income that could be earned under the Pre-Tax Income Performance Bonus for fiscal 2019 is based on the percentages in the Pre-Tax Income Performance Goal Table below:

  28. 2019 Fiscal Year – Pre-Tax Income Performance Bonus

    | | | Maximum Bonus Potential | | | Name | Fiscal 2019 Performance Goal | 1st Semi-Annual Period | 2nd Semi-Annual Period | | Donald R. Horton | Pre-Tax Income | 0.60% | 0.60% | | David V. Auld | Pre-Tax Income | 0.40% | 0.40% | | Michael J. Murray | Pre-Tax Income | 0.15% | 0.15% |

  29. 2019 Fiscal Year – Pre-Tax Income Performance Bonus

    The 1st semi-annual period was the six months ended March 31, 2019 (first and second quarters of fiscal 2019) and the 2nd semi-annual period was the six months ended September 30, 2019 (third and fourth quarters of fiscal 2019). The hurdle or threshold for achieving an annual incentive bonus was the attainment of pre-tax income. If no pre-tax income was attained, then no bonus would be paid under the Pre-Tax Income Performance Bonus. The bonuses paid under this program are paid in cash. At the beginning of fiscal 2019, the Compensation Committee decided to continue to use 0.6% of pre-tax income for Mr. Horton, 0.4% for Mr. Auld and 0.15% for Mr. Murray as the maximum bonus under the Pre-Tax Income Performance Bonus. The Committee’s decision was based on its determination that if the projected pre-tax income is achieved, the Pre-Tax Income Performance Bonus paid to our executives would be reasonable and in line with the financial and operating metrics attained by the Company when it has strong pre-tax income and profitability as reflected in our key results under the heading “Key results in fiscal years 2019, 2018 and 2017” on page 24. The percentage chosen for the Pre-Tax Income Performance Bonus is not based on any formulaic methodology. For fiscal 2019, the Compensation Committee believed that by using a percentage of pre-tax income, we would incent our Chairman, CEO and COO to achieve higher levels of pre-tax income resulting in higher profitability, which aligns their interests with those of our stockholders. By using annual pre-tax income as a performance goal, we believe this drives short-term performance which we believe over time will lead to better long-term performance. Because the selection of 0.6%, 0.4% and 0.15% as the maximum percentages was a subjective determination, and not one based on any formulaic method or benchmark other than as described herein, the Compensation Committee maintained the right to use its discretion to adjust downward, but not upward, the amount to be paid for this award. The Compensation Committee did not use its discretion to adjust the bonus payouts for fiscal 2019.

  30. 2019 Fiscal Year – Pre-Tax Income Performance Bonus Results and Payout

    2019 Fiscal Year – Pre-Tax Income Performance Bonus Results and Payout The table below sets forth the Company’s pre-tax income and Pre-Tax Income Performance Bonuses paid in cash for fiscal 2019 to Mr. Horton, Mr. Auld and Mr. Murray:

  31. 2019 Fiscal Year – Pre-Tax Income Performance Bonus Results and Payout

    | | Performance Goal: Pre-Tax Income (“PTI”) | | | | | | | | | | Donald R. Horton Chairman | | David V. Auld Chief Executive Officer | | Michael J. Murray Chief Operating Officer | | | Semi-Annual Period | PTI | Maximum Bonus Percentage | Bonus Paid | Maximum Bonus Percentage | Bonus Paid | Maximum Bonus Percentage | Bonus Paid | | 1st Semi-Annual Period Ended March 31, 2019 | $838,514,347 | 0.6% | $5,031,086 | 0.4% | $3,354,057 | 0.15% | $1,257,772 | | 2nd Semi-Annual Period Ended September 30, 2019 | $1,286,774,868 | 0.6% | $7,720,649 | 0.4% | $5,147,099 | 0.15% | $1,930,162 | | Annual Amount | $2,125,289,215 | 0.6% | $12,751,735 | 0.4% | $8,501,156 | 0.15% | $3,187,934 |

  32. 2019 Fiscal Year – Annual Discretionary Performance Bonus

    2019 Fiscal Year – Annual Discretionary Performance Bonus Chief Financial Officer – Mr. Wheat. During fiscal 2019, the Board of Directors approved discretionary performance bonuses for Mr. Wheat on a semi-annual basis. For the first semi-annual period ended March 31, 2019, Mr. Wheat received a $500,000 bonus, and for the second semi-annual period ended September 30, 2019, he received a $1,250,000 bonus, for a total bonus of $1,750,000. Mr. Wheat’s total fiscal 2019 discretionary bonus of $1,750,000 was $250,000 more than the bonuses he received in the prior year. The increase to Mr. Wheat’s bonus was discretionary, but factors considered in setting this bonus level included the financial and operating performance of the Company in fiscal 2019, which included higher levels of profitability in fiscal 2019 compared to fiscal 2018 and the individual performance of Mr. Wheat in his areas of responsibility. The process of awarding a discretionary bonus to Mr. Wheat included review and consideration by our Chairman and CEO. Our Chairman made a recommendation to the Compensation Committee who then considered the recommendation and made a recommendation to the Board of Directors. The discretionary bonus was not based on specific quantitative formulas, percentages or numerical weightings, but rather was related to subjective evaluations of the Company’s level of profitability relative to the prior year, job performance and the level of retention risk related to the Company’s ability to continue to employ Mr. Wheat as our CFO. The amount of discretionary bonus awarded to Mr. Wheat was not benchmarked or tied to any other performance metrics or pay of similar executives at peer companies, although the Compensation Committee did generally review the pay of chief financial officers in our peer group. Mr. Wheat’s responsibilities within the Company were considered when determining the amount of his discretionary bonus. As Executive Vice President and CFO, Mr. Wheat works closely with our Chairman, CEO and COO in setting operational and financial strategies for our operations, communicating and implementing such strategies across the Company, analyzing and monitoring the Company’s performance and reviewing and approving investments in land and lots. These operational strategies include our homebuilding and financial services business plans and incentive compensation, land and lot investment criteria, level of homes in inventory, expense levels, capital structure and liquidity goals, among others. Mr. Wheat also provides executive management direction and oversight to the financial services operations and serves as a director on the boards of the Company’s mortgage and insurance subsidiaries. Mr. Wheat has direct responsibility for the Company’s financial management and financial reporting process, including the Company’s financial projections and cash forecasts, the effectiveness and integrity of the Company’s financial, internal and disclosure controls and procedures, and compliance with all applicable financial reporting rules and regulations for public companies. Mr. Wheat is also directly responsible for providing executive management oversight of the Company’s accounting, management reporting, internal audit, finance, treasury, tax, information technology and human resources functions. Additionally, Mr. Wheat is directly involved in the Company’s investor relations and public communications processes, including interactions with investors in the Company’s equity and debt securities and industry research analysts.

  33. Equity Compensation: Performance and Time-Based

    Equity Compensation: Performance and Time-Based Our Compensation Committee believes that executive compensation should include performance equity awards and time-based equity awards as the primary long-term compensation components. These two types of equity awards vest based on achieving performance goals or continued employment service. We believe long-term equity compensation aligns the financial interests of our executive officers and stockholders. Stock prices in the homebuilding industry may fluctuate from quarter to quarter or year to year but we believe by focusing on achieving consistent operating and financial performance over successive three and five year periods that we focus on the long-term performance of the Company. We believe our successful operating and financial results for the last three fiscal years shown in the table under the heading “Key Results in fiscal years 2019, 2018 and 2017” on page 24 are reflective of our long-term strategy. Performance Equity. We award our executive officers performance equity in the form of performance restricted stock units, which are earned based on achieving four key performance goals over a three-year period as further set forth on the following pages. The primary purpose of these awards is to motivate our executives to achieve financial and operating performance of the four separate performance goals, which we believe will drive long-term value to our stockholders. Time-Based Equity. We award our executive officers time-based equity in the form of restricted stock units that vest over three or five years based on continued employment with the Company. The primary purpose of these awards is to retain the services of our executive officers who have significant experience and demonstrated superior performance in the homebuilding industry. The Compensation Committee further demonstrates its belief in the retention value of time-based restricted stock units by expanding time-based equity grants to a broad group of key employees throughout the Company.

  34. Equity Compensation: Performance and Time-Based

    | • | Performance RSUs determination. At the beginning of each fiscal year, the Compensation Committee reviews the number and value of performance restricted stock units (“Performance RSUs”) to be awarded for a new three-year performance period. The Compensation Committee reviews the target number of Performance RSUs, the maximum number of Performance RSUs and the expected grant value of such awards. The Compensation Committee also takes into account the target grant value compared with the other components of executive compensation and how that value impacts the total value of all the executive’s compensation for the fiscal year. In fiscal 2019, the Compensation Committee awarded the same target number of Performance RSUs to its executive officers as it did in fiscal 2018. In fiscal 2019, Mr. Horton received 200,000 target Performance RSUs with a grant value of $7,550,000, Mr. Auld received 100,000 target Performance RSUs with a grant value of $3,775,000, Mr. Murray received 30,000 target Performance RSUs with a grant value of $1,132,500 and Mr. Wheat received 30,000 target Performance RSUs with a grant value of $1,132,500. In determining the target number of Performance RSUs to grant each year to our executives, the Compensation Committee takes into consideration the grant value of these awards together with the grant value of the Time-Based RSUs. As another factor in granting Performance RSUs, the Compensation Committee considers the long-term value to the Company and its stockholders of achieving the top of the range potential for the four operating and financial performance goals. |

  35. Equity Compensation: Performance and Time-Based

    | • | Time-Based RSUs determination. In fiscal 2019, the Compensation Committee reviewed the number and value of time-based restricted stock units (“Time-Based RSUs”) to be awarded for a new three-year period for Mr. Horton and Mr. Auld and for a new five-year period for Mr. Murray and Mr. Wheat. The Compensation Committee believes that awarding Time-Based RSUs annually that vest in equal installments over a three or five-year period provides effective retention of its executives. In fiscal 2019, Mr. Horton received 84,600 Time-Based RSUs with a grant value of $2,920,392, Mr. Auld received 33,850 Time-Based RSUs with a grant value of $1,168,502, Mr. Murray received 29,650 Time-Based RSUs with a grant value of $997,426 and Mr. Wheat received 29,650 Time-Based RSUs with a grant value of $997,426. In determining the number of Time-Based RSUs to grant each year to our executives, the Compensation Committee takes into consideration the grant value of these awards together with the grant value of the Performance RSUs. In determining to grant a lower number of Time-Based RSUs compared to the number of Performance RSUs granted in fiscal 2019, the committee considered that an installment of Time-Based RSUs vests annually providing significant value to the executive officer each year. |

  36. 2019 Performance Restricted Stock Units – Ranking Results and Vesting at September 30, 2019

    2019 Performance Restricted Stock Units – Ranking Results and Vesting at September 30, 2019 Chairman, Chief Executive Officer and Chief Operating Officer. In November 2019, the Compensation Committee reviewed the performance achieved on the performance restricted stock units granted in November 2016 (the “2019 Performance RSUs”) to Mr. Horton, Mr. Auld and Mr. Murray. The 2019 Performance RSUs had a three-year performance period of October 1, 2016 through September 30, 2019 (the “2019 Performance Period”). The 2019 Performance RSUs vested based on achieving performance under the four performance goals (“Performance Goals”) in the table below. The number of shares earned and paid are set forth in the table under the heading “2019 Performance RSUs Final Results—Earned and Paid” on page 37.

  37. 2019 Performance Restricted Stock Units – Ranking Results and Vesting at September 30, 2019

    | Performance Goal | Performance Comparison | Weighting to Total Award | | Relative TSR | S&P 500 Index TSR | 25% | | Relative ROI | Peer Group | 25% | | Relative SG&A | Peer Group | 25% | | Relative GP | Peer Group | 25% |

  38. 2019 Performance Restricted Stock Units – Ranking Results and Vesting at September 30, 2019

    | TSR: | means “total shareholder return” (stock price increases and decreases plus dividends) of the Company over the 2019 Performance Period as determined by Standard and Poor’s using the same methodology used by Standard and Poor’s in preparing the stock performance graph included each year in the Company’s Form 10-K. |

  39. 2019 Performance Restricted Stock Units – Ranking Results and Vesting at September 30, 2019

    | ROI: | means “return on investment” which is consolidated pre-tax income or loss divided by average total assets over the 2019 Performance Period. |

  40. 2019 Performance Restricted Stock Units – Ranking Results and Vesting at September 30, 2019

    | SG&A: | means consolidated “selling, general and administrative expense” (including corporate general and administrative expenses) as a percentage of consolidated revenues over the 2019 Performance Period. |

  41. 2019 Performance Restricted Stock Units – Ranking Results and Vesting at September 30, 2019

    | GP: | means “gross profit” defined as homebuilding revenues minus homebuilding cost of sales, including inventory and land option charges, divided by homebuilding revenues over the 2019 Performance Period. |

  42. 2019 Performance Restricted Stock Units – Ranking Results and Vesting at September 30, 2019

    The following table sets forth the potential performance adjustments that could have been made to the 2019 Performance RSUs based on the final performance rankings of the peer group and the Company.

  43. Donald R. Horton

    | TSR Portion of Award (weighted 25% of target award) | | | | Company TSR Relative to S&P 500 Index TSR | Payout | Number of Performance RSUs Awarded | | Percentage Points Below Index: | | | | 10 Percentage Points | | zero | | 9 Percentage Points | Threshold | 5,000 | | 8 Percentage Points | | 10,000 | | 7 Percentage Points | | 15,000 | | 6 Percentage Points | | 20,000 | | 5 Percentage Points | | 25,000 | | 4 Percentage Points | | 30,000 | | 3 Percentage Points | | 35,000 | | 2 Percentage Points | | 40,000 | | 1 Percentage Point | | 45,000 | | Equal to S&P 500 Index TSR | Target | 50,000(1) | | Percentage Points Above Index: | | | | 1 Percentage Point | | 55,000 | | 2 Percentage Points | | 60,000 | | 3 Percentage Points | | 65,000 | | 4 Percentage Points | | 70,000 | | 5 Percentage Points | | 75,000 | | 6 Percentage Points | | 80,000 | | 7 Percentage Points | | 85,000 | | 8 Percentage Points | | 90,000 | | 9 Percentage Points | | 95,000 | | 10 Percentage Points | Maximum | 100,000 |

  44. Donald R. Horton

    | ROI, SG&A and GP Portions of Award (each weighted 25% of target award) | | | | Performance Level Compared to Peer Group | Payout | Number of Performance RSUs Awarded | | 11(th) Place | | zero | | 10(th) Place | Threshold | 25,000 | | 9(th) Place | | 50,000 | | 8(th) Place | | 75,000 | | 7(th) Place | | 100,000 | | 6(th) Place | | 125,000 | | 5(th) Place | Target | 150,000(2) | | 4(th) Place | | 187,500 | | 3(rd) Place | | 225,000 | | 2(nd) Place | | 262,500 | | 1(st) Place | Maximum | 300,000 |

  45. David V. Auld

    | TSR Portion of Award (weighted 25% of target award) | | | | Company TSR Relative to S&P 500 Index TSR | Payout | Number of Performance RSUs Awarded | | Percentage Points Below Index: | | | | 10 Percentage Points | | zero | | 9 Percentage Points | Threshold | 2,500 | | 8 Percentage Points | | 5,000 | | 7 Percentage Points | | 7,500 | | 6 Percentage Points | | 10,000 | | 5 Percentage Points | | 12,500 | | 4 Percentage Points | | 15,000 | | 3 Percentage Points | | 17,500 | | 2 Percentage Points | | 20,000 | | 1 Percentage Point | | 22,500 | | Equal to S&P 500 Index TSR | Target | 25,000(1) | | Percentage Points Above Index: | | | | 1 Percentage Point | | 27,500 | | 2 Percentage Points | | 30,000 | | 3 Percentage Points | | 32,500 | | 4 Percentage Points | | 35,000 | | 5 Percentage Points | | 37,500 | | 6 Percentage Points | | 40,000 | | 7 Percentage Points | | 42,500 | | 8 Percentage Points | | 45,000 | | 9 Percentage Points | | 47,500 | | 10 Percentage Points | Maximum | 50,000 |

  46. David V. Auld

    | ROI, SG&A and GP Portions of Award (each weighted 25% of target award) | | | | Performance Level Compared to Peer Group | Payout | Number of Performance RSUs Awarded | | 11(th) Place | | zero | | 10(th) Place | Threshold | 12,500 | | 9(th) Place | | 25,000 | | 8(th) Place | | 37,500 | | 7(th) Place | | 50,000 | | 6(th) Place | | 62,500 | | 5(th) Place | Target | 75,000(2) | | 4(th) Place | | 93,750 | | 3(rd) Place | | 112,500 | | 2(nd) Place | | 131,250 | | 1(st) Place | Maximum | 150,000 |

  47. Michael J. Murray

    | TSR Portion of Award (weighted 25% of target award) | | | | Company TSR Relative to S&P 500 Index TSR | Payout | Number of Performance RSUs Awarded | | Percentage Points Below Index: | | | | 10 Percentage Points | | zero | | 9 Percentage Points | Threshold | 750 | | 8 Percentage Points | | 1,500 | | 7 Percentage Points | | 2,250 | | 6 Percentage Points | | 3,000 | | 5 Percentage Points | | 3,750 | | 4 Percentage Points | | 4,500 | | 3 Percentage Points | | 5,250 | | 2 Percentage Points | | 6,000 | | 1 Percentage Point | | 6,750 | | Equal to S&P 500 Index TSR | Target | 7,500(1) | | Percentage Points Above Index: | | | | 1 Percentage Point | | 8,250 | | 2 Percentage Points | | 9,000 | | 3 Percentage Points | | 9,750 | | 4 Percentage Points | | 10,500 | | 5 Percentage Points | | 11,250 | | 6 Percentage Points | | 12,000 | | 7 Percentage Points | | 12,750 | | 8 Percentage Points | | 13,500 | | 9 Percentage Points | | 14,250 | | 10 Percentage Points | Maximum | 15,000 |

  48. Michael J. Murray

    | ROI, SG&A and GP Portions of Award (each weighted 25% of target award) | | | | Performance Level Compared to Peer Group | Payout | Number of Performance RSUs Awarded | | 11(th) Place | | zero | | 10(th) Place | Threshold | 3,750 | | 9(th) Place | | 7,500 | | 8(th) Place | | 11,250 | | 7(th) Place | | 15,000 | | 6(th) Place | | 18,750 | | 5(th) Place | Target | 22,500(2) | | 4(th) Place | | 28,125 | | 3(rd) Place | | 33,750 | | 2(nd) Place | | 39,375 | | 1(st) Place | Maximum | 45,000 |

  49. Michael J. Murray

    As set forth in the rankings tables above, the target number of 2019 Performance RSUs could have been increased to a maximum of 400,000 for Mr. Horton, 200,000 for Mr. Auld and 60,000 for Mr. Murray upon maximum achievement of each of the four Performance Goals and decreased to a minimum of zero for Mr. Horton, Mr. Auld and Mr. Murray in the event of below threshold achievement of each of the four Performance Goals. For the 2019 Performance RSUs, the Company’s peer group consisted of the following publicly-traded homebuilding companies: KB Home, Lennar, M.D.C. Holdings, Meritage Homes, NVR, PulteGroup, Taylor Morrison, Toll Brothers, and Tri Pointe. When the 2019 Performance RSUs were granted, CalAtlantic Group was included in the peer group. When CalAtlantic Group merged with Lennar in February 2018, they were removed from the peer group. Each 2019 Performance RSU represented the contingent right to receive one share of common stock if vesting was satisfied. The 2019 Performance RSUs had no rights to dividends or voting prior to vesting and payout in common stock. Vesting of the 2019 Performance RSUs with respect to the TSR Performance Goal was determined after the 2019 Performance Period based on a comparison of the Company’s TSR to the S&P 500 Index’s TSR as computed by Standard and Poor’s using their TSR methodology. Vesting of the 2019 Performance RSUs with respect to the ROI, SG&A and GP Performance Goals was determined after the 2019 Performance Period based on the relative ranking of the Company’s performance on each Performance Goal to each peer group company’s performance on each Performance Goal. The hurdle or threshold for earning or vesting in any portion of the 2019 Performance RSUs with respect to the TSR goal was to perform better than ten percentage points below the S&P 500 Index. The hurdle or threshold for earning or vesting in any portion of the 2019 Performance RSUs with respect to the ROI, SG&A and GP Performance Goals was to perform no worse than tenth place because in that event no bonus for that specific goal would be earned. The following tables set forth the final relative rankings for the TSR, ROI, SG&A and GP performance goals with respect to the 2019 Performance RSUs:

  50. 2019 Performance RSUs

    2019 Performance RSUs

  51. 2019 Performance RSUs

    2019 Performance RSUs

  52. Final Results – Earned and Paid

    | Final Company Performance Rankings | Donald R. Horton | | David V. Auld | | Michael J. Murray | | | | Target Number of RSUs Awarded | Number of RSUs Earned | Target Number of RSUs Awarded | Number of RSUs Earned | Target Number of RSUs Awarded | Number of RSUs Earned | | TSR = 10+ Points Above | 50,000 Units | 100,000 Units | 25,000 Units | 50,000 Units | 7,500 Units | 15,000 Units | | ROI = 2nd Place | 50,000 Units | 87,500 Units | 25,000 Units | 43,750 Units | 7,500 Units | 13,125 Units | | SG&A = 4th Place | 50,000 Units | 62,500 Units | 25,000 Units | 31,250 Units | 7,500 Units | 9,375 Units | | GP = 5th Place | 50,000 Units | 50,000 Units | 25,000 Units | 25,000 Units | 7,500 Units | 7,500 Units | | | 200,000 Units | 300,000 Units | 100,000 Units | 150,000 Units | 30,000 Units | 45,000 Units |

  53. 2019 Fiscal Year – Award of 2021 Performance Restricted Stock Units – Potential Vesting at September 30, 2021

    2019 Fiscal Year – Award of 2021 Performance Restricted Stock Units – Potential Vesting at September 30, 2021 Chairman, Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. Under our long-term incentive program, our Chairman, CEO, COO and CFO have the opportunity to earn incentive awards based on performance over a period longer than one year. By awarding a portion of compensation over a longer time period, the interests of these executives are aligned with the interests of our stockholders. In the first quarter of fiscal 2019, the Compensation Committee awarded performance restricted stock units (the “2021 Performance RSUs”) to Mr. Horton, Mr. Auld, Mr. Murray and Mr. Wheat as follows:

  54. 2019 Fiscal Year – Award of 2021 Performance Restricted Stock Units – Potential Vesting at September 30, 2021

    | Name | Target Number of 2021 Performance RSUs | | Donald R. Horton | 200,000 | | David V. Auld | 100,000 | | Michael J. Murray | 30,000 | | Bill W. Wheat | 30,000 |

  55. 2019 Fiscal Year – Award of 2021 Performance Restricted Stock Units – Potential Vesting at September 30, 2021

    The 2021 Performance RSUs include the same four performance goals of relative TSR, relative ROI, relative SG&A and relative GP, and will vest, if at all, based on the final performance rankings after the completion of the performance period, which is the three-year period of October 1, 2018 through September 30, 2021 (the “2021 Performance Period”). The four performance goals and weightings for each award are similar to those set forth on page 33 and are discussed below in the tables and discussion on pages 34 through 36. The Compensation Committee chose the relative TSR performance goal because TSR takes into account changes in our stock price plus dividends paid compared to the S&P 500 Index. By comparing our TSR to the S&P 500 Index, we have a goal that incents our executives to achieve a return to our stockholders that is better than the return achieved by a broad-based index of companies. We believe the three performance goals of relative ROI, relative SG&A and relative GP are important internal operating metrics. ROI incents our executives to achieve operating profitability relative to our total assets, which measures our efficiency at using our assets to generate pre-tax income. SG&A incents our executives to control selling, general and administrative expenses. GP incents our executives to maximize our sales prices and control sales incentives and costs of sales, which are composed of the costs of land, labor, materials and products used in building our homes. In fiscal 2019, when determining the target number of 2021 Performance RSUs to grant, the Compensation Committee reviewed the Company’s performance and the estimated annual compensation expense for these awards in relation to the Company’s estimated annual financial metrics, such as revenue and pre-tax income. The Compensation Committee chose to further incent these executive officers by potentially increasing the target up to the maximum (two times the target amount) in the event that maximum performance is achieved on the four Performance Goals. When the 2021 Performance RSUs were granted, the target and maximum amounts were subjective determinations and not based on any formulaic method or benchmark. The target number of 2021 Performance RSUs may be increased to a maximum of 400,000 for Mr. Horton, 200,000 for Mr. Auld and 60,000 each for Mr. Murray and Mr. Wheat upon maximum achievement of each of the four Performance Goals and decreased to a minimum of zero for Mr. Horton, Mr. Auld, Mr. Murray and Mr. Wheat in the event of below-threshold achievement of each of the four Performance Goals. Performance and percentages that fall between the maximum and the threshold will be ranked using pro-rata linear interpolation between the points set forth in the tables above. For the 2021 Performance RSUs, the Company’s peer group consists of the following publicly-traded homebuilding companies: KB Home, Lennar, M.D.C. Holdings, Meritage Homes, NVR, PulteGroup, Taylor Morrison, Toll Brothers and TRI Pointe Group. Each 2021 Performance RSU represents the contingent right to receive one share of common stock if vesting is satisfied. The 2021 Performance RSUs have no rights to dividends or voting. Vesting of the 2021 Performance RSUs with respect to the TSR Performance Goal will be determined after the 2021 Performance Period based on a comparison of the Company’s TSR to the S&P 500 Index’s TSR as computed by Standard and Poor’s using their TSR methodology. Vesting of the 2021 Performance RSUs with respect to the ROI, SG&A and GP Performance Goals will be determined after the 2021 Performance Period based on the relative ranking of the Company’s performance on each Performance Goal compared to each peer group company’s performance on each Performance Goal. Any portion of the Performance RSUs that does not vest due to performance below the threshold will be forfeited. The hurdle or threshold for earning 2021 Performance RSUs with respect to the TSR goal is to perform better than ten percentage points below the S&P 500 Index. The hurdle or threshold for earning 2021 Performance RSUs with respect to the ROI, SG&A and GP Performance Goals is to perform no worse than ninth place because in that event no bonus for that specific goal would be earned. Additional information on the grant date fair value of the 2021 Performance RSUs is set forth in the “Summary Compensation Table” on page 44 and the “Grants of Plan-Based Awards” table on page 46.

  56. 2020 Fiscal Year – Pre-Tax Income Performance Bonus And Discretionary Bonus

    2020 Fiscal Year – Pre-Tax Income Performance Bonus And Discretionary Bonus Chairman, Chief Executive Officer, and Chief Operating Officer. The Compensation Committee has decided to continue the Pre-Tax Income Performance Bonus based on the same pre-tax income targets for Mr. Horton, Mr. Auld and Mr. Murray for fiscal 2020.

  57. 2020 Fiscal Year – Pre-Tax Income Performance Bonus And Discretionary Bonus

    | Name | Fiscal 2020 Performance Goal | Maximum Bonus Potential | | | | | 1(st) Semi-Annual Period | 2(nd)Semi-Annual Period | | Donald R. Horton | Pre-Tax Income | 0.60% | 0.60% | | David V. Auld | Pre-Tax Income | 0.40% | 0.40% | | Michael J. Murray | Pre-Tax Income | 0.15% | 0.15% |

  58. 2020 Fiscal Year – Pre-Tax Income Performance Bonus And Discretionary Bonus

    The maximum payout or cap related to a Pre-Tax Income Performance Bonus is based on the Pre-Tax Income percentages in the table above. Although the 2018 Incentive Plan has a higher maximum bonus limit, the Compensation Committee limited or placed a cap on the maximum Pre-Tax Income Performance Bonus to the percentages in the table above. The Compensation Committee sets these percentages each year at the beginning of the fiscal year. The Compensation Committee has discretion to adjust the Pre-Tax Income Performance Bonus downward, but not upward, therefore the limit or cap cannot be exceeded. Chief Financial Officer. Mr. Wheat’s annual bonus will be discretionary in nature and based on the performance of his duties described under the heading “2019 Fiscal Year – Annual Discretionary Performance Bonus” beginning on page 30.

  59. 2020 Fiscal Year – Award of 2022 Performance Restricted Stock Units – Potential Vesting at September 30, 2022

    2020 Fiscal Year – Award of 2022 Performance Restricted Stock Units – Potential Vesting at September 30, 2022 Chairman, Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. During the first quarter of fiscal 2020, the Compensation Committee approved and awarded the 2022 Performance Restricted Stock Units (“2022 Performance RSUs”) to Mr. Horton, Mr. Auld, Mr. Murray and Mr. Wheat as follows:

  60. 2020 Fiscal Year – Award of 2022 Performance Restricted Stock Units – Potential Vesting at September 30, 2022

    | Name | Target Number of 2022 Performance RSUs | | Donald R. Horton | 200,000 | | David V. Auld | 100,000 | | Michael J. Murray | 30,000 | | Bill W. Wheat | 30,000 |

  61. 2020 Fiscal Year – Award of 2022 Performance Restricted Stock Units – Potential Vesting at September 30, 2022

    The 2022 Performance RSUs may vest based on the Company’s final performance rankings after the completion of the three-year performance period of October 1, 2019 through September 30, 2022. The 2022 Performance RSUs operate in a similar manner as the 2021 Performance RSUs awarded, as discussed in the section “2019 Fiscal Year – Award of 2021 Performance Restricted Stock Units – Potential Vesting at September 30, 2021” on page 38.

  62. Retirement Benefits

    Retirement Benefits Our executive officers do not participate in any qualified defined benefit plans, but they do participate in the retirement plans described below. We believe that it is important to offer these retirement plans to our executive officers as part of a competitive long-term compensation program that encourages saving for retirement and that promotes long-term retention. Profit Sharing Plus Plan (“401(k) plan”). Our executive officers participate in our Company-wide 401(k) plan. Under this plan, executive officers, like all other eligible employees, may contribute 1% to 75% of their earnings, on a pre- tax basis, into the 401(k) plan. For 2019, the maximum amount that could be contributed was $19,000 ($25,000 for participants 50 years or older). The Company makes a matching contribution to the participant’s account in an amount of $0.50 for each $1.00 contributed by the participant up to 6% of his or her salary. The matching contributions made by the Company on behalf of the executive officers are included in the “All Other Compensation” column in the “Summary Compensation Table” on page 44. Deferred Compensation Plan. The Company established the Deferred Compensation Plan effective as of June 15, 2002 and amended and restated it on December 10, 2008 (the “Deferred Compensation Plan”). The Deferred Compensation Plan is a nonqualified deferred compensation plan maintained primarily to provide deferred compensation benefits in excess of IRS contribution limits for a select group of “management or highly compensated employees” as defined by the Employee Retirement Income Security Act of 1974, as amended. The Deferred Compensation Plan, as amended and restated, was adopted and approved by the Compensation Committee and ratified by the Board of Directors. SERP 2. The Supplemental Executive Retirement Plan 2 (“SERP 2”), as amended and restated December 10, 2008, a nonqualified plan, was originally adopted by the Company in 1994 to permit eligible participants, which include our executive officers, region presidents, division presidents and other key employees, to accrue supplemental Company benefits payable upon retirement, separation of service, death or disability. The SERP 2 provides that if the executive is employed by the Company on the last day of the fiscal year, the Company will establish a liability to such executive equal to 10% of his or her annual base salary as of the first day of such fiscal year. This liability will accrue earnings in future years at a rate established by the administrative committee for the SERP 2. Amounts payable under the SERP 2 are not secured or held in trust and the plan participants’ rights to enforce payment are the same as a general unsecured creditor. In connection with our risk oversight related to the retention and compensation of our named executive officers, the Compensation Committee has determined that an appropriate compensation package should include a reasonable amount of fixed compensation for both short and longer term compensation. In this regard, in fiscal 2019, the Compensation Committee reviewed the amounts listed in the column titled “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the “Summary Compensation Table” on page 44. For the Company, these amounts represent the above-market portion of earnings on outstanding SERP 2 balances for the named executive officers. As part of this analysis, we reviewed the data related to the dollar amounts disclosed in the same column titled “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the Summary Compensation Tables for each of the CEOs or principal executive officers of each company in our peer group from their most recently filed proxy statements. For fiscal 2019, the amount for our Chairman was $277,824 and the amount for our CEO was $128,573. We believe the amounts accrued for above-market earnings on SERP 2 balances are reasonable when compared to our peer group and reasonable relative to the total compensation packages offered to our named executive officers. Also, we considered other factors such as the Company does not provide our named executive officers with employment agreements or severance agreements or other forms of guaranteed retirement benefits other than the 401(k) matching contribution discussed above. As a result, our SERP 2 program serves as a useful and reasonable fixed compensation component of our overall compensation package.

  63. Incentive Bonus Plans

    Incentive Bonus Plans We believe that performance-based bonuses should continue to represent a significant portion of the compensation of our Chairman, CEO and COO. We seek to structure our performance-based awards in a manner that is in line with our operational and financial objectives. The Compensation Committee believes that a balanced executive compensation program is best served by providing compensation plans that allow for balanced short and long-term compensation components, including (i) a short-term or annual bonus performance plan, and (ii) a long- term equity plan. In furtherance of this objective, the Compensation Committee and our stockholders have previously approved the following incentive plans:

  64. Incentive Bonus Plans

    | • | D.R. Horton 2018 Incentive Bonus Plan – our primary short-term or annual bonus plan. |

  65. Incentive Bonus Plans

    | • | D.R. Horton 2006 Stock Incentive Plan – our primary long-term equity plan. |

  66. Incentive Bonus Plans

    The 2018 Incentive Bonus Plan was adopted and approved by our Compensation Committee on November 6, 2018. The 2006 Stock Incentive Plan was approved by our stockholders most recently on January 22, 2015. The Compensation Committee will continue to evaluate the most effective way to use these two plans. Internal Revenue Code Section 162(m). Section 162(m) generally does not allow a tax deduction to publicly-held companies for compensation over $1 million paid in any fiscal year to certain covered employees (including our named executive officers). Certain arrangements in effect on or before November 2, 2017 that are not materially modified after that date are grandfathered under the Tax Cuts and Jobs Act and may remain deductible. Our Compensation Committee remains committed to paying performance-based compensation and expects compensation granted or paid to our executive officers during fiscal 2019 and future years will be subject to the limitations of Section 162(m) tax deduction limits. 2018 Incentive Bonus Plan. The 2018 Incentive Bonus Plan is the primary plan under which our Chairman, CEO and COO are awarded short-term annual incentive cash bonuses. Historically, our intent was for annual bonus awards issued to covered employees to qualify for the performance-based compensation deduction allowed by Section 162(m). Although we still intend to grant performance-based annual compensation opportunities, we no longer expect such amounts to be fully deductible under Section 162(m). 2006 Stock Incentive Plan. We use our 2006 Stock Incentive Plan to issue restricted stock units, stock options and other equity based awards. Since 2015, the Compensation Committee has awarded restricted stock units to executive officers and other key employees on an annual basis. The decision to award restricted stock units was based on the strong employee retention value of restricted stock units and that restricted stock unit grants result in less dilution to the Company compared to stock options. The Compensation Committee will continue to evaluate when to make equity awards to its executives and other key employees based on the total compensation of individuals and other factors. Generally, when the Compensation Committee decides to grant equity awards to executive officers, in determining the number and material terms of equity awards to grant the Committee makes a subjective evaluation of:

  67. Incentive Bonus Plans

    | • | the overall performance of the Company in comparison to its peer group; |

  68. Incentive Bonus Plans

    | • | an analysis of recent compensation of senior executive officers in the Company’s peer group; |

  69. Incentive Bonus Plans

    | • | recommendations of the Chairman, other than for himself; |

  70. Incentive Bonus Plans

    | • | contributions the executive officer made and is anticipated to make to the Company’s success; |

  71. Incentive Bonus Plans

    | • | level of experience and responsibility of the executive officer; and |

  72. Incentive Bonus Plans

    | • | number of equity awards previously granted to executive officers and other employees. |

  73. Incentive Bonus Plans

    There is no relationship between the timing of the granting of equity-based awards and our release of material non-public information. We will continue to evaluate the types of equity awards to be granted to our executives and other employees in the future. Restricted stock, restricted stock units, stock options and stock appreciation rights are among the types of equity awards that may be awarded under our 2006 Stock Incentive Plan. When considering whether to issue stock awards (including restricted stock or restricted stock units) or stock options (including stock appreciation rights), the Compensation Committee will review the following factors (in addition to the previously listed factors):

  74. Incentive Bonus Plans

    | • | difference in compensation expense of issuing stock awards versus issuing stock options; |

  75. Incentive Bonus Plans

    | • | retention achieved by issuing stock awards versus issuing stock options; and |

  76. Incentive Bonus Plans

    | • | value to employee of receiving stock awards versus stock options. |

  77. Incentive Bonus Plans

    The Compensation Committee believes that restricted stock, restricted stock units and stock options should be available alternatives when considering equity awards. Restricted stock units provide strong retentive value by providing an award that has immediate value upon vesting and results in lower dilution of our outstanding common shares because fewer shares are issued compared to stock options when providing grants of similar grant date values. Stock options have the potential for strong returns only if the stock price increases and the recipient has the ability to defer paying the exercise price and related taxes until the stock options are exercised.

  78. Summary Compensation Table

    Summary Compensation Table

  79. Summary Compensation Table

    | Name and Principal Position | Year | Salary | Bonus(1) | Stock Awards(2) | Non-Equity Incentive Plan Compen- sation(3) | Change in Pension Value and Non- Qualified Deferred Compen- sation Earnings(4) | All Other Compen- sation(5) | Total | | Donald R. Horton | 2019 | $1,000,000 | — | $10,470,392 | $12,751,735 | $277,824 | $111,886 | $24,611,837 | | Chairman of the Board | 2018 | $1,000,000 | — | $12,011,900 | $12,359,792 | $266,647 | $111,509 | $25,749,848 | | | 2017 | $1,000,000 | — | $8,302,706 | $9,612,519 | $255,991 | $111,413 | $19,282,629 | | David V. Auld | 2019 | $700,000 | — | $4,943,502 | $8,501,156 | $128,573 | $78,400 | $14,351,631 | | President and Chief Executive Officer | 2018 | $700,000 | — | $5,720,560 | $8,239,862 | $121,815 | $78,250 | $14,860,487 | | | 2017 | $700,000 | — | $3,905,374 | $5,607,303 | $115,176 | $78,100 | $10,405,953 | | Michael J. Murray | 2019 | $500,000 | — | $2,129,926 | $3,187,934 | $47,861 | $58,400 | $5,924,121 | | Executive Vice President and Chief Operating Officer | 2018 | $500,000 | — | $2,333,950 | $3,089,948 | $43,744 | $58,250 | $6,025,892 | | | 2017 | $500,000 | — | $1,724,583 | $1,602,087 | $39,549 | $58,100 | $3,924,319 | | Bill W. Wheat | 2019 | $500,000 | $1,750,000 | $2,129,926 | — | $73,197 | $58,400 | $4,511,523 | | Executive Vice President and Chief Financial Officer | 2018 | $500,000 | $1,500,000 | $2,698,650 | — | $68,671 | $58,250 | $4,825,571 | | | 2017 | $500,000 | $1,300,000 | $1,676,883 | — | $64,161 | $58,100 | $3,599,144 |

  80. Summary Compensation Table

    | The amounts listed represent discretionary cash bonuses paid to Mr. Wheat.(1) |

  81. Summary Compensation Table

    | For fiscal 2019, the amounts include the grant date fair value of the time-vesting RSUs and the target number of 2021 Performance RSUs granted in fiscal 2019. The grant date fair value is determined in accordance with accounting guidance for share-based payments. If the maximum number of 2021 Performance RSUs was used rather than the target number, the total grant date fair value of the awards would be $15,100,000 for Mr. Horton, $7,550,000 for Mr. Auld and $2,265,000 for each of Mr. Murray and Mr. Wheat. The grant date fair values for the 2021 Performance RSUs and the time-vesting RSUs are set forth in footnotes 2 and 3 to the “Grants of Plan-Based Awards” table on page 46.(2) |

  82. Summary Compensation Table

    For fiscal 2018, the amounts include the grant date fair value of the time-vesting RSUs and the target number of 2020 Performance RSUs granted in fiscal 2018. The grant date fair value is determined in accordance with accounting guidance for share-based payments. If the maximum number of 2020 Performance RSUs was used rather than the target number, the total grant date fair value of the awards would be $18,316,000 for Mr. Horton, $9,158,000 for Mr. Auld and $2,747,400 for Mr. Murray. The amount for Mr. Wheat represents the grant date fair value of the time-vesting RSUs granted in fiscal 2018. For fiscal 2017, the amounts include the grant date fair value of the time-vesting RSUs and the target number of 2019 Performance RSUs granted in fiscal 2017. The grant date fair value is determined in accordance with accounting guidance for share-based payments. If the maximum number of 2019 Performance RSUs was used rather than the target number, the total grant date fair value of the awards would be $11,680,000 for Mr. Horton, $5,840,000 for Mr. Auld and $1,752,000 for Mr. Murray. The amount for Mr. Wheat represents the grant date fair value of the time-vesting RSUs granted in fiscal 2017.

  83. Summary Compensation Table

    | Amounts reflect the performance bonuses earned under the Company’s Pre-Tax Income Performance Bonus. Additional information on the annual incentive bonus is discussed under the heading “2019 Fiscal Year — Pre-Tax Income Performance Bonus Results and Payout” on page 30.(3) |

  84. Summary Compensation Table

    | Amounts reflect the above-market portion of earnings on each executive officer’s outstanding balance under the SERP 2. This amount is further discussed under the heading “SERP 2” on page 40.(4) |

  85. Summary Compensation Table

    | For fiscal 2019, the amounts under “All Other Compensation” include the following components:(5) |

  86. Summary Compensation Table

    | Credits made by the Company of $100,000, $70,000, $50,000 and $50,000 to the respective accounts of Mr. Horton, Mr. Auld, Mr. Murray and Mr. Wheat under the SERP 2 plan.(a) |

  87. Summary Compensation Table

    | Matching contributions of $8,400 to the respective accounts of Mr. Horton, Mr. Auld, Mr. Murray and Mr. Wheat under the D.R. Horton 401(k) plan.(b) |

  88. Summary Compensation Table

    | The participant’s portion of group health plan premiums of $3,486 paid by the Company for the benefit of Mr. Horton.(c) |

  89. Grants of Plan-Based Awards

    Grants of Plan-Based Awards

  90. Grants of Plan-Based Awards

    | | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | | All Other Stock Awards: Number of Securities Underlying Stock Awards(3) | Grant Date Fair Value of Stock and Option Awards ($)(2)(3) | | Name | | Threshold | Target | Maximum | Threshold | Target | Maximum | | | | Donald R. Horton | 11/6/2018 | — | — | $12,751,735 | — | — | — | — | — | | | 11/6/2018 | — | — | — | 30,000 | 200,000 | 400,000 | — | $7,550,000 | | | 11/26/2018 | — | — | — | — | — | — | 84,600 | $2,920,392 | | David V. Auld | 11/6/2018 | — | — | $8,501,156 | — | — | — | — | — | | | 11/6/2018 | — | — | — | 15,000 | 100,000 | 200,000 | — | $3,775,000 | | | 11/26/2018 | — | — | — | — | — | — | 33,850 | $1,168,502 | | Michael J. Murray | 11/6/2018 | — | — | $3,187,934 | — | — | — | — | — | | | 11/6/2018 | — | — | — | 4,500 | 30,000 | 60,000 | — | $1,132,500 | | | 11/26/2018 | — | — | — | — | — | — | 29,650 | $997,426 | | Bill W. Wheat | 11/6/2018 | — | — | — | 4,500 | 30,000 | 60,000 | — | $1,132,500 | | | 11/26/2018 | — | — | — | — | — | — | 29,650 | $997,426 |

  91. Grants of Plan-Based Awards

    | Represents the performance bonuses paid under the Company’s 2018 Incentive Bonus Plan. Additional information related to the award is discussed under the heading “2019 Fiscal Year – Pre-Tax Income Performance Bonus Results and Payout” on page 30.(1) |

  92. Grants of Plan-Based Awards

    | Mr. Horton, Mr. Auld, Mr. Murray and Mr. Wheat were awarded a target amount of 200,000, 100,000, 30,000 and 30,000 2021 Performance RSUs, respectively. The threshold, target and maximum amounts reflect the number of 2021 Performance RSUs each executive could earn based on the level of performance attained on four performance goals ranked against our peer group or the S&P 500 Index, as applicable, at the end of the three-year performance period.(2) |

  93. Grants of Plan-Based Awards

    The grant date fair value of the 2021 Performance RSUs is $37.75 per unit and was determined in accordance with accounting guidance for share-based payments. These 2021 Performance RSUs are discussed under the heading “2019 Fiscal Year – Award of 2021 Performance Restricted Stock Units – Potential Vesting at September 30, 2021” on page 38 and the related grant date fair value of $7,550,000 for Mr. Horton, $3,775,000 for Mr. Auld and $1,132,500 for each of Mr. Murray and Mr. Wheat is reflected in the “Stock Awards” column in the “Summary Compensation Table” on page 44.

  94. Grants of Plan-Based Awards

    | On November 26, 2018, Mr. Horton, Mr. Auld, Mr. Murray and Mr. Wheat were awarded 84,600, 33,850, 29,650 and 29,650 time-vesting RSUs, respectively. The RSUs for Mr. Horton and Mr. Auld vest in three equal annual installments on each anniversary of the grant date. The RSUs for Mr. Murray and Mr. Wheat vest annually in five equal installments on each anniversary of the grant date.(3) |

  95. Grants of Plan-Based Awards

    The grant date fair value of the November 26, 2018 RSUs vesting in three years is $34.52 per unit and for the RSUs vesting in five years is $33.64 per unit. The grant date fair values were determined in accordance with accounting guidance for share-based payments. The related grant date fair value of $2,920,392 for Mr. Horton, $1,168,502 for Mr. Auld and $997,426 for each of Mr. Murray and Mr. Wheat is reflected in the “Stock Awards” column in the “Summary Compensation Table” on page 44.

  96. Outstanding Equity Awards at Fiscal Year-End

    Outstanding Equity Awards at Fiscal Year-End The following table shows information about outstanding equity awards at September 30, 2019.

  97. Outstanding Equity Awards at Fiscal Year-End

    | | Option Awards | | | | Stock Awards | | | | Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Shares of Stock That Have Not Vested | | Donald R. Horton(1) | 11/26/2018 | — | — | — | 81,444(3) | — | $4,292,913(3) | | | 11/6/2018 | — | — | — | — | 400,000(4) | $21,084,000(4) | | | 3/7/2018 | — | — | — | 42,482(3) | — | $2,239,226(3) | | | 11/2/2017 | — | — | — | — | 400,000(5) | $21,084,000(5) | | | 2/14/2017 | — | — | — | 24,908(3) | — | $1,312,901(3) | | | 3/6/2014 | 150,000 | $23.86 | 3/6/2024 | — | — | — | | | 3/5/2013 | 150,000 | $23.80 | 3/5/2023 | — | — | — | | | 9/2/2011 | 300,000 | $9.97 | 9/2/2021 | — | — | — | | David V. Auld(2) | 11/26/2018 | — | — | — | 33,850(3) | — | $1,784,234(3) | | | 11/6/2018 | — | — | — | — | 200,000(4) | $10,542,000(4) | | | 3/7/2018 | — | — | — | 18,000(3) | — | $948,780(3) | | | 11/2/2017 | — | — | — | — | 200,000(5) | $10,542,000(5) | | | 2/14/2017 | — | — | — | 11,283(3) | — | $594,727(3) | | | 3/6/2014 | 60,000 | $23.86 | 3/6/2024 | — | — | — | | | 3/5/2013 | 60,000 | $23.80 | 3/5/2023 | — | — | — | | | 9/2/2011 | 72,000 | $9.97 | 9/2/2021 | — | — | — | | Michael J. Murray(2) | 11/26/2018 | — | — | — | 29,650(3) | — | $1,562,852(3) | | | 11/6/2018 | — | — | — | — | 60,000(4) | $3,162,600(4) | | | 3/7/2018 | — | — | — | 18,400(3) | — | $969,864(3) | | | 11/2/2017 | — | — | — | — | 60,000(5) | $3,162,600(5) | | | 2/14/2017 | — | — | — | 17,790(3) | — | $937,711(3) | | | 2/12/2016 | — | — | — | 13,160(3) | — | $693,664(3) | | | 3/5/2015 | — | — | — | 6,580(3) | — | $346,832(3) | | | 3/6/2014 | 60,000 | $23.86 | 3/6/2024 | — | — | — | | | 3/5/2013 | 60,000 | $23.80 | 3/5/2023 | — | — | — | | | 9/2/2011 | 69,000 | $9.97 | 9/2/2021 | — | — | — | | Bill W. Wheat(2) | 11/26/2018 | — | — | — | 29,650(3) | — | $1,562,852(3) | | | 11/6/2018 | — | — | — | — | 60,000(4) | $3,162,600(4) | | | 3/7/2018 | — | — | — | 18,400(3) | — | $969,864(3) | | | 11/2/2017 | — | — | — | 26,667(3) | — | $1,405,618(3) | | | 2/14/2017 | — | — | — | 17,790(3) | — | $937,711(3) | | | 11/2/2016 | — | — | — | 10,000(3) | — | $527,100(3) | | | 2/12/2016 | — | — | — | 13,160(3) | — | $693,664(3) | | | 3/5/2015 | — | — | — | 6,580(3) | — | $346,832(3) | | | 3/6/2014 | 60,000 | $23.86 | 3/6/2024 | — | — | — | | | 3/5/2013 | 60,000 | $23.80 | 3/5/2023 | — | — | — | | | 9/2/2011 | 88,000 | $9.97 | 9/2/2021 | — | — | — |

  98. Outstanding Equity Awards at Fiscal Year-End

    | All stock options vested annually in three equal installments from the grant date and have a ten-year term.(1) |

  99. Outstanding Equity Awards at Fiscal Year-End

    | All stock options vested annually in five equal installments from the grant date and have a ten-year term.(2) |

  100. Outstanding Equity Awards at Fiscal Year-End

    | Represents the time-vesting RSUs granted to Mr. Horton, Mr. Auld, Mr. Murray and Mr. Wheat. The value of the time- vesting RSUs is based on the closing price of our common stock on September 30, 2019 of $52.71. Mr. Horton and Mr. Auld’s awards vest in three equal annual installments on each of the first three anniversaries of the grant date. Mr. Murray and Mr. Wheat’s awards vest in five equal annual installments on each of the first five anniversaries of the grant date.(3) |

  101. Outstanding Equity Awards at Fiscal Year-End

    | Represents the potential maximum number of 2021 Performance RSUs awarded. The target number of 2021 Performance RSUs that can be earned is 200,000 for Mr. Horton, 100,000 for Mr. Auld and 30,000 for each Mr. Murray and Mr. Wheat upon target achievement of the performance goals. These 2021 Performance RSUs are described under “2019 Fiscal Year – Award of 2021 Performance Restricted Stock Units – Potential Vesting at September 30, 2021” on page 38, and vest subject to attainment of applicable performance criteria following completion of a three-year performance period on September 30, 2021. The value of the 2021 Performance RSUs is based on the closing price of our common stock on September 30, 2019 of $52.71.(4) |

  102. Outstanding Equity Awards at Fiscal Year-End

    | Represents the potential maximum number of 2020 Performance RSUs awarded. The target number of 2020 Performance RSUs that can be earned is 200,000 for Mr. Horton, 100,000 for Mr. Auld and 30,000 for Mr. Murray upon target achievement of the performance goals. These 2020 Performance RSUs vest subject to attainment of applicable performance criteria following completion of a three-year performance period on September 30, 2020. The value of the 2020 Performance RSUs is based on the closing price of our common stock on September 30, 2019 of $52.71.(5) |

  103. Option Exercises and Stock Vested

    Option Exercises and Stock Vested The following table shows information about option exercises and stock vested during our fiscal year ended September 30, 2019.

  104. Option Exercises and Stock Vested

    | | Option Awards | | Stock Awards | | | Name | Number of Shares Acquired on Exercise | Value Realized on Exercise(1) | Number of Shares Acquired on Vesting | Value Realized on Vesting(2) | | Donald R. Horton | 300,000 | $8,110,185 | 384,049 | $19,183,028 | | David V. Auld | 60,000 | $1,659,000 | 182,816 | $9,229,570 | | Michael J. Murray | 32,000 | $898,446 | 68,690 | $3,319,361 | | Bill W. Wheat | 24,000 | $691,415 | 57,023 | $2,150,399 |

  105. Option Exercises and Stock Vested

    | Amounts represent the difference in the aggregate market value and the aggregate exercise price of the shares at the time of exercise.(1) |

  106. Option Exercises and Stock Vested

    | Value reflects the closing stock price on the applicable vesting date multiplied by the number of shares that vested.(2) |

  107. Nonqualified Deferred Compensation Plans

    Nonqualified Deferred Compensation Plans D.R. Horton has established the following nonqualified deferred compensation plans: Deferred Compensation Plan. The Deferred Compensation Plan permits participants, including D.R. Horton’s executive officers and directors, to voluntarily defer receipt of up to 100% of bonus or director fee compensation and up to 90% of base salary. The participants earn a rate of return on their deferred amounts based on their selection from a variety of independently managed funds. The Company does not provide a guaranteed rate of return on these deferred amounts. The rate of return realized depends on the participant’s fund selections and market performance of these funds. Pursuant to his or her annual election, a participant’s Deferred Compensation Plan benefit will be paid, or commence to be paid, upon separation from service or on a fixed date. Specified employees, as defined in Code Section 409A, generally cannot be paid until six months after separation from service (or, if earlier, upon a change in control). Payment may also be made upon death, disability or an unforeseeable emergency. The participants, at their election, may choose to have the deferred amounts paid out through scheduled in-service distributions (in a lump sum or annual installments of between two and five years) or following the later of termination of employment, director service or attaining the age of 62. Amounts payable under the plan are not secured or held in trust, and the plan participants’ rights to enforce payment are the same as a general unsecured creditor. However, upon a change in control (as defined in the Deferred Compensation Plan), all plan benefits will be fully funded through an irrevocable grantor trust (also known as a “Rabbi trust”). The Deferred Compensation Plan was adopted and approved by the Compensation Committee and ratified by the Board of Directors. SERP 2. Unlike the Deferred Compensation Plan, these are not elective deferrals, but rather the Company credits an amount to each participant’s account. Participation in the SERP 2 is considered by the Compensation Committee annually at the beginning of the fiscal year. Pursuant to the SERP 2, if the executive is employed by the Company on the last day of a fiscal year, then the Company will establish a liability to such executive equal to 10% of his or her annual base salary as of the first day of such fiscal year. This liability will accrue earnings in future years at a rate established by the administrative committee for the SERP 2. Amounts payable under the SERP 2 are not secured or held in trust, and the plan participants’ rights to enforce payment are the same as a general unsecured creditor. Amounts deferred under the SERP 2 are payable within 60 days following the retirement or termination of employment of the participant, the death or disability of the participant or a change in control of the Company. Provided however, specified employees, as defined in Code Section 409A, generally cannot be paid until six months after separation from service (or, if earlier, upon a change in control). The form of distribution may be in a lump sum, or in quarterly installments over a period not to exceed five years, as elected by the participant. The following table shows, for each named executive officer, aggregate contributions, earnings and withdrawals/distributions during fiscal 2019 and outstanding balances as of September 30, 2019 under both of our nonqualified deferred compensation plans.

  108. Nonqualified Deferred Compensation

    Nonqualified Deferred Compensation

  109. Nonqualified Deferred Compensation

    | | Company Contributions in Fiscal 2019 | | Aggregate Earnings in Fiscal 2019 | | Aggregate Balance at September 30, 2019 | | | Name | Deferred Cash Compensation | SERP(1) | Deferred Cash Compensation(2) | SERP(3) | Deferred Cash Compensation(4) | SERP(5) | | Donald R. Horton | — | $100,000 | $314,177 | $424,516 | $9,939,078 | $4,613,761 | | David V. Auld | — | $70,000 | — | $196,460 | — | $2,158,907 | | Michael J. Murray | — | $50,000 | $(2,749) | $73,131 | $70,829 | $827,582 | | Bill W. Wheat | — | $50,000 | — | $111,845 | — | $1,239,221 |

  110. Nonqualified Deferred Compensation

    | Represents the amount of unfunded, unsecured liabilities credited by the Company on behalf of each participant in fiscal 2019 under the SERP 2. Such amount is also included in the “All Other Compensation” column of the “Summary Compensation Table” on page 44.(1) |

  111. Nonqualified Deferred Compensation

    | Represents the net amount of earnings on the balance of the participant’s account that is the result of the performance of a variety of independently managed funds available to and selected by each participant under the Deferred Compensation Plan. The Company does not provide a guaranteed or fixed rate of return on these funds. The rate of return on these funds depends on the participant’s investment selections and on the market performance of these funds. These amounts are not included in the “Summary Compensation Table” on page 44 because such amount was not preferential or above-market.(2) |

  112. Nonqualified Deferred Compensation

    | Represents the amount of earnings on the balance of the participant’s account at a rate determined by the SERP 2 plan administrative committee, typically 10% per annum. The portion of earnings considered above-market are included in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the “Summary Compensation Table” on page 44. The above-market portion of earnings for each of the above individuals for fiscal 2019 was: Mr. Horton: $277,824; Mr. Auld: $128,573; Mr. Murray: $47,861; and Mr. Wheat: $73,197.(3) |

  113. Nonqualified Deferred Compensation

    | These balances of deferred compensation represent compensation earned in fiscal 2019 and prior years and are or were included in the Summary Compensation Table in prior year proxy statements in the year earned, to the extent applicable.(4) |

  114. Nonqualified Deferred Compensation

    | Includes amounts of unfunded, unsecured liabilities and the related earnings accrued by the Company on behalf of each participant with respect to the current and prior fiscal years under the SERP 2.(5) |

  115. Potential Payments Upon Termination or Change in Control

    Potential Payments Upon Termination or Change in Control None of our named executive officers has employment or change in control agreements with us specifically providing for payments upon involuntary termination of their employment. However, certain of our benefit and incentive plans contain various provisions regarding termination of employment or change in control. Any additional severance payments would be at the discretion of the Compensation Committee and determined at the time of termination. The following is a summary of the treatment of benefits under our benefit plans for various types of terminations, including upon a change in control. Generally, our benefit plans define “cause” as a violation of the standards of employee conduct set forth in our employee manual and “change in control” as the occurrence of any of the following events: (i) Our merger, consolidation or reorganization into another entity if our stockholders immediately before such transaction do not, immediately after such transaction, own more than 50% of the combined voting power of the outstanding voting securities resulting from such transaction and in substantially the same proportion as their stock ownership prior to the transaction; (ii) We sell all or substantially all of our assets to another entity or we completely liquidate or dissolve; (iii) A person (as defined by Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) becomes the beneficial owner (as the term “beneficial owner” is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities representing 20% or more of the combined voting power of the then outstanding voting securities (except that the threshold for amounts deposited under our SERP 2 plan on or after January 1, 2005 is 50% or 35% acquired in a single transaction or series of transactions in any 12-month period); or (iv) During any two-year period, a majority of the members of the Board is replaced by members of the Board who are not nominated and approved by the Board.

  116. Table – Potential Payments Upon Termination or Change in Control

    Table – Potential Payments Upon Termination or Change in Control The following table reflects amounts of compensation to be paid to each of the named executive officers in the event of termination of employment or change in control. Because neither the Company nor any of its plans provides for additional benefits related to a change in control termination, if such a termination is triggered, the payments would be as set forth under the applicable column under Termination of Employment, unless the Compensation Committee determined to award additional severance amounts. The amounts in the table assume a termination date of September 30, 2019, the last day of our fiscal year, and, if applicable, are based on the closing price of our common stock of $52.71 on September 30, 2019. Because only Mr. Horton had reached the normal retirement age (65 years old) on September 30, 2019, we included amounts payable upon retirement only for him. These amounts are estimates of payments to executives upon termination of employment or a change in control. Actual amounts can only be determined at the time of such executive’s actual separation from the Company or change in control. Factors that could affect these amounts include the timing during the year of any such event, the company’s stock price and the executive’s age. Amounts to be provided to an executive under arrangements that do not discriminate in scope, terms or operation in favor of our executive officers and are available to all salaried employees are not included in the following table in accordance with SEC regulations. In addition to the amounts set forth below, each of the named executive officers would be entitled to receive, upon certain termination events or a change in control, a distribution of his or her outstanding balance of compensation earned in prior years and deferred, at the executive officer’s option, under our Deferred Compensation Plan. The balances of such accounts are set forth and explained in the “Nonqualified Deferred Compensation” table on page 49. The table reflects compensation that would have been paid based on the listed events if such events had occurred on September 30, 2019.

  117. Potential Payments Upon Termination or Change in Control

    Potential Payments Upon Termination or Change in Control

  118. Potential Payments Upon Termination or Change in Control

    | | | Termination of Employment | | | | | | | Name | Payments and Benefits | Voluntary ($) | Normal Retirement ($)(4) | Without Cause ($) | With Cause ($) | Death or Disability ($) | Change in Control ($) | | Donald R. Horton | Severance Pay: | | | | | | | | | Cash | — | — | — | — | — | — | | | Equity | — | — | — | — | — | — | | | 2020 Restricted Stock Units(1) | 7,028,000 | 7,028,000 | 7,028,000 | — | 7,028,000 | 7,028,000 | | | 2021 Restricted Stock Units(2) | 3,514,000 | 3,514,000 | 3,514,000 | — | 3,514,000 | 3,514,000 | | | Vesting of Equity Awards: | | | | | | | | | Stock Options | — | — | — | — | — | — | | | Time-Vesting Restricted Stock Units(3) | — | 7,845,040 | — | — | 7,845,040 | 7,845,040 | | | Payments of SERP 2 Contributions | 4,613,761 | 4,613,761 | 4,613,761 | — | 4,613,761 | 4,613,761 | | | Total | 15,155,761 | 23,000,801 | 15,155,761 | — | 23,000,801 | 23,000,801 | | David V. Auld | Severance Pay: | | | | | | | | | Cash | — | — | — | — | — | — | | | Equity | — | — | — | — | — | — | | | 2020 Restricted Stock Units(1) | 3,514,000 | — | 3,514,000 | — | 3,514,000 | 3,514,000 | | | 2021 Restricted Stock Units(2) | 1,757,000 | — | 1,757,000 | — | 1,757,000 | 1,757,000 | | | Vesting of Equity Awards: | | | | | | | | | Stock Options | — | — | — | — | — | — | | | Time-Vesting Restricted Stock Units(3) | — | — | — | — | 3,327,740 | 3,327,740 | | | Payments of SERP 2 Contributions | 2,158,907 | — | 2,158,907 | — | 2,158,907 | 2,158,907 | | | Total | 7,429,907 | — | 7,429,907 | — | 10,757,647 | 10,757,647 | | Michael J. Murray | Severance Pay: | | | | | | | | | Cash | — | — | — | — | — | — | | | Equity | — | — | — | — | — | — | | | 2020 Restricted Stock Units(1) | 1,054,200 | — | 1,054,200 | — | 1,054,200 | 1,054,200 | | | 2021 Restricted Stock Units(2) | 527,100 | — | 527,100 | — | 527,100 | 527,100 | | | Vesting of Equity Awards: | | | | | | | | | Stock Options | — | — | — | — | — | — | | | Time-Vesting Restricted Stock Units(3) | — | — | — | — | 4,510,922 | 4,510,922 | | | Payments of SERP 2 Contributions | 827,582 | — | 827,582 | — | 827,582 | 827,582 | | | Total | 2,408,882 | — | 2,408,882 | — | 6,919,804 | 6,919,804 | | Bill W. Wheat | Severance Pay: | | | | | | | | | Cash | — | — | — | — | — | — | | | Equity | — | — | — | — | — | — | | | 2021 Restricted Stock Units(2) | 527,100 | — | 527,100 | — | 527,100 | 527,100 | | | Vesting of Equity Awards: | | | | | | | | | Stock Options | — | — | — | — | — | — | | | Time-Vesting Restricted Stock Units(3) | 1,756,982 | — | 1,756,982 | — | 8,200,622 | 8,200,622 | | | Payments of SERP 2 Contributions | 1,239,221 | — | 1,239,221 | — | 1,239,221 | 1,239,221 | | | Total | 3,523,303 | — | 3,523,303 | — | 9,966,943 | 9,966,943 |

  119. Potential Payments Upon Termination or Change in Control

    | Mr. Horton, Mr. Auld and Mr. Murray were awarded a target number of 200,000, 100,000 and 30,000 2020 Performance RSUs, respectively, for the performance period of October 1, 2017 through September 30, 2020. Pro-rata vesting may occur based on the number of months served from October 1, 2017 in the event of voluntary termination, normal retirement or without cause termination after completion of the performance period. With respect to death or disability, the 2020 Performance RSUs vest pro-rata based on time passed. Upon a change in control, the Committee may accelerate vesting of part or all of the 2020 Performance RSUs. With respect to an event of voluntary termination, normal retirement, without cause termination, death, disability or a change in control, the 2020 Performance RSUs are valued at $52.71 per unit, the closing price of our stock on September 30, 2019. The value in the table reflects pro-rata vesting (two of three years completed) based on time passed as if an event of voluntary termination, normal retirement, without cause termination, death, disability or a change in control had occurred on September 30, 2019.(1) |

  120. Potential Payments Upon Termination or Change in Control

    | Mr. Horton, Mr. Auld, Mr. Murray and Mr. Wheat were awarded a target number of 200,000, 100,000, 30,000 and 30,000 2021 Performance RSUs, respectively, for the performance period of October 1, 2018 through September 30, 2021. Pro-rata vesting may occur based on the number of months served from October 1, 2018 in the event of voluntary termination, normal retirement or without cause termination after completion of the performance period. With respect to death or disability, the 2021 Performance RSUs vest pro-rata based on time passed. Upon a change in control, the Committee may accelerate vesting of part or all of the 2021 Performance RSUs. With respect to an event of voluntary termination, normal retirement, without cause termination, death, disability or a change in control, the 2021 Performance RSUs are valued at $52.71 per unit, the closing price of our stock on September 30, 2019. The value in the table reflects pro-rata vesting (one of three years completed) based on time passed as if an event of voluntary termination, normal retirement, without cause termination, death, disability or a change in control had occurred on September 30, 2019. The 2021 Performance RSUs are discussed in more detail under the heading “2019 Fiscal Year – Award of 2021 Performance Restricted Stock Units – Potential Vesting at September 30, 2021” on page 38.(2) |

  121. Potential Payments Upon Termination or Change in Control

    | For Mr. Horton, Mr. Auld and Mr. Murray, the time-vesting RSU amounts represent each officer’s unvested portion of RSUs, as shown in the “Number of Shares or Units of Stock That Have Not Vested” column of the “Outstanding Equity Awards at Fiscal Year-End” table on page 47, valued at $52.71 per unit, the closing price of our stock on September 30, 2019. The value in the table reflects accelerated vesting if an event of voluntary termination, normal retirement, termination without cause, death or disability, or change in control had occurred on September 30, 2019. For Mr. Wheat, the time-vesting RSU amounts under voluntary and termination without cause represent the amount of accelerated vesting based on a pro-rata portion of his November 2, 2017 and November 2, 2016 grants, valued at $52.71 per unit, the closing price of our stock on September 30, 2019. The time-vesting RSU amounts under death, disability or a change of control represents his unvested portion of RSUs as shown in the “Number of Shares or Units of Stock That Have Not Vested” column of the “Outstanding Equity Awards at Fiscal Year-End” table on page 47, valued at $52.71 per unit, the closing price of our stock on September 30, 2019. Additional information on the time-vesting RSUs granted in fiscal 2019 is set forth in footnote 3 to the “Grants of Plan-Based Awards” table on page 46.(3) |

  122. Potential Payments Upon Termination or Change in Control

    | Because only Mr. Horton had reached the normal retirement age (65 years old) under our applicable plans on September 30, 2019, we only included amounts under the “Normal Retirement” column for him.(4) |

  123. CEO PAY RATIO

    CEO PAY RATIO As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the total annual compensation of our median compensated employee and the total annual compensation of Mr. Auld, our President and Chief Executive Officer. To identify the median compensated employee, we used the following methodology:

  124. CEO PAY RATIO

    | • | We used September 30, 2019 as the date to determine the median employee. At that date, we had approximately 8,854 employees consisting of full-time, part-time and temporary employees. Other than our CEO, all employees as of such date were included in our population. |

  125. CEO PAY RATIO

    | • | To identify the median employee from our employee population, we obtained a listing of total compensation paid to each employee during fiscal 2019. For this purpose, total compensation included salary or wages, as applicable, commissions, bonuses, equity awards that vested or were exercised during the year, and any other cash compensation. Such amounts were obtained from our payroll records. We annualized the salaries and wages of our full and part-time employees who were not employed for the entire fiscal year. The above-described compensation measure was consistently applied to all employees. |

  126. CEO PAY RATIO

    Once we identified our median employee, we calculated the employee’s total annual compensation using the same methodology used to calculate the total compensation of our CEO in the “Summary Compensation Table” on page 44. In addition to the amounts required to be reported as compensation in the Summary Compensation Table, we included the dollar value of employer paid non-discriminatory health insurance benefits in the total annual compensation of our median employee and of our CEO to better reflect our employee compensation practices. For the fiscal year ended September 30, 2019:

  127. CEO PAY RATIO

    | • | The total compensation of our median employee was $86,531. |

  128. CEO PAY RATIO

    | • | The total compensation of our CEO was $14,377,638. |

  129. CEO PAY RATIO

    Accordingly, for fiscal 2019, the ratio of the total compensation of Mr. Auld, our CEO, to the total compensation of the median compensation of all employees (excluding Mr. Auld), was 166 to 1. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. Because the SEC rules for identifying the median employee and calculating the pay ratio allow companies to use different methodologies, exemptions, estimates and assumptions, our pay ratio disclosure may not be comparable to the pay ratio disclosures reported by other companies.