DEF 14A of LGI Homes, Inc.
Filed Mar 15, 2024 · FY20230001580670-24-000020
How is the withholding of authority to vote for a director nominee treated?
How is the withholding of authority to vote for a director nominee treated? Withholding of authority to vote for a director nominee has no effect on the election of directors (Proposal 1).
PROPOSAL 1—ELECTION OF DIRECTORS
PROPOSAL 1—ELECTION OF DIRECTORS Our Board of Directors currently consists of seven members. Our Certificate of Incorporation provides that the authorized number of directors may be changed only by resolution of the Board. Each nominee presented below, if elected, will serve as a director until the next annual meeting of stockholders and until such director’s successor is duly elected or appointed and qualified or, if earlier, such director’s death, resignation or removal. All of the nominees listed below have given their consent to be named as nominees for election and have indicated their intention to serve if they are elected. All of the nominees currently serve on the Board. The Board does not anticipate that any of the nominees will be unable to serve as a director, but in the event that any nominee is unable to serve as a director or should otherwise become unavailable, the Board may either propose an alternate nominee, in which case the proxies will be voted for the alternative nominee unless directed to withhold from voting, or the Board may elect to reduce the size of the Board. Mr. Smith is the uncle of Mr. Eric Lipar, our Chief Executive Officer and Chairman of the Board. There are no other familial relationships among our directors and executive officers.
Director Nominees
Director Nominees Our Board of Directors believes that it is necessary for each of our directors to possess qualities, attributes and skills that contribute to a diversity of views and perspectives among the directors and enhance the overall effectiveness of the Board. As described under “Corporate Governance - Corporate Governance Matters and Director Independence - Selection and Evaluation of Director Candidates,” our Nominating and Corporate Governance Committee considers all factors it deems relevant when evaluating prospective candidates or current board members for nomination to our Board of Directors, as prescribed in the committee’s charter. All of our directors bring to the Board leadership experience derived from past service. They also all bring a diversity of views and perspectives derived from their individual experiences working in a range of industries and occupations, which provide our Board of Directors, as a whole, with the skills and expertise that reflect the needs of the Company. Certain individual experiences, qualifications, and skills of our directors that contribute to the Board’s effectiveness as a whole are described in the table and biographies set forth below.
Board Diversity Matrix
Board Diversity Matrix In accordance with Nasdaq Listing Rule 5606, the following table shows certain self-identified personal characteristics of our directors as of the dates indicated.
Board Diversity Matrix
| Board Diversity Matrix for LGI Homes, Inc. | | | | | | As of March 15, 2024 and March 17, 2023 | | | | | | Total Number of Directors | 7 | | | | | Part I: Gender Identity | Female | Male | Non-Binary | Did Not | | | | | | Disclose Gender | | Directors | 2 | 5 | — | — | | Part II: Demographic Background | | | | | | African American or Black | — | — | — | — | | Alaskan Native or American Indian | — | — | — | — | | Asian | 1 | — | — | — | | Hispanic or Latinx | — | — | — | — | | Native Hawaiian or Pacific Islander | — | — | — | — | | White | 1 | 5 | — | — | | Two or More Races or Ethnicities | — | — | — | — | | LGBTQ+ | — | | | | | Did Not Disclose Demographic Background | — | | | |
Directors’ Experience and Skills
Directors’ Experience and Skills
Directors’ Biographies
Directors’ Biographies
Directors’ Biographies
| Ryan Edone | Director |
Directors’ Biographies
Mr. Edone, age 50, has served as a director since November 2014. Mr. Edone is the Chief Financial Officer of Petroleum Wholesale L.P., a distributor of branded and wholesale motor fuel products and operator of retail convenience stores/travel centers across the southwestern United States. Prior to his joining Petroleum Wholesale L.P. in 1999, Mr. Edone was a manager at PricewaterhouseCoopers and a Certified Public Accountant. Mr. Edone is a member of the Board of Directors of Archway Insurance LTD (“Archway”), a captive insurance company. At Archway, Mr. Edone formerly served in roles as the President of the Board and Vice President and Risk Control Chairman of the Board. Mr. Edone is also a member of the ChevronTexaco Petroleum Marketers Association Board. Mr. Edone is the chair of our Audit Committee, and our Board of Directors has determined that Mr. Edone qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d) of Regulation S-K. Mr. Edone’s experience as an executive with a multi-state retail and wholesale distribution company enables him to provide both financial and operational expertise to the Company. In addition, Mr. Edone brings insurance and risk management expertise that is valuable to support the continued growth of our business.
Directors’ Biographies
| Eric Lipar | Chief Executive Officer, Director |
Directors’ Biographies
Mr. Lipar, age 53, is our Chief Executive Officer and serves as Chairman of our Board of Directors. He has served as our Chief Executive Officer since 2009, as a director since June 2013 and as Chairman of the Board since July 2013. Previously, Mr. Lipar served as our President from 2003 until 2009. Mr. Lipar has been in the residential land development business since the mid-1990s and is one of our founders. He has overseen land acquisitions, development and the sale of over 65,000 homes since our inception. Mr. Lipar currently serves on the Residential Neighborhood Development Council for the Urban Land Institute and is a member of the Policy Advisory Board for the Harvard Joint Center for Housing Studies. Through his in-depth work experience, Mr. Lipar has obtained a broad background in all aspects of residential construction, development, financing, sales and marketing. Mr. Lipar is responsible for our overall strategic leadership, working closely with our key executives to establish, implement and direct our long-range goals, strategies and policies. Mr. Lipar brings extensive leadership, along with industry and operational experience to our Board of Directors. Through his experience, his knowledge of our operations and our markets and his professional relationships within the homebuilding industry, Mr. Lipar is highly qualified to identify important matters for review and deliberation by our Board of Directors and is instrumental in determining our corporate strategy. In addition, by serving as both the Chairman of the Board and our Chief Executive Officer, Mr. Lipar serves as an invaluable bridge between our management and our Board of Directors and ensures that they act with a common purpose. Mr. Lipar’s extensive business knowledge, along with his demonstrated leadership capability through the growth of the Company, makes him highly qualified to continue to serve as our Chairman of the Board and our Chief Executive Officer.
Directors’ Biographies
| Shailee Parikh | Director |
Directors’ Biographies
Ms. Parikh, age 43, has served as a director since December 2021. Since August 2023, Ms. Parikh has been a Managing Partner of ARK Real Estate, LLC, a real estate investment and management company. From April 2020 to August 2023, Ms. Parikh was the Global Head of Strategy and Solution Development at Aon plc (“Aon”), a leading global professional services firm, where she was responsible for leading strategic planning and solution design for Aon’s Health Solutions business. Ms. Parikh held various leadership positions within Aon, including Senior Vice President, Aon Business Services from 2017 to 2020; Senior Vice President, Global Service Operations, Aon Hewitt from 2016 to 2017; Chief Financial Officer of EMEA, Aon Hewitt from 2015 to 2016; and Chief of Staff to the Chief Executive Officer of Aon from 2012 to 2015. Ms. Parikh is a proven leader, having managed several transformational initiatives that successfully reshaped the business and delivered enhanced operational and financial outcomes. Prior to her roles with Aon, Ms. Parikh served in various finance leadership capacities, including roles with Reunion Bank of Florida from 2010 to 2012, BB&T (formerly Colonial Bank) from 2005 to 2010 and within the Investment Banking Division of Morgan Stanley from 2002 to 2004. Ms. Parikh is a member of our Audit Committee, and our Board of Directors has determined that Ms. Parikh qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d) of Regulation S-K. Ms. Parikh’s experience as an executive with a global professional services firm and her extensive finance, management, and business strategy expertise make her highly qualified to serve as a member of our Board of Directors and our Audit Committee.
Directors’ Biographies
| Bryan Sansbury | Director |
Directors’ Biographies
Mr. Sansbury, age 51, has served as our Lead Independent Director since June 2013. Mr. Sansbury is the Chief Executive Officer, Chairman of the Board of Directors and a founding partner of AEGIS Hedging Solutions, LLC, formerly known as AEGIS Energy Risk, LLC. Prior to September 2017, Mr. Sansbury served as President of Health and Wealth Solutions at Alight Solutions, the former outsourcing business of Aon Hewitt. For over 20 years, Mr. Sansbury held various positions with Aon Hewitt and its affiliates including positions as Chief Operating Officer and Chief Information Officer, President of Emerging Solutions, leader of the Canadian Outsourcing business, and leader of the Pension Outsourcing business in the Southeast region. Mr. Sansbury is a former member of The Woodlands (Texas) Area Economic Development Partnership Board and is a Fellow of the CEO Perspectives program at the Kellogg School of Management at Northwestern University. Mr. Sansbury is a member of our Compensation Committee and our Nominating and Corporate Governance Committee. Given his extensive business experience, Mr. Sansbury provides our Board of Directors with a unique perspective on business issues impacting the Company as well as corporate governance. His leadership experience in several different capacities also makes him highly qualified to serve as the Lead Independent Director of our Board of Directors and as a member of our Compensation Committee and our Nominating and Corporate Governance Committee.
Directors’ Biographies
| Maria Sharpe | Director |
Directors’ Biographies
Ms. Sharpe, age 65, has served as a director since January 2022. Since 2016, Ms. Sharpe has been the Managing Principal of Sharpe Human Solutions, LLC, a human resource consulting and commercial real estate investments company. Prior to 2016, Ms. Sharpe served as Senior Vice President, Global Human Capital Management, Services & Operations at PepsiCo, Inc., a food and beverage company, since 2014, and was Chief Human Resources Officer, PepsiCo Europe from 2010 to 2014 and Senior Vice President, Compensation, Benefits & Human Resource Systems from 2008 to 2010. From 2004 until 2008, Ms. Sharpe was Chief Human Resources Officer & Corporate Secretary of UST Inc., a tobacco products company, responsible for the company's human resources function and corporate governance matters. Before that, Ms. Sharpe held various senior human resources and legal positions at Pepsico, Inc., including Vice President, Benefits from 2002 to 2004, Vice President, Compensation from 1999 to 2002 and Vice President, Human Resources Counsel from 1995 to 1999. She currently serves as an independent director at Lamb Weston Holdings, Inc., where she is a member of the Nominating and Corporate Governance Committee and serves as chairman of the Compensation and Human Capital Committee. Ms. Sharpe is admitted to practice law in the states of New York, New Jersey and Texas. Ms. Sharpe is the chair of our Compensation Committee. Ms. Sharpe’s experience as an executive and human resources professional for various global companies as well as on the board of directors and compensation committee of another publicly traded company, as well as her expertise in corporate governance, real estate, and legal matters makes her highly qualified to serve as a member of our Board of Directors and the chair of our Compensation Committee.
Directors’ Biographies
| Steven Smith | Director |
Directors’ Biographies
Mr. Smith, age 68, has served as a director since June 2013. Since June 2020, Mr. Smith has been practicing law as a solo practitioner at and is the owner of Steven R. Smith Law, LLC. From 2017 to 2020, Mr. Smith was a shareholder of the law firm of Baker Donelson. During 2003 to 2016, Mr. Smith practiced health law with the law firm of Ober, Kaler, Grimes & Shriver (“Ober Kaler”) and was a shareholder and member of the firm’s Management Committee. Mr. Smith was the Managing Partner of the Washington, D.C. office of Ober Kaler prior to its merger with Baker Donelson in January 2017. He practices exclusively in the health care regulatory, operational and transactional areas where he counsels hospitals, physicians and other clients on a variety of issues including corporate governance, executive compensation and agreements; compliance, from both an operational and legal standpoint; medical staff relationships; and risk and claims management, insurance coverage and fiduciary responsibilities. Prior to joining Ober Kaler, Mr. Smith was Senior Vice-President and General Counsel for a large healthcare system in Maryland for 10 years where he was responsible for all legal matters, as well as various operations aspects, of the healthcare system. Mr. Smith is the uncle of Mr. Lipar, our Chief Executive Officer and Chairman of the Board. Mr. Smith is the chair of our Nominating and Corporate Governance Committee and is a member of our Audit Committee. With his wealth of knowledge on issues relating to corporate governance, fiduciary responsibility, risk management, and experience providing counsel to boards of directors, Mr. Smith provides us with a unique perspective on issues affecting the Company. This expertise, combined with his leadership experience as a senior executive, enables Mr. Smith to be a valuable member of our Board of Directors, a member of our Audit Committee, and the chair of our Nominating and Corporate Governance Committee.
Directors’ Biographies
| Robert Vahradian | Director |
Directors’ Biographies
Mr. Vahradian, age 62, has served as a director since June 2013. Mr. Vahradian is a Partner of GTIS Partners, LP (“GTIS”), a global real estate investment firm managing residential, industrial, office, hotel and mixed-use properties in the U.S. and Brazil. Mr. Vahradian runs the U.S. investment and asset management activities of GTIS, and is a member of the investment committee of GTIS. Mr. Vahradian joined GTIS in 2006 and has been in the real estate industry since 1986. Previously, Mr. Vahradian was President of Allied Partners, a private real estate investment company and was Chief Operating Officer and principal of The Athena Group, LLC, a residential investment and development company based in New York. Prior to joining The Athena Group, LLC, Mr. Vahradian was a Director in Credit Suisse First Boston’s real estate investment banking and principal groups. Mr. Vahradian is a member of our Nominating and Corporate Governance Committee. Through Mr. Vahradian’s vast experience in real estate, residential land development, homebuilding and single-family rental investments, asset management and finance, he is exceptionally well qualified to serve as a member of our Board of Directors and our Nominating and Corporate Governance Committee and provides our Board of Directors with valuable insight on real estate and finance matters. The proposal regarding the election of directors requires the approval of a plurality of the votes cast at the Annual Meeting. This means that the seven nominees receiving the highest number of affirmative FOR votes will be elected as directors. Withholding of authority to vote for a director nominee has no effect on the election of directors.
Election of Directors
Election of Directors In accordance with our Bylaws, the election of directors requires the approval of a plurality of the votes cast. This means that the seven nominees receiving the highest number of affirmative FOR votes will be elected as directors. The Board believes that the plurality voting standard continues to be in the best interests of the Company and our stockholders; however, the Board will periodically re-evaluate the merits of a change to such voting standard.
NON-EMPLOYEE DIRECTOR COMPENSATION
NON-EMPLOYEE DIRECTOR COMPENSATION The Compensation Committee is responsible for evaluating and approving compensation for our non-employee directors. Our non-employee directors received compensation for 2023 director services, which included the following: •$75,000 annual cash retainer, payable quarterly; •Additional annual cash retainer payable quarterly: ◦$25,000 for the Lead Independent Director; ◦$20,000 for the Audit Committee Chair and Compensation Committee Chair; ◦$15,000 for the Nominating and Corporate Governance Committee Chair; •$155,000 grant of restricted stock units (“RSUs”); and •reimbursement for reasonable out-of-pocket expenses incurred for travel in connection with attendance in-person at Board or committee meetings. The number of the RSUs granted is determined based on the grant award amount and the closing stock price of our common stock on the date of grant, rounded up to the next whole share as no fractional shares are issued, with one-year cliff vesting. The RSUs granted to non-employee directors for director services for 2024 were awarded on December 15, 2023. The following table contains information with respect to 2023 compensation awarded to or earned by our non-employee directors. Mr. Eric Lipar, our Chief Executive Officer and Chairman of the Board, received no additional compensation for serving on the Board, and his 2023 compensation is disclosed under “Executive Compensation” below.
NON-EMPLOYEE DIRECTOR COMPENSATION
| Name | Fees Earned or Paid in Cash | Stock Awards (1)(2)(3) | All Other Compensation | | Total | | Ryan Edone | $95,000 | $155,067 | | — | $250,067 | | Shailee Parikh | $75,000 | $155,067 | | — | $230,067 | | Bryan Sansbury | $110,000 | $155,067 | | — | $265,067 | | Maria Sharpe | $85,000 | $155,067 | | — | $240,067 | | Steven Smith | $90,000 | $155,067 | | — | $245,067 | | Robert Vahradian | $75,000 | $155,067 | | — | $230,067 |
NON-EMPLOYEE DIRECTOR COMPENSATION
(1)The amounts shown reflect the grant date fair value of RSUs granted in 2023 for director services for 2024, determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. See Note 9, “Stock-Based Compensation” to our consolidated financial statements included in our 2023 Annual Report, regarding assumptions underlying valuations of equity awards. (2)On December 15, 2022, each non-employee director was granted 1,490 RSUs, valued at approximately $155,000 on the date of grant, for director services for 2023. On December 15, 2023, each non-employee director was granted 1,221 RSUs, valued at approximately $155,000 on the date of grant, for director services for 2024. The grants are subject to cliff vesting and become fully vested upon the earlier of (i) the first anniversary of the grant date, (ii) the director’s disability; (iii) the director’s death; or (vi) immediately prior to the closing of a change in control of the Company, as defined in the Amended and Restated LGI Homes, Inc. 2013 Equity Incentive Plan (the “2013 Incentive Plan”). (3)As of December 31, 2023, Messrs. Edone, Sansbury, Smith, and Vahradian and Mses. Parikh and Sharpe each had 1,221 unvested RSUs.
OUR EXECUTIVE COMPENSATION PRACTICES
| What We Do | | | | Pay for Performance - We align annual and long-term incentive opportunities with our annual operating plan, three-year strategic plan, and stockholder interests. | | | Mitigate Undue Risk - We utilize a mix of elements with multiple performance targets, cap potential payments, provide for statutory clawbacks, generally provide a three-year vesting period for restricted stock awards, and conduct an annual compensation risk assessment analysis each year to validate our belief that our compensation programs will not have a material adverse effect on the Company. | | | Align Total Compensation with the Median of Similarly- Sized Companies - We position the target total direct compensation levels for our NEOs within the range of the median for the general industry. | | | Evaluate Total Compensation - We utilize tally sheets to evaluate our NEOs’ total compensation program, including short-term incentives and long-term compensation opportunity and to evaluate alignment with our NEO retention objectives. | | | Independent Compensation Consulting Firm - The Compensation Committee retains an independent compensation consulting firm to provide advisory services. | | | Reasonable Change in Control Provisions for Equity Awards - We believe we have reasonable change in control provisions that generally apply to directors and executive officers in the same manner as the applicable broader employee population and we do not provide for separate cash severance payments (other than for the CEO) if an executive is terminated following a change in control. | | | Stock Ownership Guidelines - We have adopted stock ownership guidelines for our directors and executive officers. | | | Clawback Policy - We have adopted a clawback policy for incentive compensation paid to current and former executive officers, consistent with the final rules promulgated by the SEC and NASDAQ listing standards. | | | Modest Perquisites - Perquisites are modest and limited to those that have sound benefit to the Company’s business and generally offered to all salaried employees. | | | Regular Review of Share Utilization - We evaluate share utilization by reviewing overhang levels (dilutive impact of equity compensation on our stockholders) and annual run rates (the aggregate shares awarded as a percentage of total shares outstanding). | | What We Don’t Do | | | | No Hedging. Our Insider Trading Policy prohibits directors, officers and employees from using strategies or products (such as derivative securities or short-selling techniques) to hedge against the potential decrease of any of our securities, including shares of common stock and equity awards. | | | No employment contracts or guaranteed severance for NEOs other than our CEO | | | No tax gross-ups | | | No share recycling, stock option reloading or evergreen provisions in our equity plan | | | No repricing of underwater stock options | | | No loans | | | No defined benefit pension plan |
Target Compensation Mix
Target Compensation Mix The elements of the NEO compensation program have remained relatively consistent year to year, with target compensation allocated between fixed and variable, cash and non-cash and short-term or long-term components. The Target Compensation Mix charts above include 2023 base salary and award opportunities related to annual and long-term incentive compensation, granted in or with respect to fiscal 2023 and valued at target levels, and do not include any amounts paid with respect to prior years’ incentive award grants. The value of our RSUs and PSUs is directly linked to LGI’s stock performance; the settlement value of the PSUs is dependent on our basic earnings per share (“EPS”) for the three-year performance period as discussed under “What We Paid and Why - Compensation for NEOs - 2023 LTI Program”. Including the annual incentive cash bonus which is dependent on our home closings and financial performance for 2023, these three performance-linked components constitute approximately 85% and 71%, of the total target direct compensation of our CEO and our three other NEOs (on average), respectively.
Components and Objectives of Our Compensation Program
| | Component | Objective of Element | Description | | Annual Cash Compensation | Base Salary | To provide an appropriate base salary mitigating inappropriate risk-taking by providing a fixed and certain level of income, paid bi-weekly. | Base salaries are set at market competitive levels, subject to adjustment for a number of other factors such as merit increases, unique job responsibilities, experience, individual contributions and number of years in the position. | | | Annual Cash Bonus - Short-term Incentive (“STI”) Compensation | To incentivize and reward performance on key metrics that support the Company’s annual operating plan. Promote Pay for Performance in a competitive way. Generally comparable to incentive ranges among the median of similarly-sized companies based upon achieving specified performance goals. | Designed to offer opportunities for cash compensation directly tied to Company performance relative to established performance targets that the Compensation Committee ultimately believes create stockholder value. Annual cash bonus payouts may range from 0% to 200% of the target bonus, based on performance relative to the designated targets. (See “What We Paid and Why - Compensation for NEOs” below.) We pay the annual cash bonus during the first quarter for performance during the prior fiscal year. |
Components and Objectives of Our Compensation Program
| | Component | Objective of Element | Description | | Long-term Incentive (“LTI”) Compensation | Performance-based Restricted Stock Units (PSUs) | To strengthen alignment with stockholders’ interests, 80% of the LTI is performance-based. | The compensation opportunity under the PSUs has a performance period of three years based on the Company’s cumulative basic earnings per share (“Basic EPS”) over that period compared to the pre-established targets. The PSU payout may range from 0% to 200% of the target amount based on actual results as compared to the target and absolute total stockholder return over the performance period. (See “What We Paid and Why - Compensation for NEOs - 2023 LTI Program” below for a description of the PSU program.) | | | Restricted Stock Units (RSUs) | To encourage retention of the management team. Focus executives on multi-year activities that increase stockholder value. | This component was first added in 2016 to provide an additional fixed level of long-term compensation to balance out the incentive-based compensation. The RSUs vest on the third anniversary of the grant date. | | Retirement and other Perquisites | | To provide competitive benefits to protect the employees and their covered dependents’ health and welfare, to facilitate strong performance on the job, and enhance productivity. | Executive officers, including NEOs, are eligible to participate in the same benefit programs that are offered to other salaried employees, including the 401k Plan match, participating in the ESPP, auto allowances for positions requiring frequent travel, short-term and long-term disability coverage, and participation in health and welfare plans. Other limited perquisites are provided to the NEOs; see the Summary Executive Compensation Table below. |
How Executive Pay is Established
How Executive Pay is Established The Compensation Committee, in consultation with management and the Compensation Committee’s independent compensation consultant, endeavors to align our executive compensation program with our pay for performance philosophy to enhance stockholder value. Since the Company’s initial public offering in November 2013, the Compensation Committee has engaged Meridian Compensation Partners LLC (“Meridian”) as its independent compensation consultant. In 2023, the Compensation Committee evaluated the independence of Meridian and concluded that Meridian was qualified to serve as an independent consultant to the Compensation Committee. In developing our pay for performance policies, Meridian assists the Compensation Committee with benchmarking elements of executive pay against external benchmarks, as discussed below.
Compensation Committee Oversight
Compensation Committee Oversight The Compensation Committee, which is comprised entirely of independent directors, is responsible for overseeing our executive compensation program. The Compensation Committee determines and approves all compensation and payment levels for the CEO and our other senior officers, including the other NEOs and the presidents of our homebuilding divisions. The Compensation Committee performs an annual review of the CEO’s goals and his performance in achieving such goals in each fiscal year and keeps the Board apprised of such evaluations. Our CEO reviews the performance of our other senior officers, including the NEOs (other than himself), and makes recommendations to the Compensation Committee regarding the compensation for those executive officers. The Compensation Committee, with input from Meridian, determines each element of compensation for the CEO. The Compensation Committee also determines each element of compensation for the other NEOs based on consideration of each individual’s leadership qualities, operational performance, business responsibilities, tenure with the Company, current compensation arrangements and long-term potential to enhance stockholder value as well as input from Meridian and the CEO. The Compensation Committee is under no obligation to follow these recommendations. Executive officers and others may participate in discussions with the Compensation Committee when invited to do so. The Compensation Committee also approves all grants of PSUs, RSUs, cash and other awards under our stockholder approved 2013 Incentive Plan. Further information regarding the Compensation Committee’s responsibilities is in the Compensation Committee’s Charter, available under the “Investor Relations” and “Corporate Governance” links on the Company’s website at www.lgihomes.com.
Use of Peer Group and Survey Data
Use of Peer Group and Survey Data The Compensation Committee utilized Meridian to identify the appropriate compensation benchmarking sources, to perform an annual benchmarking of our executive compensation and to assess the competitiveness of our executive compensation program. Meridian provided market data on two sources: (i) a survey of general industry companies of comparable revenue size and (ii) a peer group of publicly-traded homebuilders (see below for a list). The survey of general industry companies reflected approximately 178 companies with revenues between $1.3 billion and $5.3 billion (median revenues of $2.8 billion) compiled by Equilar, Inc. The homebuilder peer group consisted of 10 companies with revenues between $1.8 billion and $8.2 billion (median revenues of $4.3 billion). The homebuilder peer group consisted of the same companies used in the prior year’s homebuilder peer group, except for the removal of New Home Company which was acquired by Apollo Global Management in September 2021. Peer group compensation data was limited to information that is publicly reported and was used to benchmark the major components of compensation for our NEOs, including base pay, target annual bonus opportunity and long-term incentives. Although the majority of the homebuilder peer group was larger than us, the Compensation Committee considered the Company’s relative size, including revenues, total assets, market capitalization, enterprise value, EBITDA, return on equity, return on assets and total shareholder return (“TSR”) when reviewing the executive compensation market data. Additional factors contemplated by the Compensation Committee included the Company’s 2022 performance, its overall business strategy and business model, its expected growth trajectory and constraints, and the then-current economic environment.
Use of Peer Group and Survey Data
| Homebuilder Peer Group | | | | | Beazer Homes USA, Inc. | Hovnanian Enterprises, Inc. | Meritage Homes Corporation | Tri Pointe Group, Inc. | | Century Communities, Inc. | KB Home | M/I Homes, Inc. | | | Green Brick Partners, Inc. | MDC Holdings, Inc. | Taylor Morrison Home | |
Use of Peer Group and Survey Data
As a result of its review of the market data and other factors, the Compensation Committee approved each of our NEO’s target compensation levels to better align them with the 50th percentile of the general industry market and the homebuilder peer group in comparable positions, considering our relative size. In addition, the Compensation Committee determined that each NEO’s then current target compensation provided the executive with an appropriate compensation opportunity, and placed more emphasis on incentive compensation versus base salary given the Company’s future growth goals. The Compensation Committee later determined, based on the Company’s fiscal 2023 performance, that each NEO’s total fiscal 2023 compensation was appropriate in light of overall Company performance, the NEO’s personal performance, and TSR for the performance period. Other than the services described above and the valuation of the PSUs discussed below at “What We Paid and Why - Compensation for NEOs - Target Compensation Mix - 2023”, “2023 LTI Program”, and “PSUs”, which was approved by the Compensation Committee, Meridian did not provide any other services to the Company.
2023 Total Target Compensation by Element
| Name | Base Salary | STI | LTI- PSUs (1) | LTI- RSUs(1) | Total | | Eric Lipar | $975,000 | $1,219,000 | $3,315,000 | $829,000 | $6,338,000 | | Michael Snider | $625,000 | $625,000 | $1,050,000 | $263,000 | $2,563,000 | | Charles Merdian | $600,000 | $540,000 | $960,000 | $240,000 | $2,340,000 | | Scott Garber | $450,000 | $270,000 | $360,000 | $90,000 | $1,170,000 |
Annual Cash Bonus - Short-term Incentive Compensation
Annual Cash Bonus - Short-term Incentive Compensation STI compensation is designed to offer opportunities for cash compensation directly tied to our performance relative to established performance targets that the Compensation Committee ultimately believes create stockholder value. The Compensation Committee approved the 2023 incentive award opportunities described below for the eligible NEOs pursuant to the Annual Bonus Plan, a sub-plan of the 2013 Incentive Plan. Under the 2023 Annual Bonus Plan, each NEO had an annual incentive opportunity based on the following percentages of base salary:
Annual Cash Bonus - Short-term Incentive Compensation
| Named Executive Officer | Annual STI Percentage of Base Salary (1) | | Eric Lipar | 125% | | Michael Snider | 100% | | Charles Merdian | 90% | | Scott Garber | 60% |
Annual Cash Bonus - Short-term Incentive Compensation
(1) These values were unchanged from 2022. The total Annual Bonus payment to be earned by each participating NEO was based (i) 75% on the pre-tax net income during 2023 as compared to target and (ii) 25% on the number of home closings during 2023 as compared to the target. The payouts could range from 0% - 200% of the target annual bonus amount depending on the results achieved as compared to the threshold, target, and maximum for each measure, calculated and awarded independently, such that one portion of the award may be earned even if the threshold level of performance for the other measure is not achieved. The performance targets and payout terms applied to each NEO based on the Compensation Committee’s determination that each is integral to the overall success of the Company. Pre-tax net income and home closings performance measures and weightings have been used consistently for the Annual Bonus Plan since 2014. In order to set a meaningful target, threshold, and maximum for each performance measure, the Compensation Committee analyzed and considered the Company’s growth projections, expected absorption pace by market, lot development schedule, the Company’s performance relative to its peer group and the current economic climate. Pre-tax net income and home closings have been published by the Company since 2014 as key measures of our performance. The Compensation Committee believes that they are an appropriate and balanced method for evaluating the success of management and the Company. In measuring the Company’s performance with respect to these financial metrics under the 2023 Annual Bonus Plan, the Compensation Committee had, in its sole discretion, the authority to make equitable adjustments in recognition of unusual or non-recurring events affecting the Company or its financial statements. No such adjustments were made for 2023. The threshold, target and maximum performance goals, the weighting for the performance metrics, and the payout rate for the 2023 annual bonus, as well as actual fiscal 2023 performance, are as follows (dollars in thousands):
Annual Cash Bonus - Short-term Incentive Compensation
| 2023 Performance Metric (weighting) | Threshold | Target | Maximum | Fiscal 2023 Actual | | Pre-tax net income (75%) | $95,375 | $231,666 | $462,028 | $261,754 | | Homes closed (25%) | 4,500 | 6,000 | 8,750 | 6,729 | | Annual bonus payout rate | 50% | 100% | 200% | 116.4% |
2023 LTI Program
2023 LTI Program The long-term incentives granted by the Compensation Committee for 2023 were designed to provide our NEOs longer-term incentive opportunities that are competitive with our general industry and homebuilder peer groups and reflect our overall executive compensation philosophy of aligning pay with performance. The 2023 LTI provided for 80% of the target value to be awarded in performance share units (PSUs) and 20% of the target value to be awarded in time-based RSUs with a three-year cliff vest. The target 2023 LTI dollar value for each NEO was set by the Compensation Committee at the following multiples of base salary(1):
2023 LTI Program
| Named Executive Officer | LTI Dollar Value of Base Salary (1) | | Eric Lipar | 4.3x | | Michael Snider | 2.1x | | Charles Merdian | 2.0x | | Scott Garber | 1.0x |
2023 LTI Program
(1) These values were unchanged from 2022. The RSUs and PSUs were valued at $104.36 (the closing stock price of our common stock on the March 8, 2023 grant date). The 2023 LTI RSU and PSU grants to our NEOs were approved by the Compensation Committee under our stockholder approved 2013 Incentive Plan. The RSU grant agreements provide for three-year cliff vesting. The 2023 PSU award agreements provide for cliff vesting at the conclusion of the three-year performance period if threshold performance levels are achieved. Under the terms of the Annual Bonus Plan and the 2013 Incentive Plan, the Compensation Committee has unilateral discretion and authority to eliminate or reduce, or increase, any award that would otherwise be payable to a participant in recognition of unusual or non-recurring events affecting the Company or its financial statements, or otherwise.
PSUs
PSUs The 2023 PSU awards provide the opportunity for participants to receive shares of our common stock based on the attainment of pre-established financial performance targets based on our cumulative Basic EPS amount over the three-year performance period 2023 - 2025. Each PSU granted to participants represents the right to receive one share of our common stock, but the ultimate number of shares of our common stock to be earned with respect to a participant’s PSUs will be determined at the end of the performance period depending on actual results as compared to the target performance metrics. Payouts could range from 0% to 200% of the target number of PSUs offered to the participant, depending on the cumulative Basic EPS as compared to target Basic EPS for the performance period. The terms of the PSUs provide that the payouts will be capped at 100% of the target number of PSUs granted if absolute TSR is negative during the performance period, regardless of Basic EPS performance. The PSUs vest upon the determination date (March 2026) for the actual results at the end of the three-year period and require that the recipients continue to be employed by the Company through the determination date. The PSUs can only be settled in shares of our common stock. PSUs, which are contingent on the successful completion of both performance-based and time-based requirements before any payout occurs, further strengthen the link between individual pay opportunities and our performance and enhance our efforts to retain key executives.
RSUs
RSUs This additional compensation component was added in 2016 to provide an additional fixed level of long-term compensation to balance out the incentive-based compensation. It is designed to encourage retention of the management team. The RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock. The Compensation Committee believes that the long-term equity mix, including PSUs and time based RSUs, helps to ensure that long-term strategic initiatives are not compromised by having executives focus solely on short-term results through the annual incentive award. Such awards also help focus executives on strategies that increase long-term stockholder value. The 2023 incentive compensation program has similar underlying performance metrics as the programs in prior years and the Compensation Committee has determined that continuing a similar mix of PSUs and RSUs for the 2023 LTI grant was appropriate. Existing executive equity ownership levels are not generally a factor in the Compensation Committee’s granting of PSUs and RSUs.
Severance and Change in Control Benefits
Severance and Change in Control Benefits Mr. Eric Lipar, our Chief Executive Officer and Chairman of the Board, has an employment agreement (the “Lipar Employment Agreement”) with the Company. The Lipar Employment Agreement provides for a three-year term that began November 13, 2018 and automatically renews for successive one-year periods on the anniversary of the effective date, a base salary of at least $840,588 plus a discretionary incentive bonus, and includes provisions that govern confidentiality, non-competition, and non-solicitation. See “Executive Compensation - CEO Employment Agreement” for a discussion of the Lipar Employment Agreement. Other than Mr. Lipar, the NEOs do not have any employment or severance agreements other than what is outlined in the 2013 Incentive Plan.
Summary Executive Compensation Table
| Name and Principal Position | Year | Salary | Bonus (1) | Stock Awards (2) | All Other Compensation (6) | Total | | Eric Lipar, CEO and Chairman of the Board* | 2023 | $975,000 | $1,418,618 | $4,143,927(3) | $55,737 | $6,593,282 | | | 2022 | $975,000 | $590,087 | $4,143,982(4) | $53,960 | $5,763,029 | | | 2021 | $950,000 | $2,280,000 | $3,230,169(5) | $66,632 | $6,526,801 | | Michael Snider, President and Chief Operating Officer | 2023 | $625,000 | $727,646 | $1,312,640(3) | $36,226 | $2,701,512 | | | 2022 | $625,000 | $302,671 | $1,312,621(4) | $33,397 | $2,273,689 | | | 2021 | $625,000 | $1,250,000 | $1,187,643(5) | $35,768 | $3,098,411 | | Charles Merdian, Chief Financial Officer and Treasurer | 2023 | $600,000 | $628,686 | $1,200,036(3) | $15,383 | $2,444,105 | | | 2022 | $600,000 | $261,508 | $1,200,118(4) | $15,493 | $2,077,119 | | | 2021 | $525,000 | $787,500 | $945,123(5) | $14,648 | $2,272,271 | | Scott Garber, General Counsel and Corporate Secretary | 2023 | $450,000 | $314,343 | $450,105(3) | $19,104 | $1,233,552 | | | 2022 | $450,000 | $130,754 | $450,133(4) | $17,431 | $1,048,318 |
2023 Grants of Plan-Based Awards
2023 Grants of Plan-Based Awards
2023 Grants of Plan-Based Awards
| | | | Estimated future payouts under non-equity incentive plan awards (1) | | | Estimated future payouts under equity incentive plan awards (2)(3) | | | All other stock awards: Number of shares of stock or units (#) (2) | All other option awards: Number of securities underlying options (#) | Exercise or base price of option awards ($/Sh) | Grant date fair value of stock and option awards (3)(4) | | Name | Grant Date | Type of Award | Threshold | Target | Maximum | Threshold | Target | Maximum | | | | | | E. Lipar | 3/8/2023 | STI | $609,375 | $1,218,750 | $2,437,500 | | | | | | | | | | 3/8/2023 | PSU | | | | 15,883 | 31,766 | 63,532 | | | | $3,315,100 | | | 3/8/2023 | RSU | | | | | | | 7,942 | | | $828,827 | | M. Snider | 3/8/2023 | STI | $312,500 | $625,000 | $1,250,000 | | | | | | | | | | 3/8/2023 | PSU | | | | 5,031 | 10,062 | 20,124 | | | | $1,050,070 | | | 3/8/2023 | RSU | | | | | | | 2,516 | | | $262,570 | | C. Merdian | 3/8/2023 | STI | $270,000 | $540,000 | $1,080,000 | | | | | | | | | | 3/8/2023 | PSU | | | | 4,600 | 9,199 | 18,398 | | | | $960,008 | | | 3/8/2023 | RSU | | | | | | | 2,300 | | | $240,028 | | S. Garber | 3/8/2023 | STI | $135,000 | $270,000 | $540,000 | | | | | | | | | | 3/8/2023 | PSU | | | | 1,725 | 3,450 | 6,900 | | | | $360,042 | | | 3/8/2023 | RSU | | | | | | | 863 | | | $90,063 |
2023 Grants of Plan-Based Awards
(1)Actual non-equity incentive plan payouts for 2023 are discussed under “Compensation Discussion and Analysis - What We Paid and Why - Compensation for NEOs - Target Compensation Mix - 2023”. (2)Equity awards granted in 2023 have a three-year cliff vest, subject in the case of PSU awards, to achievement of established performance metrics. (3) Restricted stock units have a fair value equal to the closing price of our stock on the date of grant in accordance with the requirements of FASB ASC Topic 718. The grant-date fair value amounts relating to the performance share awards represent the grant-date fair value assuming the attainment of the EPS performance metric over the applicable three-year period. The terms of the PSUs provide that the payouts will be capped at 100% of the target number of PSUs granted if absolute TSR is negative during the performance period, regardless of EPS performance; this market condition applies for amounts recorded above target. The compensation expense associated with the grants of PSU is determined using the derived grant date fair value of $104.36, based on a third-party valuation analysis provided by Meridian, and expensed over the applicable period. (4) Grant date fair value for the RSU awards is calculated using the $104.36 closing stock price on the date of grant.
Outstanding Equity Awards at December 31, 2023
Outstanding Equity Awards at December 31, 2023 The following table provides information on RSUs and PSUs granted under the 2013 Incentive Plan to each of our NEOs and outstanding at December 31, 2023.
Outstanding Equity Awards at December 31, 2023
| Name | RSUs Grant Date | Number of RSUs That Have Not Vested | Market Value of RSUs That Have Not Vested (4) | PSUs Grant Date | Number of PSUs That Have Not Vested | | Market Value of PSUs That Have Not Vested (4) | | | | | | | | Target (5) | Maximum (6) | Target (5) | Maximum (6) | | Eric Lipar | 3/8/2023 | 7,942(1) | $1,057,557 | 3/8/2023 | 31,766 | 63,532 | $4,229,961 | $8,459,921 | | | 3/15/2022 | 6,977(2) | $929,057 | 3/15/2022 | 27,905 | 55,810 | $3,715,830 | $7,431,660 | | | 3/15/2021 | 4,582(3) | $610,139 | 3/15/2021 | 18,327 | 36,654 | $2,440,423 | $4,880,847 | | Michael Snider | 3/8/2023 | 2,516(1) | $335,031 | 3/8/2023 | 10,062 | 20,124 | $1,339,856 | $2,679,712 | | | 3/15/2022 | 2,210(2) | $294,284 | 3/15/2022 | 8,839 | 17,678 | $1,177,001 | $2,354,002 | | | 3/15/2021 | 1,685(3) | $224,375 | 3/15/2021 | 6,738 | 13,476 | $897,232 | $1,794,464 | | Charles Merdian | 3/8/2023 | 2,300(1) | $306,268 | 3/8/2023 | 9,199 | 18,398 | $1,224,939 | $2,449,878 | | | 3/15/2022 | 2,021(2) | $269,116 | 3/15/2022 | 8,081 | 16,162 | $1,076,066 | $2,152,132 | | | 3/15/2021 | 1,341(3) | $178,568 | 3/15/2021 | 5,362 | 10,724 | $714,004 | $1,428,008 | | Scott Garber | 3/8/2023 | 863(1) | $114,917 | 3/8/2023 | 3,450 | 6,900 | $459,402 | $918,804 | | | 3/15/2022 | 758(2) | $100,935 | 3/15/2022 | 3,031 | 6,062 | $403,608 | $807,216 |
Outstanding Equity Awards at December 31, 2023
(1)On March 8, 2023, 7,942, 2,516, 2,300, and 863 RSUs were granted to Messrs. Lipar, Snider, Merdian, and Garber, respectively, representing a portion of the 2023 LTI program. The RSUs vest on the third anniversary date of the grant and will be settled in shares of our common stock. (2)On March 15, 2022, 6,977, 2,210, 2,021, and 758 RSUs were granted to Messrs. Lipar, Snider, Merdian, and Garber, respectively, representing a portion of the 2022 LTI program. The RSUs vest on the third anniversary date of the grant and will be settled in shares of our common stock. (3)On March 15, 2021, 4,582, 1,685, and 1,341 RSUs were granted to Messrs. Lipar, Snider, and Merdian, respectively, representing a portion of the 2021 LTI program. The RSUs vest on the third anniversary date of the grant and will be settled in shares of our common stock. (4)The market value of RSUs and PSUs that have not vested is based on the closing stock price of $133.16 per share of our common stock on the NASDAQ Global Select Market on December 29, 2023, the last trading day of 2023. (5)The Compensation Committee approved target PSUs awards that provide for shares of our common stock to be issued based on the attainment of the performance metric of the Company over the applicable three-year performance period. The PSUs vest upon the determination date for the actual results at the end of the three-year period and require the recipients continue to be employed by the Company through the determination date. The PSUs will be settled in shares of our common stock. The performance period for the 2023 awards is January 1, 2023 to December 31, 2025. The performance period for the 2022 awards is January 1, 2022 to December 31, 2024. The performance period for the 2021 awards is January 1, 2021 to December 31, 2023. The 2021 grants will be settled at 93.6% of the target amount resulting in the issuance of 17,157, 6,308, 5,020, and 1,913 shares of our common stock to Messrs. Lipar, Snider, Merdian and Garber, respectively, in settlement of the 2021 grants. (6)The number and market value of shares of our common stock that may be issued to the recipients for the PSUs range from 0% to 200% of the target amount depending on actual results as compared to the target performance metric, and the amounts shown in the table represent the maximum payout, or 200% of the target amount.
Outstanding Equity Awards at December 31, 2023
| 2021 LTI Program Results | Threshold | Target | Maximum | 2021 - 2023 Actual (1) | | 2021-2023 Cumulative Basic EPS criteria | $29.58 | $40.54 | $47.32 | $39.84 | | PSU payout rate | 50% | 100% | 200% | 93.6% |
Outstanding Equity Awards at December 31, 2023
(1) In settlement of the 2021 PSUs, Messrs. Lipar, Snider, Merdian, and Garber received 17,157, 6,308, 5,020, and 1,913 shares, respectively, of our common stock on March 8, 2024.
Pay-Versus-Performance
| | | | | | Value of Initial Fixed $100 Investment Based On: | | | | | Year | Summary Compensation Table Total for CEO | Compensation Actually Paid to CEO (1) | Average Summary Compensation Table Total for Non-CEO NEOs | Average Compensation Actually Paid to Non-CEO NEOs (2) | Total Shareholder Return | Peer Group Total Shareholder Return (3) | Net Income (4) | Pre-Tax Net Income (4)((5) | | 2023 | $6,593,282 | $8,523,949 | $2,165,389 | $2,638,276 | $188.48 | $209.43 | $199,227 | $261,754 | | 2022 | $5,763,029 | $(7,836,526) | $1,799,708 | $(1,915,761) | $131.07 | $132.08 | $326,567 | $418,117 | | 2021 | $6,526,801 | $18,772,107 | $1,893,186 | $4,856,739 | $218.66 | $187.73 | $429,645 | $542,775 | | 2020 | $5,491,150 | $15,356,685 | $1,796,078 | $4,275,320 | $149.82 | $126.16 | $323,895 | $367,849 |
Pay-Versus-Performance
| Adjustments to Determine Compensation Actually Paid for CEO | 2023 | 2022 | 2021 | 2020 | | Deduction for change in actuarial present value of accumulated benefit under all defined benefit and actuarial pension plans reported in the Summary Compensation Table | $— | $— | $— | $— | | Increase for aggregate of service cost and prior service cost for all defined benefit and actuarial pension plans reported in the Summary Compensation Table | $— | $— | $— | $— | | Deduction for amounts reported under the “Stock Awards” column in the Summary Compensation Table | $(4,143,927) | $(4,143,982) | $(3,230,169) | $(2,550,119) | | Deduction for amounts reported under the “Option Awards” column in the Summary Compensation Table | $— | $— | $— | $— | | Increase for fair value of awards granted during year that remain unvested as of year-end | $5,376,347 | $1,938,071 | $6,370,137 | $8,123,564 | | Increase for fair value of awards granted during year that vest during year | $— | $— | $— | $— | | Increase/deduction for change in fair value from prior year-end to current year-end of awards granted prior to year that were outstanding and unvested as of year-end | $(185,100) | $(9,048,719) | $7,206,430 | $7,097,870 | | Increase/deduction for change in fair value from prior year-end to vesting date of awards granted prior to year that vested during year | $883,347 | $(2,344,925) | $1,898,908 | $(2,805,778) | | Deduction of fair value of awards granted prior to year that were forfeited during year | $— | $— | $— | $— | | Increase based on dividends or other earnings paid during year prior to vesting date of award | $— | $— | $— | $— | | Total Adjustments | $1,930,667 | $(13,599,555) | $12,245,306 | $9,865,537 |
Pay-Versus-Performance
| Adjustments to Determine Average Compensation Actually Paid for Non-CEO NEOs | 2023 | 2022 | 2021 | 2020 | | Deduction for change in actuarial present value of accumulated benefit under all defined benefit and actuarial pension plans reported in the Summary Compensation Table | $— | $— | $— | $— | | Increase for aggregate of service cost and prior service cost for all defined benefit and actuarial pension plans reported in the Summary Compensation Table | $— | $— | $— | $— | | Deduction for amounts reported under the “Stock Awards” column in the Summary Compensation Table | $(987,593) | $(987,624) | $(683,251) | $(596,007) | | Deduction for amounts reported under the “Option Awards” column in the Summary Compensation Table | $— | $— | $— | $— | | Increase for fair value of awards granted during year that remain unvested as of year-end | $1,281,307 | $461,904 | $1,347,374 | $1,898,579 | | Increase for fair value of awards granted during year that vest during year | $— | $— | $— | $— | | Increase/deduction for change in fair value from prior year-end to current year-end of awards granted prior to year that were outstanding and unvested as of year-end | $(28,506) | $(2,432,239) | $1,816,653 | $1,874,462 | | Increase/deduction for change in fair value from prior year-end to vesting date of awards granted prior to year that vested during year | $246,679 | $(757,510) | $482,777 | $(697,792) | | Deduction of fair value of awards granted prior to year that were forfeited during year | $— | $— | $— | $— | | Increase based on dividends or other earnings paid during year prior to vesting date of award | $— | $— | $— | $— | | Total Adjustments | $511,887 | $(3,715,469) | $2,963,553 | $2,479,242 |
Relationship Between Compensation Actually Paid and Cumulative TSR
Relationship Between Compensation Actually Paid and Cumulative TSR As demonstrated by the following graph, the amount of compensation actually paid to the CEO and the average amount of compensation actually paid to the Non-CEO NEOs have generally aligned with the Company’s cumulative TSR over the three-year period presented in the table. With respect to equity awards, the terms of the PSUs provide that the payouts will be capped at 100% of the target number of PSUs granted if absolute TSR is negative during the performance period, regardless of Basic EPS performance. See “What We Paid and Why - Compensation for NEOs - 2023 LTI Program - PSUs” for more information.
Relationship Between Compensation Actually Paid and Net Income
Relationship Between Compensation Actually Paid and Net Income As demonstrated by the following graph, the amount of compensation actually paid to the CEO and the average amount of compensation actually paid to the Non-CEO NEOs have generally aligned with the Company’s net income over the three-year period presented in the table. While the Company does not use net income as a stand-alone performance measure in the overall executive compensation program, the measure of net income is correlated with the measure pre-tax net income (which is net income before income taxes). As further discussed in the section that follows, the determination as to the amount of the total Annual Bonus payment earned by each participating NEO under the Annual Bonus Plan is significantly influenced by the pre-tax net income generated for the year as compared to target.
Relationship Between Compensation Actually Paid and Pre-Tax Net Income
Relationship Between Compensation Actually Paid and Pre-Tax Net Income As demonstrated by the following graph, the amount of compensation actually paid to the CEO and the average amount of compensation actually paid to the Non-CEO NEOs has generally aligned with the Company’s pre-tax net income over the three-year period presented in the table. While the Company uses TSR, earnings per share, home closings and pre-tax net income for the purpose of evaluating performance for the Company’s compensation programs, the Company has determined that pre-tax net income over the long-term is the financial performance measure that, in the Company’s assessment, represents the most important performance measure (that is not otherwise required to be disclosed in the table) used by the Company to link compensation actually paid to the NEOs to Company performance. The Compensation Committee’s determination as to the amount of the total Annual Bonus payment earned by each participating NEO under the Annual Bonus Plan is significantly influenced by the pre-tax net income generated for the year as compared to target. For 2023, 2022, 2021 and 2020, the total Annual Bonus payment to be earned by each participating NEO was based (i) 75% on the pre-tax net income during the year as compared to target and (ii) 25% on the number of home closings during the year as compared to the target. The payouts could range from 0% - 200% of the target annual bonus amount depending on the results achieved as compared to the threshold, target, and maximum for each measure, calculated and awarded independently, such that one portion of the award may be earned even if the threshold level of performance for the other measure is not achieved. The performance targets and payout terms applied to each NEO based on the Compensation Committee’s determination that each is integral to the overall success of the Company. See “What We Paid and Why - Compensation for NEOs - Annual Cash Bonus - Short-term Incentive Compensation” for more information.