|
|
|
SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
|
Security Ownership by Management and Principal Stockholders
Management.
The following table summarizes, as of
March 23, 2017
, the number and percentage of outstanding shares of our common stock beneficially owned by the following:
|
|
•
|
each Meritage director and nominee for director;
|
|
|
•
|
each executive officer named in the summary compensation table; and
|
|
|
•
|
all Meritage directors and executive officers as a group.
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|
|
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|
|
|
|
|
|
|
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Name Of
Beneficial Owner
(1)
|
|
Position With The
Company
|
|
Number
Of Shares
Owned
|
|
Right To
Acquire By
May 14,
2017
|
|
Total Shares
Beneficially
Owned
(2)
|
|
Percent Of
Outstanding
Shares
(3)
|
Steven J. Hilton
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|
Director, Chairman and CEO
|
|
1,599,219
|
|
(4)
|
—
|
|
|
1,599,219
|
|
|
4.0
|
%
|
Robert G. Sarver
|
|
Director
|
|
208,659
|
|
(5)
|
—
|
|
|
208,659
|
|
|
*
|
|
Raymond Oppel
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|
Director
|
|
61,000
|
|
|
—
|
|
|
61,000
|
|
|
*
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|
Peter L. Ax
|
|
Director
|
|
51,000
|
|
|
—
|
|
|
51,000
|
|
|
*
|
|
Richard T. Burke, Sr.
|
|
Director
|
|
63,500
|
|
|
—
|
|
|
63,500
|
|
|
*
|
|
Gerald Haddock
|
|
Director
|
|
60,500
|
|
(6)
|
—
|
|
|
60,500
|
|
|
*
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|
Dana Bradford
|
|
Director
|
|
49,000
|
|
|
—
|
|
|
49,000
|
|
|
*
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|
Michael R. Odell
|
|
Director
|
|
30,000
|
|
|
—
|
|
|
30,000
|
|
|
*
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|
Deb Henretta
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|
Director
|
|
4,167
|
|
|
—
|
|
|
4,167
|
|
|
*
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|
Hilla Sferruzza
|
|
Executive Vice President and
Chief Financial Officer
|
|
13,757
|
|
|
—
|
|
|
13,757
|
|
|
*
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|
C. Timothy White
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|
Executive Vice President,
General Counsel and Secretary
|
|
49,978
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|
(7)
|
—
|
|
|
49,978
|
|
|
*
|
|
Phillippe Lord
|
|
Executive Vice President and Chief Operating Officer
|
|
4,714
|
|
|
—
|
|
|
4,714
|
|
|
*
|
|
Javier Feliciano
|
|
Executive Vice President and Chief Human Resources Officer
|
|
2,325
|
|
|
—
|
|
|
2,325
|
|
|
*
|
|
Larry W. Seay
|
|
Former Executive Vice President and Chief Financial Officer
|
|
76,367
|
|
|
—
|
|
|
76,367
|
|
|
*
|
|
All current directors and executive officers as a group (14 persons)
|
|
|
|
2,274,186
|
|
|
—
|
|
|
2,274,186
|
|
|
5.6
|
%
|
* Less than 1%.
|
|
(1)
|
The address for our directors and executive officers is c/o Meritage Homes Corporation, 8800 East Raintree Drive, Suite 300, Scottsdale, Arizona 85260.
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(2)
|
The amounts shown include the shares of common stock actually owned as of March 23,
2017
, and the shares that the person or group had the right to acquire within 60 days of that date. The number of shares includes shares of common stock owned by other related individuals and entities over whose shares of common stock such person has custody, voting control or the power of disposition. As of March 23, 2017, there were no outstanding options for any of our NEOs or Board members as we no longer award stock options as part of equity compensation program.
|
|
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(3)
|
Based on
40,313,842
shares outstanding as of
March 23, 2017
.
|
|
|
(4)
|
Shares are held by family trusts. As of March 23,
2017
, Mr. Hilton had 900,000 shares pledged to a third-party lending institution, 350,000 of which are securing loans. Our pledging policy is discussed on page 22 of this proxy statement.
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|
|
(5)
|
Shares are held by family trusts (6,000 shares Penny Sarver—wife; 2,000 shares Penny Sarver FBO Max Sarver—minor son; 8,170 shares Robert Sarver—trustee of Eva Lauren Hilton Trust; 8,170 shares Robert Sarver—trustee of Shari Rachel Hilton Trust; 184,319 shares Robert Sarver—trustee of Robert Sarver Trust). Mr. Sarver has expressly disclaimed any beneficial ownership of the shares held by the trusts for the benefit of Mr. Hilton’s children (Eva Lauren Hilton Trust and Shari Rachel Hilton trust). Mr. Sarver had 119,819 shares pledged to a third party lending institution as of March 23,
2017
. None of these shares secured loans in 2016. Our pledging policy is discussed on page 22 of this proxy statement.
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(6)
|
Includes 15,000 shares held by charities on which Mr. Haddock serves as a board member and has authority to make investment decisions on behalf of. These holdings are with The Haddock Center (10,000 shares), and the Haddock Foundation (5,000 shares). Mr. Haddock has expressly disclaimed beneficial ownership of these shares.
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(7)
|
11,500 shares are held by a family trust.
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11
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
|
Certain Other Beneficial Owners.
Based on filings made under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as
of March 23,
2017
, th
e only other known beneficial owners of more than 5% of Meritage common stock are shown in the following table:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned
|
Name of Other Beneficial Owners
|
|
Address Of Beneficial Owner
|
|
Number
|
|
Percent
|
FMR, LLC
(1)
|
|
245 Summer Street, Boston, MA 02210
|
|
6,003,680
|
|
|
15.0
|
%
|
BlackRock, Inc.
(2)
|
|
55 East 52
nd
Street, New York, NY 10055
|
|
4,974,270
|
|
|
12.4
|
%
|
Sanders Capital, LLC
(3)
|
|
390 Park Avenue, 17th Floor, New York, NY 10022
|
|
3,646,119
|
|
|
9.2
|
%
|
Dimensional Fund Advisors, LP
(4)
|
|
6300 Bee Cave Road, Austin, TX 78746
|
|
3,381,923
|
|
|
8.4
|
%
|
The Vanguard Group
(5)
|
|
100 Vanguard Boulevard, Malvern, PA 19355
|
|
3,131,675
|
|
|
7.8
|
%
|
|
|
(1)
|
Based solely on a Schedule 13G/A filed with the SEC on February 14, 2017, FMR, LLC has sole dispositive power with respect to 6,003,680 shares.
|
|
|
(2)
|
Based solely on a Schedule 13G/A filed with the SEC on January 12, 2017, BlackRock, Inc. and certain affiliated entities have sole voting power with respect to 4,889,497 shares and sole dispositive power with respect to 4,974,270 shares.
|
|
|
(3)
|
Based solely on a Schedule 13G filed with the SEC on February 1, 2017, Sanders Capital, LLC has sole voting power with respect to 1,513,011 shares and sole dispositive power with respect to 3,646,119 shares.
|
|
|
(4)
|
Based solely on a Schedule 13G filed with the SEC on February 9, 2017, Dimensional Fund Advisors, LP has sole voting power with respect to 3,276,134 shares and sole dispositive power with respect to 3,381,923 shares.
|
|
|
(5)
|
Based solely on a Schedule 13G/A filed with the SEC on February 10, 2017, The Vanguard Group has sole voting power with respect to 47,531 shares, shared voting power with respect to 4,872 shares, sole dispositive power with respect to 3,081,268 shares and shared dispositive power with respect to 50,407 shares.
|
For each of the reporting owners set forth above, the beneficially owned shares are held in various individual funds owned or managed by the reporting owners, but none of the individual funds managed by the reporting owners above hold more than 5% of the Company stock.
MERITAGE HOMES
|
2017 Proxy Statement
12
|
|
|
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
|
Corporate Governance and Board Matters
|
|
|
|
|
|
Role of the Board of Directors
|
The Board of Directors (“the Board”) is elected by the stockholders to oversee the stockholders’ interests in the operation and overall success of our business. The Board serves as our ultimate decision-making body, except for those matters that require a vote of our stockholders. The Board selects and oversees the members of senior management who are charged by the Board with conducting our business. We have established and operate in accordance with a comprehensive plan of corporate governance that defines and sets ethical standards for the conduct of our directors, officers and employees. This plan provides an important framework within which the Board can pursue our strategic objectives and ensure long-term stockholder value.
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|
|
|
|
|
Corporate Governance Principles and Practices
|
We have adopted Corporate Governance Principles and Practices that define the key elements of our corporate governance framework and philosophy, including:
|
|
•
|
director qualifications,
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|
|
•
|
director responsibilities,
|
|
|
•
|
committee responsibilities and structure,
|
|
|
•
|
officer and director stock ownership requirements,
|
|
|
•
|
director resignation policy,
|
|
|
•
|
director access to officers and employees,
|
|
|
•
|
our philosophy with respect to director compensation,
|
|
|
•
|
Board evaluation process,
|
|
|
•
|
confidentiality requirements,
|
|
|
•
|
director orientation and continuing education, and
|
|
|
•
|
our plans with respect to management succession.
|
Our Corporate Governance Principles and Practices are available on our website at
investors.meritagehomes.com
and we will provide a printed copy to any stockholder upon request. These principles are reviewed regularly by the Nominating/Governance Committee and changes are made as the Committee deems appropriate.
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|
|
|
|
|
Director Qualifications and Diversity
|
Our Board of Directors is comprised of a group of individuals whose previous experience, financial and business acumen, personal ethics and dedication and commitment to our Company allow the Board to complete its key task as the over-seer and governing body of Meritage Homes Corporation. The specific experience and qualifications of each of our Board members are set forth below. The Board is committed to a policy of inclusiveness and diversity. The Board believes members should be comprised of persons with diverse skills, expertise, backgrounds and experiences including, without limitation, the following areas:
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|
•
|
management or board experience in a wide variety of enterprises and organizations,
|
|
|
•
|
banking and capital markets and finance,
|
|
|
•
|
real estate, including homebuilding, commercial and land development,
|
|
|
•
|
sales and marketing, and
|
In 2014, the Board of Directors amended and restated our bylaws to adopt a customary majority voting standard for the election of directors. In addition, we updated our Corporate Governance Principles and Practices to require that any nominee for director who is an incumbent director but who is not elected by the vote required in the bylaws, and with respect to whom
13
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
|
no successor has been elected, promptly tender his or her offer to resign to the Board of Directors for its consideration. The Nominating/Governance Committee of the Board of Directors will recommend to the Board of Directors whether to accept or reject the resignation offer, or whether other action should be taken. In determining whether to recommend that the Board of Directors accept any resignation offer, the Nominating/Governance Committee will be entitled to consider all factors believed relevant by the Nominating/Governance Committee’s members. The Board of Directors will act on the Nominating/Governance Committee’s recommendation within 90 days following certification of the election results and will announce its determination and rationale in a Form 8-K. In deciding whether to accept the resignation offer, the Board of Directors will consider the factors considered by the Nominating/Governance Committee and any additional information and factors that the Board of Directors believes to be relevant. If the Board of Directors accepts a director’s resignation offer pursuant to its process, the Nominating/Governance Committee will recommend to the Board of Directors and the Board of Directors will thereafter determine what action, if any, will be taken with respect to any vacancy created by a resignation. Any director who tenders his or her resignation pursuant to this policy will not participate in the proceedings of either the Nominating/Governance Committee or the Board of Directors with respect to his or her own resignation.
In case of a Board vacancy or if the Board elects to increase its size, determinations regarding the eligibility of director candidates are made by the Nominating/Governance Committee, which considers the candidate’s qualifications as to skills and experience in the context of the needs of the Board of Directors and our stockholders. When seeking new Board candidates, the Nominating/Governance Committee is committed to a policy of inclusiveness and will take reasonable steps to ensure that women and minority candidates are considered for the pool of candidates from which the Board nominees are chosen and will endeavor to include candidates from non-traditional venues.
MERITAGE HOMES
|
2017 Proxy Statement
14
|
|
|
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
|
Our Board is comprised of the following members:
Class I Directors
|
|
|
|
Steven J. Hilton, 55
|
|
Mr. Hilton has been the Company’s chairman and chief executive officer since May 2006. Mr. Hilton was the co-chairman and co-chief executive officer of Meritage Homes Corporation from 1996 to May 2006. In 1985, Mr. Hilton co-founded Arizona-based Monterey Homes, the predecessor company to Meritage Homes Corporation. Under Mr. Hilton’s leadership, Monterey became publicly traded in 1996. Mr. Hilton received his Bachelor of Science degree in accounting from the University of Arizona and is a director of Western Alliance Bancorporation (a NYSE listed company), a leading bank holding company based in Phoenix, Arizona.
Mr. Hilton has more than 30 years of real estate experience and is considered an expert and innovator in the homebuilding industry. He is a frequent participant in panels and interviews regarding the industry.
|
|
Raymond Oppel, 60
|
|
Mr. Oppel has been a director since December 1997. Mr. Oppel is a licensed real estate broker and currently is active as a private investor in real estate development. He was the co-founder, chairman and chief executive officer of The Oppel Jenkins Group, a regional homebuilder in Texas and New Mexico, which was purchased in 1995 by public homebuilder KB Home.
Mr. Oppel has almost 30 years of experience in the homebuilding business. Mr. Oppel possesses extensive knowledge about the real estate industry in general and the homebuilding industry in particular.
|
|
Richard T. Burke, Sr., 74
|
|
Mr. Burke has been a director since September 2004. Mr. Burke is currently the Chairman of the Board of Directors of UnitedHealth Group, which he founded, took public in 1984 and served as chief executive officer as well. From 1995 until 2001, Mr. Burke was the owner and chief executive officer of the Phoenix Coyotes, a National Hockey League team and has served as a director for a number of other companies, both public and private. Mr. Burke previously served as a director for First Cash Financial Services, Inc., a position from which he resigned within the past five years.
Mr. Burke is a business and civic leader in Phoenix, Arizona, and his experience as the chairman and CEO of a multi-billion dollar public company provides the Board with outstanding corporate governance and financial insight.
|
|
Dana C. Bradford, 52
|
|
Mr. Bradford has been a director since August 2009. Mr. Bradford is Executive Chairman of Waitt Brands, a diversified consumer brands company. From 2005 to 2012, Mr. Bradford was the president and managing partner of McCarthy Capital Corporation, a private equity firm. He also serves as a director on the boards of Southwest Value Partners, a San Diego-based real estate company and Customer Service Profiles, an Omaha-based provider of customer satisfaction data and analytics. Mr. Bradford formerly served as chairman of the board of SAFE Boats International, a Seattle-based manufacturer of defense and emergency response boats and Vornado Air, a Wichita-based consumer brands company and formerly served as a director on the boards of Ballantyne, NRG Media, Guild Mortgage and Gold Circle Films.
Mr. Bradford earned a bachelor’s degree in business administration from the University of Arizona and an MBA from Creighton University. Mr. Bradford brings additional perspective to the Board relating to real estate and corporate finance matters.
|
|
Deb Henretta, 55
|
|
Ms. Henretta was appointed as a director in March 2016.
Ms. Henretta retired from the Proctor & Gamble, Co. ("P&G") in 2015. Throughout her 30 years at P&G, she held various senior positions throughout several sectors, serving as Group President of Global e-Commerce, which included serving as Head of Global Beauty Care; Division President of Global Baby/Toddler & Adult Care; and Division Vice President of Fabric Conditioners and Bleach. She has been a director at Corning, Inc. since 2013, at Nisource Inc. since 2015 and at Staples,Inc. since 2016.
Ms. Henretta graduated summa cum laude from St. Bonaventure University with a BA in communications in 1983. She earned her MA in advertising research and teaching assistantship from Syracuse University Newhouse School of Public Communications in 1985.
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15
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
|
Class II Directors
|
|
|
|
Peter L. Ax, 57
|
|
Mr. Ax has been a director since September 2000 and is the Company's lead director. He is the managing partner of Phoenix Capital Management, an operationally focused venture capital firm. Mr. Ax is the former chairman and chief executive officer of SpinCycle, Inc., a public reporting consolidator and developer of coin-operated laundromats. Previously, Mr. Ax served as head of the Private Equity Division and senior vice president of Lehman Brothers in New York and has served in various operating roles for enterprises operated by Phoenix Capital Management. Mr. Ax is also on the board of directors of iGo, Inc. (formerly, NASDAQ: IGOI) and serves on the Advisory Board of Directors of Cascadia Capital, a Seattle-based investment banking and merchant banking firm, and also serves annually as a judge in the Wharton Entrepreneurship Business Plan Competition.
Mr. Ax holds an MBA from the Wharton School at the University of Pennsylvania, a J.D. from the University of Arizona, and a B.S.B.A. from the University of Arizona, and has been a certified public accountant. Mr. Ax possesses extensive skills and experience relating to, among other things, capital markets and corporate finance.
|
|
Robert G. Sarver, 55
|
|
Mr. Sarver has been a director since December 1996. He is the chairman and chief executive officer of Western Alliance Bancorporation and the managing partner of the Phoenix Suns NBA basketball team. From 1995 to 1998, he served as chairman of Grossmont Bank. He was the chairman and chief executive officer of California Bank & Trust from 1998 to 2001. Mr. Sarver earned a bachelor’s degree in business administration from the University of Arizona and has been a certified public accountant.
Mr. Sarver has been active in the real estate industry for more than 30 years and is known nationwide as a leader and expert in banking. He has extensive experience in a wide spectrum of successful real-estate activities, including commercial, residential and development projects.
|
|
Gerald Haddock, 69
|
|
Mr. Haddock has been a director since January 2005. Mr. Haddock is the founder of Haddock Enterprises, LLC and formerly served as president and Chief Executive Officer of Crescent Real Estate Equities, a diversified real estate investment trust. He is currently a director of ENSCO International, Plc., a leading global offshore oil and gas drilling service company. As a director for ENSCO, he has served as its co-lead director and Chairperson of the Audit Committee and is also a member of the Nominating & Governance Committee. From December 2004 to October 2008, Mr. Haddock served as a Board Member of Cano Petroleum, Inc. He also serves on the board of trustees and is a member of various committees for the Baylor College of Medicine (2011 to 2015), the Executive Investment Committee at Baylor University, the M.D. Anderson Proton Therapy Education and Research Foundation, and the CEELI Institute.
Mr. Haddock received his Bachelor of business administration and Juris Doctorate degrees from Baylor University. He also received a Masters of Law in Taxation degree from New York University and an MBA degree from Dallas Baptist University.
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|
Michael R. Odell, 53
|
|
Mr. Odell has been a director since December 2011. He is president and Chief Executive Officer of MAIHO III LLC, a holding company for investments in the automotive aftermarket. In 2015 and 2016, he served as president of Eastern Auto Parts Warehouse, an automotive parts distributor. From 2008 through 2014, he served as president, Chief Executive Officer and board member of The Pep Boys - Manny, Moe & Jack, a NYSE-listed
Fortune 1000
company and the nation’s leading automotive aftermarket service and retail chain. Mr. Odell joined Pep Boys in 2007 as Chief Operating Officer. Previously, he served as executive vice president and general manager of Sears Retail & Specialty Stores, a $26 billion division of Sears Holdings Corporation.
Mr. Odell started his career as a CPA with Deloitte & Touche LLP. Mr. Odell holds an M.B.A. from Northwestern University's Kellogg School of Management, and a B.S. in Accounting from the University of Denver's Daniels College of Business. Mr. Odell has deep service, retail and distribution experience, with a broad background in strategic planning, leadership, operations and finance.
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|
MERITAGE HOMES
|
2017 Proxy Statement
16
|
|
|
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
|
The Nominating/Governance Committee evaluates and reports to the Board of Directors regarding the independence of each candidate. Consistent with the rules and regulations of the NYSE, at least a majority of the Board of Directors must be independent. No director will be deemed to be independent unless the Board affirmatively determines that the director has no material relationship with the Company, either directly or as an officer, shareowner, member, partner or trustee of an organization that has a relationship with the Company. The Board observes all criteria established by the NYSE and other governing laws and regulations. In its review of director independence, the Board considers all commercial, banking, consulting, legal, accounting, charitable and other business relationships the director may have with the Company.
As a result of its review, the Board of Directors has determined that a majority of Meritage’s Board members are independent. Our independent directors are Peter L. Ax, Raymond Oppel, Richard T. Burke, Sr., Gerald Haddock, Dana C. Bradford, Michael R. Odell and Deb Henretta.
In making this determination, the Board of Directors evaluated whether any relationships exist between these individuals and Meritage and determined that no relationship exists between Meritage and any independent director.
Steven J. Hilton is not considered independent because he is employed by the Company.
Prior to 2004, Robert G. Sarver was deemed an independent director. The Nominating/Governance Committee has continually monitored certain relationships between Mr. Sarver and Meritage along with relationships between Mr. Sarver and Mr. Hilton. Mr. Sarver and Mr. Hilton have certain business relationships unrelated to Meritage, including Mr. Sarver serving as trustee of certain of Mr. Hilton’s family trusts. The Nominating/Governance Committee evaluated these relationships and determined that they did not impair Mr. Sarver’s independence because they do not involve Meritage and are insignificant in relation to Mr. Sarver’s net worth. During 2004, Mr. Sarver became the controlling owner of the Phoenix Suns basketball team, in which Mr. Hilton purchased a minority ownership interest. This relationship was closely evaluated by the Nominating/Governance Committee because of its significance to Messrs. Sarver and Hilton. The Nominating/Governance Committee and the Board of Directors believe Mr. Sarver is a valuable member of the Board and that the Company benefits from his extensive business experience. Although Mr. Sarver does not have any material relationship with the Company which under the applicable rules and regulations would deem him not independent, the Nominating/Governance Committee has nevertheless concluded it is at this time in the best interest of Meritage’s stockholders that Mr. Sarver not be deemed an independent director.
The Board has also determined that all committees of the Board, with the exception of Land Committee, should be comprised entirely of independent directors and therefore neither Mr. Hilton nor Mr. Sarver serve on any Board committees.
|
|
|
|
|
|
Board Leadership Structure
|
Steven J. Hilton, our co-founder and CEO, also serves as a director and the Chairman of the Board. We believe Mr. Hilton’s unique industry experience and continuing involvement in the day-to-day operations of the Company make him highly qualified to serve as our Board’s Chairman. Mr. Hilton co-founded Meritage Homes and is thus intimately familiar with its history, culture and operations. Mr. Hilton possesses in-depth knowledge and expertise in the homebuilding industry as a whole and Meritage Homes in particular and is the Company’s largest non-institutional stockholder. The Board of Directors has concluded that this puts Mr. Hilton in a unique position and makes it compelling for him to serve both as Chairman of the Board and CEO to effectively represent the stockholders’ interest.
Mr. Ax, our Audit Committee Chair, serves as the Board’s lead independent director. Mr. Ax has extensive knowledge of capital markets and corporate finance and has previously served as CEO of a publicly traded corporation. We believe that Mr. Ax’s role as our lead independent director serves as a counterbalance to and complements Mr. Hilton’s position as Board Chairman and provides the appropriate level of independent director oversight. Additionally, our lead independent director presides over all independent director meetings and can call special meetings of the independent directors as he deems necessary to address any matters the lead independent director feels should be addressed by the majority of our directors at any time.
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|
|
|
|
|
CEO and Management Succession
|
Under the charter of the Nominating/Governance Committee, it is the role of the Nominating/Governance Committee to review and recommend to the Board of Directors changes as needed to the Company’s Corporate Governance Principles and Practices, including items such as management succession, policies and principles for CEO selection and performance review, and policies regarding succession in the event of an emergency or departure of the CEO. Our Corporate Governance Principles and Practices provide, among other things, that our Executive Compensation Committee is to conduct an annual review of the performance of the CEO.
17
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
|
The Board of Directors considers management evaluation and CEO succession planning an important responsibility of the Board. Under our Corporate Governance Principles and Practices, the Board of Directors is responsible for approving a succession plan for our CEO and other senior officers. Issues relating to CEO succession planning are addressed regularly (at least annually) by the Board.
Our Board of Directors has overall responsibility for the oversight of risk management. As part of this oversight, on a regular basis, our Board of Directors receives reports from various members of management and is actively involved in monitoring and approving key decisions relating to our operations and strategy. Additionally, the management teams at our divisions must obtain approvals from our corporate executive team prior to engaging in certain activities or committing prescribed amounts of the Company’s financial and operational resources. As a result, senior management, who report directly to executive management, cannot authorize transactions that exceed prescribed thresholds that, while they may result in short-term benefits for their divisions, may expose the Company to unwarranted risks. Similarly, our executive management (including our NEOs) cannot engage in certain transactions without approval from our Board of Directors. For example, management must obtain approval from the Board of Directors, acting through the Land Committee, before proceeding with any land acquisition above a pre-established threshold. In addition, our General Counsel regularly reports to the Board of Directors information concerning ongoing litigation and possible legal, regulatory and other risks that might expose the Company to liability or loss. The Board also annually reviews the Company’s insurance programs.
Management operates the business within parameters established by an annual budget that is reviewed and approved by the Board of Directors. At each regular Board meeting, management provides the Board of Directors a status report with respect to the budget and addresses any material variances. We believe our budgeting process provides a useful mechanism for identifying risks and the related rewards and provides a quantitative method for evaluating those risks and rewards. The Board of Directors also provides oversight of risk through its standing committees. For example:
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•
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Our Audit Committee is responsible for reviewing and analyzing significant financial and operational risks and how management is managing and mitigating such risks through its internal controls and risk management processes. Our VP of Internal Audit reports directly to the Audit Committee and provides routine updates on the progress and findings of the department's on-going internal audit reviews. Our external auditors also have at least quarterly discussions with our Audit Committee, and meet both with and without Company management present, to highlight what they perceive as our key financial risks. Our Audit Committee plays an important role in approving our internal controls monitoring and is regularly engaged in discussions with management regarding business risks, operational risks, transactional risks and financial risks.
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•
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Our Executive Compensation Committee oversees risks relating to the compensation and incentives provided to our senior executive officers. The Executive Compensation Committee negotiates and approves all of the employment agreements of our NEOs and the Committee approves all grants of equity awards to all of our eligible employees.
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•
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Only Independent Directors sit on our governance Committees to provide greater Director participation in key policy decisions. Although it is not a requirement that members of our Land Committee are independent, currently all members are independent directors.
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The Board and Board Committees
|
We currently have nine incumbent directors and the following committees:
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•
|
Executive Compensation Committee
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•
|
Nominating/Governance Committee
|
Our Board of Directors typically meets on a quarterly basis, with additional meetings held as required. During 2016, the Board of Directors held five meetings. Throughout 2016, each director attended at least 75% of the aggregate of the Board and committee meetings of which they were a member. Our Land Committee does not have regularly scheduled meetings but rather meets when significant land transactions require the Land Committee’s consideration. Directors are expected to attend our annual meetings of stockholders. All directors with the exception of Mr. Sarver attended our 2016 annual meeting held on May 19, 2016.
MERITAGE HOMES
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2017 Proxy Statement
18
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
|
The following table identifies the current members of our Board of Directors and the number of meetings held during
2016
:
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Board of Directors
|
|
Audit Committee
|
|
Executive
Compensation
Committee
|
|
Nominating/
Governance
Committee
|
|
Land
Committee
|
Steven J. Hilton*
|
|
|
|
|
|
|
|
|
Peter L. Ax +
|
|
|
|
|
|
×
|
|
×
|
Raymond Oppel
|
|
|
|
|
|
|
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×
|
Richard T. Burke, Sr.
|
|
×
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|
Gerald Haddock
|
|
|
|
|
|
|
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×
|
Dana Bradford
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×
|
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×
|
|
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×
|
Michael R. Odell
|
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×
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|
Robert G. Sarver
|
|
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Deb Henretta
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×
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Number of Meetings
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|
7
|
|
5
|
|
4
|
|
19
|
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*
|
=
|
Chairman of the Board
|
×
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=
|
Member
|
|
=
|
Committee Chair
|
+
|
=
|
Lead Independent Director
|
Audit Committee
The Board of Directors has established an Audit Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (Exchange Act), and the rules and regulations of the NYSE. The Audit Committee assists the Board of Directors in:
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•
|
fulfilling its oversight of the integrity of our financial statements,
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•
|
overseeing our compliance with legal and regulatory requirements,
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•
|
determining our independent registered public accounting firm’s qualifications and independence,
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•
|
evaluating the performance of our internal audit function and independent registered public accounting firm, and
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•
|
reviewing and approving any related party transaction between the Company and senior executive officers and directors.
|
The Audit Committee has the sole authority to appoint and replace our independent registered public accounting firm and approves all audit engagement fees and terms of all significant non-audit engagements with the independent registered public accounting firm in accordance with the pre-approval policies set forth in our Audit Committee charter. The Audit Committee has the authority to obtain advice and assistance from, and receives appropriate funding from us for, outside legal, accounting and other advisors as it deems necessary to carry out its duties.
The Audit Committee operates under a written charter established by the Board. The charter is available on our website at
investors.meritagehomes.com
and we will provide a printed copy to any stockholder upon request. Each member of the Audit Committee meets the independence requirements of the NYSE and the Exchange Act, and is financially literate, knowledgeable and qualified to review our financial statements. In addition, each member of the Audit Committee has accounting or related financial management expertise. The Board of Directors has determined that Peter Ax, the Chair of our Audit Committee and each of our other two directors who serve as audit committee members are independent directors as defined by the NYSE’s listing standards, and each is an “audit committee financial expert.” Information about Mr. Ax’s past business and educational experience is included in his biography in this proxy statement under the caption “—Director Qualifications and Diversity —Class II Directors”.
The report of the Audit Committee is included in this proxy statement under the caption “Report of the Audit Committee.”
Executive Compensation Committee
The Board of Directors has established an Executive Compensation Committee (the “Compensation Committee”) in accordance with the NYSE’s rules and regulations. The Compensation Committee regularly reports to the Board of Directors and its responsibilities include:
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•
|
reviewing and approving goals and objectives relative to the compensation of our NEOs, evaluating our NEOs’ performance in light of these goals and approving the compensation of our NEOs,
|
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•
|
reviewing and incorporating stockholder preferences with respect to compensation agreements with our NEOs,
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19
MERITAGE HOMES
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2017 Proxy Statement
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
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•
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overseeing all equity-based award grants,
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•
|
making recommendations to the Board of Directors with regard to non-NEO compensation and equity-based awards, and
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•
|
producing a report on executive compensation to be included in our annual proxy statement.
|
The Compensation Committee is currently comprised of three members of the Board, each of whom is independent under the independence standards of the NYSE, a “non-employee director” under Section 16 of the Exchange Act, and an “outside director” for purposes of Section 162(m) of the Internal Revenue Code (the “Code”). Generally the Compensation Committee Chair is in charge of setting the schedule for the Compensation Committee’s meetings, as well as the agenda of each meeting.
The Compensation Committee operates under a written charter, which is available on our website at
investors.meritagehomes.com
. We will provide a printed copy of the charter to any stockholder upon request.
The Compensation Committee has the sole authority to hire outside compensation advisors and consultants and to determine the terms, scope, fees and costs of such engagements. Since 2013, the Compensation Committee has engaged The POE Group ("POE Group") annually, to provide an update on current compensation trends and to provide recommendations on the compensation packages of our NEOs.
The Compensation Committee determines executive compensation with respect to our NEOs independent of management. The Compensation Committee approves all grants of equity-based awards. For the NEOs, the number and type of equity award grants in most cases are determined or based on an employment agreement between the Company and the NEO, which are negotiated and approved by the Compensation Committee; however, they may be adjusted based on the Compensation Committee’s review of the NEO’s performance and competitive market factors. For non-NEOs, management is responsible for recommending to the Compensation Committee the persons to receive grants and the nature and size of the proposed award. Because management is responsible for the day-to-day operation of the Company, the Compensation Committee believes that management is in the best position to make this recommendation.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is, or has been, an employee of Meritage or any of its subsidiaries. There are no interlocking relationships between Meritage and other entities that might affect the determination of the compensation of Meritage’s executive officers.
Nominating/Governance Committee
The Board of Directors has established a Nominating/Governance Committee, which directly reports to the Board of Directors and is responsible for:
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•
|
developing director qualifications and determining whether newly elected directors or prospective director candidates meet those qualifications,
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•
|
identifying individuals qualified to become Board members and recommending director nominees for the next annual meeting of stockholders,
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•
|
considering recommendations for director nominations received from stockholders,
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•
|
reviewing and recommending changes as needed to the Company’s Corporate Governance Principles and Practices,
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•
|
addressing such items as management succession, including policies and principles for our CEO selection and performance review and succession in the event of an emergency or departure of the CEO,
|
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•
|
reviewing the charters of the Compensation Committee, Audit Committee and Nominating/Governance Committee and any other committees,
|
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•
|
assessing and monitoring, with Board involvement, the Board’s performance,
|
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•
|
recommending nominees for the Compensation Committee, Audit Committee, Nominating/Governance Committee, and Land Committee, and
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•
|
promoting adherence to a high standard of corporate governance and Company values.
|
The Nominating/Governance Committee has the sole authority to retain and terminate any search firm used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms. The Nominating/Governance Committee operates under a written charter, which is available on our website at
investors.meritagehomes.com.
We will provide a printed copy of the charter to any stockholder upon request. Each member of the Nominating/Governance Committee meets the independence requirements of the NYSE.
MERITAGE HOMES
|
2017 Proxy Statement
20
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|
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
|
Director Nomination Process
Director Qualifications.
The Nominating/Governance Committee will evaluate prospective nominees using the standards and qualifications set forth in our Corporate Governance Principles and Practices and in our criteria for new directors. Prospective nominees must meet these qualification requirements and should have the highest professional and personal ethics and values, as well as broad experience at the policy-making level in business, government, education or public interest. Prospective nominees should be committed to enhancing stockholder value and should have sufficient time to devote to carrying out their duties and to provide insight based upon experience, talent, skill and expertise appropriate for the Board. Each prospective nominee must be willing and able to represent the interests of our stockholders.
Identifying and Evaluating Nominees for Directors.
The Nominating/Governance Committee utilizes a variety of methods for identifying and evaluating nominees to serve as directors. The Nominating/Governance Committee assesses the current composition of the Board of Directors, the balance of management and independent directors and the need for Audit Committee and other expertise in its evaluation of prospective nominees. In the event that vacancies are anticipated, or otherwise arise, the Nominating/Governance Committee may seek recommendations from current Board members, professional search firms, outside legal, accounting and other advisors, or stockholders in order to locate qualified nominees. The Nominating/Governance Committee also evaluates each candidate in the context of maintaining and creating a diverse Board, as previously discussed. After completing its evaluation, the Nominating/Governance Committee will make a recommendation to the full Board of Directors as to the persons who should be nominated by the Board of Directors, and the Board will determine the nominees after considering such recommendations.
Stockholder Recommendations.
The policy of the Nominating/Governance Committee is to consider properly-submitted stockholder recommendations for candidates for membership on the Board of Directors as described below. In evaluating such proposals, the Nominating/Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership qualifications and criteria described below. Any stockholder recommendations proposed for consideration by the Nominating/Governance Committee must include the nominee’s name and qualifications for Board membership and should be submitted to:
Meritage Homes Corporation
8800 East Raintree Drive
Suite 300
Scottsdale, Arizona 85260
Attn: Secretary
The Secretary will forward all recommendations to the Nominating/Governance Committee.
Stockholder Nominations.
Our bylaws also permit stockholders to nominate directors for election at an annual stockholder meeting. For a description of the process for submitting such nominations for consideration at next year’s annual meeting, please see “Stockholder Proposals, Director Nominations and Other Items of Business” on page 54 of this proxy statement.
Proxy Access
. In February 2017, we amended our bylaws to permit an eligible shareholder, or a group of up to 20 shareholders, that has continuously owned at least three percent of the Company’s outstanding shares of common stock for three years to include in the Company’s proxy materials director nominations of up to 20% (rounded to the nearest whole number) of the number of Directors constituting the class up for election at any annual meeting. For a description of the process and deadlines for submitting such nominations for consideration at next year’s annual meeting, please see “Stockholder Proposals, Director Nominations and Other Items of Business” on page 54 of this proxy statement.
Director Orientation and Continuing Education
It is the policy of the Board that all new directors should participate in an orientation program sponsored by the Company. This orientation will be designed to familiarize new directors with the Company’s strategic plans, its significant financial, accounting and risk management issues, its compliance programs, its Code of Ethics, its principal officers, its internal audit function, and its independent auditors. In addition, the Board encourages each director to attend prominent continuing education programs. The Company will pay for the director’s tuition and reasonable and customary travel expenses to attend continuing education programs.
Executive Sessions of Independent Directors
Our Corporate Governance Principles and Practices dictate that the non-management members of the Board of Directors will meet in executive session at least quarterly outside the presence of directors that are employees or officers of the Company. The non-management directors met in executive session
four
times during
2016
. Peter Ax is our Lead Independent Director and presides over these executive session meetings.
21
MERITAGE HOMES
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2017 Proxy Statement
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|
|
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
|
Land Committee
The Board of Directors has established a Land Committee, which directly reports to the Board of Directors. The Land Committee is responsible for reviewing and approving/denying land acquisition transactions recommended by management in excess of a predetermined monetary threshold. The Committee is intended to function as an additional approval mechanism for executive management’s land acquisition approval policies and procedures.
As of the date of this filing, the Land Committee was comprised of Mes
srs.
Ax, Oppel, Haddock and Bradford.
The Land Committee is transactional in nature; accordingly, the frequency of meetings is not pre-determined, and rather meetings only occur when significant land transactions arise that require Land Committee consideration. Currently, no compensation is paid to any director for service on the Land Committee, and there is not a Land Committee chair.
We are committed to conducting business consistent with the highest ethical and legal standards. The Board of Directors has adopted a Code of Ethics, which is applicable to all employees, including our senior and executive management and our directors. The Code is available on our website at
investors.meritagehomes.com
and we will provide a print copy to any stockholder upon request.
Meritage Stock Pledging Policy
In February 2013, the Nominating/Governance Committee approved a modification to the Company’s securities trading policy prohibiting all future pledging of the Company’s equity securities by our employees, NEOs and directors. In connection with this policy, the Company adopted a grandfather provision relating to existing pledges. As of the date our modified policy was adopted, only Messrs. Hilton and Sarver had outstanding pledges. Our grandfather provision exempts existing pledges and continuation or replacements thereto; provided, however, that with respect to these existing pledges (or continuations or replacements thereof) the number of shares pledged may not exceed the greater of (i) two-thirds of the total number of Meritage shares beneficially owned by Mr. Hilton or Sarver, as the case may be, or (ii) 200,000 shares. In establishing these grandfather provisions, the Board considered the particular circumstances of Mr. Hilton and Mr. Sarver, the founder of the Company and an original board member, respectively, both of whom have a significant ownership in the Company’s equity securities.
Anti-Hedging Policy
We have a securities trading policy that sets forth guidelines and restrictions on transactions involving our stock, which are applicable to all employees, including our NEOs and directors. Among other things, our policy prohibits all types of hedging transactions, including, but not limited to, purchases of stock on margin, short sales, buying or selling puts or calls and similar transactions involving any derivative securities. If allowed, these types of transactions could enable employees to own Company stock without the full risks and rewards of ownership. When that occurs, employees may no longer have the same objectives as the Company’s other stockholders and therefore such transactions involving Meritage stock are prohibited.
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Communications with the Board of Directors
|
Interested persons may communicate with the Board of Directors by writing to our Lead Independent Director at the address set forth on page
2
. The Lead Independent Director will disseminate the information to the rest of the Board at his discretion.
MERITAGE HOMES
|
2017 Proxy Statement
22
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
Compensation Discussion and Analysis
The following discussion and analysis should be read in conjunction with the “Summary Compensation Table” and related tables that are presented immediately following this discussion.
The purpose of this compensation discussion and analysis (“CD&A”) is to provide information about each material element of compensation that we pay or award to, or that is earned by, our NEOs. For our
2016
fiscal year, our NEOs were:
|
|
•
|
Steven J. Hilton, Chairman and Chief Executive Officer
|
|
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•
|
Hilla Sferruzza, Executive Vice President, Chief Financial Officer *
|
|
|
•
|
C. Timothy White, Executive Vice President, General Counsel and Secretary
|
|
|
•
|
Phillippe Lord, Executive Vice President, Chief Operating Officer
|
|
|
•
|
Javier Feliciano, Executive Vice President, Chief Human Resources Officer
|
|
|
•
|
Larry W. Seay, former Executive Vice President, Chief Financial Officer *
|
|
|
*
|
Mr. Seay retired on March 31, 2016, and Ms. Sferruzza was appointed Executive Vice President, Chief Financial Officer on April 1, 2016.
|
This CD&A addresses and explains the numerical and related information contained in the summary compensation tables and includes actions regarding executive compensation that occurred during
2016
, including the award of bonuses related to
2016
performance, and the adoption of any new, or the modification of any existing, compensation programs, if applicable.
The 2016 housing market generally experienced a steady level of growth, thanks in part to the continued low cost of
home ownership and improving consumer confidence, contributing to a favorable demand environment, particularly in the first-time buyer segment. Despite the modest rise in interest rates in the last quarter of the year, rates are still historically low, and the impact of the increases has not yet been observed in the homebuilding industry.
We remain committed to our plan of strategically positioning ourselves in many of the top housing markets in the country and continue to actively source land for well-located communities within those locations. Currently, we are actively pursuing land opportunities, opening new communities and developing product that appeal to and target the growing first-time home buyer segment. Our investments in well-located new communities and innovative product offerings have created a strategic differentiation for Meritage Homes. We believe this differentiation has benefited us throughout the last several years and will continue to provide us with opportunities for growth and profitability in the future.
The growth and profitability of Meritage is dependent on executive management’s vision and actions to implement and support these strategic goals and we feel we have taken, and continue to take, appropriate steps for Meritage to be well-positioned for success.
Meritage Homes is committed to building long-term stockholder value. Accordingly, our NEO compensation program is designed to be largely performance driven. At our 2016 Annual Meeting of Stockholders, the Company’s stockholders approved the compensation of our NEOs (on an advisory basis) by 93% of total votes cast, indicating that our stockholders were in agreement with our Compensation Committee and its direction of setting compensation arrangements based on performance metrics that are in line with the goals of our stockholders. A summary of our compensation packages is discussed further in this proxy in the section titled “Compensation Program.”
2016
Business Highlights
2016
was another year of growth and progress on many strategic fronts for Meritage Homes. Below is a summary of some of the significant accomplishments achieved in
2016
:
|
|
•
|
Grew total home closing revenue to $3.0 billion in
2016
, up 19% over 2015.
|
|
|
•
|
Generated 15% year-over-year diluted EPS growth with full year 2016 diluted EPS of $3.55.
|
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•
|
Successfully opened our first LiVE.NOW. communities targeted to the growing number of first-time buyers looking for affordable home ownership that offers a product beyond the typical entry-level home.
|
|
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•
|
Surpassed a historic milestone with the closing of our 100,000th home.
|
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•
|
Increased our lots under control by 7% to 29,815 lots at December 31, 2016 from prior year.
|
23
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
|
|
•
|
Maintained our net debt-to-capital ratio within our target of the low-to-mid 40% range, reporting 41.2% at December 31, 2016.
|
As mentioned, our executive compensation program is designed to be driven with a focus on pay-for-performance. In 2016, more than half of the compensation program for our CEO and certain other NEOs was based on various performance metrics that are tied to Meritage’s operational goals. The following graph illustrates CEO compensation as it relates to the performance of the Company over the last three years.
|
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*
|
Before deduction of CEO total compensation (as reflected in the Summary Compensation Table).
|
In addition to our financial and operating successes, Meritage Homes is committed to building every home to meet or exceed ENERGY STAR
®
standards, the Environmental Protection Agency has recognized Meritage Homes as an ENERGY STAR Partner of the Year every year since 2010. For the fourth consecutive year, Meritage received the ENERGY STAR
®
prestigious Partner of the Year for Sustained Excellence Award in recognition of our ongoing industry leadership in advancing energy-efficient building standards.
We have also enjoyed succe
sses in establishing ourself as a company that gives back and has been recognized for such efforts. Since 2013, Meritage has partnered with Operation Homefront to provide newly-built mortgage-free homes to military families through its
Homes on the Homefront
program. In addition, Meritage employees donated thousands of man-hours and significant financial support to Ronald McDonald House, Habitat for Humanity, numerous local food banks
and many other local and national charitable organizations, which we plan to continue to support through the
Meritage Cares
Foundation.
MERITAGE HOMES
|
2017 Proxy Statement
24
|
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|
COMPENSATION DISCUSSION AND ANALYSIS
|
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Compensation Philosophy and Objectives
|
Our executive compensation program is designed to drive and reward superior corporate performance both annually and over the long term while simultaneously striving to be externally competitive. We continually review our executive compensation program to ensure it reflects good governance practices and is in the best interests of stockholders. Since 2013 the Compensation Committee has engaged POE Group as its independent compensation consultant to evaluate and make recommendations regarding the terms of our NEO compensation programs as they relate to creating stockholder value as well as remaining competitive in the marketplace with the changing trends in NEO compensation, while meeting the below core objectives:
Pay for Performance
A substantial portion of the total potential compensation for Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord is intended to be variable on a pay-for-performance basis. The terms of the performance-based compensation contemplated in each respective NEOs employment agreement was based upon an assessment performed by POE Group of external market data to ensure that the compensation formula is competitive relative to the compensation paid by companies with which we compete for executive talent. This compensation is derived based on (i) the performance of the Company as a whole, as measured against our peer group and (ii) the NEOs role in the attainment of the Company’s performance goals.
Stock Ownership
We are committed to utilizing our compensation program to increase executive stock ownership over time. We believe that equity ownership directly aligns the interests of our executives with those of our stockholders and helps to focus our executives on long-term stockholder value creation. We award restricted stock, restricted stock units and performance share awards to our NEOs, as we believe such awards provide our NEOs with an incentive to continue to increase long-term stockholder value, even during periods of declining stock prices. We believe the granting of equity awards is an important retention tool and is widely used in our industry.
Recruiting and Retention
Due to the competitive nature of our industry, we are committed to providing total compensation opportunities that are competitive with, though not identical to, the practices of other large public homebuilders. We intend for our compensation program to be sufficiently aligned with industry practices so that we can continue to attract and retain outstanding executives who are motivated to help us achieve our mission.
Compensation Peer Group
As a member of the homebuilding industry, we predominantly compete for executive talent and have historically compared ourselves to other companies in our industry. There are a limited number of homebuilders that have revenue and market capitalization similar to ours. Therefore, the Compensation Committee, with the assistance of POE Group, has established a peer group of comparably sized companies selected from the homebuilding industry as well as the building products industry. The majority of the peer group companies fall within the following parameters:
|
|
•
|
0.4 times to 2.5 times our revenues, and
|
|
|
•
|
0.25 times to 4.0 times our market capitalization.
|
The peer group companies that were used in 2016 for executive compensation benchmarking and performance benchmarking are set forth below. We believe that this peer group provides an appropriate benchmark comparison for our Company.
|
|
|
|
|
|
|
|
l
|
|
Armstrong World Industries
|
|
l
|
|
Louisiana Pacific
|
l
|
|
Beazer Homes USA
|
|
l
|
|
Masonite International
|
l
|
|
BMC Stock Holdings
|
|
l
|
|
M.D.C. Holdings
|
l
|
|
CalAtlantic Group
|
|
l
|
|
Taylor Morrison Home
|
l
|
|
Fortune Brands
|
|
l
|
|
TRI Pointe
|
l
|
|
Hovnanian Enterprises
|
|
l
|
|
Toll Brothers
|
l
|
|
KB Home
|
|
l
|
|
USG
|
25
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
In addition to the peer group listed above for executive compensation benchmarking,
the Compensation Committee established a
peer group for the total shareholder return ("TSR") portion of performance based long-term incentive awards that includes only homebuilders based on
the recommendations of POE Group.
The revised TSR peer group for 2016 is set forth below:
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l
|
|
Beazer Homes USA
|
|
l
|
|
M.D.C. Holdings
|
l
|
|
CalAtlantic Group
|
|
l
|
|
Taylor Morrison Home
|
l
|
|
Hovnanian Enterprises
|
|
l
|
|
Toll Brothers
|
l
|
|
KB Home
|
|
l
|
|
TRI Pointe
|
While market data is an important factor utilized by the Compensation Committee when setting compensation, it is only one of multiple factors considered, and the amount paid to each executive may be more or less than the composite market predicted value based on the performance of the Company and the executive, the roles, experience and responsibilities of the executive, experience level of the individual, internal equity and other factors that the Compensation Committee deems important.
MERITAGE HOMES
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2017 Proxy Statement
26
|
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|
COMPENSATION DISCUSSION AND ANALYSIS
|
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|
Compensation Best Practices
|
The best practices evidenced by our compensation programs and processes include:
|
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WE DO
|
|
WE DO NOT
|
a
|
|
Pay for performance by requiring
a significant portion of the total compensation of our NEOs be determined based on performance tied to strategic objectives.
|
|
r
|
|
Provide perquisites for our NEOs other than those limited to auto allowance, reimbursement of certain insurance premiums and other limited benefits.
|
a
|
|
Have executive Stock Ownership Requirements in place set at a multiplier of base salary.
|
|
r
|
|
Reprice or replace stock options and other equity awards.
|
a
|
|
Have a clawback policy for our NEOs requiring the recoupment of incentive bonuses in the event of a restatement of financial results resulting from willful misconduct or gross negligence of the applicable NEO.
|
|
r
|
|
Allow hedging.
|
a
|
|
Engage a compensation consultant to provide an update on current compensation trends and to provide recommendations on our NEOs’ current compensation packages.
|
|
r
|
|
Allow pledging, subject to certain limited grandfather provisions.
|
a
|
|
Double trigger cash severance based upon a change-in-control of the Company.
|
|
r
|
|
Provide tax gross-ups applicable to change-in-control and severance payments.
|
Our executive compensation policies and practices are designed to align our NEOs’ long-term interests with those of our stockholders via a pay-for-performance model. The charts below depict the
2016
percentage of compensation for our CEO and other NEOs that is fixed versus performance-based (from the summary compensation table on page 39):
|
|
*
|
Represents average for current NEOs other than the CEO.
|
|
|
**
|
Includes fair value of performance share awards (at target level) and actual non-equity incentive plan compensation.
|
27
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
|
|
|
|
|
|
Independent Compensation Consultant
|
In accordance with its charter, the Compensation Committee has the sole authority to
obtain advice and assistance from consultants, legal counsel, accounting and other advisers as appropriate. The Compensation Committee has the sole authority to retain and terminate any compensation consultant, counsel or adviser and to determine and approve the terms, costs and fees for such engagements. Since 2013, the Compensation Committee has engaged POE Group as its independent compensation consultant taking into consideration (i) the independence of and similar factors pertaining to POE Group as required by the New York Stock Exchange (NYSE), the Securities and Exchange Commission (SEC) and other applicable rules and regulations. Upon consideration of these factors, the Compensation Committee concluded that engaging POE Group did not present any conflicts of interest.
POE Group provided i
nformation and advice regarding compensation philosophy and strategy; recommended peer group selection criteria as well as recommended potential peer companies; and consulted with the Compensation Committee on both long-term and short-term incentive compensation.
The key components of our executive compensation program are base salary, annual incentive cash compensation and long-term equity incentive compensation. In addition, our NEOs have the opportunity to participate in our company-wide 401(k) plan, a non-qualified deferred compensation plan, and to receive limited certain personal benefits, as described below. The employment agreements of our CEO and other NEOs are further described in this proxy under the section “—Employment Agreements in Effect for
2016
.”
In 2016, the Compensation Committee undertook a holistic review of the executive compensation program with the assistance of our independent compensation consultant POE Group. The executive compensation program was designed based on the following strategic principles:
|
|
•
|
Alignment with key outcomes of our business strategies;
|
|
|
•
|
Appropriate balance of short- and long-term incentive award opportunity;
|
|
|
•
|
Provision of market-competitive total compensation opportunity within our industry and peer group;
|
|
|
•
|
Appropriate alignment with our stockholders by delivering a significant percentage of total compensation opportunity through equity;
|
|
|
•
|
Setting total compensation package where a significant percentage of total compensation is at risk;
|
|
|
•
|
Transparency in the communication of plan design and performance goals to enhance understanding; and
|
|
|
•
|
Adherence to sound governance practices, including the prudent management of compensation risk.
|
Based on the results of the analysis, the components of our NEO compensation program are as outlined below.
Base Salary
The purpose of the base salary is to provide a fixed amount of cash compensation that is not variable and is generally competitive with market practices. Consistent with industry practice and our pay-for-performance objective, the base salary for each of our NEOs is designed to account for only a portion of their overall target compensation. As compared to our compensation peer group, we target our NEO salaries to be commensurate with other public homebuilders. We believe the NEO base salaries are appropriate based on the officers’ roles, responsibilities, experience and contributions to the Company, as well as market data.
Annual Cash Incentive Compensation ("Non-Equity Incentive Plan")
For 2016, Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord were eligible for annual cash incentive compensation. We believe our Non-Equity Incentive Plan focuses our NEOs on the most important short-term measures of our business, establishes a clear connection between performance and earned compensation, and provides greater transparency to our stockholders as to the operation of our Non-Equity Incentive Plan. Each goal represents a fixed percentage of total potential compensation with each goal assessed separately from the others. The annual incentive compensation is designed to generally comply with the requirements of Section 162(m) of the Code to allow for the tax deductibility of incentive compensation paid to our NEOs.
The specific details of each NEO’s
2016
incentive compensation are further described under the section “—Employment Agreements in Effect for 2016”.
MERITAGE HOMES
|
2017 Proxy Statement
28
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
Discretionary Bonuses
For 2016, for Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord, discretionary bonuses could be awarded based on specific achievements of each individual beyond those of the performance measurements included in the annual incentive compensation calculations, subject to approval by Executive Compensation Committee. For 2016, Mr. Feliciano was eligible to receive an annual discretionary bonus of up to 50% of his base salary. During 2014, 2015 and 2016, the number and amount of discretionary bonuses was limited.
Long-Term Equity Incentive Awards
Long-term incentives are intended to provide compensation opportunities based on the creation of stockholder value and an increase in our stock price. We award restricted stock units to our NEOs as part of our total equity compensation structure. In 2016, we also granted performance share awards to Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord, as further discussed below. The restricted stock unit and performance share awards generally have a three-year cliff vesting schedule.
In connection with our equity awards, we have also adopted stock ownership requirements as further discussed below in the section “—Security Ownership Requirements.”
The Compensation Committee believes that equity awards provide a strong long-term incentive for our NEOs (and other officers and employees) that, along with their stock ownership, helps to align the interests of management with our stockholders. The Compensation Committee believes that these equity-based awards provide the opportunity for our executives to benefit from strong equity performance and, particularly in the case of the restricted stock and restricted stock unit awards, the NEOs focus on balancing stability and preservation of stock value against being incentivized to potentially take on an imprudent level of additional risk to drive stock appreciation with more contingent equity awards such as stock options. The Company and the Compensation Committee also believe that an appropriate mix of cash compensation and non-cash compensation in the form of equity awards is necessary and appropriate because, among other reasons, equity-based awards do not require the use of our working capital. The Compensation Committee is mindful of the fact that equity awards represent an expense under generally accepted accounting principles and a cost to the Company and its stockholders in the form of dilution. Accordingly, we seek to achieve an appropriate balance between cash and non-cash compensation such that management is appropriately incentivized, our working capital and financial results are minimally affected and our stockholders do not experience undue dilution.
Other Compensation
The Compensation Committee does not believe in the extensive use of perquisites as a component of executive compensation. The Compensation Committee believes that the perquisites provided to our NEOs (above those received by all employees or officers in general) are limited, but help maintain the competitiveness of our compensation package as compared to our peer companies. The types of perquisites we provide to our NEOs generally consist of car allowances, and enhanced life and disability or long-term care insurance.
Tax Considerations
Section 162(m) of the Code limits the deductibility of executive compensation paid by publicly held corporations to $1 million for each NEO. The $1 million limitation generally does not apply to compensation that is paid pursuant to a performance-based plan approved by stockholders. Our intention is to comply with the requirements of Section 162(m) and generally maintain deductibility for executive compensation, although we reserve the right, as do most public companies, to make non-deductible payments where we determine it is in the best interests of Meritage and its stockholders.
|
|
|
|
|
|
Security Ownership Requirements
|
We maintain security ownership requirements for our directors and certain executive officers. The Board of Directors believes that these guidelines align the interests of our directors and executive officers with those of stockholders. Our directors and executive officers
are required to comply with ownership guidelines. The guidelines for our directors and NEOs are outlined below:
|
|
•
|
Directors, three times annual director fees (exclusive of committee or lead director fees),
|
|
|
•
|
CEO, ten times base salary, and
|
|
|
•
|
COO, CFO, CHRO and General Counsel, two times base salary.
|
In the case of the appointment of a new executive officer or director, they shall not be required to purchase stock in the open market in order to become compliant. For directors and executive officers, until such compliance is achieved they may not sell or otherwise transfer any stock or stock equivalents related to equity awarded by the Company; provided, however, until such compliance is achieved, they may sell stock as necessary to pay any required income tax withholdings in connection with the vesting of any equity grants.
Once their income tax withholdings are fulfilled, they may
29
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
not sell more than 50% of the remaining equity grants or awards that vest in a fiscal year and must hold the balance of their shares until their ownership requirements are met.
In order to enable our directors and officers to prudently manage their personal financial affairs, our policy provides that once compliance is obtained, subsequent changes in stock price will not affect their compliance with the guidelines provided the officer or director continues to hold at least the number of shares that were necessary to comply with the Stock Ownership Guidelines but for a decrease in stock price.
For purposes of the stock ownership guidelines, stock is deemed “owned” for both directors and officers in the case of (a) shares owned outright, (b) beneficially-owned shares, and (c) phantom shares allocated to an officer in the Company’s Non-Qualified Deferred Compensation Plan. As of
December 31, 2016
, all officers and directors were in compliance with their respective security ownership requirements.
Meritage has traditionally granted equity-based awards to directors, senior executive officers and other employees to provide a means for incentive compensation and to align the interests of management with the interest of Meritage’s stockholders. Since 2009, all equity awards to employees and directors have been comprised of restricted stock and for NEOs have been comprised of a combination of restricted stock or restricted stock units and performance share awards as a means of providing sufficient incentive compensation, bringing it more in line with industry trends.
We have comprehensive policies relating to the granting of stock options and other equity-based awards. Following is a summary of key aspects of our policies:
|
|
•
|
All equity-based awards must be approved by the Compensation Committee.
|
|
|
•
|
All equity-based grants will be approved at formal meetings (including telephonic) of the Compensation Committee.
|
|
|
•
|
The grant date of such awards will be the date of the meeting (or a specified date shortly after the meeting).
|
|
|
•
|
The customary annual equity-based grant shall be approved at a regularly scheduled meeting of the Compensation Committee during the first part of the year, but generally after the annual earnings release. We believe that coordinating the main annual award grant after our annual earnings release will generally result in this grant being made at a time when the public is in possession of all material information about us.
|
|
|
•
|
The customary annual grant (including performance-based grants) to executive officers and directors shall generally occur approximately at the same time as the customary annual grant to other employees.
|
|
|
•
|
The Company shall not intentionally grant equity-based awards before the anticipated announcement of materially favorable news or delay the grant of equity-based awards until after the announcement of materially unfavorable news.
|
|
|
•
|
The Compensation Committee will approve equity-based grants only for persons specifically identified at the meeting by management.
|
|
|
|
|
|
|
Employment Agreements in Effect for 2016
|
In March 2014, we entered into amended employment agreements with Messrs. Hilton, Seay and White. These employment agreements were scheduled to expire on December 31, 2016 with automatic one-year extension renewal provisions. These renewal provisions extend the terms of the arrangements for one year unless on or before August 31 of any renewal term, the executive or the Company notifies the other that it wishes to terminate the agreement. The Compensation Committee negotiated and approved the terms of each of these agreements. Ms. Sferruzza and Messrs. Lord and Feliciano entered into agreements on the date of their appointment as an executive officer in April 2016, March 2015 and November 2015, respectively. Mr. Lord's agreement was amended in early 2016. We entered into revised employment agreements with Mr. Hilton, Ms. Sferruzza and Messrs. White, Lord and Feliciano in February 2017 as further described in the 2017 Developments section beginning on page 36. Following is a description of the key provisions between the Company and each of the NEOs of their agreements in effect for 2016.
Base Salary
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
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|
Named Executive Officer
|
|
|
Steven J. Hilton
|
|
Hilla Sferruzza
(1)
|
|
C. TImothy White
|
|
Phillippe Lord
(2)
|
|
Javier Feliciano
|
|
Larry W. Seay
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
$
|
1,000,000
|
|
|
$
|
425,000
|
|
|
$
|
525,000
|
|
|
$
|
550,000
|
|
|
$
|
320,000
|
|
|
$
|
600,000
|
|
(1) Salary effective April 1, 2016 upon Ms. Sferruzza's appointment to CFO.
(2) Salary effective January 1, 2016 per amendment to employment letter dated February 16, 2016.
(3) Mr. Seay retired effective March 31, 2016.
MERITAGE HOMES
|
2017 Proxy Statement
30
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
Annual Cash Incentive Bonus
Mr. Hilton, Ms. Sferruzza and Messrs. White, Lord and Seay were each entitled to an annual cash incentive bonus based upon the achievement of certain performance goals established by the Compensation Committee. The amount of the target bonus and payout ranges for each officer is set forth below. The amount of the bonus to be paid is contingent upon the achievement of the performance criteria established by the Compensation Committee. Where the actual performance falls below the threshold level, no incentive bonus will be paid with respect to that performance goal.
The non-equity incentive plan has three performance measures, weighted 60%, 30% and 10%, respectively:
|
|
1.
|
EBITDA as adjusted for specific and pre-determined items (adjusted EBITDA);
|
|
|
2.
|
Number of home closings; and
|
|
|
3.
|
Customer satisfaction rating as determined by our third party rating agency.
|
We believe these metrics focus Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord on the most important short-term measures of our business, establish a clear connection between performance and earned compensation, and provide greater transparency to our stockholders as to the operation of our non-equity incentive plan. Each goal represents a fixed percentage of total potential compensation with each goal assessed separately from the others.
For each of the three performance measures noted above, our Compensation Committee has specified:
|
|
•
|
A threshold level of achievement below which no incentives will paid;
|
|
|
•
|
A target range level of achievement (e.g. between the threshold and maximum) associated with a market-competitive incentive award; and
|
|
|
•
|
A maximum level of achievement above which incentives will not increase (payout ceiling).
|
The relationship between the level of performance and associated payout with each level is reflected below. Where actual results fall between the performance levels set forth above, payments will be calculated based on linear interpolation.
|
|
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|
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Below
Threshold
|
|
Threshold
|
|
Intermediate (Goal)
|
|
Target
(1)
|
|
Maximum
|
|
Adjusted EBITDA and Number of Home Closings
|
|
|
|
|
|
|
|
|
|
|
|
Performance (as % of Goal)
|
|
<90%
|
|
|
90
|
%
|
|
100
|
%
|
|
110
|
%
|
|
115
|
%
|
|
Payout as % of Target
|
|
—
|
%
|
|
25
|
%
|
|
50
|
%
|
|
100
|
%
|
|
200
|
%
|
(2) (3)
|
|
|
Below
Threshold
|
|
Threshold
|
|
Intermediate
|
|
Target
(Goal)
(1)
|
|
Maximum
|
|
Customer Satisfaction Rating
|
|
|
|
|
|
|
|
|
|
|
|
Performance (as % of Goal)
|
|
<88%
|
|
|
88
|
%
|
|
94
|
%
|
|
100
|
%
|
|
113
|
%
|
|
Payout as % of Target
|
|
—
|
%
|
|
25
|
%
|
|
50
|
%
|
|
100
|
%
|
|
200
|
%
|
(2) (3)
|
(1) Target payouts for Messrs. Hilton, White and Lord are $2,500,000, $600,000 and $1,000,000, respectively. The target payout for Ms. Sferruzza was $318,750 which reflects a prorated 75% of her target payout of $425,000 based on her April 1, 2016 start date.
(2) Maximum 2016 payout for Mr. Lord is equal to 165% of his target annual bonus.
|
|
(3)
|
The target 2016 payout for Mr. Seay was 25% of his target annual bonus of $600,000 reflecting a prorated portion based on his March 31, 2016 retirement date.
|
For purposes of determining the executives’ formula bonuses, “Adjusted EBITDA” means earnings before interest expense and interest amortized to cost of sales, income taxes, depreciation and amortization (“EBITDA”) adjusted to exclude non-routine charges that the Compensation Committee determines in its sole discretion at the time the incentive bonus plan is established is appropriate to exclude.
Annual Discretionary Bonus
Based on specific achievements of each individual beyond those of the performance measurements included in the annual incentive compensation calculations, our NEOs may be awarded discretionary cash bonuses subject to approval by the Compensation Committee. For 2016, Ms. Sferruzza received a discretionary cash bonus of $74,375 which represented 25% of the cash bonus as calculated under her previous bonus program relating to her position as Chief Accounting Officer
. For 2016,
Mr. Feliciano was entitled to an annual discretionary cash bonus with a target bonus equal to 50% of his base salary
and accordingly was awarded a discretionary bonus of $160,000
.
31
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
Long-Term Incentive Awards
In 2016, Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord were entitled to long-term incentive awards which consist of two equity delivery vehicles: where 50% of the long-term award opportunity will be provided through a performance-based award and 50% through a service-based award conditioned upon the continued employment for the NEO, subject to acceleration in certain events. In 2016, Mr. Feliciano was entitled to equity with service-based award conditions only.
Performance Share Awards.
In 2016, Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord were entitled to performance-based awards as part of their overall compensation. The performance-based portion of the long-term incentive awards had three metrics, which in 2016 were weighted 40%, 30% and 30%, respectively:
|
|
1.
|
Achievement of a targeted earnings per share (“EPS”) goal;
|
|
|
2.
|
Three-year total shareholder return (“TSR”) relative to our TSR peer group (as defined under the caption "—Compensation Philosophies and Objectives — Compensation Peer Group "); and
|
|
|
3.
|
Achievement of a targeted return on asset (“ROA”) goal.
|
The Compensation Committee selected these three measures for our long-term incentive awards as they believe they best align with our current stockholder interests of strong returns, increased profitability per share, and increased efficiency in generating profits from assets. Additionally, the three metrics are assessed from both relative and absolute measurement approaches providing internal and external performance perspective.
For each of the three performance-based plan measures, our Compensation Committee has specified:
|
|
•
|
A threshold level of achievement below which no incentives will paid;
|
|
|
•
|
A target range level of achievement (e.g. between the threshold and maximum) associated with a market-competitive incentive award; and
|
|
|
•
|
A maximum level of achievement above which incentives will not increase (payout ceiling).
|
Each metric is assessed separately from the others, and each may be adjusted for specific and pre-determined items established by the Compensation Committee. Both the EPS and ROA goals were adjusted starting in 2016 to be measured annually and on a standalone basis, although the vesting of the shares will occur at the end of a three-year performance period. The TSR goal remained a cumulative three-year metric. The relationship between the level of performance and the shares awarded with each level is reflected in the table below. Where actual results fall between the performance levels set forth below, payments will be calculated based on linear interpolation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
Threshold
|
|
Threshold
|
|
Target
(1)
(Goal)
|
|
High Target
|
|
Maximum
|
EPS (40%)
|
|
|
|
|
|
|
|
|
|
|
Performance as % of Goal
|
|
<90%
|
|
|
90
|
%
|
|
100
|
%
|
|
110
|
%
|
|
115% or Greater
|
Shares Awarded as % of Target
|
|
—
|
|
|
50
|
%
|
|
100
|
%
|
|
125
|
%
|
|
150%
|
ROA (30%)
|
|
|
|
|
|
|
|
|
|
|
Performance as % of Goal
|
|
<90%
|
|
|
90
|
%
|
|
100
|
%
|
|
110
|
%
|
|
115% or Greater
|
Shares Awarded as % of Target
|
|
—
|
|
|
50
|
%
|
|
100
|
%
|
|
125
|
%
|
|
150%
|
Relative TSR (30%)
|
|
|
|
|
|
|
|
|
|
|
Peer Group Percentile
|
|
<40%
|
|
|
40
|
%
|
|
50
|
%
|
|
65
|
%
|
|
80% or Greater
|
Shares Awarded as % of Target
|
|
—
|
%
|
|
50
|
%
|
|
100
|
%
|
|
125
|
%
|
|
150%
|
(1) Total award value at target level is equal to approximately $1,000,000, $318,750, $425,000 and $550,000 for Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord, respectively.
MERITAGE HOMES
|
2017 Proxy Statement
32
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
Restricted Stock Unit Awards
In 2016, Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord were entitled to an annual grant of restricted stock units that cliff vest on the third anniversary of the date of grant. The number of restricted stock units to be granted to each executive officer will be equal to the dollar value specified for each executive officer divided by the closing price of the Company’s stock on the grant date. The value of restricted stock units to be granted annually to each officer is approximately $1,000,000, $318,750, $425,000 and $550,000 for Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord, respectively.
Restricted Stock Awards
In 2016, Mr. Feliciano was entitled to receive an award of restricted stock annually at the discretion of the Compensation Committee. In November 2015, Mr. Feliciano received 10,000 shares of restricted stock units, which will vest in equal annual installments over three years. The Compensation Committee intended that this grant in late 2015 encompass his equity award for 2016.
Other Benefits
In 2016, our CEO and certain of our NEOs were also entitled to certain specified other benefits. With respect to Mr. Hilton, he was entitled to receive payments annually to purchase life insurance in the amount of $5,000,000; disability and/or long-term care insurance with monthly benefits of $20,000; reimbursement for business use of his airplane at an amount equal to comparable charter rates; and the use of a Company car. With respect to Ms. Sferruzza and Messrs. White and Lord, they were entitled to receive payments annually for life insurance in the coverage amount of $3,000,000 and disability and/or long-term care insurance with monthly benefits of $20,000. Messrs. White and Lord were also entitled to an auto allowance.
Termination Provisions
In 2016, Mr. Hilton, Ms. Sferruzza, and Messrs. White, Lord and Seay were eligible for payments in certain situations upon termination of employment, which may include voluntary resignation, resignation by the officer for good reason, termination by the Company, with and without cause, death or disability, and retirement. Mr. Seay retired on March 31, 2016 and as a result, certain of his equity awards accelerated. A summary of the key termination provisions of each executive officer’s employment agreement in effect for 2016 is outlined beginning on page 43.
33
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
|
|
|
|
|
|
Discussion of NEO Compensation
|
Following is a discussion of the compensation paid, awarded or earned in
2016
to the Company’s CEO and NEOs.
Our NEOs were compensated in
2016
pursuant to the terms of their respective employment agreements in effect during
2016
, which provided for a base salary, an annual cash incentive bonus based on Company performance, if applicable and earned, equity grants and other customary executive benefits.
Under these agreements, a substantial portion of Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord's potential compensation was performance-based to align their goals and efforts with the interests of our stockholders.
Salary.
In accordance with the terms of their respective employment agreements, each NEO was paid a base salary as outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
|
Steven J. Hilton
|
|
Hilla Sferruzza
(1)
|
|
C. Timothy White
|
|
Phillippe Lord
|
|
Javier Feliciano
|
|
Larry W. Seay
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
$
|
1,000,000
|
|
|
$
|
425,000
|
|
|
$
|
525,000
|
|
|
$
|
550,000
|
|
|
$
|
320,000
|
|
|
$
|
600,000
|
|
|
|
(1)
|
Mr. Seay retired on March 31, 2016 and Ms. Sferruzza was appointed as CFO on April 1, 2016. Amounts in the table above represent their annual salary per their respective employment agreements.
|
Equity Awards.
In
2016
, Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord were granted awards of 29,078, 9,269, 12,358, and 15,993 restricted stock units, respectively, and were granted an equal amount of target performance shares pursuant to the terms set forth in their respective employment agreements as outlined beginning on page 30. The service-based shares cliff vest on the third anniversary of the date of grant. The performance shares also vest on the third anniversary of the date of grant, subject to the achievement of the performance measures for each of the 2016, 2017 and 2018 fiscal periods. The table below illustrates the potential performance share awards through the performance share plan for 2016 at threshold, target and maximum performance levels for each NEO based on the established performance metrics. For discussion of the restricted stock, restricted stock units and performance share awards that vested in
2016
, see footnote (4) to the
2016
Stock Vested table on page 42.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Approximate Award Fair Value
(at Target level) ($)
|
|
Threshold
(Shares) (#)
|
|
Target
(Shares) (#)
(1)
|
|
Maximum
(Shares) (#)
|
Steven J. Hilton, Chairman and CEO
|
|
$
|
1,000,000
|
|
|
14,539
|
|
|
29,078
|
|
|
43,617
|
|
Hilla Sferruzza, EVP and CFO
|
|
$
|
318,750
|
|
|
4,635
|
|
|
9,269
|
|
|
13,904
|
|
C. Timothy White, EVP, General Counsel and Secretary
|
|
$
|
425,000
|
|
|
6,179
|
|
|
12,358
|
|
|
18,537
|
|
Phillippe Lord, EVP and COO
|
|
$
|
550,000
|
|
|
7,997
|
|
|
15,993
|
|
|
23,990
|
|
|
|
(1)
|
Number of shares based on a grant price of $34.39, the closing stock price on the date of grant for Mr. Hilton, Ms. Sferruzza and Messrs. White and Lord.
|
MERITAGE HOMES
|
2017 Proxy Statement
34
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
Cash Incentive Bonus.
For
2016
, Mr. Hilton, Ms. Sferruzza and Messrs. White, Lord and Seay earned cash performance-based bonuses pursuant to the terms set forth in their respective employment agreements as outlined beginning on page 30 of this proxy statement and according to the metrics set forth below. These cash bonuses were paid in February 2017.
ACTUAL RESULTS FOR
2016
ANNUAL INCENTIVE COMPENSATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Actual Results
|
|
Steven J. Hilton
|
|
Hilla Sferruzza
|
|
C. Timothy White
|
|
Phillippe Lord
|
|
Larry W. Seay
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (in millions) (60%)
|
|
|
|
|
|
|
|
|
|
|
|
Actual Results
|
|
$298,069
|
|
$298,069
|
|
$298,069
|
|
$298,069
|
|
$298,069
|
|
Goal
|
≥
|
$264,453
|
|
$264,453
|
|
$264,453
|
|
$264,453
|
|
$264,453
|
|
Target Bonus $
|
|
$1,500,000
|
|
$191,250
|
(2)
|
|
$360,000
|
|
$600,000
|
|
$90,000
|
(3)
|
NEO Payout %
(1)
|
|
154.2
|
%
|
|
154.2
|
%
|
|
154.2
|
%
|
|
135.2
|
%
|
|
154.2
|
%
|
|
NEO Payout $
|
|
$2,313,457
|
|
$294,965
|
|
$555,230
|
|
$811,499
|
|
$138,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Home Closings (30%)
|
|
|
|
|
|
|
|
|
|
|
|
Actual Results
|
|
7,355
|
|
|
7,355
|
|
|
7,355
|
|
|
7,355
|
|
|
7,355
|
|
|
Goal
|
≥
|
6,359
|
|
|
6,359
|
|
|
6,359
|
|
|
6,359
|
|
|
6,359
|
|
|
Target Bonus $
|
|
$750,000
|
|
$95,625
|
(2)
|
|
$180,000
|
|
$300,000
|
|
$45,000
|
(3)
|
NEO Payout %
(1)
|
|
200.0
|
%
|
|
200.0
|
%
|
|
200.0
|
%
|
|
165.0
|
%
|
|
200.0
|
%
|
|
NEO Payout $
|
|
$1,500,000
|
|
$191,250
|
|
$360,000
|
|
$495,000
|
|
$90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Satisfaction Rating (10%)
|
|
|
|
|
|
|
|
|
|
|
|
Actual Results
|
|
88.9
|
|
|
88.9
|
|
|
88.9
|
|
|
88.9
|
|
|
88.9
|
|
|
Target
|
≥
|
80.0
|
|
|
80.0
|
|
|
80.0
|
|
|
80.0
|
|
|
80.0
|
|
|
Target Bonus $
|
|
$250,000
|
|
$31,875
|
(2)
|
|
$60,000
|
|
$100,000
|
|
$15,000
|
(3)
|
NEO Payout %
(1)
|
|
189.0
|
%
|
|
189.0
|
%
|
|
189.0
|
%
|
|
157.9
|
%
|
|
189.0
|
%
|
|
NEO Payout $
|
|
$472,500
|
|
$60,244
|
|
$113,400
|
|
$157,850
|
|
$28,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NEO Payout $
|
|
$4,285,957
|
|
$546,459
|
(4
|
)
|
$1,028,630
|
|
$1,464,349
|
|
$257,157
|
|
|
|
(1)
|
See the table provided on page 31 of this proxy statement for additional information related to the payout percentages as they relate to the targets.
|
|
|
(2)
|
Amount reflects a prorated 75% of the target bonus for each metric related to Ms. Sferruzza's promotion to CFO effective April 1, 2016.
|
|
|
(3)
|
Amount reflects a prorated 25% of the target bonus for each metric related to Mr. Seay's retirement as CFO effective March 31, 2016.
|
|
|
(4)
|
This amount reflects Ms. Sferruzza's incentive compensation as it related to her position as CFO. In addition to this, Ms. Sferruzza received a discretionary bonus as described below.
|
The Company's actual adjusted EBITDA and customer satisfaction ratings exceeded the targets set. For these metrics, each NEO qualified for payment between the target and maximum payment amounts based on the linear interpolation of actual results as compared to the targets set for each metric. The Company's number of home closings exceeded the maximum target set and for this metric and accordingly, each NEO qualified for the maximum payment amount.
Discretionary Bonus.
For 2016, Ms. Sferruzza received a discretionary cash bonus of $74,375 which represented 25% of the cash incentive bonus as calculated under her previous bonus program relating to her position as Chief Accounting Officer
.
Mr. Feliciano is entitled to an annual discretionary cash bonus with a target bonus equal to 50% of his base salary
and for 2016 was awarded a discretionary bonus of $160,000
.
Other Benefits.
The Company also provided other benefits consistent with their employment agreements. These benefits are detailed in the "All Other Compensation Table" included in this proxy statement.
35
MERITAGE HOMES
|
2017 Proxy Statement
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
NEO Compensation
In February 2017, the Company entered into e
mployment agreements with Ms. Sferruzza, Mr. Lord and Mr. Feliciano providing for the following compensation effective January 1, 2017:
CASH COMPENSATION:
|
|
|
|
|
|
|
|
Executive Officer
|
|
Base Salary
|
|
Target Annual Cash Incentive Bonus
|
|
Payout Range as % of Target Bonus
|
Hilla Sferruzza
|
|
$525,000
|
|
$525,000
|
|
0% - 200%
|
Phillippe Lord
|
|
$550,000
|
|
$1,100,000
|
|
0% - 150%
|
Javier Feliciano
|
|
$320,000
|
|
$200,000
|
|
0% - 133%
|
NON-CASH (EQUITY) COMPENSATION:
|
|
|
|
|
|
Executive Officer
|
|
Target Dollar Value of Performance-Based Restricted Stock Unit Award
|
|
Target Dollar Value of Performance Share Award
(1)
|
Hilla Sferruzza
|
|
$393,750
|
|
$393,750
|
Phillippe Lord
|
|
$625,000
|
|
$625,000
|
Javier Feliciano
|
|
$184,000
|
|
$184,000
|
|
|
(1)
|
The number of shares payable will be an amount ranging from 0% - 150% of the target number of shares awarded, depending on the level of achievement of each of the specified performance goals.
|
In addition, in February 2017, Messrs. Hilton and White entered into amended and restated employment agreements, the primary purpose of which was to add performance conditions to the time-based restricted stock unit awards that each respective employment agreement contemplates. The fundamental economic terms, including salary, incentive compensation and equity award types and target levels remain consistent with the terms described above under "Employment Agreements in Effect for 2016".
In the February 2017 meeting of the Compensation Committee, the target and maximum performance percentages were established for 2017 based on anticipated business conditions. The established target and maximum percentages were reviewed by the POE Group. Other than as noted below, no other changes to the NEO compensation program were discussed.
For 2017 annual cash incentive bonuses, the performance metrics and payout levels for the Adjusted EBITDA and number of home closings performance goals were revised as set forth below. Note: There were no adjustments to the 2017 customer satisfaction rating metrics from the 2016 metrics.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
Threshold
|
|
Threshold
|
|
Intermediate (Goal)
|
|
Target
|
|
Stretch Target (Maximum)
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
Performance (as % of Goal)
|
|
<90%
|
|
|
90
|
%
|
|
100
|
%
|
|
107.7
|
%
|
|
114.9
|
%
|
Payout as % of Target
|
|
—
|
%
|
|
25
|
%
|
|
50
|
%
|
|
100
|
%
|
|
(1)
|
|
Number of Home Closings
|
|
|
|
|
|
|
|
|
|
|
Performance (as % of Goal)
|
|
<90%
|
|
|
90
|
%
|
|
100
|
%
|
|
107.7
|
%
|
|
112.8
|
%
|
Payout as % of Target
|
|
—
|
%
|
|
25
|
%
|
|
50
|
%
|
|
100
|
%
|
|
(1)
|
|
(1) Maximum payout percentages for Mr. Hilton, Ms. Sferruzza and Mr. White are 200%; and Messrs. Lord and Feliciano 150% and 133%, respectively.
MERITAGE HOMES
|
2017 Proxy Statement
36
|
|
|
COMPENSATION DISCUSSION AND ANALYSIS
|
For 2017 long-term equity incentive awards, the performance metrics and payout levels for the performance goals were revised as set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below
Threshold
|
|
Threshold
|
|
Intermediate
(Goal)
|
|
Target
|
|
Stretch Target (Maximum)
|
EPS
|
|
|
|
|
|
|
|
|
|
|
Performance as % of Goal
|
|
<90%
|
|
|
90
|
%
|
|
100
|
%
|
|
107.7
|
%
|
|
114.9% or Greater
|
Shares Awarded as % of Target
|
|
—
|
%
|
|
50
|
%
|
|
100
|
%
|
|
125
|
%
|
|
150%
|
ROA
|
|
|
|
|
|
|
|
|
|
|
Performance as % of Goal
|
|
<90%
|
|
|
90
|
%
|
|
100
|
%
|
|
107.7
|
%
|
|
112.8% or Greater
|
Shares Awarded as % of Target
|
|
—
|
%
|
|
50
|
%
|
|
100
|
%
|
|
125
|
%
|
|
150%
|
Relative TSR
|
|
|
|
|
|
|
|
|
|
|
Peer Group Percentile
|
|
<40%
|
|
|
40
|
%
|
|
50
|
%
|
|
65
|
%
|
|
80% or Greater
|
Shares Awarded as % of Target
|
|
—
|
%
|
|
50
|
%
|
|
100
|
%
|
|
125
|
%
|
|
150%
|
37
MERITAGE HOMES
|
2017 Proxy Statement