Proxy Statement (definitive) (def 14a)

Date : 03/25/2019 @ 8:05PM
Source : Edgar (US Regulatory)
Stock : Pultegrp., Inc. (PHM)
Quote : 33.23  -0.21 (-0.63%) @ 12:59AM

Proxy Statement (definitive) (def 14a)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to §240.14a-12

PulteGroup, Inc.

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.

  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11

(set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

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Total fee paid:

 

     

  Fee paid previously with preliminary materials.

  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

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  (4)  

Date Filed:

 

     

 

 

 


Table of Contents

 

LOGO

PULTEGROUP, INC.

3350 Peachtree Road NE, Suite 150

Atlanta, Georgia 30326

NOTICE OF 2019 ANNUAL MEETING OF SHAREHOLDERS

When:

  Wednesday, May 8, 2019 at 5:00 P.M., Eastern Time     

 

LOGO

How To Vote In Advance Your vote is important. We encourage you to vote promptly, whether or not you plan to attend the meeting. In accordance with the rules and regulations adopted by the Securities and Exchange Commission, instead of mailing a printed copy of our proxy materials, we are furnishing proxy materials to our shareholders over the internet. Make sure to have your proxy card, voting instruction form or Notice of Internet Availability of Proxy Materials and Notice of Annual Meeting in hand and follow the instructions. [G]By Telephone: You can vote your shares by calling 1-800-652-8683 within the USA, US territories and Canada on a touchtone phone [G]By Internet: You can vote your shares online at www.envisionreports.com/PHM [G]By Mail: If you received a proxy card by mail, you can vote your shares by signing and returning the proxy card in the postage-paid envelope. IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 8, 2019. The Company's Proxy Statement for the 2019 Annual Meeting of Shareholders and the Annual Report on Form 10-K to Shareholders for the fiscal year ended December 31, 2018 are available at: www.envisionreports.com/PHM

Where:

 

3350 Peachtree Road NE

Atlanta, Georgia 30326

Items of

Business:

  Proposal 1 – Election of eleven nominees for director named in this Proxy Statement
  Proposal 2 – Ratification of appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019
  Proposal 3 – Say-on-pay: Advisory vote to approve executive compensation
  Proposal 4 – Approval of an amendment to extend the term of our Amended and Restated Section 382 Rights Agreement
  In addition, any other business as may properly come before the meeting

Who Can

Vote:

  Shareholders of record at the close of business on Friday, March 15 , 2019

Who Can

Attend:

  Shareholders who wish to attend the meeting in person should review pages 62-64

Date of

Mailing:

  On or about Monday, March 25, 2019, a Notice of Internet Availability of Proxy Materials and Notice of Annual Meeting are being mailed or made available to our shareholders containing instructions on how to access this Proxy Statement and our 2018 Annual Report on Form 10-K and vote online, as well as instructions on how to receive paper copies of these documents for shareholders who so elect   

 

By Order of the Board of Directors

 

LOGO

TODD N. SHELDON

Executive Vice President, General Counsel and Corporate Secretary

Atlanta, Georgia

March 25, 2019


Table of Contents

PROXY SUMMARY

This summary highlights selected information about the items to be voted on at the 2019 annual meeting of shareholders (“annual meeting”) of PulteGroup, Inc. (“PulteGroup,” the “Company,” “we” or “our”). This summary does not contain all of the information that you should consider in deciding how to vote. You should read the entire Proxy Statement before voting.

Meeting Agenda and Voting Recommendations

 

Proposal    Election of Directors

 

 

LOGO

  

 

LOGO

  

The Board recommends a vote FOR each of the director nominees named in this Proxy Statement.

  Slate of directors with broad and diverse leadership experience

  Significant experience in relevant industries (including real estate and consumer markets) and public company leadership experience, among other key competencies

  Ongoing refreshment and succession process of Board composition

  Proactive shareholder engagement

 

LOGO   See pages 3-13 for further information  

 

DIRECTOR NOMINEES

Name   Principal Professional Experience   Years
of
Tenure
    Gender
or
Ethnic
Diversity
      Current Committee Memberships (1)
  Independence   Audit   Comp   Finance   

Nom  

/Gov  

Brian P. Anderson

 

Former Chief Financial Officer,

Baxter International Inc.

    14     LOGO   LOGO             

Bryce Blair

Non-Executive Chairman

 

Former Chairman of the Board and Chief Executive Officer, AvalonBay

Communities, Inc.

    8         LOGO                 

Richard W. Dreiling

  Former Chairman of the Board and Chief Executive Officer, Dollar General Corporation     4         LOGO             

Thomas J. Folliard

  Non-Executive Chairman of the Board and Former President and Chief Executive Officer, CarMax, Inc.     7         LOGO             

Cheryl W. Grisé

  Former Executive Vice President, Northeast Utilities (now known as Eversource Energy)     11     LOGO   LOGO              LOGO

André J. Hawaux

  Former Executive Vice President, Chief Financial Officer and Chief Operating Officer, Dick’s Sporting Goods, Inc.     6         LOGO   LOGO           

Ryan R. Marshall

  President and Chief Executive Officer, PulteGroup, Inc.     3         LOGO               

John R. Peshkin

  Founder and Managing Partner, Vanguard Land, LLC     3         LOGO         LOGO     

Scott F. Powers

  Former President and Chief Executive Officer, State Street Global Advisors     3         LOGO       LOGO       

William J. Pulte

  Chief Executive Officer, Pulte Capital Partners LLC     3         LOGO             

Lila Snyder

  Executive Vice President and President, Commerce Services, Pitney Bowes, Inc.     1     LOGO   LOGO             

(1) These columns show the current committee memberships of the director nominees.

 

Audit = Audit Committee

   Finance = Finance and Investment Committee

Comp = Compensation and Management Development Committee

   Nom/Gov = Nominating and Governance Committee

LOGO = Chair of Committee

  

 

ii


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Board Nominee Highlights

 

 

LOGO

Governance Highlights

PulteGroup has a long-standing commitment to strong corporate governance and throughout the years has evolved its governance framework to align with best practices. In particular, we believe that the following corporate governance features help us best serve the interests of our shareholders:

 

Shareholder Rights

  

LOGO     Annual election of all directors

 

LOGO     Majority vote standard in uncontested director elections

 

LOGO     Proxy access rights

 

LOGO     Right to call a special meeting for shareholders with 20% or more of outstanding shares

 

LOGO     Right to take action by written consent for shareholders

 

LOGO     Active engagement with the Company’s top 20 largest shareholders

Independent Oversight

  

LOGO     Strong Non-Executive Chairman role

 

LOGO     Independent Audit Committee, Compensation and Management Development Committee

      and Nominating and Governance Committee

 

LOGO     All directors are independent except the Chief Executive Officer

 

LOGO     Committee authority to retain independent advisors

Good Governance

  

LOGO     Frequent cross-committee and Board communications

 

LOGO     Efficient Board, committee and director evaluation processes

 

LOGO     Code of ethical business conduct and code of ethics

 

LOGO     Director orientation and continuing education programs

 

LOGO     Meaningful share ownership guidelines for executive officers and directors

 

LOGO     Prohibition against hedging and pledging Company securities

 

LOGO     Charter of Nominating and Governance Committee expresses strong commitment to

       inclusion of diverse groups, knowledge and viewpoints in selection of Board nominees

 

 

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Proposal

 

 

LOGO

   Ratification of Appointment of Ernst & Young LLP as the Independent Registered Public Accountant for 2019
  

 

LOGO

 

  

The Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as the independent registered public accountant for 2019.

   Independent firm with a reputation for integrity and competence

   Provides significant financial reporting expertise

   Few ancillary services and reasonable fees

 

LOGO  See page 52 for further information  

 

 

 

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Proposal

 

LOGO         

 

   Say-on-Pay: Advisory Vote to Approve Executive Compensation
  

 

LOGO

 

 

The Board recommends a vote FOR this proposal.

   Ongoing review of compensation practices by Compensation and Management Development Committee with assistance from an independent compensation consultant

   Compensation programs designed to reward executives for performance against established performance objectives and improving shareholder returns

   Adherence to commonly viewed executive compensation best practices

 

LOGO         See pages 53-55 for further information

 

Executive Compensation Highlights

Our executive compensation program is designed to reward executives for producing sustainable growth and improving shareholder returns consistent with our strategic plan and to align compensation with the long-term interests of our shareholders. In accordance with this pay for performance philosophy, PulteGroup compensates its named executive officers using a mix of cash and equity compensation elements with an emphasis on short-term and long-term performance:

 

Element

     

Description

     

Further
Information
(pages)

 

Base Salary

   

 

Provides base pay levels that are competitive with market practices to attract and retain top executive talent.

 

   

 

32

 

Annual

Cash

Incentive

   

 

Provides annual incentive opportunities competitive with market practices to attract, motivate and retain top executive talent.

 

Rewards executives for annual performance results relative to pre-established goals deemed critical to the success of the Company and its strategy.

 

Aligns interests of executives with those of our shareholders.

 

   

 

32-33

 

Long-Term

Incentive

Program

   

 

Provides equity incentives competitive with market practices in order to attract, motivate and retain top executive talent.

 

Focuses executives on long-term performance of the Company.

 

Directly aligns interests of executives with those of our shareholders.

 

Encourages retention of talent over 3-year performance period.

 

   

 

34-35

 

Restricted

Share Units

     

 

Provides equity incentives competitive with market practices in order to attract, motivate and retain top executive talent.

 

Focuses executives on long-term performance of the Company.

 

Directly aligns interests of executives with those of our shareholders.

 

Encourages retention of talent over 3-year cliff-vesting period.

 

     

 

35-36

 

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PulteGroup is also committed to having strong governance standards with respect to our executive compensation program, policies and practices. Consistent with this focus, we maintain the following policies and practices that we believe demonstrate our commitment to executive compensation best practices.

 

WHAT WE DO

 

     WHAT WE DO NOT DO

   LOGO

  Meaningful share ownership guidelines     

 

LOGO

  No excessive perquisites

   LOGO

  Committee comprised entirely of independent directors     

 

LOGO

 

 

 

Plan prohibits granting discounted stock options

 

   LOGO

  Clawback policy – since 2009, applicable to annual incentive awards, long-term incentive awards and equity grants     

 

LOGO

  No service-based defined benefit pension plan

   LOGO

 

 

Pay for performance – CEO pay approximately 89% at-risk

 

    

 

LOGO

  No automatic single-trigger vesting of equity awards upon a change-in-control

   LOGO

 

Independent, 3 rd party compensation

consultant

    

 

LOGO

  No dividends or dividend equivalents paid on unearned performance-based equity awards

   LOGO

 

 

Annual say-on-pay vote

 

    

 

LOGO

  Plan prohibits re-pricing of underwater stock options

   LOGO

  Market comparison of executive compensation against a relevant peer group     

 

LOGO

  Prohibition on hedging and pledging Company securities

   LOGO

 

 

Multi-year vesting schedule for equity awards

 

    

 

LOGO

  No change-in-control tax gross-ups for named executive officers

 

   LOGO

 

 

 

Shareholder engagement

 

      

 

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Proposal

 

 

 

LOGO         

   Approval of an amendment to extend the term of the Company’s Amended and Restated Section 382 Rights Agreement
  

 

LOGO

 

The Board recommends a vote FOR the approval of an amendment to extend the term of the Company’s Amended and Restated Section 382 Rights Agreement.

   Retain value of deferred tax assets

 

LOGO         See pages 56-60 for further information

 

 

 

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TABLE OF CONTENTS

 

Notice of 2019 Annual Meeting of Shareholders

     i  

Proxy Summary

     ii  

Proxy Statement

     2  

Board of Directors Information

     3  

Proposal 1: Election of Directors

     6  

Committees of the Board of Directors

     13  

Corporate Governance

     16  

Corporate Governance Highlights

     16  

Governance Guidelines; Code of Ethical Business Conduct; Code of Ethics

     16  

Board Leadership

     16  

Board Role in Risk Oversight

     17  

Board Assessments

     17  

Available Information about PulteGroup

     18  

Director Nomination Recommendations

     19  

2018 Director Compensation

     20  

Compensation Discussion and Analysis

     22  

Executive Summary

     22  

Establishing and Evaluating Executive Compensation

     28  

Executive Compensation Program Elements

     30  

How We Make Executive Compensation Decisions

     37  

2019 Compensation Decisions

     39  

Compensation and Management Development Committee Report

     40  

2018 Executive Compensation

     41  

2018 Summary Compensation Table

     41  

2018 Grants of Plan-Based Awards Table

     42  

Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table

     42  

2018 Outstanding Equity Awards at Fiscal Year-End Table

     43  

2018 Option Exercises and Stock Vested Table

     43  

2018 Non-Qualified Deferred Compensation Table

     44  

Potential Payments Upon Termination or Change-In-Control

     44  

Risk Management and Compensation

     47  

Pay Ratio Disclosure

     48  

Equity Compensation Plan Information

     49  

Certain Relationships and Related Transactions

     49  

Report of the Audit Committee

     50  

Other Audit Matters

     51  

Proposal 2: Ratification of Appointment of Ernst  & Young LLP as the Independent

Registered Public Accountant for 2019

     52  

Proposal 3: Say-On-Pay: Advisory Vote to Approve Executive Compensation

     53  

Beneficial Security Ownership

     54  

Proposal 4: Approval of Amendment to Extend the Term of the Amended and Restated Section 382 Rights Agreement

     56  

Other Matters

     61  

Questions and Answers About the Proxy Materials and the Annual Meeting

     62  

Appendices

     I-1  

Appendix I – Original Rights Agreement and Amendments

     I-3  

Appendix II – Third Amendment to the Amended and Restated Section 382 Rights Agreement

     II-1  

 

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PROXY STATEMENT

The board of directors of PulteGroup, Inc. (“PulteGroup,” the “Company,” “we” or “our”) is soliciting proxies on behalf of the Company to be used at the annual meeting of shareholders (the “annual meeting”) to be held on May 8, 2019, at 5:00 P.M., Eastern Time, at 3350 Peachtree Road Northeast, Atlanta, Georgia 30326. In accordance with rules adopted by the Securities and Exchange Commission (the “SEC”), the Company is making this Proxy Statement and the Company’s Annual Report on Form 10-K (“Annual Report”) available to our shareholders electronically via the internet. In addition, the Company is using the SEC’s Notice and Access Rules to provide shareholders with more options for receipt of these materials. Accordingly, on or about March 25, 2019, the Company will be mailing a Notice of Internet Availability of Proxy Materials and Notice of Annual Meeting (the “Notice”) to our shareholders containing instructions on how to access this Proxy Statement and the Company’s Annual Report on the internet, how to vote online or by telephone, and how to receive paper copies of the documents and a proxy card.

 

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BOARD OF DIRECTORS INFORMATION

Board of Directors Qualifications and Attributes

PulteGroup’s board of directors (the “Board” or “board of directors”) annually reviews the skills and experiences which should be represented on the Board. As a result of the review conducted in 2017, the Board developed the following matrix which sets forth the collective experiences and qualifications of the directors that will continue to drive effective oversight of the Company. The Board reaffirmed this set of experiences and qualifications in assessing nominees for 2019.

 

Competency      Definition  
Real Estate Experience     

•  Deep experience in the single-family homebuilding sector

•  Experience in a large organization where the purchase, entitlement and/or development of real estate is integral to the business

 

Public Company

Leadership Experience

    

•  “C Suite” experience (e.g., Chief Executive Officer, Chief Financial Officer, Chief Operating Officer or similar) with a public company

•  Sub “C Suite” experience as division president or functional leader within a large public company (e.g., subsidiary president/functional leader)

•  Prominence and excellent reputation in the director’s industry

 
High Level of Financial Literacy     

•  Able to qualify as an Audit Committee Financial Expert

•  Public company senior financial leader (e.g., Chief Financial Officer)

•  Experience with debt and capital market transactions and/or mergers and acquisitions (e.g., as a consumer finance or banking executive, or as an investment banker)

 
Public Company Board Experience     

•  Experience serving as a public company director

•  Demonstrated understanding of current corporate governance standards and practices in public companies

•  “Independent” as defined by the New York Stock Exchange (“NYSE”) and the SEC

 
Consumer Markets Experience     

•  Experience leading a large organization with profit and loss ownership in a consumer-facing business

•  Executive experience in an organization with strong brands and who has a solid foundation in consumer insights, consumer trends and maintaining important brands

 

Experience in Highly

Regulated Industries

    

•  Experience in a large organization where management of complex and/or diverse regulatory and compliance matters is integral to the operation of the business

 
Human Capital     

•  Extensive experience managing a large and diverse workforce with involvement in compensation and incentive planning for various categories of employees

 
Technology/Innovation     

•  Experience as an executive who understands the digital world and broader digital transformation impacts and opportunities, and who has experience implementing related strategies

 

In addition to these competencies and experiences, the Board also believes that integrity, business judgment, leadership skills, dedication and collaboration are personal attributes that are vital to the Board’s ability to effectively oversee the Company and act in the best interests of the Company’s shareholders. More detail regarding the Company’s individual directors is provided below. In addition to these personal characteristics and qualifications, PulteGroup highly values the collective experience and qualifications of the directors. PulteGroup believes that the diverse set of collective experiences, viewpoints and perspectives of its directors results in a Board with the commitment and energy to advance the interests of PulteGroup’s shareholders.

In March 2018, the Nominating and Governance Committee amended its charter to express the Nominating and Governance Committee’s commitment to the inclusion of diverse groups (including, where appropriate, diversity of age,

 

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gender, race, ethnicity and professional experience), knowledge and viewpoints in its selection of Board nominees. When adding new Board members or filling vacancies, the Nominating and Governance Committee will conduct its search consistent with its amended charter and our Corporate Governance Guidelines. Consistent with this charter amendment, the Board appointed Lila Snyder as a director in August 2018 to further enhance the collective experiences and qualifications of the Board.

Independence

Under the Company’s Corporate Governance Guidelines, which are available to shareholders at http://www.pultegroupinc.com/investors/corporate-governance/guidelines/default.aspx , a substantial majority of the members of our Board must be independent. The Board has adopted categorical independence standards to assist the Nominating and Governance Committee in determining director independence, which standards either meet or exceed the independence requirements of the NYSE corporate governance standards. Under these standards, no director can qualify as independent unless (i) the Board affirmatively determines that the director has no material relationship with the Company, directly or as an officer, shareholder or partner of an organization that has a relationship with the Company, and (ii) the director meets the following categorical standards:

 

   

has not been an employee of the Company for at least three years;

 

   

has not, during the last three years, been employed as an executive officer by a company for which an executive officer of the Company concurrently served as a member of such company’s compensation committee;

 

   

has no immediate family members (i.e., spouse, parents, step-parents, children, step-children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than employees) who shares the director’s home) who did not satisfy the foregoing criteria during the last three years; provided, however, that such director’s immediate family member may have served as an employee but not as an executive officer of the Company during such three-year period so long as such immediate family member shall not have received, during any twelve-month period within such three-year period, more than $120,000 in direct compensation from the Company for such employment;

 

   

is not a current partner or employee of the Company’s internal or external audit firm, and the director was not within the past three years a partner or employee of such a firm who personally worked on the Company’s internal or external audit within that time;

 

   

has no immediate family member who (i) is a current partner of a firm that is the Company’s internal or external auditor, (ii) is a current employee of such a firm and personally works on the Company’s internal or external audit or (iii) was within the past three years a partner or employee of such a firm and personally worked on the Company’s audit within that time;

 

   

has not received, and has no immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 in direct compensation from the Company (other than in his or her capacity as a member of the Board);

 

   

is not a current employee, and has no immediate family member who is a current executive officer, of a company that made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues;

 

   

does not serve, and has no immediate family member who has served, during the last three years as an executive officer or general partner of an entity that has received an investment from the Company or any of its subsidiaries, unless such investment is less than the greater of $1 million or 2% of such entity’s total invested capital in any of the last three years; and

 

   

has not been, and has no immediate family member who has been, an executive officer of a charitable or educational organization for which the Company contributed more than the greater of $1 million or 2% of such charitable organization’s consolidated gross revenues, in any of the last three years.

In addition, Audit Committee members may not have any direct or indirect financial relationship whatsoever with the Company other than as directors.

The Board considered all relevant facts and circumstances in assessing director independence, including the Pulte Agreement (as defined and described below in the section entitled “Proposal One: Election of Directors”). In particular, the

 

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Board considered that our Board member William J. Pulte (“Mr. Pulte”), the grandson of the founder of the Company, William Pulte (the “Founder”), has no voting control, authority or ownership interest in either the William Pulte Trust dtd 01/26/90 or the Joan Pulte trust dtd 01/26/90 (collectively, the “Pulte Trusts”) and that the decisions made by Mr. Pulte are not influenced by the Pulte Trusts. In connection with this assessment, the Board affirmatively determined that Brian P. Anderson, Bryce Blair, Richard W. Dreiling, Thomas J. Folliard, Cheryl W. Grisé, André J. Hawaux, John R. Peshkin, Scott F. Powers, William J. Pulte and Lila Snyder are independent within the meaning of the Company’s categorical standards and the NYSE listing standards. The Board also affirmatively determined that Joshua Gotbaum and Patrick J. O’Leary, who served as directors through the Company’s 2018 annual meeting of shareholders, were independent within the meaning of the Company’s categorical standards and the NYSE listing standards. The Board further determined that Ryan R. Marshall, who is a current PulteGroup employee, is not independent within the meaning of the Company’s categorical standards and the NYSE listing standards.

 

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Proposal   Election of Directors

 

 

 

LOGO

 

 

 

LOGO

 

 

The Board recommends a vote FOR each of the director nominees named in this Proxy Statement.

  Slate of directors with broad and diverse leadership experience

  Significant experience in relevant industries (including real estate and consumer markets) and public company leadership experience, among other key competencies

  Ongoing refreshment and succession process of Board composition

  Proactive shareholder engagement

 

Our Restated Articles of Incorporation, as amended, require that we have at least three, but no more than 15, directors. The exact number of directors is set by the Board and is currently eleven. All directors will be elected on an annual basis for one-year terms. The eleven directors comprising the Board, all of whose terms are expiring at the annual meeting, are Brian P. Anderson, Bryce Blair, Richard W. Dreiling, Thomas J. Folliard, Cheryl W. Grisé, André J. Hawaux, Ryan R. Marshall, John R. Peshkin, Scott F. Powers, William J. Pulte and Lila Snyder. As previously disclosed, Ms. Snyder was appointed to the Board on August 27, 2018, after a search conducted with the assistance of a third-party search firm.

On September 8, 2016, the Company entered into a letter agreement (the “Pulte Agreement”) with the Founder, Mr. Pulte and the Pulte Trusts. Pursuant to the Pulte Agreement, the board of directors appointed Mr. Pulte to the board of directors as of September 8, 2016.    In addition, Ryan. R. Marshall, PulteGroup’s President and Chief Executive Officer, was recommended to the board of directors by the CEO Search Committee of the Board in connection with his appointment to that position on September 8, 2016.

The by-laws of the Company provide that a nominee for director at the annual meeting shall be elected by the affirmative vote of a majority of the votes cast with respect to that director’s election. A majority of votes cast means that the number of votes cast “for” a director’s election exceeds the number of votes cast “against” that director’s election (with “abstentions” and “broker non-votes” not counted as a vote cast either “for” or “against” that director’s election). If a nominee for director, who is an incumbent director, is not elected, the director shall promptly tender his or her resignation to the board of directors. The Nominating and Governance Committee will make a recommendation to the board of directors as to whether to accept or reject the resignation of such incumbent director, or whether other action should be taken. The board of directors shall act on the resignation, taking into account the committee’s recommendation, and publicly disclose (by a press release, a filing with the Securities and Exchange Commission or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days following certification of the election results. The director who tenders his or her resignation will not participate in the recommendation of the committee or the decision of the board of directors with respect to his or her resignation.

The eleven directors listed below are the nominees to serve a one-year term expiring at the Company’s 2020 annual meeting of shareholders, and each has agreed to serve the one-year term for which he or she has been nominated, if elected. Please see below for a description of the occupations and recent business experience of all director nominees. In addition, the specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to the conclusion that each of the director nominees should serve as a director of the Company are included in the descriptions below.

 

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  Nominees to Serve a One-Year Term Expiring at the 2020 Annual Meeting of Shareholders

 

     Brian P. Anderson

 

 

 

         LOGO

 

 

Mr. Anderson has significant experience as a chief financial officer of two large multinational companies and as a director of several large public companies. In addition, he has held finance positions including chief financial officer, corporate controller and vice president of audit and was an audit partner at an international public accounting firm. Mr. Anderson has significant experience in the preparation and review of complex financial reporting statements as well as experience in risk management and risk assessment.

     

 

Director Since: 2005

 

Age: 68

 

Committees:

•   Audit

•   Finance and Investment

 

Public Company Board Experience:

 

Company

W.W. Grainger, Inc.

James Hardie Industries plc

Stericycle, Inc.

A.M. Castle & Co.

 

Term

1999 - present

2006 - present

2017 - present

2005 - 2016

  

 

Relevant Business Experience:

Mr. Anderson is the former Executive Vice President of Finance and Chief Financial Officer of OfficeMax Incorporated, a distributor of business-to-business and retail office products. Prior to assuming this position in 2004, Mr. Anderson was Senior Vice President and Chief Financial Officer of Baxter International Inc., a global diversified medical products and services company, a position he assumed in 1998. Mr. Anderson has extensive experience sitting on and chairing the audit committees of public companies. Mr. Anderson also brings to the Board meaningful experience based on his service as the former Lead Director of W.W. Grainger, Inc. and former Chairman of A.M. Castle & Co., as well as his service as a Governing Board Member at the Center for Audit Quality. Mr. Anderson is an audit committee financial expert for purposes of the SEC’s rules.

 

 

  Bryce Blair

 

 

         LOGO

 

 

Mr. Blair has substantial experience in real estate development and investment, including having spent over ten years as chairman and chief executive officer of a public real estate investment trust. In addition, in his former role as chief executive officer of AvalonBay Communities, Inc., Mr. Blair was responsible for day to day operations, and he was regularly involved in the preparation and review of complex financial reporting statements. Mr. Blair also brings to the Board meaningful experience based on his service on the board of directors of AvalonBay Communities, Inc. and Regency Centers Corp. He also serves as Non-Executive Chairman of the board of directors of Invitation Homes, Inc.

     

 

Director Since: 2011

 

Age: 60

 

Committees:

None (Mr. Blair is the Non-Executive Chairman)

 

Public Company Board Experience:

 

Company

Invitation Homes Inc.

Regency Centers Corp.

AvalonBay Communities, Inc.

 

Term

2017 - present

2014 - present

2002 - 2013

        
   
   
         

  

 

Relevant Business Experience:

Mr. Blair is the Manager of Harborview Associates, LLC, a company which holds and manages investments in various real estate properties. Mr. Blair is also the former Chairman of the Board and the former Chief Executive Officer of AvalonBay Communities, Inc. In addition, Mr. Blair served in a number of senior leadership positions with AvalonBay Communities, Inc., including Chief Executive Officer from February 2001 through December 2011, President from September 2000 through February 2005 and Chief Operating Officer from February 1999 to February 2001. Mr. Blair is also a past member of the National Association of Real Estate Investment Trusts, where he served as Chairman and was on the Executive Committee and the Board of Governors, and the Urban Land Institute, where he is past Chairman of the Multifamily Council and is a past Trustee.

 

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  Richard W. Dreiling

 

 

 

 

         LOGO

  

 

Mr. Dreiling has wide-ranging experience serving as both a senior executive and a director of large, consumer-focused companies. Mr. Dreiling’s experience of overseeing the marketing and distribution functions of retail companies provides an in-depth understanding of PulteGroup’s customers’ needs and adds a valuable perspective for Board decision-making. Mr. Dreiling also brings to the Board meaningful experience based on his service on the board of directors of Dollar General Corporation, Inc., Kellogg Company, and Aramark. Mr. Dreiling also serves as the Non-Executive Chairman of the board of directors of Lowe’s Companies.

      

 

Director Since: 2015

 

Age: 65

 

Committees:

   Compensation and Management

     Development

   Nominating and Corporate Governance

 

Public Company Board Experience:

 

   Company    Term
   Lowe’s Companies    2014 - present
   Aramark Holdings Corp.    2015 - present
   Kellogg Company    2015 - present
  

 

Dollar General Corporation

  

 

2008 - 2016

     
     
           

  Relevant Business Experience:
 

Mr. Dreiling is the former Chairman of the Board and Chief Executive Officer of Dollar General Corporation. Mr. Dreiling served as Chief Executive Officer of Dollar General Corporation, the nation’s largest small-box discount retailer, from January 2008 through June 2015. Prior to 2008, Mr. Dreiling served as Chief Executive Officer, President and a director of Duane Reade Holdings, Inc. and Duane Reade Inc. (collectively, “Duane Reade”), the largest drugstore chain in New York City, from November 2005 until January 2008, and as chairman of the board of Duane Reade from March 2007 until January 2008. Earlier in his career, Mr. Dreiling was Chief Operations Officer for Longs Drug Stores Corporation and held executive positions with Safeway, Inc. Mr. Dreiling also previously served as the chairman of the board of the Retail Industry Leaders Association from January 2014 to January 2016.

 

 

  Thomas J. Folliard

 

 

 

         LOGO

  

 

Mr. Folliard has extensive experience as Chief Executive Officer of a large, consumer-focused public company. In connection with that role, Mr. Folliard has significant experience in operational matters and business strategy, which adds a valuable perspective for the Board’s decision making. Mr. Folliard also brings to the board of directors meaningful experience based on his service on the board of directors of CarMax, Inc., currently as Non-Executive Chairman; Baron Investment Funds and Baron Select Funds.

       

 

Director Since: 2012

 

Age: 54

 

Committees:

   Audit

   Finance and Investment

 

Public Company Board Experience:

 

   Company    Term
   Baron Investment Funds Trust    2017 - present
   Baron Select Funds    2017 - present
        CarMax, Inc.    2006 - present
        DAVIDsTEA Inc.    2014 - 2017
              

  Relevant Business Experience:
  Mr. Folliard currently serves as a Trustee to Baron Investment Funds Trust and Baron Select Funds and has been in such positions since August 2017. Formerly, he was the President and Chief Executive Officer of CarMax, Inc. Mr. Folliard served as President and Chief Executive Officer of CarMax, Inc., the largest retailer of used autos in the United States, from 2006 until his retirement on August 31, 2016. He joined CarMax, Inc. in 1993 as the senior buyer and became the director of purchasing in 1994. Mr. Folliard was promoted to vice president of merchandising in 1996, senior vice president of store operations in 2000 and executive vice president of store operations in 2001. Mr. Folliard is an audit committee financial expert for purposes of the SEC’s rules.

 

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  Cheryl W. Grisé

 

 

 

         LOGO

 

 

 

 

  

 

Ms. Grisé has significant experience as a director of several large public corporations and as a former executive officer of a public utility holding company. Ms. Grisé’s substantial experience, including earlier experience as general counsel and corporate secretary, provide her with a unique perspective on the complex legal, compensation, and other issues that affect companies in regulated industries and the Board’s roles and responsibilities with respect to the effective functioning of the Company’s corporate governance structures. Ms. Grisé also brings to the Board meaningful experience based on her service as Lead Director of MetLife, Inc. and her service on the board of directors of several other public companies.

      

 

Director Since: 2008

 

Age: 66

 

Committees:

   Compensation and Management
    Development

   Nominating and Corporate Governance

    (Chair)

 

Public Company Board Experience:

 

   Company    Term
   MetLife, Inc.    2004 - present
   ICF International, Inc.    2012 - present
   Pall Corporation    2007 - 2015
  

Dana Holding Corp.

(now Dana Incorporated)

   2002 - 2008
         
         
         
             

  Relevant Business Experience:
 

Ms. Grisé was Executive Vice President of Northeast Utilities (now Eversource Energy), a public utility holding company, from December 2005 until her retirement effective July 2007; Chief Executive Officer of its principal operating subsidiaries from September 2002 to January 2007; President of the Utility Group of Northeast Utilities Service Company from May 2001 to January 2007; and Senior Vice President, Secretary and General Counsel of Northeast Utilities from 1998 to 2001.

 

 

  André J. Hawaux

 

 

         LOGO

  

 

Mr. Hawaux has significant experience serving as a senior officer of several corporations, including as executive vice president and chief financial officer of a large, consumer-focused public company. In connection with that role, Mr. Hawaux has extensive experience in operational matters and business strategy, which adds a valuable perspective for the Board’s decision-making. In addition, Mr. Hawaux has significant experience in the preparation and review of complex financial reporting statements as well as experience in risk management and risk assessment.

        

 

Director Since: 2013

 

Age: 58

 

Committees:

   Audit (Chair)

   Finance and Investment

 

Public Company Board Experience:

 

    

Company

   Term
    

Lamb Weston Holdings, Inc.

   2017 - present
    

The Timberland Company

   2010 - 2011
           
           
           
                 

  Relevant Business Experience:
  Mr. Hawaux is the Former Executive Vice President, Chief Financial Officer, and Chief Operating Officer of Dick’s Sporting Goods, Inc. Mr. Hawaux joined Dick’s Sporting Goods, Inc., a leading omni-channel sporting goods retailer, in June 2013 as Executive Vice President, Finance Administration and Chief Financial Officer and also served as its Executive Vice President, Chief Operating Officer through August 2017. Mr. Hawaux served as president of the Consumer Foods business of ConAgra Foods, Inc. (now ConAgra Brands Inc.), one of North America’s leading packaged food companies, from 2009 until May 2013. He joined ConAgra Foods as executive vice president and chief financial officer in 2006, and prior to ConAgra Foods, he served as general manager of a large U.S. division of PepsiAmericas. Mr. Hawaux also previously served as chief financial officer for Pepsi-Cola North America and Pepsi International’s China business unit. Mr. Hawaux is an audit committee financial expert for purposes of the SEC’s rules.

 

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  Ryan R. Marshall

 

 

 

         LOGO

 

 

Mr. Marshall brings significant insight to the Board from his tenure at PulteGroup, including in his position as President and Chief Executive Officer and his management of many of the Company’s largest operations. Mr. Marshall’s experience as the Chief Executive Officer of the Company provides an in-depth understanding of PulteGroup’s operations and complexity and adds a valuable perspective for Board decision-making.

     

Director Since: 2016

 

Age: 44

 

Committees:

   Finance and Investment

 

   

 

Relevant Business Experience:

Mr. Marshall is President and Chief Executive Officer of PulteGroup, Inc. Mr. Marshall has served as the President and Chief Executive Officer of PulteGroup, Inc. since September 8, 2016, and as the President since February 15, 2016. Prior to becoming CEO, Mr. Marshall most recently had the responsibility for the Company’s homebuilding operations and its marketing and strategy departments. Prior to being named President, Mr. Marshall was Executive Vice President of Homebuilding Operations since May 2014. Other previous roles included Area President for the Company’s Southeast Area since November 2012, Area President for Florida, Division President in both South Florida and Orlando and Area Vice President of Finance. In those roles, he has managed various financial and operating functions including financial reporting, land acquisition and strategic market risk and opportunity analysis.

 

 

  John R. Peshkin

 

 

         LOGO

 

 

Mr. Peshkin has significant experience as a founder and managing partner at a leading real estate investment group. In addition, Mr. Peshkin also has significant experience in the real estate and home building industries as a successful senior executive, as an investor and as a board member at two of the nation’s top builders, which brings valuable industry knowledge and insight to the Board. Mr. Peshkin also brings to the Board meaningful experience based on his service on the board of directors of for-profit companies and non-profit institutions.

 

     

 

Director Since: 2016

 

Age: 58

 

Committees:

   Audit

   Finance and Investment (Chair)

 

Public Company Board Experience:

     

Company

Standard Pacific Corp.

(subsequently CalAtlantic Group, Inc.,

which was then acquired by

Lennar Corporation)

 

Term

2012 - 2015

           

 

Relevant Business Experience:

Mr. Peshkin is the founder and Managing Partner at Vanguard Land, LLC, a private real estate investment group focused on the acquisition and development of residential and commercial properties throughout Florida since 2008. He was previously the founder and Chief Executive Officer of Starwood Land Ventures, an affiliate of Starwood Capital Group Global, a real estate private equity firm until 2008. Mr. Peshkin spent 24 years with Taylor Woodrow plc, a national homebuilder, serving as its North American CEO and President from 2000 to 2006. Mr. Peshkin is an audit committee financial expert for purposes of the SEC’s rules.

 

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  Scott F. Powers

 

 

 

         LOGO

  

 

Mr. Powers has significant experience as a financial services executive executing growth strategies, managing operations and leading efforts in risk and crisis management. Mr. Powers brings additional skills to the Board honed through a career of managing through financial industry change. Mr. Powers also has prior public company board experience as a current member of the boards of directors of Sun Life Financial, Inc. and Automatic Data Processing, Inc. and a previous member of the board of directors of Whole Foods Market, Inc.

        

 

Director Since: 2016

 

Age: 59

 

Committees:

   Compensation and Management
    Development (Chair)

   Nominating and Governance

 

Public Company Board Experience:

   Company    Term
   Automatic Data Processing, Inc.    2018 - present
   Sun Life Financial, Inc.    2015 - present
  

Whole Foods Market, Inc.

 

   2017

 

                 

  Relevant Business Experience:
  Mr. Powers is the Former President and Chief Executive Officer of State Street Global Advisors. Mr. Powers held leadership positions at State Street Corporation, a financial holding company that performs banking services through its subsidiaries, from 2008 to 2015, most recently as Executive Vice President of State Street Corp, President and Chief Executive Officer of State Street Global Advisors. Mr. Powers also served as a member of the State Street Management Committee. In addition, he previously served as President and Chief Executive Officer of Old Mutual USA and Old Mutual Asset Management from 2001 to 2008. He also held executive roles at Mellon Financial Corporation and Boston Company Asset Management.

 

 

  William J. Pulte

 

                 

 

 

         LOGO

 

  

 

Mr. Pulte has significant experience as an executive and investor in the homebuilding supply and homebuilding services industries. Mr. Pulte also brings experience in the management of non-profit institutions.

          

Director Since: 2016

 

Age: 30

 

Committees:

   Compensation and Management

    Development

   Nominating and Governance

  Relevant Business Experience:
  Mr. Pulte serves as CEO of Pulte Capital Partners LLC, an investment firm with no affiliation with PulteGroup, which is focused on investing in housing supply, building products and housing related service companies. Mr. Pulte currently serves as Chief Executive Officer and Chairman of Carstin Brands LLC, a leading residential countertop retailer and manufacturer. Mr. Pulte also is the managing member of EnergyConscious.com, a leading homebuilding supply and home improvement e-commerce company, and WhyteandCompany.com, a home kitchen and bath products e-commerce company. Additionally, Mr. Pulte is the managing member of Astar Heating & Air LLC and Astar Holdings LLC, which provide consumer and commercial heating and air-conditioning services. Mr. Pulte was also a director on the board of The Olon Group, Inc. from 2013 until it was sold in 2017. In addition, from February 2013 to May 2016, Mr. Pulte served as the managing member of Advanced Air & Heat LLC. From March 2015 to May 2016, Mr. Pulte served as the managing member of Yellow Dot Heating & Air LLC. Mr. Pulte was also a managing member of Southern Air & Heat LLC from January 2016 until Southern Air & Heat LLC, Yellow Dot Heating & Air LLC and Advanced Air & Heat LLC were sold in May 2016.

 

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  Lila Snyder

 

 

         LOGO

 

  

 

Ms. Snyder has significant experience as a consultant and corporate executive in a wide variety of industries. Ms. Snyder has advised on and led innovation initiatives in the areas of digital technology, media and communications. Ms. Snyder also brings significant skills to the Board relating to strategy, operations, marketing, and sales as a current C-level executive of a Fortune 1000 Company.

          

 

Director Since: 2018

 

Age: 46

 

Committees:

   Audit

   Finance and Investment

  Relevant Business Experience:
  Ms. Snyder has served as Executive Vice President and President, Commerce Services for Pitney Bowes, Inc. since October 2017. Prior to her current role, Ms. Snyder has held various positions at Pitney Bowes, Inc. since November 2013, including President of Global Ecommerce from June 2015 to October 2017, President of Pitney Bowes, Inc. subsidiary Borderfree, Inc. since June 2015, and President of Document Messaging Technologies from November 2013 to June 2015. Prior to joining Pitney Bowes, Inc., Ms. Snyder was a partner at global consultancy firm McKinsey & Company, Inc., where she led McKinsey’s Stamford office and served clients in the technology, media and communications sectors.

 

 

LOGO

  The Board of Directors recommends that shareholders vote “FOR” the election of these eleven nominees.
 

 

If a nominee is unable to stand for election, the Board may reduce the number of directors or choose a substitute. If the Board chooses a substitute, shares represented by proxies will be voted for the substitute. If a director retires, resigns, dies or is unable to serve for any reason, the Board may reduce the number of directors or appoint a new director to fill the vacancy. The new director would serve until the Company’s next annual meeting of shareholders.

 

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COMMITTEES OF THE BOARD OF DIRECTORS

The Board has four standing committees to facilitate and assist the Board in the execution of its responsibilities. The committees are currently the Audit Committee, Compensation and Management Development Committee, Nominating and Governance Committee and Finance and Investment Committee. Charters for all of these committees are available on the Company’s website at www.pultegroup.com . The table below shows current membership for each of the standing Board committees.

 

                                                                                                                                                                                       
Director Name     

Audit

Committee

    

Compensation and

Management

Development

Committee

      

Nominating and

Governance

Committee

    

Finance

and

Investment

Committee

Brian P. Anderson

                    

 

    

 

    

Bryce Blair*

    

 

    

 

                        

Richard W. Dreiling

    

 

    

 

                    

Thomas J. Folliard

                    

 

    

 

    

Cheryl W. Grisé

                    

 

LOGO

 

      

André J. Hawaux

    

 

LOGO

 

                      

Ryan R. Marshall

                      

 

    

 

    

John R. Peshkin

                           

 

LOGO

 

Scott F. Powers

           

 

 

 

 

LOGO

 

 

 

 

           

William J. Pulte

    

 

    

 

                    

Lila Snyder

         

 

 

 

 

    

 

 

 

 

           

 

LOGO

Chair

 

*

Non-Executive Chairman

 

This chart shows the current committee memberships.

Audit Committee

The Audit Committee met 7 times in 2018. The Audit Committee represents and assists the Board with the oversight of the integrity of the Company’s financial statements and internal controls, the performance of the Company’s internal audit function, the annual independent audit of the Company’s financial statements and the independent auditor’s engagement, qualifications and independence, the Company’s compliance with legal and regulatory requirements, and the evaluation of certain enterprise risk issues. The Audit Committee is also responsible for preparing the report of the Audit Committee required to be included in the Company’s annual proxy statement.

The Audit Committee is responsible for selecting (subject to ratification by our shareholders) the independent auditor as well as setting the compensation for and overseeing the work of the independent auditor and approving audit services to be provided by the independent auditor. Brian P. Anderson currently serves on the audit committee of more than three public companies. The Board has determined that Mr. Anderson’s simultaneous service on the audit committees of more than three public companies will not impair his ability to serve effectively on the Company’s audit committee. The Board has determined that each of the members of the Audit Committee is independent within the meaning of the Company’s categorical standards and the applicable NYSE and SEC rules and financially literate as defined by the NYSE rules, and that Brian P. Anderson, Thomas J. Folliard, André J. Hawaux and John R. Peshkin are audit committee financial experts for purposes of the SEC’s rules.

Compensation and Management Development Committee

The Compensation and Management Development Committee met 4 times in 2018. The Compensation and Management Development Committee is responsible for the review, approval and administration of the compensation and benefit programs for the Chief Executive Officer and the other named executive officers. It also reviews and makes

 

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recommendations regarding the Company’s general compensation philosophy and incentive plans and certain other compensation plans; reviews the Company’s leadership development programs and initiatives; and discusses performance, leadership development and succession planning for key officers with the Chief Executive Officer, as appropriate. The Board has determined that each of the members of the Compensation and Management Development Committee is independent within the meaning of the Company’s categorical standards and the NYSE rules.

Mr. Scott F. Powers is currently the Chair of the Compensation and Management Development Committee. Mr. Powers works with Ms. Michelle Hairston, the Company’s Senior Vice President, Human Resources, to establish meeting agendas and determine whether any members of PulteGroup’s management or outside advisors should attend meetings. The Compensation and Management Development Committee also meets regularly in executive session. At various times during the year at the request of the Compensation and Management Development Committee, Ryan R. Marshall, the President and Chief Executive Officer of the Company; Robert T. O’Shaughnessy, the Executive Vice President and Chief Financial Officer of the Company; and Todd N. Sheldon, the Executive Vice President, General Counsel and Corporate Secretary of the Company, may attend Compensation and Management Development Committee meetings, or portions of Compensation and Management Development Committee meetings, to provide the Compensation and Management Development Committee with information regarding the Company’s operational performance, financial performance or other topics requested by the Compensation and Management Development Committee to assist it in making its compensation decisions.

The Chief Executive Officer annually reviews the performance of each member of senior management (other than our Chief Executive Officer’s performance, whose performance is reviewed by the Compensation and Management Development Committee). Recommendations based on these reviews, including salary adjustments, annual bonuses, long-term incentives and equity grants, are presented to the Compensation and Management Development Committee. Decisions regarding salary adjustments, annual bonuses, long-term incentives and equity grants for our Chief Executive Officer are made by the Compensation and Management Development Committee. All decisions for 2018 made with respect to the executives listed in the Summary Compensation Table (other than the Chief Executive Officer) were made after deliberation with Mr. Marshall.

The Compensation and Management Development Committee is also responsible for overseeing the development of the Company’s succession plan for the President and Chief Executive Officer and other key members of senior management, as well as the Company’s leadership development programs.

The Compensation and Management Development Committee receives and reviews materials provided by the Compensation and Management Development Committee’s consultant and management. These materials include information that the consultant and management believe will be helpful to the Compensation and Management Development Committee, as well as materials the Compensation and Management Development Committee specifically requests.

The Compensation and Management Development Committee has the authority to engage its own outside compensation consultant and any other advisors it deems necessary. Since 2003, the Compensation and Management Development Committee has engaged Pearl Meyer & Partners (“Pearl Meyer”) to act as its independent consultant. Pearl Meyer regularly provides the Compensation and Management Development Committee with information regarding market compensation levels, general compensation trends and best practices. The Compensation and Management Development Committee also regularly asks Pearl Meyer to opine on the reasonableness of specific pay decisions and actions for the named executive officers, as well as the appropriateness of the design of the Company’s executive compensation programs.

The activities of Pearl Meyer are directed by the Compensation and Management Development Committee, although Pearl Meyer may communicate with members of management, as appropriate, to gather data and prepare analyses as requested by the Compensation and Management Development Committee. During 2018, the Compensation and Management Development Committee asked Pearl Meyer to review market data and advise the Committee on setting executive compensation and the competitiveness and reasonableness of the Company’s executive compensation program; review and advise the Compensation and Management Development Committee regarding the Company’s pay for performance, equity grant and dilution levels, each as relative to the Company’s peers; review and advise the Compensation and Management Development Committee regarding regulatory, disclosure and other technical matters; and review and advise the Compensation and Management Development Committee regarding the Company’s compensation risk assessment procedures. The Compensation and Management Development Committee also asked Pearl Meyer to provide opinions on named executive officer pay decisions.

 

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In 2018, Pearl Meyer did not provide any other services to the Company. The Compensation and Management Development Committee assessed the independence of Pearl Meyer pursuant to SEC rules and concluded that Pearl Meyer’s work for the Compensation and Management Development Committee does not raise any conflict of interest.

The Compensation and Management Development Committee has determined that Pearl Meyer is independent because it does no work for the Company other than that requested by the Compensation and Management Development Committee. The Chair of the Compensation and Management Development Committee reviews the consultant’s invoices, which are paid by the Company.

Nominating and Governance Committee

The Nominating and Governance Committee met 4 times in 2018. The Nominating and Governance Committee establishes criteria for the selection of new members of the board of directors and makes recommendations to the Board based on qualified identified individuals, including any qualified candidates nominated by shareholders, as described in “Director Nomination Recommendations” below. As noted above, in March 2018, the Nominating and Governance Committee amended its charter to express the Nominating and Governance Committee’s commitment to the inclusion of diverse groups (including, where appropriate, diversity of age, gender, race, ethnicity and professional experience), knowledge and viewpoints in its selection of Board nominees.

The Nominating and Governance Committee is also responsible for matters related to the governance of the Company and for developing and recommending to the Board the criteria for Board membership, the selection of new Board members and the assignment of directors to the committees of the Board. The Nominating and Governance Committee assures that a regular evaluation is conducted of the performance, qualifications, and integrity of the Board and the committees of the Board. Please see “Corporate Governance—Board Assessments” for further information regarding the regular evaluations. The Nominating and Governance Committee also reviews and makes recommendations with respect to the compensation of members of the Board. The Nominating and Governance Committee is also responsible for reviewing the Company’s Environmental, Social and Governance Policies and assessing and monitoring the Company’s enterprise risk management initiatives. The Board has determined that each of the members of the Nominating and Governance Committee is independent within the meaning of the Company’s categorical standards and the NYSE rules.

Finance and Investment Committee

The Finance and Investment Committee met 5 times in 2018. The Finance and Investment Committee reviews all aspects of the Company’s policies that relate to the management of the Company’s financial affairs. The Finance and Investment Committee also reviews the Company’s long-term strategic plans and annual budgets, capital commitments budget, certain land acquisition and sale transactions, and the Company’s cash needs and funding plans.

Board Meeting Information

The board of directors held a total of 6 meetings in 2018. During 2018, each director attended at least 90% of the aggregate number of meetings of the board of directors and of the committees on which such director served that were held during the period that such director served as a member of the board of directors and as a member of such committees.

PulteGroup encourages its directors to attend each of the Company’s annual meeting of shareholders, and all of our directors serving on the date of last year’s annual meeting of shareholders attended that meeting.

Throughout the year, PulteGroup held regularly scheduled executive sessions of its non-management directors without management participation. In addition, in 2019, PulteGroup will hold at least one executive session of its non-management directors without the participation of management. Since the Company’s 2018 annual meeting of shareholders, Bryce Blair, our Non-Executive Chairman, has presided at these executive sessions. Provided that Mr. Blair is re-elected at the annual meeting, he will continue to preside over the executive sessions as the Non-Executive Chairman (as discussed further below).

 

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CORPORATE GOVERNANCE

Corporate Governance Highlights

The Board continues to take steps that we believe improve our corporate governance and position our Company for long-term success. Recently, these steps have included:

 

   

Commitment to Diversity. The Nominating and Governance Committee amended its charter to express the Nominating and Governance Committee’s commitment to the inclusion of diverse groups (including, where appropriate, diversity of age, gender, race, ethnicity and professional experience), knowledge and viewpoints in its selection of Board nominees.

 

   

Majority Voting Standard. We amended our by-laws to change the voting standard for the election of directors in uncontested elections from a plurality standard to a majority standard.

 

   

Proxy Access. We amended our by-laws to implement proxy access.

 

   

Non-Executive Chairman of the Board. The Board appointed Mr. Blair to the position of Non-Executive Chairman of the Board, effective as of the Company’s 2017 annual meeting of Shareholders, to (i) ensure that the Board discharges its responsibilities, (ii) ensure that the Board has structures and procedures in place to enable it to function independently of management, (iii) provide leadership at independent directors’ executive sessions and in other work, (iv) promote director dialogue in and out of meetings and (v) ensure the Board clearly understands the respective roles and responsibilities of the Board and management.

Governance Guidelines; Code of Ethical Business Conduct; Code of Ethics

The Board has adopted Corporate Governance Guidelines, which reflect the principles by which PulteGroup operates. The guidelines address an array of governance issues and principles including: director independence, committee independence, management succession, annual Board evaluations, director nominations, director age limitations, the role of the Chairman or Lead Director, and executive sessions of the independent directors. PulteGroup’s Governance Guidelines are available for viewing on our website at www.pultegroup.com . The Board also has adopted a Code of Ethical Business Conduct, which applies to all directors and employees and a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Controller and other senior officers. The Code of Ethical Business Conduct and the Code of Ethics are also available on the Company’s website, and the Company intends to include on its website any waivers of its Code of Ethical Business Conduct that relate to executive officers and directors as well as any amendments to, or waivers from, a provision of its Code of Ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K.

Board Leadership

Our Corporate Governance Guidelines currently contemplate that the independent directors will annually designate one of the independent directors to serve as Non-Executive Chairman for a one-year term. As noted above, the Board appointed Bryce Blair as Chairman of the Board, and since the Company’s 2017 annual meeting of shareholders, Mr. Blair has served as the Non-Executive Chairman. Provided that Mr. Blair is re-elected at the annual meeting, as an independent director, he would continue to serve as Non-Executive Chairman.

Since Mr. Blair’s appointment as the Non-Executive Chairman, he has worked with the President and Chief Executive Officer to ensure that the Board discharges its responsibilities, has procedures in place to enable it to function independently of management and clearly understands the respective roles and responsibilities of the Board and management. In addition, the Non-Executive Chairman’s duties have included convening and chairing regular executive session meetings of the non-management directors and, as appropriate, providing prompt feedback to the President and Chief Executive Officer; coordinating and developing the agenda for executive sessions of the independent directors; convening meetings of the independent directors if necessary; coordinating feedback to the President and Chief Executive Officer on behalf of the independent directors regarding business issues and management; providing final approval, after consultation with the President and Chief Executive Officer, as to the agendas for meetings of the Board and informational needs associated with those agendas and presentations; performing such other duties as may be necessary for the Board to fulfill its responsibilities or as may be requested by the Board as a whole or by the non-management directors; serving as the designated spokesperson for the Board when it is appropriate for the Board to comment publicly on any matter; and being available for consultation and communication if requested by the Company’s major shareholders.

 

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The Board recognizes that no single leadership model is right for all companies at all times, and as appropriate, the Board will continue to review its leadership model to determine the correct leadership structure for the Company.

Board Role in Risk Oversight

The Board’s involvement in risk oversight includes both formal and informal processes and involves the Board and committees of the Board.

On an annual basis, the Board or selected committees of the Board undertake a formal enterprise risk assessment during which the principal risks facing PulteGroup and associated responses are evaluated. In addition to the formal assessment, the Board and committees of the Board are also involved in risk oversight on a more informal basis at regular Board and committee meetings. The Audit Committee receives materials on a frequent basis to address the identification and status of risks to the Company, including financial risks, litigation claims and risks, and cybersecurity risks. At meetings of the full Board, these risks are identified to Board members, and the Chair of the Audit Committee reports on the activities of the Audit Committee regarding risk analysis. In addition, two times per year, the Audit Committee receives a report from PulteGroup’s Ethics Committee regarding current hotline activities and associated responses. The other committees of the Board also consider and address risks as they perform their respective responsibilities, and such committees report to the full Board from time to time as appropriate, including whenever a matter rises to a material or enterprise level risk. The Board also receives regular financial and business updates from senior management, which involve detailed reports on financial and business risks facing PulteGroup when applicable.

Board Assessments

Each year, the Nominating and Governance Committee leads a confidential assessment process under which our Board and its committees conduct self-assessments. Additionally, every other year, the Nominating and Governance Committee leads a confidential assessment process under which each individual director completes a formal self-assessment and an assessment of each other director. The following is a summary of the assessment process:

 

   

Board assessment s – Each year, the Board and the Nominating and Governance Committee review and discuss the results of the Board’s self-assessment. The discussion includes an assessment of the Board’s compliance with the principles in the Corporate Governance Guidelines and an identification of areas in which the Board could improve its performance.

 

   

Committee assessments – Each year, each committee of the Board and the Nominating and Governance Committee review and discuss the results of the respective committee’s self-assessment. Each committee discussion includes an assessment of the respective committee’s compliance with the principles in the Corporate Governance Guidelines and the committee’s charter, as well as an identification of areas in which the committee could improve its performance.

 

   

Director assessments – Every other year, each director completes a self-assessment and an assessment of each other director, and that feedback is shared in one-on-one discussions with each director. The Chair of the Nominating and Governance Committee conducts these assessments, except for the Chair’s own assessment, which is currently conducted by the Non-Executive Chairman. These assessments are designed to enhance each director’s participation and role as a member of the Board, as well as to assess the competencies and skills each individual director is expected to bring to the Board. While formal self-assessments are conducted semi-annually, the Chair and the Nominating and Governance Committee regularly solicit feedback from the other directors and take action as necessary to ensure a well-functioning Board.

In 2018, the Board and committee assessments were completed in September and contributed to the affirmation of the experience and qualifications matrix referenced previously on page 3. Our Board intends to review the matrix for appropriate revisions at least annually.

 

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Available information about PulteGroup

The following information is available on PulteGroup’s website at www.pultegroup.com and in print for any shareholder upon written request to our Corporate Secretary:

 

   

Previously filed SEC current reports, quarterly reports, annual reports and reports under Section 16(a) of the Exchange Act

 

   

Audit Committee Charter

 

   

Compensation and Management Development Committee Charter

 

   

Nominating and Governance Committee Charter

 

   

Finance and Investment Committee Charter

 

   

Code of Ethics (for Covered Senior Officers)

 

   

Code of Ethical Business Conduct

 

   

Corporate Governance Guidelines

 

   

By-laws

 

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DIRECTOR NOMINATION RECOMMENDATIONS

The Nominating and Governance Committee does not have a single method for identifying director candidates but will consider candidates suggested by a wide range of sources, including candidates recommended by shareholders. The Committee reviews the qualifications of various persons to determine whether they might make good candidates for consideration for membership on the Board. The Nominating and Governance Committee will review all proposed nominees, including those proposed by shareholders, in accordance with its charter and PulteGroup’s Corporate Governance Guidelines. The Nominating and Governance Committee considers the experience and skills for potential candidates adopted by the Board and summarized in the matrix on page 3. In addition, the Nominating and Governance Committee will review the person’s judgment, experience, qualifications, independence, understanding of PulteGroup’s business or other related industries and such other factors as the Nominating and Governance Committee determines are relevant in light of the needs of the Board and PulteGroup.

The Board also believes that diversity is an important goal and looks for potential candidates who will help ensure that the Board has the benefit of a wide range of attributes. As noted above, in March 2018, the Nominating and Governance Committee amended its charter to express the Nominating and Governance Committee’s commitment to the inclusion of diverse groups (including, where appropriate, diversity of age, gender, race, ethnicity and professional experience), knowledge and viewpoints in its selection of Board nominees.

The Nominating and Governance Committee will select qualified candidates and review its recommendations with the Board, which will decide whether to invite the candidate to be a nominee for election to the Board.

You may recommend a person to be nominated for director by submitting a written proposal by certified mail, return receipt requested, or by recognized overnight courier, to Todd N. Sheldon, Corporate Secretary, PulteGroup, Inc., 3350 Peachtree Road NE, Suite 150, Atlanta, Georgia 30326. Shareholders wishing to directly nominate a candidate for election as a director at next year’s annual meeting of shareholders must deliver written notice to PulteGroup at the above address not later than 60 days prior to the date of next year’s annual meeting of shareholders (unless public disclosure of the date of such meeting is made less than 70 days before such meeting, in which case notice must be received within 10 days following such public disclosure), and the required notice must include the information and documents set forth in the Company’s by-laws.

In addition, the Company’s by-laws permit proxy access. The proxy access by-law provision permits a shareholder, or a group of up to 20 shareholders, owning 3% or more of the Company’s outstanding common shares continuously for at least three years to nominate and include in the Company’s proxy materials director nominees constituting up to two individuals or 20% of the board, whichever is greater, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in the Company’s by-laws. Shareholders wishing to directly nominate a candidate for election as a director at next year’s annual meeting of shareholders and have such nomination included in the Company’s proxy materials must deliver written notice to PulteGroup at the above address not later than 120 days nor more than 150 days in advance of the date the Company’s proxy statement was released to security holders for the annual meeting (unless the date of such meeting has been changed by more than 30 days from the date contemplated at this time), and the required notice must include the information and documents set forth in the by-laws.

 

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2018 DIRECTOR COMPENSATION

The table below shows compensation for the Company’s non-employee directors for the fiscal year ended December 31, 2018. Ryan R. Marshall, our President and Chief Executive Officer, and also a director of the Company, received no additional compensation for his services as a director of the Company during 2018. The compensation received by Mr. Marshall as an employee of the Company is shown in the 2018 Summary Compensation Table set forth in this Proxy Statement.

 

Name  

Fees Earned

or Paid

in Cash

(1)

   

Share

Awards

(2)(3)

    Nonqualified
Deferred
Compensation
Earnings
   

All Other

Compensation

    Total  

Brian P. Anderson

    $        120,000     $       140,007     $                   —                     —       $260,007  

Bryce Blair

    $        170,000     $ 140,007     $             $310,007  

Richard W. Dreiling

    $        95,000     $ 140,007     $ 2,608             $237,615  

Thomas J. Folliard

    $        95,000     $ 140,007     $             $235,007  

Joshua Gotbaum (4)

    $        33,929     $     $             $33,929  

Cheryl W. Grisé

    $        120,000     $ 140,007     $             $260,007  

André J. Hawaux

    $        95,000     $ 140,007     $             $235,007  

Patrick J. O’Leary (4)

    $        42,857     $     $             $42,857  

John R. Peshkin

    $        120,000     $ 140,007     $ 1,774             $261,781  

Scott F. Powers

    $        111,071     $ 140,007     $             $251,078  

William J. Pulte

    $        95,000     $ 140,007     $             $235,007  

Lila J. Snyder (5)

    $        32,785     $ 97,817     $             $130,602  

 

(1)

The amounts in this column represent the fees earned or paid in cash for services as a director, including annual retainer, committee chairmanship, lead director and Non-Executive Chairman fees.

 

(2)

The amounts reported in this column are valued based on the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“FASB ASC Topic 718”). Assumptions used in the calculation of these amounts are included in Note 7 to the Company’s audited financial statements included in our Annual Report. On May 10 , 2018, the then-serving directors (other than Messrs. Gotbaum and O’Leary, who were not standing for re-election) received their annual equity grant of 4,491 shares, which represents $140,000 divided by the average of the high and low share price on the date of grant. The amounts reported in this column for Ms. Grisé and Messrs. Dreiling, Folliard and Peshkin represent the value of share units deferred under the PulteGroup, Inc. Deferred Compensation Plan for Non-Employee Directors. The share units consist of fully vested deferred share units that are settled in common shares and may be subject to a deferral election consistent with Internal Revenue Code Section 409A.

 

(3)

As of December 31, 2018, each individual serving as a non-employee director during 2018 had the number of deferred share units set forth below and did not hold any other equity awards as of December 31, 2018.

 

Director        Deferred Share Units    

Brian P. Anderson

  

Bryce Blair

  

Richard W. Dreiling

   21,470

Thomas J. Folliard

   10,755

Joshua Gotbaum

  

Cheryl W. Grisé

   86,135

André J. Hawaux

  

Patrick J. O’Leary

  

John R. Peshkin

   10,755

Scott F. Powers

  

William J. Pulte

  

Lila J. Snyder

  

 

(4)

Messrs. Gotbaum and O’Leary did not stand for re-election as directors at the Company’s 2018 Annual Meeting of Shareholders and their service on the Board concluded on May 10 , 2018.

 

(5)

Ms. Snyder was appointed to the Board, effective August 27, 2018.

 

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Director Compensation

The Nominating and Governance Committee reviews the compensation of the Company’s non-employee directors. For 2018, the Nominating and Governance Committee did not make any changes to the non-employee director compensation program. During 2018, non-employee directors received the following compensation for service as members of the Board of Directors and as members of Board committees:

 

   

Annual Board membership fee of $95,000 in cash;

 

   

Committee chair retainer fee of $25,000 in cash;

 

   

Non-Executive Chairman retainer fee of $75,000 in cash; and

 

   

Annual Equity Retainer Fee of $140,000 in common shares (the number of common shares determined by dividing $140,000 by the average of the high and low share price on the date of grant).

For their service during 2018, Mr. Gotbaum and Mr. O’Leary received prorated annual cash retainer fees and Ms. Snyder received prorated annual cash and annual equity retainer fees, each based on the fees noted above.

In 2018, the Nominating and Governance Committee approved an increase in the annual equity retainer fee to $150,000, beginning with grants made immediately following the 2019 annual meeting of shareholders.

Director Deferred Compensation

In 2018, non-employee directors were entitled to defer all or a portion of their cash and equity compensation. Deferred cash payments were credited with interest at a rate equal to the five year U.S. treasury rate, plus 2%. Under the “Deferred Compensation Plan for Non-Employee Directors,” the payment of director cash fees may be deferred for up to eight years, and directors may elect to receive their deferred fees in a lump sum or in equal annual installments over a period not to exceed eight years. In the event of the director’s departure either before or after the commencement of a deferral period, such director’s deferred fees will be paid in a lump sum payment. Under the terms of the plan, all deferred equity will be distributed to the director upon his or her departure from the Board.

Directors who also are our employees do not receive any of the compensation described above.

Equity Ownership Guidelines

Each member of the Board of Directors is expected to maintain an equity investment in the Company equal to at least five times the annual cash retainer, which must be achieved within five years of the director’s initial election to the Board. The holdings that may be counted toward achieving the equity investment guidelines include outstanding share awards or units, shares obtained through stock option exercises, shares owned jointly with or separately by the director’s spouse and shares purchased on the open market. Outstanding stock options do not count toward achieving the equity investment guidelines. As of the record date, all members of the Board of Directors have met or, within the applicable period, are expected to meet, these share ownership guidelines.

 

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COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis (our “CD&A”) provides an overview of our executive compensation program for 2018 and our executive compensation philosophies and objectives. This CD&A is divided into five sections:

 

Executive Summary

 

•  Overview

•  Return to Shareholders

•  Pay for Performance

•  Key Executive Compensation Decisions and Actions

•  Shareholder Feedback

•  Named Executive Officers

   

Establishing and Evaluating

Executive Compensation

 

•  Executive Compensation Philosophy

•  Key Factors in Setting 2018 Compensation

•  Market Comparisons

   

Executive Compensation

Program Elements

 

•  Base Salary

•  Annual Incentive Compensation

•  Long-Term Incentive Compensation

•  Equity Grants

•  Other Compensation Elements and Practices

   

How We Make Executive

Compensation Decisions

 

•  The Compensation and Management Development Committee

•  Independent Compensation Consultant

•  Role of Executive Officers

•  Use of Tally Sheets

   

2019 Compensation Decisions

 

•  Base Salary

•  Annual Incentive Compensation

•  Long-Term Incentive Compensation

EXECUTIVE SUMMARY

Overview

2018 was an outstanding year for PulteGroup with solid financial and operational performance driven by disciplined execution in a changing economic environment. Our Chief Executive Officer, Ryan Marshall, led PulteGroup through increasingly competitive and dynamic housing, labor and commodity markets to achieve double digit growth in closings and home sale revenue. Despite increases in interest rates and other market factors that led to slowing demand beginning in the second quarter of 2018, we believe PulteGroup’s leadership is well prepared to navigate an evolving housing market.

 

23,107

Closings

    

Home sales

revenue $9.818 billion

     Pre-Tax Income $1.288 billion     

Returned nearly

$400 million

to shareholders

 

Up 10 %

 

Over 2017

 

    

Up 18 %

 

Over 2017

 

    

Up 49 %

 

Over 2017

 

    

(through share
repurchases

and dividends)

 

Additional highlights of our 2018 performance include:

 

   

Opened 237 new communities

   

Invested over $2.6 billion in land acquisition and development in 2018 to support future growth

   

Balanced land portfolio to reduce our owned land to just under 4.0 years; down from 5.6 years at the end of 2015

   

At the same time, we have increased our percentage of lots controlled under option to 40% with 54% of our lots approved in 2018 being under option

 

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We believe our compensation philosophy and execution supports PulteGroup’s strategy to drive consistently high returns through the cycles inherent in the U.S. housing market. Our compensation planning is designed to focus executives on balancing short-term objectives against long-term priorities, to align executive and shareholder interests, and to attract and retain the leadership needed to continue to deliver strong results. Pay decisions were made in the context of our financial performance relative to our goals, while considering external factors and the actions management has taken to strengthen PulteGroup’s position for the future. We believe that it is important for our compensation program to be adaptable to allow us to address our current operating plan and external factors impacting our performance and, accordingly, the Compensation and Management Development Committee of our Board of Directors (the “Committee”) regularly monitors and refines our executive compensation program so that it is reflective of our operating plan and such external factors. For example, in 2018, we introduced a Growth Incentive Pool, designed to address the inherent volatility in the homebuilding industry year-over year and to incentivize the efforts to be taken to reach internal pre-tax income growth targets, which we believe, in turn, will drive overall company growth. Under the Growth Incentive Pool, our executive officers are eligible to share in a pool funded by our pre-tax income growth as compared to 2017.

For 2018, at target, approximately 89% of Mr. Marshall’s pay was at risk and subject to attainment of specific performance goals or fluctuations in our stock price, as demonstrated by the chart below:

CEO 2018 Total Direct Compensation *

 

 

LOGO

* Growth Incentive pool reflects actual 2018 payout.

For additional information, see “Pay for Performance” on page 25 of this Proxy Statement.

For 2018, the Committee made the following changes to Mr. Marshall’s compensation:

   

Increased his base salary from $900,000 to $950,000;

   

Increased his target annual incentive plan target from 150% of his base salary to 175% of his base salary under the Company’s annual incentive program and granted him an award opportunity under the Growth Incentive Pool, with funding determined based on the Company’s pre-tax income growth as compared to 2017; and

   

Granted long term incentive awards equal to $2,300,000 in service-based restricted share units and $2,300,000 in a share-settled 3-year performance award.

These changes to Mr. Marshall’s compensation reflected, among other things, the Committee’s acknowledgement of Mr. Marshall and the Company’s strong performance in 2017, a desire to align Mr. Marshall’s compensation more closely with the competitive market, and an emphasis on tying a greater portion of Mr. Marshall’s overall compensation to profitable growth with the additional pre-tax income growth measure.

 

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For 2018 performance, the Committee approved annual incentive payments of approximately $4,228,696 for Mr. Marshall, reflecting a payout under the annual incentive program of $2,601,813 (156.5% of target) and a Growth Incentive Pool allocation based on pre-tax income growth of $1,626,884. We believe these payouts resulted from meaningful progress in the implementation of PulteGroup’s strategy of generating cash flows to fund growth, with continued improvements in build quality measurements and continued focus on cost containment. In addition, the Committee noted continued improvements in employee engagement and major steps taken to develop and strengthen senior management.

For additional information, see “Pay for Performance” on page 25 of this Proxy Statement

Return to Shareholders*

The following chart shows how a $100 investment in the Company’s common shares on December 31, 2013 would have grown to $137.52 on December 31, 2018, with dividends reinvested quarterly. The chart also compares the total shareholder return (“TSR”) on the Company’s common shares to the same investment in the S&P 500 Index and the Dow Jones U.S. Select Home Construction Index, with dividends reinvested quarterly. We believe this chart illustrates the significant value created for shareholders over the five-year period as compared to both indices.

Comparison of Five-Year Total Shareholder Return*

 

 

LOGO

*Assumes $100 invested on December 31, 2013, and the reinvestment of dividends.

 

     2013      2014      2015      2016      2017      2018  

PulteGroup, Inc.

     100.0        106.57        90.01        94.63        173.56        137.52  

S&P 500 Index - Total Return

     100.0        113.69        115.26        129.05        157.22        150.33  

Dow Jones U.S. Select Home Construction Index

     100.0        105.15        110.88        113.34        181.51        125.74  

 

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The following chart illustrates the Company’s relative TSR over the last one-, three- and five-year periods versus our defined executive compensation peer group as listed on page 29, including quarterly dividends. As illustrated, we have performed favorably over varying market conditions over the last one-, three- and five-year periods versus this peer group.

 

 

 

LOGO

Pay for Performance

Our executive compensation program is designed to reward executives for producing sustainable growth and improving shareholder returns consistent with PulteGroup’s strategy and to align compensation with the long-term interests of our shareholders. The Committee strongly believes that executive compensation—both pay opportunities and pay actually realized—should be at-risk and tied to Company performance relative to the Company’s goals. For example, beginning in 2014, the Company has incorporated a TSR performance metric into its annual equity grant. In addition, the Committee designed the 2018 executive compensation program so that variable pay elements (annual incentive awards, restricted share units and performance-based awards) constitute a significant portion of the executive compensation awarded, determined at target levels. The following charts demonstrate the variable pay elements as compared to the targeted annual compensation of our named executive officers. These charts demonstrate that the variable pay elements comprised at least 89% of the targeted annual compensation for our President and Chief Executive Officer and, on average, 78% of the targeted annual compensation for the other named executive officers.

 

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CEO 2018 Total Direct Compensation *

 

 

LOGO

NEO 2018 Total Direct Compensation *

 

 

LOGO

* Growth Incentive pool reflects actual 2018 payout.

 

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Key Executive Compensation Decisions and Actions

We are committed to having strong governance standards with respect to our executive compensation program, policies and practices. Consistent with this focus, we maintain the following policies and practices that we believe demonstrate our commitment to executive compensation best practices.

 

 WHAT WE DO

        WHAT WE DO NOT DO
  ü   

 

Meaningful share ownership guidelines

 

        O      No excessive perquisites
  ü   

 

Committee comprised entirely of independent directors

 

        O      Plan prohibits granting discounted stock options
  ü   

 

Clawback policy – since 2009, applicable to annual incentive awards, long-term incentive awards and equity grants

 

        O      No service-based defined benefit pension plan
  ü   

 

Pay for performance – CEO pay approximately 89%  at-risk

 

        O      No automatic single-trigger vesting of equity awards upon a change-in-control
  ü   

 

Independent, 3 rd party compensation consultant

 

        O      No dividends or dividend equivalents paid on unearned performance-based equity awards
  ü   

 

Annual say-on-pay vote

 

        O      Plan prohibits re-pricing of underwater stock options
  ü   

 

Market comparison of executive compensation against a relevant peer group

 

        O      Prohibition on hedging and pledging Company securities
  ü   

 

Multi-year vesting schedule for equity awards

 

        O      No change-in-control tax gross-ups for named executive officers
  ü   

 

Shareholder engagement

 

        

Shareholder Feedback

In its compensation review process, the Committee considers whether our executive compensation and benefits program serves the interests of our shareholders. In that respect, as part of its on-going review of our executive compensation program, the Committee considered the approval by approximately 92.4% of the votes cast for the Company’s “say on pay” vote at our 2018 Annual Meeting of Shareholders. The Committee was pleased with this favorable outcome and interpreted this level of support as an endorsement by our shareholders of our executive compensation program and policies and did not make any changes to our executive compensation program in response to the 2018 “say on pay” vote. The Committee values continuing and constructive feedback from our shareholders on compensation, and Messrs. Blair, Marshall, and O’Shaughnessy, among other board members and executive officers, have discussed the Company’s executive compensation program with various shareholders and have shared this shareholder feedback with the Committee. The Committee intends to continue to monitor our executive compensation program and engage with shareholders regarding such program.

Named Executive Officers

For 2018, our named executive officers were:

 

Name

  

Title

Ryan R. Marshall

   President and Chief Executive Officer

Robert T. O’Shaughnessy

   Executive Vice President and Chief Financial Officer

Harmon D. Smith*

   Executive Vice President and Chief Operating Officer

Todd N. Sheldon

   Executive Vice President, General Counsel and Corporate Secretary

Stephen P. Schlageter

   Senior Vice President, Strategy and Operations

*Mr. Smith retires from the Company, effective March 29, 2019.

 

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ESTABLISHING AND EVALUATING EXECUTIVE COMPENSATION

Executive Compensation Philosophy

To align the Company’s incentive compensation program with the Company’s overall executive compensation philosophy, the Committee has adopted the following compensation philosophy and guiding principles:

 

 

Our Executive Compensation Philosophy

   
   

Our overall compensation philosophy applicable to named executive officers is to provide a compensation program that is intended to attract and retain qualified executives for the Company through fluctuating business cycles, provide them with incentives to achieve our strategic, operational and financial goals, increase shareholder value and reward long-term financial success.

 

   

 

Guiding Principles

 

 

•  Providing total compensation levels that are competitive with our direct competitors within the homebuilding industry, as well as companies of similar size and complexity in related industries.

 

•  Fostering a pay for performance environment by delivering a significant portion of total compensation through performance-based, variable pay.

 

•  Aligning the long-term interests of our executives with those of our shareholders.

 

•  Requiring our executives to own significant levels of Company shares.

 

•  Balancing cash compensation with equity compensation so that each executive has a significant personal financial stake in the Company’s share price performance (in general, we seek to provide a significant portion of total compensation to named executive officers in the form of equity-based compensation).

 

•  Balancing short-term compensation with long-term compensation to focus our senior executives on the achievement of both operational and financial goals and longer-term strategic objectives.

 

   

 

   

 

Key Factors in Setting 2018 Compensation

In establishing and evaluating our 2018 executive compensation program, the Committee, in consultation with our Chief Executive Officer, considered the following key factors:

 

   

Overall Company performance and specific financial results relative to incentive performance goals established by the Committee in February 2018;

 

   

Competitive pay practices (evaluated based on market comparisons and recommendations of Pearl Meyer, the Committee’s independent compensation consultant);

 

   

Individual performance of each of our named executive officers;

 

   

Historical equity grants;

 

   

Tally sheets presenting the potential compensation for each of our named executive officers based on equity grant values and performance levels under our incentive compensation programs; and

 

   

Our ability to retain and motivate key talent.

Market Comparisons

While the Committee considers relevant market pay practices when setting executive compensation, it does not believe that it is appropriate to establish compensation levels based only on market practices. The Committee believes that compensation decisions are complex and require a deliberate review of Company performance and peer compensation levels, as well as the overall business environment and the role and contributions of each individual. Accordingly, the review of peer information is one of many factors the Committee considers in determining compensation levels. For each element of compensation, the Committee reviews market data (i.e., peer group and survey data) to evaluate target compensation levels, while also considering the expanded responsibilities of some of our named executive officers as compared to the peer group, revenue size relative to the peer group, our historical compensation practices, the overall mix of our compensation elements being weighted more heavily toward long-term and equity-based compensation, management ownership and financial performance. Other factors that influence the amount of compensation awarded

 

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include an individual’s experience and past performance inside or outside the Company, compensation history, role and responsibilities within the Company, tenure with the Company and associated institutional knowledge, long-term potential with the Company, contributions derived from creative and innovative thinking and leadership and industry expertise.

The Committee believes that the Company’s peer group should reflect the industry in which the Company competes for business and executive talent. Accordingly, the Company’s peer group includes companies meeting the following criteria: (i) companies within, or operating in an industry similar to, the home-building industry and (ii) companies of similar size in terms of revenue or market capitalization (generally 1/2 to 2 times the Company’s revenue and market capitalization). In evaluating companies to include in our peer group, the Committee also reviewed the say-on-pay history for each of the companies to understand the alignment of the executive compensation programs at those companies with the interests and views of the shareholders of such companies. The peer group used for evaluating 2018 compensation decisions consisted of the companies below. This group is the same peer group that was used for evaluating 2017 compensation decisions, except for (i) the addition of Taylor Morrison Home Corporation as that company was determined by the Committee to satisfy the peer selection criteria noted above and (ii) the removal of CalAtlantic Group, Inc. due to its acquisition by Lennar Corporation.

 

D.R. Horton, Inc.

  Mohawk Industries, Inc.    

KB Home

  NVR, Inc.    

Lennar Corporation

  Owens Corning    

Masco Corporation

  Taylor Morrison Home Corporation    

M.D.C. Holdings, Inc.

  Toll Brothers, Inc.    

Meritage Homes Corporation

  USG Corporation    

In addition to reviewing compensation practices among the compensation peer group, the Committee believes it is important to review compensation practices within the general industry. The Company participates in and purchases a number of compensation surveys. With the assistance of Pearl Meyer, the Committee reviews a blend of general industry and peer group survey data in establishing target compensation levels and evaluating whether our compensation policies are in line with market data. The 2018 survey data was compiled from the following general industry compensation surveys: Mercer Human Resource Consulting’s US Mercer Benchmark Database (MBD) Executive (which has approximately 2,600 participating companies) and Willis Towers Watson Executive Compensation Survey (which has approximately 777 participating companies). To assist the Committee in its review of the general industry survey data, Pearl Meyer extracts compensation information from the surveys with respect to companies with annual revenues ranging from $5 billion to $10 billion. The Committee believes that the compensation practices at companies of this size are most relevant to the Committee’s decision-making process.

Based on Pearl Meyer’s competitive market analysis prepared for evaluating 2018 compensation decisions, the Committee found that each element of target compensation for the named executive officers was competitive with the market data. In its analysis, Pearl Meyer noted that our target compensation was positioned appropriately within the competitive range of our peer group. As noted above, the Committee also considered the expanded responsibilities of some of our named executive officers as compared to the peer group, revenue size relative to the peer group, our historical compensation practices, the overall mix of our compensation elements being weighted more heavily toward long-term and equity-based compensation, management ownership and financial performance, as well as the other individual factors noted above.

Please see the section entitled “How We Make Executive Compensation Decisions” for a discussion of the decision-making process for determining executive compensation, including the roles of the Committee and executive officers, the role of the independent compensation consultant and the use of tally sheets.

 

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EXECUTIVE COMPENSATION PROGRAM ELEMENTS

The Committee has designed the elements of the compensation program for the named executive officers to advance the operational objectives and the long-term strategies of the Company. The following table lists the material elements of our 2018 executive compensation program. The Committee believes that the design of the Company’s executive compensation program balances fixed and variable compensation elements and provides alignment with our short and long-term financial and operational priorities and shareholder interests through the annual and long-term incentive compensation programs. Our incentives are designed to drive overall corporate and individual performance, with compensation payouts varying from target based on actual performance against pre-established and communicated performance objectives.

 

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LOGO

 

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Base Salary

The Committee determines the appropriateness of executives’ base salaries by considering the responsibilities of their positions, their individual performance and tenure, a comparison to the base salary levels of executives in the compensation peer group and the general industry compensation surveys and the recommendations of Pearl Meyer. Base salary increases are considered annually and are based upon both individual and Company performance in the prior year ; however, historically the Committee has not had a practice of regularly adjusting base salaries for our executive officers on an annual basis.

In 2018, the Committee increased the base salaries of Messrs. Marshall and Smith from $900,000 to $950,000 and $700,000 to $750,000, respectively, in order to further align with market data and to reflect individual performance and each executive’s tenure within his position.

The table below sets forth the 2017 and 2018 base salary levels for each of our named executive officers.

 

Named Executive Officer

  

2017 Base Salary

  

2018 Base Salary

Ryan R. Marshall

   $900,000    $950,000

Robert T. O’Shaughnessy

   $750,000    $750,000

Harmon D. Smith

   $700,000    $750,000

Todd N. Sheldon

   $475,000    $475,000

Stephen P. Schlageter

   $500,000    $500,000

Annual Incentive Compensation

We provide annual incentive compensation in order to motivate and reward our named executive officers for achieving short-term performance objectives. Annual incentive compensation is intended to be a significant component of an executive’s total compensation opportunity in a given year, helping create a “pay-for-performance” culture. In 2018, there were two components to the Company’s annual incentive compensation program. For the first component, the Committee established a 2018 Annual Incentive Program (the “Annual Program” or the “2018 Annual Program”) similar to its historical approach, with payouts determined based on the Company’s performance against pre-established financial performance goals. This component is designed to reward progress against the achievement of the Company’s annual operating plan. The second component was in the form of an annual incentive pool (the “Growth Incentive Pool”), with funding based on the Company’s pre-tax income growth as compared to 2017. The Committee established the Growth Incentive Pool and associated Growth Incentive Pool allocations to further align the Company’s executive compensation program with market practices in the home-building industry and after considering input from Pearl Meyer. The Growth Incentive Pool is designed to reward growth and be aligned with the interests of the Company’s shareholders, with management experiencing higher payouts in times of growth and success for the Company and receiving diminished or no payouts during challenging times. The Annual Program and Growth Incentive Pool are described in further detail below.

2018 Annual Program

The financial measures used to assess corporate performance were pre-tax income and adjusted operating margin, each weighted equally. Pursuant to the terms of the Annual Program, each performance goal is measured independently of the other performance goal, and payouts are determined based on the weighted average result of the performance goals, with a potential payout ranging from 0% to 200% of the participant’s target opportunity. The Committee believes that the 2018 Annual Program performance metrics were meaningful measures of 2018 performance because these metrics increase the focus of participants on profitability and are tied to our strategy with respect to shareholder value creation.

The Committee established the payout formula for performance objectives to encourage strong, focused performance. Given the economic and market conditions at the time the targets were set, the target payout level was designed to be achievable with strong management performance, while payout at the maximum level was designed to be very difficult to achieve. The 2018 Annual Program goals were set at levels consistent with the Company’s Board-approved budget and strategic operating plan. At the time the 2018 Annual Program performance metrics and requisite performance levels were established, the Committee believed that they were robust and would require a significant amount of effort by the named executive officers.

 

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The table below indicates the financial performance metrics and potential payouts with respect to the Company’s achievement of the 2018 Annual Program goals.

 

2018 Consolidated Goals
($ in 000s)(1)
     Weighting     Threshold
Payout (50%)
    Target Payout
(100%)
    Maximum
Payout
(200%)
    Performance
Results
  Achieved
Payout
  Weighted
Payout

Pre-Tax Income(2)

    50.00%       $1,064,714       $1,330,893       $1,597,072     $1,538,008   178%   89.00%

Adjusted Operating Margin %(3)

    50.00%       10.3%       13.3%       16.3%     14.3%   135%   67.50%
                                    Total % of Target:   156.5%

 

(1)

Payouts for performance between threshold and target payout levels and between target and maximum payout levels are calculated using straight line interpolation.

 

(2)

Pre-tax income represents Income Before Income Taxes as reported in the Company’s Annual Report, as adjusted to exclude the impact of certain items, including: certain incentive compensation expense, certain land-related adjustments, changes in U.S. generally accepted accounting principles (“GAAP”), loss on debt retirements, adjustments to mortgage repurchase reserves, and certain gains on land sales.

 

(3)

Adjusted operating margin represents the quotient of Home Sale Gross Margin (excluding certain land impairments less SG&A expenses (as further adjusted to exclude the impact of certain items, including: certain incentive compensation expense and adjustments to insurance receivables and reserves)) divided by Home Sale Revenues.

The table below indicates the award opportunities established by the Committee and the cash payout under the Annual Program applicable to the named executive officers. The Committee determined the target payout level for each of the named executive officers included in the table based on each named executive officer’s position within the Company, each named executive officer’s historical pay levels, the incentive pay for executives at companies in our compensation peer group, the general industry compensation surveys and the recommendations of Pearl Meyer. The Committee did not change the target award opportunities compared to the 2017 target award opportunities for the named executive officers, except with respect to Mr. Marshall whose target award opportunity was increased from 150% of his base salary to 175% of his base salary and Mr. Sheldon whose target award opportunity was increased from 95% of his base salary to 100% of his base salary. These target award opportunity adjustments were made in order to further align the compensation of Messrs. Marshall and Sheldon with the competitive market data and internal pay equity considerations.

 

Executive   Base Salary
2018
    Target as
% of
Salary
    Threshold(1)     Target     Maximum     Total
Payout
 

Ryan R. Marshall

  $     950,000       175   $   415,625     $   1,662,500     $   3,325,000     $   2,601,813  

Robert T. O’Shaughnessy

  $ 750,000       100   $ 187,500     $ 750,000     $ 1,500,000     $ 1,173,750  

Harmon D. Smith

  $ 750,000       125   $ 234,375     $ 937,500     $ 1,875,000     $ 1,467,188  

Todd N. Sheldon

  $ 475,000       100   $ 118,750     $ 475,000     $ 950,000     $ 743,375  

Stephen P. Schlageter

  $ 500,000       100   $ 125,000     $ 500,000     $ 1,000,000     $ 782,500  

 

(1)

The threshold amount represents the minimum award that could be paid to the named executive officer upon the Company’s satisfaction of threshold performance for only one of the performance goals. As noted previously, each performance goal is measured independently of the other performance goals.

Growth Incentive Pool

As noted above, in 2018 the Committee established the Growth Incentive Pool, the size of which was dependent on pre-tax income growth over 2017. The Committee approved the Growth Incentive Pool in order to recognize and incentivize the efforts to be taken to reach internal pre-tax income growth targets and to further align the interests of the participants with the interests of the Company’s shareholders. For purposes of the Growth Incentive Pool, pre-tax income was calculated in the same manner as described above with respect to the 2018 Annual Program. The Committee allocated 2% of pre-tax income growth as compared to 2017 to the Growth Incentive Pool, with the allocation for each named executive officer as follows:

 

Name    Pool Allocation  
      %      $  

Ryan Marshall

     24.0%        1,626,884  

Robert T. O’Shaughnessy

     14.0%        949,016  

Harmon Smith

     16.0%        1,084,589  

Todd N. Sheldon

     6.0%        406,721  

Stephen P. Schlageter

     4.0%        271,147  

 

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Long-Term Incentive Compensation

In order to provide management with incentives to achieve our long-term goals, the Committee continued its prior practice of granting equity awards under a long-term incentive program, or LTI Program. During 2018, each named executive officer was granted an aggregate award opportunity in the form of share-settled performance-based awards under the LTI Program for the 2018-2020 performance period. During the fiscal year ended December 31, 2018, the 2018-2020, 2017-2019 and 2016-2018 performance periods were outstanding under the LTI Program. The Committee designed the LTI Program to have overlapping performance periods to address the cyclical nature of the homebuilding industry. These overlapping performance periods provide the Committee with the flexibility to address circumstances within our industry as well as the general economic and market conditions at the time the targets are set.

2018-2020 LTI Program

In 2018, the Committee approved performance-based awards for the 2018-2020 LTI Program that vest based on (i) the Company’s TSR performance relative to the TSR of the Company’s compensation peer group, (ii) the Company’s ROIC performance and (iii) the Company’s adjusted operating margin performance, with each goal weighted equally. These performance measures were deemed by the Committee to be effective long-term measures of performance reflective of our success in executing on our long-term business plan and aligning the executives’ interests with the interests of shareholders.

The Compensation Committee utilized adjusted operating margin as an element in both the Company’s Annual Program and 2018-2020 LTI Program in recognition that this measure is viewed as a core driver of the Company’s performance and shareholder value creation. In designing the Company’s executive compensation program, the Compensation Committee supplemented the use of adjusted operating margin with additional performance measures in order to strike an appropriate balance with respect to incentivizing top-line growth, profitability and shareholder returns over both the short-term and long-term horizons.

For purposes of the 2018-2020 LTI Program, the Company is required to achieve a TSR equal to the 75th percentile of the 2018 compensation peer group over the three-year performance period in order to earn target vesting, with no payout for bottom quartile performance. The Committee established the payout formula for the ROIC and adjusted operating margin performance objectives to encourage strong, focused performance. Given the economic and market conditions at the time the targets were set, the target payout levels were designed to be achievable with strong performance, while payouts at the maximum performance levels were designed to be very difficult to achieve. Under the 2018-2020 LTI Program, ROIC and adjusted operating margin are defined as follows:

 

   

ROIC is defined as (i) consolidated earnings before interest and taxes (adjusted to exclude the expense related to incentive compensation, intangible impairments, Company-wide restructuring costs as offset by savings associated with those restructuring efforts, changes in GAAP, gain or loss on debt retirements, adjustments to mortgage repurchase reserves, and land-related charges and land sale gains related to land acquired prior to January 1, 2012), divided by (ii) consolidated shareholders’ equity plus homebuilding debt (each as adjusted to exclude consolidated deferred taxes, internal mortgage company debt and changes in GAAP).

 

   

Adjusted operating margin represents the quotient of Home Sale Gross Margin less SG&A (excluding incentive compensation, land impairments on assets acquired prior to January 1, 2012, certain restructuring expenses impacting SG&A as offset by savings associated with those restructuring efforts, changes to receivables and reserves for construction matters and changes in GAAP) divided by Home Sale Revenues.

The table below shows the award opportunities established by the Committee relating to the 2018-2020 LTI Program. The award opportunities under the 2018-2020 LTI Program did not change as compared to 2017 for the named executive officers other than Messrs. Marshall and O’Shaughnessy. For the 2018-2020 LTI Program, Mr. Marshall’s target award opportunity increased from $1,625,000 to $2,300,000 and Mr. O’Shaughnessy’s target award opportunity increased from $800,000 to $825,000 to further align their compensation levels with the competitive market data and, in the case of Mr. Marshall in particular, in recognition of his and the Company’s strong performance in 2017.

Actual settlement of the awards will be determined after the end of the three-year performance period based on the Company’s relative TSR, ROIC and adjusted operating margin performance during that time. Under the award agreements, the 2018-2020 LTI Program awards will be settled in Company common shares, except that the award will be settled in any combination of Company common shares and cash if (i) the fair market value of a Company common share is less than $5.00 on December 31, 2020 (or the date of termination of employment due to death or disability) or

 

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(ii) the Company does not have a sufficient number of available shares under the Company’s stock incentive plan in effect at the time of the settlement of the award.

Award Opportunity Under 2018-2020 LTI Program

 

Executive   Base
Salary as of
1/1/2018(1)
   

Target as

% of
Salary

    Threshold     Target     Maximum  

Ryan R. Marshall

  $     900,000       256   $     1,150,000     $   2,300,000     $   4,600,000  

Robert T. O’Shaughnessy

  $ 750,000       110   $ 412,500     $ 825,000     $ 1,650,000  

Harmon D. Smith

  $ 700,000       114   $ 400,000     $ 800,000     $ 1,600,000  

Todd N. Sheldon

  $ 475,000       63   $ 150,000     $ 300,000     $ 600,000  

Stephen P. Schlageter

  $ 500,000       55   $ 137,500     $ 275,000     $ 550,000  

 

(1)

Base salary is measured as of the first day of the performance period.

Outstanding Performance Based Equity Awards

The 2017-2019 LTI Program remains outstanding and will be settled following the completion of the three-year performance period, based on (i) the Company’s TSR performance relative to the TSR of the Company’s 2017 compensation peer group (excluding CalAtlantic Group, which was subsequently acquired by Lennar Corporation), (ii) the Company’s ROIC performance, and (iii) the Company’s adjusted operating margin performance, with each goal weighted equally.

During 2018, the 2016-2018 LTI Program concluded, and for each of the participating named executive officers, the vesting level under the 2016-2018 LTI Program was entirely based on the Company’s TSR performance relative to the TSR of the Company’s 2016 compensation peer group.

With respect to the TSR metric under the 2016-2018 LTI Program, the Company was required to achieve a TSR equal to the 75th percentile of the 2016 TSR comparator group over the three-year performance period in order to earn target vesting, with 25th percentile relative TSR performance resulting in threshold vesting. In order to achieve the maximum vesting, the Company was required to be at least second in the TSR comparator group based on TSR performance. For purposes of assessing performance, the 2016 TSR comparator group consisted of the same companies that were included in the 2016 compensation group, excluding CalAtlantic Group due to its 2018 acquisition by Lennar Corporation.

For the 2016-2018 performance cycle, our relative TSR ranked 4th out of the twelve companies included in the TSR comparator group and resulted in an achievement level of 100%.

In 2017, the Company granted Mr. Schlageter a performance award that is eligible to vest over a five-year period commencing on January 1, 2018, subject to the Company’s achievement of certain performance goals over that period relating to adjusted gross margin, selling, general and administrative expenses, and operating margin. Under the terms of the award, Mr. Schlageter must remain employed through the second anniversary of the grant date in order to vest in any portion of the award, subject to accelerated vesting in the event of certain qualifying terminations of employment. During 2018, the Company achieved the performance goal related to adjusted operating margin, which had a target objective of 14.25% as compared to the Company’s actual performance of 14.33%. This portion of the award will vest on January 1, 2020, subject to Mr. Schlageter’s continued employment through the vesting date.

Equity Grants

In addition to the long-term incentive opportunities granted under the Company’s LTI Program, we make annual grants of service-based equity to named executive officers as a means of furthering the linkage between an executive’s long-term incentive compensation and shareholder value. We seek to provide a significant portion of total compensation to named executive officers in the form of equity compensation. We believe that equity awards:

 

   

Balance the overall compensation program by providing an appropriate mix of equity and cash compensation;

 

   

Properly focus executives on long-term value creation for shareholders; and

 

   

Encourage executive retention, particularly through fluctuating business cycles.

Our philosophy is to award equity grants to our named executive officers in amounts that reflect market data, the participant’s position, the participant’s ability to influence our overall performance, and individual performance based on a

 

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review of results during the prior year against pre-determined objectives such as operational efficiency, employee engagement, and retention and development of key talent. In addition, the Committee considers historical grant practices and market compensation levels in determining grants for individual executives.

The Committee believes that the annual equity grants to the named executive officers should be determined after a review of the Company’s financial statements for a full year. As a result, all annual equity awards are expected to be granted on the date of the regular Board meeting to be held in February of the following year.

In determining the annual equity grants for 2018 performance (which were granted in February 2019), the Committee considered the following: (i) the Company’s historical year-over-year compensation practices, including historical grant levels; (ii) total compensation earned by the named executive officers; (iii) a peer group analysis conducted by Pearl Meyer of the compensation of executive officers holding comparable positions at the companies within the compensation peer group; and (iv) the Company’s objective to provide greater incentive based on long-term Company performance.

As set forth in the table below for the named executive officers, in February 2019, the Committee granted the following awards in recognition of such named executive officer’s performance in 2018. The value of these awards is excluded from the 2018 Summary Compensation Table, which reflects the value of the equity awards granted in 2018 in recognition of the named executive officers’ performance in 2017. The February 2019 grant levels remained generally consistent with the February 2018 grant levels except with respect to Mr. Marshall whose grant level increased based on performance and to more closely align his compensation with market data.

 

     

Time-Based

Restricted Share Units(1)

 
Executive    #      Value(2)  

Ryan R. Marshall

             93,093      $     2,500,013  

Robert T. O’Shaughnessy

     30,721      $ 825,012  

Harmon D. Smith

     29,790      $ 800,010  

Todd N. Sheldon

     11,172      $ 300,024  

Stephen P. Schlageter

     10,241      $ 275,022  

 

(1)

These equity awards were granted in 2019 and, accordingly, are excluded from the 2018 Summary Compensation Table.

 

(2)

The amounts reported in this column are valued based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718.

Other Compensation Elements and Practices

Executive Severance Policy

The Committee has adopted the PulteGroup, Inc. Executive Severance Policy, which provides for severance benefits ranging from one times base salary to two times base salary, depending on the length of service with the Company and the executive’s position at the time of a qualifying termination of employment. The Committee also has adopted the PulteGroup, Inc. Retirement Policy, which establishes administrative guidelines for the treatment of outstanding equity and long-term incentive awards following an employee’s qualifying retirement. The Committee believes that these policies help us accomplish our compensation philosophy of attracting and retaining exemplary talent and reduce the need to negotiate individual severance arrangements with new and departing executives.

While these policies reduce the need to negotiate individual severance provisions, the Committee recognizes that under certain circumstances individual severance arrangements may be desirable or beneficial to the Company. Pursuant to the Company’s Executive Severance Policy, the Company is prohibited from entering into a severance agreement with a senior executive of the Company without shareholder approval if such agreement would provide for specified benefits exceeding 2.99 times the sum of (a) the senior executive’s annual base salary as in effect immediately prior to termination of employment and (b) the senior executive’s target annual bonus in the fiscal year in which the termination of employment occurs. Benefits excluded from this policy are (i) the value of any accelerated vesting of any outstanding equity-based award provided under plans, programs or arrangements of the Company applicable to one or more groups of employees in addition to the Company’s senior executives, (ii) a pro-rata portion of the value of any accelerated vesting of any outstanding long-term cash-based incentive award provided under plans, programs or arrangements of the Company applicable to one or more groups of employees in addition to the Company’s senior executives, (iii) compensation and benefits for services rendered through the date of termination of employment, (iv) any post-termination retirement and other benefits, special benefits or perquisites provided under plans, programs or arrangements

 

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of the Company applicable to one or more groups of employees in addition to the Company’s senior executives and (v) payments that are required by the Company’s By-laws regarding indemnification and/or a settlement of any claim made against the Company. The policy is available for viewing on our website at www.pultegroup.com .

Benefits

Named executive officers participate in employee benefit plans on the same terms as generally available to all employees. In addition, each of the named executive officers is eligible to participate in our Financial Counseling Reimbursement Plan. The named executive officers, as well as other Company executives, may also participate in the Company’s Non-Qualified Deferral Program, under which they may elect to defer the receipt of their annual incentive cash awards. This plan is discussed further under the section “2018 Non-Qualified Deferred Compensation Table.” We do not have a defined benefit pension plan.

Clawback Policy

The Committee has adopted a clawback policy with respect to the Annual Program, Growth Incentive Pool, LTI Program, and equity grants. Under the policy, in the event any named executive officer engages in “detrimental conduct” (as defined in the policy), the Committee may require that such named executive officer (i) reimburse the Company for all or any portion of any bonus, incentive payment, equity-based award, or other compensation received by such named executive officer within the 36 months following such detrimental conduct and (ii) remit to the Company any profits realized from the sale of Company securities within the 36 months following such detrimental conduct.

Prohibition Against Pledging and Hedging of Company Securities

To further enhance the linkage between executives’ long-term incentive compensation and shareholder value, the Company’s insider trading policy prohibits directors and executive officers from engaging in hedging or monetization transactions, such as zero-cost collars and forward sale contracts, with respect to their Company security holdings. Additionally, under the Company’s insider trading policy, directors and executive officers are prohibited from holding Company securities in a margin account or pledging Company securities as collateral for a loan, as such arrangements could result under some circumstances in a margin sale or foreclosure sale occurring at a time when the director or executive officer is aware of material nonpublic information or otherwise is not permitted to trade in Company securities. The policy is available for viewing on our website at www.pultegroup.com .

Share Ownership Guidelines

To align our executives’ interests with those of our shareholders and to assure that our executives own meaningful levels of Company common shares throughout their tenures with the Company, our executive officers are subject to share ownership guidelines adopted by the Committee. The share ownership guidelines require, within a five-year period from date of hire, promotion or determination that a position is subject to Section 16 of the Exchange Act, the Chief Executive Officer to own Company common shares equal in value to at least six times his base salary and each of the other named executive officers to own Company common shares equal to at least three times their respective base salary. Included in the definition of share ownership are restricted shares and restricted share units, any Company common shares owned outright (including the value of restricted shares that have vested at the higher of the current market price or the share price on the date of vesting), common shares in any Company benefit plan, and the intrinsic value of vested in-the-money stock options. Unvested shares and underwater stock options do not count towards meeting share ownership guidelines. As of the record date, all of the named executive officers have met or, within the applicable period, are expected to meet the share ownership guidelines.

HOW WE MAKE EXECUTIVE COMPENSATION DECISIONS

The Compensation and Management Development Committee

The Committee establishes our executive compensation philosophies and oversees the development and implementation of our executive compensation program. The Committee operates under a written charter adopted by the Committee. A copy of the charter is available at www.pultegroup.com . In general, the scope of the Committee’s authority is determined by the Board of Directors, or established by formal incentive plan documents. The fundamental responsibilities of the Committee include the following with respect to our senior executives:

 

   

Establish compensation-related performance objectives to determine annual and long-term incentive compensation;

 

   

Establish individual performance goals and objectives for the Chief Executive Officer and evaluate the job performance of the Chief Executive Officer in light of those goals and objectives;

 

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Evaluate the job performance of the other named executive officers;

 

   

Annually review and approve compensation levels for our Chief Executive Officer and other named executive officers, with input from the independent members of the Company’s Board of Directors in establishing compensation levels for our named executive officers (including our Chief Executive Officer);

 

   

Administer the Company’s equity compensation;

 

   

Develop and review succession plans for the Chief Executive Officer position, including assessing and creating development plans for internal talent;

 

   

Review succession planning, leadership development programs, diversity representation and bench strength for all other senior executive positions; and

 

   

Annually review the potential risks associated with our compensation program.

Information on the Committee’s processes and procedures for consideration of executive compensation are addressed under “Committees of the Board of Directors—Compensation and Management Development Committee” above.

The Committee is currently comprised of Mr. Richard W. Dreiling, Ms. Cheryl W. Grisé, Mr. Scott F. Powers and Mr. William J. Pulte. Mr. Powers currently serves as the Committee Chair. During fiscal year 2018, Mr. O’Leary served on the Committee until the conclusion of his term at the Company’s 2018 Annual Meeting of Shareholders.

Each current member of the Committee qualifies as an independent director under NYSE listing standards and our Corporate Governance Guidelines, and Mr. O’Leary qualified as an independent director under NYSE listing standards and our Corporate Governance Guidelines during his term of service.

Independent Compensation Consultant

Pearl Meyer provides independent executive consulting services to the Committee. Pearl Meyer is retained by and reports to the Committee and participates in Committee meetings, as requested by the Committee. Pearl Meyer also:

 

   

Participates in the design of our executive compensation program to help the Committee evaluate the linkage between pay and performance;

 

   

Provides and reviews market data and advises the Committee on setting executive compensation and the competitiveness and reasonableness of our executive compensation program;

 

   

Reviews and advises the Committee regarding the elements of our executive compensation program, equity grant and dilution levels, each as relative to our peers;

 

   

Reviews and advises the Committee regarding individual executive pay decisions;

 

   

Reviews and advises the Committee with respect to new compensation plans and programs;

 

   

Reviews and advises the Committee regarding regulatory, disclosure and other technical matters; and

 

   

Reviews and advises the Committee regarding our compensation risk assessment procedures.

During 2018, Pearl Meyer did not provide any other services to the Company.

Role of Executive Officers

As noted above, the Committee is responsible for all compensation decisions for our senior executives (which include the named executive officers). During 2018, our then-serving most senior human resources officer worked with the Committee Chair to establish meeting agendas and to determine whether any members of the Company’s management or outside advisors should attend meetings.

Our Chief Executive Officer annually reviews the performance of each member of senior management (other than his own performance). Recommendations based on these reviews, including salary adjustments, annual bonuses and equity grants, are presented to the Committee. Decisions regarding salary adjustments, annual bonuses and equity grants for the Chief Executive Officer are made by the Committee. All decisions for 2018 made with respect to the named executive officers other than the Chief Executive Officer were made after deliberation with Mr. Marshall.

At various times during the year, at the request of the Committee, Ryan R. Marshall, the President and Chief Executive Officer of the Company; Robert T. O’Shaughnessy, the Executive Vice President and Chief Financial Officer of the Company; and Todd N. Sheldon, the Executive Vice President, General Counsel and Corporate Secretary of the

 

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Company, attended Committee meetings, or portions of Committee meetings, to provide the Committee with information regarding our operational performance, financial performance or other topics requested by the Committee to assist the Committee in making its compensation decisions.

Use of Tally Sheets

The Committee reviews tally sheets, prepared by management and reviewed by Pearl Meyer, which present comprehensive data on the total potential compensation for each of the named executive officers based on various equity grant values and performance levels under our incentive compensation programs. The tally sheets provide the Committee with a framework of potential minimum and maximum compensation levels that each named executive officer may earn under our executive compensation program. While the tally sheets provide a framework for the Committee, they are not determinative of the elements or amounts of compensation paid.

2019 COMPENSATION DECISIONS

At its February 2019 meeting, the Committee took the following actions with respect to 2019 compensation matters:

 

   

Base Salary. The Committee approved 2019 base salaries for the named executive officers, which did not change from the base salary levels set in 2018, with the exception of Mr. Marshall, whose base salary was increased from $950,000 to $1,000,000, and Mr. Sheldon whose base salary was increased from $475,000 to $500,000.

 

   

Annual Incentive Compensation. The Committee also approved the performance metrics and target award opportunities under the 2019 Annual Program, which did not change from the performance metrics under the 2018 Annual Program. In addition, award opportunities under the 2019 Annual Program will remain the same as under the 2018 Annual Program, with the exception of Mr. O’Shaughnessy whose target award opportunity was increased from $750,000 to $850,000 and Mr. Sheldon, whose target award opportunity was increased from $475,000 to $500,000.

 

   

Long-Term Incentive Compensation. The Committee approved the grant of performance-based awards that will be settled in PulteGroup shares in accordance with the terms of the applicable award agreements and service-based restricted share unit awards. The Committee also approved relative TSR performance, as measured against the eight homebuilders in the Company’s 2019 peer group, ROIC and adjusted operating margin as the performance metrics under the 2019-2021 LTI Program. The award opportunities under the 2019-2021 LTI Program did not change as compared to 2018 for the named executive officers other than Mr. Marshall, whose target award opportunity increased from $2,300,000 to $2,500,000.

 

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COMPENSATION AND MANAGEMENT DEVELOPMENT

COMMITTEE REPORT

The Compensation and Management Development Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation and Management Development Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and this Proxy Statement.

 

Scott F. Powers, Chair

Richard W. Dreiling

Cheryl W. Grisé

William J. Pulte

 

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2018 EXECUTIVE COMPENSATION

2018 Summary Compensation Table

The table below sets forth information concerning the compensation of our Chief Executive Officer, our Chief Financial Officer, and our other three most highly compensated executive officers who served in such capacities as of December 31, 2018 (collectively, the “named executive officers”).

 

Name and Principal
Position

  Year     Salary
($)
    Bonus     Stock
Awards
($)(1)
    Non-Equity
Incentive Plan
Compensation
($)(2)
    Nonqualified
Deferred
Compensation
Earnings
($)
    All Other
Compensation
($)(3)
    Total
($)
 

Ryan R. Marshall

    2018       942,308             4,600,004       4,228,697       1,090       21,162       9,793,261  

President & CEO

    2017       900,000             3,250,002       1,606,500       1,146       14,199       5,771,847  
    2016       738,462             2,300,016       690,690       576       27,132       3,756,876  

Robert T. O’Shaughnessy

    2018       750,000             1,650,009       2,122,766             11,315       4,534,090  

EVP & CFO

    2017       750,000             1,600,014       892,500             13,944       3,256,458  
    2016       742,307             1,600,012       740,025             13,010       3,095,354  

Harmon D. Smith

    2018       742,308             1,600,001       2,551,777       10,778       11,312       4,916,176  

EVP & COO

    2017       700,000             1,600,014       1,041,250       11,332       11,094       3,363,690  
    2016       688,462             1,600,012       690,690       5,713       16,244       3,001,120  

Todd N. Sheldon

    2018       475,000             600,001       1,150,096             15,499       2,240,596  

EVP & General Counsel

    2017       365,385       300,000       1,200,004       535,500             10,916       2,411,805  

Stephen P. Schlageter

    2018       500,000             550,023       1,053,647             13,875       2,117,545  

SVP – Strategy and Operations

               

 

(1)

The amounts reported in this column for 2018 are awards granted pursuant to the Company’s 2013 Stock Incentive Plan and are valued based on the aggregate grant date fair value, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“FASB ASC Topic 718”). Assumptions used in the calculation of these amounts are included in Note 7 to the Company’s audited financial statements included in our Annual Report for the fiscal year ended December 31, 2018. The amounts included in the Stock Awards column for the share-settled performance-based awards granted during 2018 to each of the named executive officers are calculated based on the probable satisfaction of the performance conditions for such awards. Assuming the highest level of performance is achieved for these performance-based awards, the maximum value of these awards at the grant date would be as follows: Mr. Marshall—$4,600,000; Mr. O’Shaughnessy—$1,650,000; Mr. Smith—$1,600,000; Mr. Sheldon—$600,000; and Mr. Schlageter—$550,000.

 

(2)

For 2018, the amounts reflect the actual payouts received under the Annual Program and Growth Incentive Pool, as follows: Mr. Marshall Annual Program—$2,601,813 Growth Incentive Pool—$1,626,884; Mr. O’Shaughnessy Annual Program—$1,173,750, Growth Incentive Pool—$949,016; Mr. Smith Annual Program—$1,467,188, Growth Incentive Pool—$1,084,589; Mr. Sheldon Annual Program—$743,375, Growth Incentive Pool—$406,721; and Mr. Schlageter Annual Program—$782,500, Growth Incentive Pool—$271,147.

 

(3)

Amounts in this column consist of the cost of financial planning services reimbursed to certain of the named executive officers, life insurance premiums for each of the named executive officers, reimbursements under our health examination reimbursement program and a Company match of $11,000 under the Company’s 401(k) plan.

 

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2018 Grants of Plan-Based Awards Table

The following table sets forth information concerning award opportunities under our LTI Program and grants under the 2013 Stock Incentive Plan to the named executive officers during the fiscal year ended December 31, 2018, as well as estimated possible payouts under the Annual Program.

 

           

Estimated Possible Payouts

Under Non-Equity

Incentive Plan Awards

   

Estimated Possible Payouts

Under Equity

Incentive Plan Awards(3)

    All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(4)
    Grant Date
Fair Value
of Stock
and Option
Awards(5)
 
Name   Grant Date     Threshold     Target     Maximum     Threshold     Target     Maximum  

Ryan R. Marshall

    (1   $  415,625     $ 1,662,500     $ 3,325,000                                          
      (2           $ 1,626,884                                                  
      2/7/2018                             $ 1,150,000     $ 2,300,000     $ 4,600,000             $ 2,300,000  
      2/7/2018                                                       75,509     $ 2,300,004  

Robert T. O’Shaughnessy

    (1   $ 187,500     $ 750,000     $ 1,500,000                                          
      (2           $ 949,016                                                  
      2/7/2018                             $ 412,500     $ 825,000     $ 1,650,000             $ 825,000  
      2/7/2018                                                       27,085     $ 825,009  

Harmon D. Smith

    (1   $ 234,375     $ 937,500     $ 1,875,000                                          
      (2           $  1,084,589                                                  
      2/7/2018                             $ 400,000     $ 800,000     $ 1,600,000             $ 800,000  
      2/7/2018                                                       26,264     $ 800,001  

Todd N. Sheldon

    (1   $ 118,750     $ 475,000     $ 950,000                                          
      (2           $ 406,721                                                  
      2/7/2018                             $ 150,000     $ 300,000     $ 600,000             $ 300,000  
      2/7/2018                                                       9,849     $ 300,001  

Stephen P. Schlageter

    (1   $ 125,000     $ 500,000     $ 1,000,000                                          
      (2           $ 271,147                                                  
      2/7/2018                             $ 137,500     $ 275,000     $ 550,000             $ 275,000  
      2/7/2018                                                       9,029     $ 275,023  

 

(1)

Consists of award opportunities under the Annual Program. For each of our named executive officers, the performance goals under the Annual Program were pre-tax income and adjusted operating margins. See the “Annual Incentive Compensation” section of the CD&A for further information regarding the Annual Program.

 

(2)

Consists of actual payouts under the Growth Incentive Pool. As noted in the CD&A, for 2018, the Committee established the Growth Incentive Pool to be funded based on the Company’s pre-tax income growth as compared to 2017, with each participant receiving an allocation of the Growth Incentive Pool. The amounts reported in this row reflect the actual payouts under the Growth Incentive Pool since there were no target award opportunities established under the Growth Incentive Pool. See the “Annual Incentive Compensation” section of the CD&A for further information regarding the Growth Incentive Pool.

 

(3)

Represents the award opportunities under the LTI Program relating to the Company’s performance for the 2018-2020 performance period. Payment of the award depends on the Company’s TSR performance compared to the 2018 compensation peer group, ROIC and adjusted operating margin, measured over the 2018-2020 performance period. The award will be settled in Company common shares in accordance with the terms of the underlying award agreements. Please see CD&A for further information regarding the award.

 

(4)

Consists of restricted share unit awards under the 2013 Stock Incentive Plan, which are scheduled to vest on the third anniversary of the grant date. During the restriction period, the named executive officers are entitled to receive dividends.

 

(5)

The amounts reported in this column are valued based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 and, in the case of the share-settled performance-based awards, are valued based upon the probable outcome of the applicable performance conditions. Assumptions used in the calculation of these amounts are included in Note 7 to the Company’s audited financial statements included in our Annual Report for the fiscal year ended December  31, 2018.

Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table

Employment Arrangements

The Company generally executes an offer of employment prior to the time an executive joins the Company that describes the basic terms of the executive’s employment, including his or her start date and initial compensation levels. None of the named executive officers has an employment contract with the Company.

Equity Awards

Service-based restricted share unit grants generally cliff vest three years from the anniversary of the grant date. During 2018, the Committee granted each named executive officer a share-settled performance-based award under the Company’s 2018-2020 LTI Program. Actual settlement of the share-settled performance-based award will be determined

 

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after the end of the three-year performance period based on the Company’s TSR performance relative to the Company’s 2018 compensation peer group, ROIC and adjusted operating margin measured over the 2018-2020 performance period. Under the award agreements, the 2018-2020 LTI Program will be settled in Company common shares, subject to potential settlement in cash in certain circumstances. See “Compensation Discussion and Analysis—Long-Term Incentive Compensation—2018-2020 Program.”

2018 Outstanding Equity Awards at Fiscal Year-End Table

The following table provides information regarding outstanding option awards and unvested share awards held by each of the named executive officers at December 31, 2018.

 

     
     Option Awards     Stock Awards  
Name  

Number of

Securities

Underlying

Unexercised

Options

Exercisable
(#)

   

Number of

Securities

Underlying

Unexercised

Options

Unexercisable

   

Equity
Incentive
Plan
Awards:

Number of
Securities
Underlying
Unexercised
Unearned
Options

   

Option

Exercise

Price

($)

   

Option

Expiration

Date

   

Number of

Shares or

Units of

Stock That

Have Not

Vested

(#)

   

Market

Value of

Shares or

Units of

Stock That

Have Not

Vested

($)(1)

   

Equity
Incentive
Plan

Awards:
Number

Of
Unearned
Shares,

Units or
Other

Rights

That

Have Not
Vested

(#)(2)

   

Equity
Incentive
Plan
Awards:

Market or
Payout
Value of
Unearned
Shares,
Units or
Other

Rights

That Have
Not

Vested

($)(1)

 
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  

Ryan R. Marshall

    15,000                 $ 12.335       8/18/2019       233,139 (3)    $ 6,059,283       302,039     $ 7,850,000  

Robert T. O’Shaughnessy

                                  115,732 (4)    $ 3,007,875       125,048     $ 3,250,000  

Harmon D. Smith

                                  114,911 (5)    $ 2,986,537       123,124     $ 3,200,000  

Todd N. Sheldon

                                  35,203 (6)    $ 914,926       46,171     $ 1,200,000  

Stephen P. Schlageter

    2,250                 $ 7.765       2/10/2021       43,168 (7)    $ 1,121,936       70,611     $ 1,835,180  

 

(1)

Reflects the value using the closing share price at the 2018 fiscal year end of $25.99.

 

(2)

Includes stock-settled performance awards granted under the 2017-2019 and 2018-2020 LTI Programs that will vest on December 31, 2019 and December 31, 2020, respectively, following the completion of the three-year performance periods. These awards will be settled based on (i) the Company’s TSR performance relative to the TSR of the Company’s compensation peer group, (ii) the Company’s ROIC performance and (iii) the Company’s adjusted operating margin performance, with each goal weighted equally. In accordance with SEC executive compensation disclosure rules, these awards are being reported based on achieving the maximum performance goals with respect to both performance periods. For the 2017-2019 performance period, the named executive officers had outstanding stock-settled performance awards in the following amounts: Mr. Marshall—$3,250,000; Mr. O’Shaughnessy—$1,600,000; Mr. Smith—$1,600,000; Mr. Sheldon—$600,000 and Mr. Schlageter $525,000. For the 2018-2020 performance period, the named executive officers had outstanding stock-settled performance awards in the following amounts: Mr. Marshall—$4,600,000; Mr. O’Shaughnessy—$1,650,000; Mr. Smith—$1,600,000; Mr. Sheldon—$600,000; and Mr. Schlageter—$550,000. For Mr. Schlageter, this amount also includes shares subject to a performance award that was granted in 2017. The performance award will vest based on the achievement of performance goals relating to adjusted gross margin, selling, general and administrative expenses and adjusted operating margin over a five-year period.

 

(3)

This amount includes 57,453 restricted share units that vested on February 11, 2019, 23,850 restricted share units that are scheduled to vest on September 8, 2019, 76,327 restricted share units that are scheduled to vest on February 9, 2020, and 75,509 restricted share units that are scheduled to vest on February 7, 2021.

 

(4)

This amount includes 51,070 restricted share units that vested on February 11, 2019, 37,577 restricted share units that are scheduled to vest on February 9, 2020, and 27,085 restricted share units that are scheduled to vest on February 7, 2021.

 

(5)

This amount includes 51,070 restricted share units that vested on February 11, 2019, 37,577 restricted share units that are scheduled to vest on February 9, 2020, and 26,264 restricted share units that are scheduled to vest on February 7, 2021.

 

(6)

This amount includes 12,677 restricted share units that vested on March 20, 2019, 12,677 restricted share units that are scheduled to vest on March 20, 2020, and 9,849 restricted share units that are scheduled to vest on February 7, 2021.

 

(7)

This amount includes 15,960 restricted share units that vested on February 11, 2019, 12,330 restricted share units that are scheduled to vest on February 9, 2020, and 9,029 restricted share units that are scheduled to vest on February 7, 2021. This amount also includes 5,849 restricted stock units that are scheduled to vest on January 1, 2020, which represents the portion of Mr. Schlageter’s 2017 performance award that remains subject to a service-based vesting condition following the achievement of the applicable performance goal during 2018.

2018 Option Exercises and Stock Vested Table

The following table provides information regarding the exercise of stock options and the vesting of share awards for each of the named executive officers during 2018.

 

     Option Awards     Stock Awards  
Name   Number of Shares
Acquired on
Exercise
    Value Realized
on Exercise
    Number of Shares
Acquired on
Vesting
    Value
Realized
on Vesting
 
(a)   (b)     (c)     (d)     (e) (1)  

Ryan R. Marshall

                62,558       1,714,225  

Robert T. O’Shaughnessy

                65,299       1,806,663  

Harmon D. Smith

                64,195       1,774,438  

Todd N. Sheldon

                12,677       369,408  

Stephen P. Schlageter

                20,751       574,656  

 

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(1)

Included in this column are restricted share units that vested on February 12, 2018, with the value determined based on the number of restricted share units vesting multiplied by the average market value of the Company’s stock on that date, as well as restricted share units that vested on March 20 , 2018, with the value determined based on the number of restricted share units vesting multiplied by the average market value of the Company’s stock on that date. Also included in this column is the value of the performance awards that vested under the 2016-2018 LTI Program based on performance and service through December 31, 2018, with the value determined based on the Company’s closing stock price on December 31, 2018.

2018 Non-Qualified Deferred Compensation Table

The following table provides information regarding the Company’s Non-Qualified Deferral Program.

 

Name  

Executive

Contributions in

Last FY

   

Registrant

Contributions in

Last FY

   

Aggregate

Earnings in

Last FY

   

Aggregate

Withdrawals /

Distributions

   

Aggregate

Balance at Last

FYE

 

Ryan R. Marshall

  $                         —                               —     $         4,135                                —     $ 102,605  

Robert T. O’Shaughnessy

  $                          

Harmon D. Smith

  $           $ 40,877           $         1,014,223  

Todd N. Sheldon

  $                          

Stephen P. Schlageter

 

  $                          

Non-Qualified Deferral Program

Pursuant to the Company’s Non-Qualified Deferral Program, certain executives, including each of our named executive officers, may defer awards earned under the Annual and LTI Programs. Deferral elections are made by executives prior to the beginning of the performance period in which awards are earned. Executives may elect to defer from 5% to a maximum of 90% of their incentive pay, with a minimum deferral amount of $10,000. The executive selects a deferral period that may range from two to twenty years. Payout period elections are restricted to either a lump-sum or annual installments over a period of up to ten years. In the event of death, permanent disability or termination from employment, any remaining deferral period is overridden with the payouts to occur as either a lump-sum or in two or three annual installments. Unfunded deferral accounts are credited with interest on a monthly basis. The annual interest rate is determined each January 1 for a period of one calendar year and is equal to the applicable yield on the five-year U.S. Treasury Note as of the first business day of January, plus 2%. The interest crediting rate for 2018 was 4.21%.

Potential Payments Upon Termination or Change in Control

The Committee has adopted an Executive Severance Policy, which provides for the payment of certain benefits to named executive officers and other eligible executives and key employees of the Company upon a qualifying termination of employment. Under the terms of the policy, a qualifying termination of employment is generally defined as a termination of employment other than due to cause, death, disability, resignation other than for constructive termination or as a result of a sale, spin-off, other divestiture, merger or other business combination where the executive obtains or is offered comparable employment with the resulting entity. In the event of a qualifying termination of employment, the Executive Severance Policy provides for the following severance benefits, subject to the executive’s timely execution of a release and restrictive covenant agreement:

 

   

Severance Pay. For named executive officers employed by the Company for five or more years as of the termination date, a severance payment equal to 1/12 of the executive’s base salary in effect as of the termination date, multiplied by 24. For named executive officers employed by the Company for less than five years as of the termination date, a severance payment equal to 1/12 of the executive’s base salary in effect as of the termination date, multiplied by 18. As of December 31, 2018, each of the named executive officers, other than Mr. Sheldon, was eligible to receive a multiple equal to 24. Mr. Sheldon was eligible to receive a multiple equal to 18 based on his March 2017 employment commencement date.

 

   

Bonus. The executive will receive a prorated bonus under the Annual Incentive Program for the year in which the termination occurs, calculated based on actual performance during the year.

 

   

Long-Term Incentive Plan Awards. The executive will be entitled to a prorated portion of any outstanding long-term incentive plan awards at the end of the applicable performance period, based on actual performance during the period.

 

   

Continued Benefits Coverage. Provided that the executive properly elects continued health care coverage under applicable law, a payment equal to the difference between active employee premiums and continuation coverage premiums for up to 18 months of coverage.

In addition, the Committee has adopted a Retirement Policy which clarifies the definition of retirement for purposes of determining the treatment of equity and long-term incentive awards following a qualifying retirement. Under the policy, a

 

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qualifying retirement will occur upon a separation from the Company (i) on or after attaining age 60 and completing five consecutive years of service or (ii) on or after attaining age 55 and completing ten consecutive years of service; in both cases, provided that the employee gives at least six months’ notice to the Company. In the event of a qualifying retirement, the Retirement Policy provides for outstanding equity and long-term incentive awards to be treated as follows, subject to the employee’s timely execution of a release and restrictive covenant agreement:

 

   

Time-Based Restricted Shares/Restricted Share Units. For any outstanding time-based restricted share awards, fifty percent (50%) of the common shares subject to the award that were not vested immediately prior to the employee’s qualifying retirement will vest upon such retirement date. The remaining common shares will continue to vest in accordance with the original vesting schedule set forth in the underlying agreement.

 

   

Stock Options. Any outstanding stock options will be exercisable only to the extent that the options are exercisable as of such retirement date or become exercisable pursuant to the terms of the underlying agreement.

 

   

Long-Term Incentive Plan Awards. The employee will be entitled to a prorated portion of any outstanding long-term incentive plan awards at the end of the applicable performance period, based on actual performance during the period.

Additionally, upon a qualifying retirement, the employee is eligible for the employee’s annual bonus, based on actual performance of the Company and prorated based on the number of days employee was employed in the year in which retirement occurs.

As of December 31, 2018, Mr. Smith was our only named executive officer who would have been eligible for benefits under the Retirement Policy, assuming he had given timely notice of his intent to retire. As noted previously, Mr. Smith has provided timely notice of his intention to retire from the Company effective March 29, 2019. If Mr. Smith had experienced a qualifying retirement on December 31, 2018, he would have been eligible to continue vesting in restricted share unit awards with respect to 114,911 shares (valued at $2,986,537 based on our December 31, 2018 share price, with 50% of those shares vesting immediately upon such retirement). As noted above, Mr. Smith retires from the Company, effective March 29 , 2019. Pursuant to the terms of his retirement, Mr. Smith will receive the benefits outlined in the Retirement Policy.

Our 2013 Stock Incentive Plan and LTI Programs provide for the payment of awards following a change in control and certain terminations of employment. In general, our 2013 Stock Incentive Plan and LTI Programs define a change in control as follows:

 

   

The acquisition by any individual, entity or group of the beneficial ownership of 40% or more of the then outstanding common shares of the Company or the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors;

 

   

Individuals who constitute the Board as of the date of the 2013 Stock Incentive Plan or future directors approved by such Board cease for any reason to constitute at least a majority of such Board;

 

   

Subject to certain exceptions contained in the 2013 Stock Incentive Plan, the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company; or

 

   

The consummation of a plan of complete liquidation or dissolution of the Company.

The tables below reflect the amount of compensation to be received by each of the named executive officers in the event of a change in control and certain terminations of each executive’s employment. The amounts shown assume that such change in control or termination was effective as of December 31, 2018, and thus include amounts earned through such time and are estimates of the amounts which would be received by the executives upon a change in control or their termination. The calculations in the tables below are based on our closing share price on December 31, 2018 of $25.99 per share. The actual amounts to be received by the executives can only be determined at the time of such change in control or separation from the Company.

Mr. Smith is included in the following tables but he retires from the Company effective March 29, 2019. In connection with his retirement, Mr. Smith will not receive any benefits under the Executive Severance Policy. Please see above for a quantification of the estimated benefits to be received by Mr. Smith under the terms of the Retirement Policy.

 

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Involuntary Termination without Cause or Termination for Good Reason(1)

 

     Cash
Severance(2)
     Annual
Incentive(3)
     Acceleration of
Long-Term
Incentive
Awards(4)
     Acceleration of
Outstanding
Restricted
Shares and
Performance
Shares(4)
     Continued
Benefits
Coverage
     Total Benefits  

Ryan R. Marshall

   $ 1,900,000      $ 2,601,813      $         2,174,665      $ 6,059,283      $         23,503      $         12,759,264  

Robert T. O’Shaughnessy

   $ 1,500,000      $ 1,173,750      $ 953,832      $ 3,007,875      $ 23,503      $ 6,658,960  

Harmon D. Smith

   $     1,500,000      $     1,467,188      $ 944,332      $ 2,986,537      $ 23,503      $ 6,921,560  

Todd N. Sheldon

   $ 712,500      $ 743,375      $ 354,125      $ 914,926      $ 24,086      $ 2,749,012  

Stephen P. Schlageter

   $ 1,000,000      $ 782,500      $ 314,609      $ 1,112,508      $ 24,083      $ 3,233,770  

Termination due to Death or Disability

 

    Acceleration of
Long-Term
Incentive
Awards(4)
    Acceleration of
Outstanding
Restricted Shares
and Performance
Shares(4)
    Total Accelerated Long-
Term Awards
 

Ryan R. Marshall

  $             1,850,785     $             6,059,283     $             7,910,068  

Robert T. O’Shaughnessy

  $ 808,814     $ 3,007,875     $ 3,816,689  

Harmon D. Smith

  $ 800,488     $ 2,986,537     $ 3,787,025  

Todd N. Sheldon

  $ 300,183     $ 914,926     $ 1,215,109  

Stephen P. Schlageter

  $ 266,823     $ 998,432     $ 1,265,255  

Change In Control and a Qualifying Termination

 

    Acceleration of
Long-Term
Incentive
Awards(4)
    Acceleration of
Outstanding
Restricted Shares
and Performance
Shares(4)
    Total Accelerated Long-
Term Awards
 

Ryan R. Marshall

  $     4,572,675     $         6,059,283     $             10,631,958  

Robert T. O’Shaughnessy

  $ 1,900,525     $ 3,007,875     $ 4,908,400  

Harmon D. Smith

  $ 1,872,000     $ 2,986,537     $ 4,858,537  

Todd N. Sheldon

  $ 342,300     $ 914,926     $ 1,257,226  

Stephen P. Schlageter

  $ 628,513     $ 1,121,936     $ 1,750,449  

 

(1)

Under the terms of the Executive Severance Policy, the named executive officers are eligible to receive cash severance, a prorated payout of the annual incentive award for the year of termination, a prorated payout of outstanding long-term incentive awards and a cash payment equal to health care continuation coverage in the event of a termination other than due to cause, death, disability or resignation other than for constructive termination or as a result of a corporate transaction where the executive is offered comparable employment. In addition, pursuant to the terms of the award agreements, the named executive officers are eligible to receive additional equity vesting in the event of an involuntary termination without cause (as described in footnote 4 to this table).

 

(2)

Amounts reported in this column represent cash severance (base salary multiplied by the applicable severance multiple) under the Executive Severance Policy for a qualifying termination of employment under the Executive Severance Policy. Under the terms of the Executive Severance Policy, as of December 31, 2018, the severance multiple applicable to each of the named executive officers other than Mr. Sheldon was two and was 1.5 for Mr. Sheldon.

 

(3)

The executive will receive a prorated bonus under the Annual Incentive Program for the year in which the termination occurs, calculated based on actual performance during the year. Because termination is assumed to occur as of the last day of the fiscal year the amounts reported represent the full payout of the 2018 Annual Incentive Program award. This amount is also reported as 2018 compensation in the 2018 Summary Compensation Table.

 

(4)

Amounts in these columns reflect the long-term incentive awards and equity-based awards to be received upon a termination calculated in accordance with the 2013 Stock Incentive Plan, long-term award agreements and Retirement Policy. In the case of share grants, the equity value represents the value of the shares (determined by multiplying the closing price of $25.99 per share on December 31, 2018 by the number of unvested restricted share units that would vest following a qualifying termination of employment, death, disability or retirement). The calculation with respect to unvested long-term incentive awards and annual equity-based awards reflects the additional assumptions set forth below under the 2013 Stock Incentive Plan and long-term award agreements. In the case of Mr. Schlageter’s 2017 performance award, that award will vest (i) on a pro rata basis based on actual performance in the event of death or disability at any time during the five-year performance period and (ii) based on actual performance respect to performance goals attained prior to Mr. Schlageter’s termination of employment in the event of a termination without cause.

 

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Event       

Unvested

Restricted Share Units

 

2017-2019

and

2018-2020
Long-Term Awards

Voluntary Termination of Employment (Other than for Good Reason Following a Change in Control or Retirement)       Forfeit   Forfeit
Voluntary Termination of Employment Due to Constructive Termination Under Executive Severance Policy       Forfeit   Prorated, based
on actual Company performance and
service through
termination date
Involuntary Termination of Employment (Other than for Cause)       Forfeit, unless Committee exercises discretion pursuant to the applicable stock incentive plan to provide for acceleration. For purposes of quantifying potential payments that may be received upon a termination of employment, we have assumed that the Committee exercised discretion to provide for acceleration upon a termination of employment as of December 31, 2018.   Prorated, based
on actual Company performance and
service through
termination date
Retirement (with consent of Company and execution of a non-competition, non- solicitation and confidentiality agreement)       50% of the common shares subject to the award that were not vested immediately prior to the employee’s qualifying retirement will vest upon such retirement date and remaining common shares will continue to vest in accordance with the original vesting schedule set forth in the underlying award agreement.   Prorated, based
on actual Company performance and
service through
termination date
Death or Termination due to Disability       Accelerate   Prorated, based on target performance and service through termination date

Change in Control

      N/A – acceleration requires change in control and a qualifying termination of employment   If executive remains employed with the Company following the change in control, award will be settled at the greater of (i) target and (ii) actual performance
Termination of Employment by the Company without Cause or by the Executive for Good Reason following a Change in Control       Accelerate   Target payout

 

(5)

Under the Executive Severance Policy, if the executive properly elects continued health care coverage under applicable law, the executive will receive a payment equal to the difference determined as of the date of termination between active employee premiums and continuation coverage premiums for up to 18 months of coverage.

Risk Management and Compensation

As noted in our CD&A, a key objective of the Company’s compensation program is to appropriately incentivize our executives so that they may act in the best interests of the Company and its shareholders. The Compensation and Management Development Committee believes that its incentive compensation programs should encourage risk within parameters that are appropriate for the long-term health and sustainability of the Company’s business.

At its February 2019 meeting, the Compensation and Management Development Committee, in consultation with Pearl Meyer, reviewed each compensation element, the group of employees eligible to receive each compensation element, the current performance measures and payout ranges, the potential risks posed by each compensation element as well as the processes used to mitigate any such risks. The Compensation and Management Development Committee determined that any risks associated with the Company’s executive and broad-based compensation plans were appropriately mitigated. For example, the maximum payouts under our executive and broad-based annual incentive plans are capped at 200% of target. In addition, the Company uses multiple performance metrics under the Annual Program and LTI Program (i.e., consolidated pre-tax income, operating margins and ROIC), each of which is subject to the scrutiny of our internal control system as well as the Company’s annual audit. The Compensation and Management Development Committee also believes that equity-based, long-term incentive awards which vest over a period of years aligns the interests of our executives and employees with those of our shareholders in support of the long-term health of the Company. Finally, the Compensation and Management Development Committee believes that its overall review of the competitiveness and reasonableness of the Company’s compensation programs against market data serves as another mechanism to evaluate the compensation program and to identify any risks.

The Compensation and Management Development Committee has adopted a clawback policy. Under the policy, in the event any named executive officer engages in “detrimental conduct” (as defined in the policy), the Committee may require

 

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that such named executive officer (i) reimburse the Company for all or any portion of any bonus, incentive payment, equity-based award or other compensation received by such named executive officer within the 36 months following such detrimental conduct and (ii) remit to the Company any profits realized from the sale of Company securities within the 36 months following such detrimental conduct. The purpose of this policy is to discourage inappropriate and excessive risks, as executives will be held accountable for conduct which is harmful to the Company.

Based on its review, the Compensation and Management Development Committee determined that the risks arising from the Company’s executive and broad-based compensation programs are not reasonably likely to have a material adverse effect on the Company.

Pay Ratio Disclosure

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are providing the following disclosure about the relationship of the median of the annual total compensation of our employees to the annual total compensation of Mr. Marshall, our President and Chief Executive Officer.

Ratio

For 2018,

 

   

The median of the annual total compensation of all of our employees, other than Mr. Marshall, was $95,551.

 

   

Mr. Marshall’s annual total compensation, as reported in the Total column of the 2018 Summary Compensation Table, was $9,793,261.

 

   

Based on this information, the ratio of the annual total compensation of Mr. Marshall to the median of the annual total compensation of all employees was estimated to be 103 to 1.

Identification of Median Employee

As permitted under the SEC executive compensation disclosure rules, we are electing to use the same median employee that we used for purposes of preparing our 2017 pay ratio disclosure. Since December 31, 2017 (the date used to select the 2017 median employee), there have been no changes in the Company’s employee population or employee compensation arrangements that we believe would significantly impact the pay ratio disclosure. Accordingly, we selected December 31, 2017 as the date on which to determine our median employee. As of that date, we had approximately 5,039 employees. For purposes of identifying the median employee, we considered the W-2 wages of all employees in the Company’s employee population. In addition, we measured compensation for purposes of determining the median employee using the 12-month period ended December 31, 2017.

In determining the annual total compensation of the median employee, we calculated such employee’s compensation in accordance with Item 402(c)(2)(x) of Regulation S-K as required pursuant to SEC executive compensation disclosure rules. This calculation is the same calculation used to determine total compensation for purposes of the 2018 Summary Compensation Table with respect to each of the named executive officers.

 

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EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2018 with respect to our common shares that may be issued under our existing equity compensation plans:

 

Plan Category

         Number of Common
Shares to be Issued
Upon Exercise of
Outstanding Options
(a)
           Weighted-
Average
Exercise Price of
Outstanding
Options
(b)
           Number of Common Shares
Remaining Available for
Future Issuance Under
Equity Compensation
Plans
(Excluding Common
Shares Reflected in
Column (a))
(c)
 

Equity compensation plans approved

              

by shareholders

       563,063        $ 11.7628          24,428,906  

Equity compensation plans not approved

by shareholders

                          
    

 

 

      

 

 

      

 

 

 

Total

       563,063        $ 11.7628          24,428,906  

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We or one of our subsidiaries may occasionally enter into transactions with a “related party.” Related parties include our executive officers, directors, nominees for director, 5% or more beneficial owners of our common shares and immediate family members of these persons. We refer to transactions involving amounts in excess of $120,000 and in which the related party has a direct or indirect material interest as an “interested transaction.” Each interested transaction must be approved or ratified by the Nominating and Governance Committee of the Board in accordance with our written Related Party Transaction Policies and Procedures. The Nominating and Governance Committee will consider, among other factors it deems appropriate, whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances as well as the extent of the related party’s interest in the transaction. Since January 1, 2018, there have been no interested transactions.

Our Related Party Transaction Policies and Procedures provide that the Nominating and Governance Committee has determined that the following types of transactions are pre-approved or ratified, as applicable, by the Nominating and Governance Committee, even if such transactions involve amounts in excess of $120,000:

 

   

employment by the Company of an executive officer of the Company if: (i) the related compensation is required to be reported in our proxy statement or (ii) the compensation would have been reported in our proxy statement if the executive officer was a named executive officer and the executive officer is not an immediate family member of another executive officer or director of the Company;

 

   

compensation paid to a director if the compensation is required to be reported in our proxy statement;

 

   

any transaction with another company at which a related party’s only relationship is as an employee (other than an executive officer), director or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved does not exceed the greater of $1,000,000 or 2% of that company’s total annual revenues;

 

   

any charitable contribution grant or endowment by the Company to a charitable organization, foundation or university at which a related party’s only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the lesser of $1,000,000 or 2% of the charitable organization’s total annual receipts;

 

   

any transaction where the related party’s interest arises solely from the ownership of the Company’s common shares and all holders of the Company’s common shares received the same benefit on a pro rata basis; and

 

   

any transaction involving a related party where the rates or charges involved are determined by competitive bids.

 

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Table of Contents

REPORT OF THE AUDIT COMMITTEE

The Audit Committee is comprised of five directors, all of whom meet the independence standards contained in the applicable NYSE and SEC rules, and operates under a written charter adopted by the Audit Committee. The Audit Committee selects, subject to shareholder ratification, the Company’s independent public accountants.

PulteGroup management is responsible for the Company’s internal controls and financial reporting process. The Company’s independent public accountants, Ernst & Young LLP, are responsible for performing an independent audit of the Company’s consolidated financial statements and issuing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, as well as an independent audit of the Company’s internal control over financial reporting and issuing an opinion on the effectiveness of internal control over financial reporting. The Audit Committee monitors the Company’s financial reporting process and reports to the board of directors on its findings.

During the last year, the Audit Committee met and held discussions with management and Ernst & Young LLP. The Audit Committee reviewed and discussed with PulteGroup management and Ernst & Young LLP the audited financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The Audit Committee also discussed with Ernst & Young LLP the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC.

The Audit Committee has received from Ernst & Young LLP the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young LLP’s communications with the Audit Committee concerning independence. The Audit Committee discussed with Ernst & Young LLP such firm’s independence.

The Audit Committee also considered whether the provision of other non-audit services by Ernst & Young LLP to the Company is compatible with maintaining the independence of Ernst & Young LLP, and the Audit Committee concluded that the independence of Ernst & Young LLP is not compromised by the provision of such services.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the board of directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

Members of the Audit Committee

 

André J. Hawaux, Chair

Brian P. Anderson

Thomas J. Folliard

John R. Peshkin

Lila Snyder

 

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Table of Contents

OTHER AUDIT MATTERS

Audit and Non-Audit Fees

The following table presents fees for professional audit services rendered by Ernst & Young LLP for the audit of the Company’s annual financial statements for the years ended December 31, 2018 and 2017, and fees billed for other services rendered by Ernst & Young LLP during those periods.

 

     2018     2017  

Audit Fees (1)

   $         1,976,410     $         2,084,500  

Audit-Related Fees (2)

     2,600       36,985  

Tax Fees (3)

     128,422       45,571  

All Other Fees (4)

            
  

 

 

   

 

 

 
   $ 2,107,432     $ 2,167,056  
  

 

 

   

 

 

 

Notes:

 

(1)

Audit services consisted principally of the audit of the consolidated financial statements included in the Company’s Annual Report on Form 10-K, the audit of the effectiveness of the Company’s internal control over financial reporting, reviews of the consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q and various statutory audit reports.

 

(2)

Audit-related services consisted principally of audits of employee benefit plans and on-line subscriptions.

 

(3)

Tax services consisted principally of assistance with tax compliance, the review of tax returns and tax consultation, planning and implementation services.

 

(4)

The Company did not engage Ernst & Young LLP to perform any other services during the years ended December 31, 2018 and 2017.

Audit Committee Preapproval Policies

The Audit Committee has adopted strict guidelines and procedures on the use of Ernst & Young LLP to provide any services, including a requirement that the Audit Committee approve in advance any services to be provided by Ernst & Young LLP. The Audit Committee approves the annual audit services and fees at its meeting in February and then reviews the Ernst & Young LLP audit plan for the current year during its May meeting. In 2018 and 2017, the Audit Committee preapproved the use of Ernst & Young LLP for certain routine accounting and tax consultation matters, provided that the fees for any individual consultation are not expected to exceed $25,000. Prior to the commencement of any other audit-related, tax or other service, the Audit Committee reviews each individual arrangement, including the nature of the services to be provided and the estimate of the fees to be incurred, prior to engaging Ernst & Young LLP to perform the service to confirm that such services will not impair the independence of Ernst & Young LLP.

 

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Proposal

 

 

LOGO     

 

Ratification of Appointment of Ernst & Young LLP

as the Independent Registered Public Accountant

for 2019

 

 

LOGO

 

The Board recommends a vote FOR the ratification of the appointment of Ernst &
Young LLP as the independent registered public accountant for 2019.

  Independent firm with a reputation for integrity and competence
  Provides significant financial reporting expertise
  Few ancillary services and reasonable fees

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the independent external audit firm that performs audit services for the Company. The Audit Committee has appointed Ernst & Young LLP as the Company’s independent registered public accounting firm for 2019, and the board of directors and the Audit Committee recommend that the shareholders ratify this appointment.

In considering Ernst & Young LLP’s appointment for the 2019 fiscal year, the Audit Committee reviewed the firm’s qualifications and competencies, including the following factors:

 

   

Ernst & Young LLP’s historical performance and its performance during its engagement for the 2018 fiscal year;

 

   

Ernst & Young LLP’s capability and expertise in handling the breadth and complexity of the Company’s operations;

 

   

the qualifications and experience of key members of the engagement team, including the lead audit partner, for the audit of the Company’s financial statements;

 

   

the quality of Ernst & Young LLP’s communications with the Audit Committee during the audit, and with management with respect to issues identified in the audit;

 

   

external data on audit quality and performance, including recent Public Company Accounting Oversight Board reports on Ernst & Young LLP; and

 

   

Ernst & Young LLP’s reputation for integrity and competence in the fields of accounting and auditing.

In order to ensure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent auditor. The Audit Committee also ensures that the mandated rotation of Ernst & Young LLP’s personnel occurs.

Although there is no requirement that Ernst & Young LLP’s appointment be terminated if the ratification fails, the Audit Committee will consider the appointment of other independent registered public accounting firms if the shareholders choose not to ratify the appointment of Ernst & Young LLP. The Audit Committee may terminate the appointment of Ernst & Young LLP as our independent registered public accounting firm without the approval of the shareholders whenever the Audit Committee deems such termination appropriate.

Amounts paid by us to Ernst & Young LLP for audit and non-audit services rendered in 2018 and 2017 are disclosed elsewhere in this Proxy Statement.

Ernst & Young LLP served as our independent registered public accounting firm during 2018 and has served in this role for us since 1973. Representatives of Ernst & Young LLP are expected to attend the annual meeting and will be available to respond to appropriate questions, and to make a statement if they wish to do so.

 

 

     LOGO     

  

The Board of Directors and the Audit Committee recommend that shareholders vote “FOR” ratification of the appointment of Ernst & Young LLP as PulteGroup’s independent registered public accountant for 2019.

 

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Proposal

 

 

LOGO           

  Say-on-Pay: Advisory Vote to Approve Executive Compensation
 

 

LOGO

 

The Board recommends a vote FOR this proposal.

  Ongoing review of compensation practices by Compensation and Management Development Committee with assistance from an independent compensation consultant

  Compensation programs designed to reward executives for performance against established performance objectives and improving shareholder returns

  Adherence to commonly viewed executive compensation best practices

Pursuant to Section 14A of the Exchange Act, we are providing shareholders with a vote to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with SEC rules. The advisory vote to approve executive compensation described in this proposal is commonly referred to as a “say-on-pay vote.”

The Company asks that you indicate your approval of the compensation paid to our named executive officers as described on pages 22 through 48 of this Proxy Statement. Because your vote is advisory, it will not be binding on the board of directors. However, the board of directors and the Compensation and Management Development Committee will review the voting results and take them into consideration when making future decisions regarding executive compensation.

At the 2018 annual meeting of shareholders, the Company’s say-on-pay proposal was approved, on an advisory basis, by approximately 92.4% of the votes cast. At the Company’s 2017 annual meeting of shareholders, shareholders were asked to vote on a proposal seeking their views as to whether the say-on-pay vote should be held every year, every two years or every three years. A majority of shareholders voting on the matter indicated a preference for holding such vote on an annual basis. Accordingly, our board of directors decided, as previously disclosed, that the advisory vote on executive compensation will be held on an annual basis at least until the next non-binding shareholder vote on the frequency with which the advisory vote on executive compensation should be held.

As described in the Compensation Discussion and Analysis, our overall compensation philosophy applicable to named executive officers is to provide a compensation program that is intended to attract and retain qualified executives for the Company through fluctuating business cycles, provide them with incentives to achieve our strategic, operational and financial goals, increase shareholder value and reward long-term financial success.

Key principles of our executive compensation philosophy include:

 

   

providing total compensation levels that are competitive with our direct competitors within the homebuilding industry, as well as companies of similar size and complexity in related industries;

 

   

fostering a pay for performance environment by delivering a significant portion of total compensation through performance-based, variable pay;

 

   

aligning the long-term interests of our executives with those of our shareholders;

 

   

requiring our executives to own significant levels of Company shares;

 

   

balancing cash compensation with equity compensation so that each executive has a significant personal financial stake in the Company’s share price performance (in general, we seek to provide a significant portion of total compensation to named executive officers in the form of equity-based compensation); and

 

   

balancing short-term compensation with long-term compensation to focus our senior executives on the achievement of both operational and financial goals and longer-term strategic objectives.

This proposal gives our shareholders the opportunity to express their views on the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. For the reasons discussed above, we are asking our shareholders to indicate their support for our named executive officer compensation by voting FOR the following resolution at the annual meeting:

RESOLVED , that the Company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure).

 

     LOGO     

 

    

The Board recommends that shareholders vote “FOR” the approval of the advisory resolution relating to the compensation of our named executive officers as disclosed in this Proxy Statement.

 

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BENEFICIAL SECURITY OWNERSHIP

The table below shows the number of our common shares beneficially owned as of March 15, 2019 by each of our directors and each of our executive officers named in the Summary Compensation Table on page 41, as well as the number of shares beneficially owned by all of our directors and executive officers as a group. The table also includes information about stock options exercisable within 60 days after March 15, 2019, restricted shares and our common shares held in our 401(k) Plan.

 

Directors and Named Executive Officers    Shares(1)     

Exercisable

Stock Options(13)

    

Percentage of

Outstanding Shares

 

Brian P. Anderson

     101,235 (2)       0        *  

Bryce Blair

     119,439 (3)       0        *  

Richard W. Dreiling

     21,491 (4)       0        *  

Thomas J. Folliard

     72,282 (5)       0        *  

Cheryl W. Grisé

     94,335 (6)       0        *  

André J. Hawaux

     51,648 (7)       0        *  

Ryan R. Marshall

     172,685 (8)       0        *  

Robert T. O’Shaughnessy

     280,938        0        *  

John R. Peshkin

     16,370 (9)       0        *  

Scott F. Powers

     16,370        0        *  

William J. Pulte

     15,398        0        *  

Stephen P. Schlageter

     52,488 (10)       2,250        *  

Todd N. Sheldon

     32,678        0        *  

Harmon D. Smith(11)

     206,993 (12)       0        *  

Lila Snyder

     3,454        0        *  

All Directors and Executive Officers as a group of 17,
including the above

     1,363,971        2,250        *  

 

*

Less than 1%.

 

Notes:

 

(1)

All directors and executive officers listed in this table have sole voting and investment power over the shares they beneficially own, except as otherwise noted below.

 

(2)

Includes 3,000 shares that Mr. Anderson owns jointly with his wife.

 

(3)

These shares are owned in a trust of which Mr. Blair is the sole trustee and beneficiary.

 

(4)

Includes 21 shares that are owned in a trust of which Mr. Dreiling and his wife are each a trustee and beneficiary. Includes 21,470 deferred share units that would be required by the Deferred Compensation Plan for Non-Employee Directors to be distributed within 60 days of Mr. Dreiling’s departure from the Board.

 

(5)

Includes 10,755 deferred share units which would be required by the Deferred Compensation Plan for Non-Employee Directors to be distributed within 60 days of Mr. Folliard’s departure from the Board.

 

(6)

Includes 86,135 deferred share units which would be required by the Deferred Compensation Plan for Non-Employee Directors to be distributed within 60 days of Ms. Grisé’s departure from the Board.

 

(7)

All shares are owned jointly by Mr. Hawaux and his wife.

 

(8)

Includes (i) 145,217 shares owned in a trust of which Mr. Marshall is the trustee and beneficiary and (ii) 2,467.521 shares held in our 401(k) Plan as of March 15, 2019.

 

(9)

Includes 10,755 deferred share units which would be required by the Deferred Compensation Plan for Non-Employee Directors to be distributed within 60 days of Mr. Peshkin’s departure from the Board. All shares are owned jointly by Mr. Peshkin and his wife.

 

(10)

Includes 2,996.376 shares held in our 401(k) Plan as of March 15, 2019 by Mr. Schlageter.

 

(11)

Mr. Smith announced his retirement as the Company’s Executive Vice President and Chief Operating Officer, to be effective March 29, 2019.

 

(12)

Includes 14,197.962 shares held in our 401(k) Plan as of March 15, 2019.

 

(13)

These are shares which the listed director or executive officer has the right to acquire within 60 days of March 15, 2019 pursuant to PulteGroup’s stock option plans.

 

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Beneficial Ownership of Significant Shareholders

The following table provides information regarding security holders that beneficially own more than 5% of all outstanding PulteGroup common shares:

 

Name and Address of

Beneficial Owner

  Beneficial Ownership
of Common Shares
    Percentage of Outstanding
Common Shares on
March 15, 2019
 

The Vanguard Group

    31,335,839 (1)      11.29%  

100 Vanguard Blvd.

Malvern, PA 19355

   

BlackRock, Inc.

    20,107,766 (2)      7.25%  

55 East 52nd Street

New York, NY 10055

   

Mark T. Pulte

   

William Pulte Trust

    18,853,881 (3)      6.79%  

41 South East 5th Street

Boca Raton, FL 33432

   

Notes:

 

(1)

This information is derived from a Schedule 13G/A filed by The Vanguard Group on February 12, 2019. According to the Schedule 13G/A, The Vanguard Group had sole power to vote or direct the vote of 305,103 shares, sole power to dispose of or direct the disposition of 30,979,906 shares, shared power to vote or direct the vote of 55,726 shares and shared power to dispose of or direct the disposition of 355,933 shares.

 

(2)

This information is derived from a Schedule 13G/A filed by BlackRock, Inc. on February 11, 2019. According to the Schedule 13G/A, BlackRock, Inc. had sole power to vote or direct the vote of 17,958,528, sole power to dispose of or direct the disposition of 20,107,766 shares, and shared power to vote or direct the vote of, and shared power to dispose of or direct the disposition of, no shares.

 

(3)

This information is derived from a Schedule 13D/A filed by Mark T. Pulte and the William Pulte Trust dtd 01/26/1990, amended 12/18/2017, on January 23, 2019. The reporting entities that are included in the Schedule 13D/A include Mark T. Pulte, the William Pulte Trust dtd 01/26/1990, amended 12/18/2017, and Karen J. Pulte. According to the Schedule 13D/A: (i) the William Pulte Trust dtd 01/26/1990, amended 12/18/2017 had shared power to vote or direct the vote of 17,383,381 shares, shared power to dispose of or direct the disposition of 17,383,381 shares and sole power to vote or direct the vote of, and sole power to dispose of or direct the disposition of, no shares; (ii) Karen J. Pulte had sole power to vote or direct the vote of 100,000 shares, shared power to vote or direct the vote of 17,383,381 shares, sole power to dispose of or direct the disposition of 100,000 shares and shared power to dispose of or direct the disposition of 17,383,381 shares; and (iii) Mark T. Pulte had sole power to vote or direct the vote of 1,470,500 shares, shared power to vote or direct the vote of 17,383,381 shares, sole power to dispose of or direct the disposition of 1,470,500 shares and shared power to dispose of or direct the disposition of 17,383,381 shares.

Section 16(a) Beneficial Ownership Reporting Compliance

Our directors and executive officers file reports with the SEC indicating the number of our common shares that they beneficially owned when they became a director or executive officer and, after that, any changes in their beneficial ownership of our common shares. They must also provide us with copies of these reports. These reports are required by Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have reviewed the copies of these reports that we have received and have also received and reviewed written representations of the accuracy of these reports from these individuals. Persons who own more than 10% of our common shares must also file reports with the SEC.

Based on these reports and representations, PulteGroup believes that during 2018 our directors, executive officers and greater than 10% shareholders complied with all Section 16(a) reporting requirements.

 

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Proposal

 

LOGO           

  Approval of an amendment to extend the term of the Company’s Amended and Restated Section 382 Rights Agreement
 

 

LOGO

 

The Board recommends a vote FOR the approval of an amendment to extend the term of the Company’s Amended and Restated Section 382 Rights Agreement.

  Retain value of deferred tax assets

The Company entered into an Amended and Restated Section 382 Rights Agreement, dated as of March 18, 2010 (the “Original Rights Agreement”), with Computershare Trust Company, N.A., as rights agent. The Original Rights Agreement was not designed to protect shareholders against the possibility of a hostile takeover, but was adopted in an effort to protect shareholder value by preserving the Company’s ability to use its net operating losses, built in losses and other tax benefits (collectively, the “NOLs”). The Original Rights Agreement was approved by the shareholders of the Company on May 12, 2010.

On March 14, 2013, the board of directors adopted an amendment to the Original Rights Agreement to extend the expiration date of the Rights Agreement from June 1, 2013 to June 1, 2016 (the “First Rights Plan Extension”). The First Rights Plan Extension was approved by the shareholders of the Company on May 8, 2013.

On March 10, 2016, the board of directors adopted an amendment to the Original Rights Agreement to extend the expiration date of the Rights Agreement from June 1, 2016 to June 1, 2019 (the “Second Rights Plan Extension”). The Second Rights Plan Extension was approved by the shareholders of the Company on May 4, 2016.

On March 7, 2019, the board of directors adopted an amendment to the Original Rights Agreement to extend the expiration date of the Rights Agreement from June 1, 2019 to June 1, 2022 (the “Third Rights Plan Extension, and collectively with the Original Rights Agreement, the First Rights Plan Extension and the Second Rights Plan Extension, the “Rights Agreement”) so that the Rights Agreement will continue to protect shareholder value by preserving the Company’s NOLs. The board of directors is asking shareholders to approve the Third Rights Plan Extension.

If shareholders do not approve the Third Rights Plan Extension by June 1, 2019, the Rights Agreement will automatically expire on that date.

Background and Reasons for the Proposal

As of December 31, 2018, we estimate that the Company had approximately $574 million (before valuation allowances) of deferred tax assets generated by net operating losses, built-in losses and other tax benefits. The net operating losses do not fully expire for many years. For example, any federal net operating losses in 2019 would generally not expire until 2039. To the extent we have future taxable income, and until the net operating losses expire, they can be used to offset future taxable income, if any. In addition, net operating losses may generally be carried back two years to offset past taxable income.

Because the amount and timing of the Company’s future taxable income, if any, cannot be accurately predicted, we cannot estimate the exact amount of NOLs that can ultimately be used to reduce the Company’s income tax liability. However, we continue to believe the NOLs are a valuable asset and that it is in the Company’s best interests to attempt to preserve their use by extending the expiration of the Rights Agreement. The Third Rights Plan Extension leaves the Rights Agreement unchanged in all material respects, other than to extend the expiration date of the Rights Agreement from June 1, 2019 to June 1, 2022.

Limitations on the Company’s ability to use the NOLs would arise if the Company undergoes an “ownership change” under Section 382 of the Code (“Section 382”). Calculating whether an “ownership change” has occurred is subject to inherent uncertainty. This uncertainty results from the complexity and ambiguity of the Section 382 provisions, as well as limitations on the knowledge that any publicly traded company can have about the ownership of and transactions in its securities on a timely basis. Based upon the information available to us, along with our evaluation of various scenarios, we believe that the Company has not experienced an “ownership change”; however, the amount by which the Company’s ownership may change in the future is uncertain.

 

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Section 382 Ownership Calculations

The benefit of the NOLs would be significantly reduced if the Company were to experience an “ownership change” as defined in Section 382. In order to determine whether an “ownership change” has occurred, the Company must compare the percentage of shares owned by each 5.0-percent shareholder immediately after the close of the testing date to the lowest percentage of shares owned by such 5.0-percent shareholder at any time during the testing period (which is generally a three year rolling period). An “ownership change” occurs if the aggregate increase in ownership by all such 5.0-percent shareholders exceeds 50 percentage points.

For example, if a single investor acquired more than 50% of the Company’s shares in a three-year period, an “ownership change” would occur. Similarly, if ten persons, none of whom owned shares, each acquired slightly over 5.0% of the Company’s shares within a three-year period (so that such persons owned, in the aggregate, more than 50%), an “ownership change” would occur.

In the event of an “ownership change,” the annual limit pursuant to Section 382 (the “382 Limitation”) is obtained by multiplying (i) the aggregate value of the Company’s outstanding equity immediately prior to the “ownership change” (reduced by certain capital contributions made during the immediately preceding two years and certain other items) by (ii) the federal long-term tax-exempt interest rate in effect for the month of the “ownership change.” In calculating the 382 Limitation, numerous special rules and limitations apply, including provisions dealing with “built-in gains and losses.” If the Company were to have taxable income in excess of the 382 Limitation following a Section 382 “ownership change,” it would not be able to offset tax on the excess income with the NOLs. Although any loss carryforwards not used as a result of any Section 382 Limitation would remain available to offset income in future years (again, subject to the Section 382 Limitation) until the NOLs expire, any subsequent “ownership change” could significantly defer the utilization of the loss carryforwards, accelerate payment of federal income tax and cause some of the NOLs to expire unused. Because the aggregate value of the Company’s outstanding shares and the federal long-term tax-exempt interest rate fluctuate, it is impossible to predict the Section 382 Limitation on the Company’s NOLs should an “ownership change” occur in the future. However, such limitation could be material.

In determining whether an “ownership change” has occurred, the rules of Section 382 are very complex, and are beyond the scope of this summary discussion. Some of the factors that must be considered in performing a Section 382 “ownership change” analysis include the following:

 

   

All holders who each own less than 5.0% of a company’s common shares are generally (but not always) collectively treated as a single 5.0-percent shareholder. Transactions in the public markets among shareholders who are not 5.0-percent shareholders are generally (but not always) treated as within this single 5.0-percent shareholder.

 

   

There are several rules regarding the aggregation and segregation of shareholders who otherwise do not qualify as 5.0-percent shareholders. Certain constructive ownership rules, which generally attribute ownership of shares owned by estates, trusts, corporations, partnerships or other entities to the ultimate indirect individual owner thereof, or to related individuals, are applied in determining the level of share ownership of a particular shareholder. Ownership of shares is generally attributed to both their ultimate beneficial owner as well as to “first-tier” and “higher-tier” entities, including trusts, corporations, partnerships or other entities.

 

   

Acquisitions by a person which cause that person to become a 5.0-percent shareholder generally result in a five percentage (or more) point change in ownership, regardless of the size of the final purchase that caused the threshold to be exceeded.

 

   

Special rules can result in the treatment of options (including warrants) or other similar interests as having been exercised if such treatment would result in an “ownership change.”

 

   

The redemption or buyback of shares by an issuer will increase the ownership of any 5.0-percent shareholders (including groups of shareholders treated as a single 5.0-percent shareholder) and can contribute to an “ownership change.” In addition, it is possible that a redemption or buyback of shares could cause a holder of less than 5.0% to become a 5.0-percent shareholder, resulting in a five percentage (or more) point change in ownership.

Description of the Rights Agreement

The following description of the Rights Agreement is qualified in its entirety by reference to the text of the Original Rights Agreement, as amended by the First Rights Plan Extension and the Second Rights Plan Extension, which are attached to

 

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this Proxy Statement as Appendix I, and the text of the Third Rights Plan Extension, which is attached to this Proxy Statement as Appendix II. We urge you to read carefully the Original Rights Agreement, as amended, and the Third Rights Plan Extension in their entirety as the discussion below is only a summary.

The Rights Agreement is intended to act as a deterrent to any person acquiring beneficial ownership of 4.9% or more of our outstanding common shares within the meaning of Section 382 and the Treasury Regulations promulgated thereunder (an “Acquiring Person”) without the approval of the Board. Shareholders who beneficially owned 4.9% or more of the Company’s outstanding common shares as of the close of business on March 5, 2009 are not an “Acquiring Person” so long as they do not acquire any additional common shares at a time when they still beneficially own 4.9% or more of the Company’s common shares. The Founder and members of his family have been exempted from the definition of Acquiring Person. In addition, the Board may, in its sole discretion, exempt any other person or group from being deemed an Acquiring Person for purposes of the Rights Agreement.

The Rights . On March 5, 2009, in connection with the adoption of the original Section 382 rights agreement (which was subsequently amended and restated as of March 18, 2010 and amended as of March 14, 2013 and March 10, 2016), the board of directors authorized the issuance of one right per outstanding common share payable to the Company’s shareholders of record as of March 16, 2009, and the rights were issued on March 16, 2009. Subject to the terms, provisions and conditions of the Rights Agreement, if the rights become exercisable, each right would initially represent the right to purchase from us one one-thousandth of a share of the Company’s Series A Junior Participating Preferred Shares, par value $0.01 per share (the “Series A Preferred Shares”), for a purchase price of $50.00 per right (the “Purchase Price”). If issued, each fractional Series A Preferred Share would give the shareholder approximately the same dividend, voting and liquidation rights as does one common share. However, prior to exercise, a right does not give its holder any rights as a shareholder of the Company, including any dividend, voting or liquidation rights.

Initial Exercisability . The rights are not exercisable until the earlier of (i) ten days after a public announcement that a person has become an Acquiring Person or such earlier date as the Board becomes aware that there is an Acquiring Person and (ii) ten business days (or such later date as may be determined by the Board) after the commencement of a tender or exchange offer by or on behalf of a person that, if completed, would result in such person becoming an Acquiring Person. We refer to the date that the rights become exercisable as the “Distribution Date.”

Until the Distribution Date, the Company’s common share certificates or the ownership statements issued with respect to uncertificated common shares will evidence the rights and will contain a notation to that effect. Any transfer of common shares prior to the Distribution Date will constitute a transfer of the associated rights. After the Distribution Date, separate rights certificates will be issued and the rights may be transferred apart from the transfer of the underlying common shares, unless and until the Board has determined to effect an exchange pursuant to the Rights Agreement (as described below).

Flip-In Event . In the event that a person becomes an Acquiring Person, each holder of a right, other than rights that are or, under certain circumstances, were beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a right and payment of the Purchase Price, a number of common shares having a market value of two times the Purchase Price. However, rights are not exercisable following the occurrence of a person becoming an Acquiring Person until such time as the rights are no longer redeemable by the Company (as described below).

Exempted Persons and Exempted Transactions . The Board recognizes that there may be instances when an acquisition of the Company’s common shares that would cause a shareholder to become an Acquiring Person may not jeopardize or endanger in any material respect the availability of the NOLs to the Company. Accordingly, the Rights Agreement grants discretion to the Board to designate a person as an “Exempted Person” or to designate a transaction involving the Company’s common shares as an “Exempted Transaction.” An “Exempted Person” cannot become an Acquiring Person and an “Exempted Transaction” cannot result in a person becoming an Acquiring Person. The Board can revoke an “Exempted Person” designation if it subsequently makes a contrary determination regarding whether a person jeopardizes or endangers in any material respect the availability of the NOLs to the Company.

Redemption . At any time until ten calendar days following the first date of public announcement that a person has become an Acquiring Person or such earlier date as a majority of the Board becomes aware of the existence of an Acquiring Person, the Board may redeem the rights in whole, but not in part, at a price of $0.001 per right (the “Redemption Price”). The redemption of the rights may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. Immediately upon any redemption of the rights, the right to exercise the rights will terminate and the only right of the holders of rights will be to receive the Redemption Price.

 

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Exchange . At any time after a person becomes an Acquiring Person and prior to the acquisition by the Acquiring Person of 50% or more of the outstanding common shares, the Board may exchange the rights (other than rights that have become void), in whole or in part, at an exchange ratio of one common share, or a fractional Series A Preferred Share (or of a share of a similar class or series of our preferred shares having similar rights, preferences and privileges) of equivalent value, per right (subject to adjustment). Immediately upon an exchange of any rights, the right to exercise such rights will terminate and the only right of the holders of rights will be to receive the number of common shares (or fractional Series A Preferred Share or of a share of a similar class or series of our preferred shares having similar rights, preferences and privileges) equal to the number of such rights held by such holder multiplied by the exchange ratio.

Expiration . The rights and the Rights Agreement will expire on the earliest of the following:

 

   

June 1, 2019 if the Third Rights Plan Extension has not been approved by the shareholders by such date;

 

   

the close of business on June 1, 2022 if the Third Rights Plan Extension has been approved by the shareholders by June 1, 2019;

 

   

the redemption of the rights;

 

   

the exchange of the rights;

 

   

the close of business on the effective date of the repeal of Section 382 or any successor statute if the Board determines that the Rights Agreement is no longer necessary or desirable for the preservation of certain tax benefits; and

 

   

the close of business on the first day of a taxable year to which the Board determines that certain tax benefits may not be carried forward.

Anti-Dilution Provisions . The Board may adjust the Purchase Price of the Series A Preferred Shares, the number of Series A Preferred Shares issuable and the number of outstanding rights to prevent dilution that may occur as a result of certain events, including among others, a share dividend, a share split or a reclassification of the Series A Preferred Shares or of the Company’s common shares. With certain exceptions, no adjustments to the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price.

Amendments . For so long as the rights are redeemable, the Board may supplement or amend any provision of the Rights Agreement in any respect without the approval of the holders of the rights. From and after the time there is an Acquiring Person, no amendment can adversely affect the interests of the holders of the rights.

Certain Considerations Relating to the Rights Agreement.

The Board believes that continuing to attempt to protect the NOLs described above is in the Company’s and the shareholders’ best interests. Nonetheless, we cannot eliminate the possibility that an “ownership change” will occur even if the Third Rights Plan Extension is approved. You should consider the factors below when making your decision.

Future Use and Amount of the NOLs is Uncertain . The Company’s use of the NOLs depends on its ability to generate taxable income in the future. The Company cannot assure you whether it will have taxable income in any applicable period or, if it does, whether such income or the NOLs at such time will exceed any potential Section 382 limitation.

Potential Challenge to the NOLs . The amount of the NOLs has not been audited or otherwise validated by the Internal Revenue Service (the “IRS”). The IRS could challenge the amount of the NOLs, which could result in an increase in the Company’s liability in the future for income taxes. In addition, determining whether an “ownership change” has occurred is subject to uncertainty, both because of the complexity and ambiguity of the Section 382 provisions and because of limitations on the knowledge that any publicly traded company can have about the ownership of, and transactions in, its securities on a timely basis. Therefore, the Company cannot assure you that the IRS or other taxing authority will not claim that the Company experienced an “ownership change” and attempt to reduce the benefit of the NOLs even if the Third Rights Plan Extension is approved and the Rights Agreement is in place.

Continued Risk of Ownership Change . Although the Third Rights Plan Extension is intended to diminish the likelihood of an “ownership change,” the Company cannot assure you that it will be effective. The amount by which the Company’s ownership may change in the future could, for example, be affected by purchases and sales of shares by 5.0-percent shareholders, over which the Company has no control, and new issuances of shares by the Company, should it choose to do so.

 

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Potential Effects on Liquidity . The Rights Agreement is intended to deter persons or groups of persons from acquiring beneficial ownership of common shares in excess of the specified limitations. A shareholder’s ability to dispose of the Company’s common shares may be limited if the Third Rights Plan Extension reduces the number of persons willing to acquire the Company’s common shares or the amount they are willing to acquire. A shareholder may become an Acquiring Person upon actions taken by persons related to, or affiliated with, them. Shareholders are advised to carefully monitor their ownership of the Company’s shares and consult their own legal advisors and/or us to determine whether their ownership of the Company’s shares approaches the proscribed level.

Potential Impact on Value . The Third Rights Plan Extension could negatively impact the value of the Company’s common shares by deterring persons or groups of persons from acquiring the Company’s common shares, including in acquisitions for which some shareholders might receive a premium above market value.

Anti-Takeover Effect . The Board adopted the Rights Agreement to diminish the risk that the Company’s ability to use the NOLs to reduce potential federal income tax obligations becomes limited. Nonetheless, the Third Rights Plan Extension may have an “anti-takeover effect” because it may deter a person or group of persons from acquiring beneficial ownership of 4.9% or more of the Company’s common shares or, in the case of a person or group of persons that already own 4.9% or more of the Company’s common shares, from acquiring any additional common shares. The Third Rights Plan Extension could discourage or prevent a merger, tender offer, proxy contest or accumulations of substantial blocks of shares.

Existing provisions in the Company’s Restated Articles of Incorporation and by-laws may also have the effect of delaying or preventing a merger with or acquisition of the Company, even where the shareholders may consider it to be favorable. These provisions could also prevent or hinder an attempt by shareholders to replace our current directors and include: (i) a limitation on the maximum number of directors; (ii) advance notice requirements for nominations by shareholders for election to the board of directors, (iii) the ability of the board of directors to designate and issue shares of the Company’s preferred stock, and (iv) certain limitations on shareholders holding 10% or more of the Company’s shares and their affiliates from engaging in a merger or similar transaction with the Company. In addition, Chapter 7A of the Michigan Business Corporation Act may affect attempts to acquire control of the Company. In general, under Chapter 7A, “business combinations” (defined to include, among other transactions, certain mergers, dispositions of assets or shares and recapitalizations) between covered Michigan business corporations or their subsidiaries and an “interested shareholder” (defined as the direct or indirect beneficial ownership of at least 10% of the voting power of a covered corporation’s shares) can be consummated only if approved by at least 90% of the votes of each class of the corporation’s shares entitled to vote and by at least two-thirds of such voting shares not held by the “interested shareholder”, or such shareholder’s affiliates, unless five years have elapsed after the person involved became an “interested shareholder” and unless certain price and other conditions are satisfied. The board of directors may exempt “business combinations” with a particular “interested shareholder” by resolution adopted prior to the time the “interested shareholder” attained that status. The Company has elected not to be governed by Chapter 7A of the Michigan Business Corporation Act; however, the board of directors may terminate such election.

By-laws of the Company

Article IX of the Company’s by-laws provides that any transfer of the Company’s securities is prohibited and will be void if such transfer results in any person or group owning 4.9% or more of the Company’s then-outstanding common shares (a “4.9-percent Shareholder”), or if such transfer would increase the percentage ownership interest of a 4.9-percent Shareholder. These transfer restrictions are subject to certain exceptions, including an exception for transfers approved by the Board or a committee thereof. These transfer restrictions are applicable to transfers made, or pursuant to agreements entered into, between the date of the by-laws and such date as may be determined by the board of directors in accordance with Article IX of the by-laws.

Although Article IX of the by-laws is intended to reduce the likelihood of an “ownership change” that could adversely affect the Company, we cannot assure you that such restrictions would prevent all transfers that could result in such an “ownership change”. In particular, absent a court determination, there can be no assurance that the acquisition restrictions in the by-laws will be enforceable against all shareholders. They may be subject to challenge on equitable or other grounds. In particular, the restrictions may not be enforceable against shareholders who do not have notice of the restrictions at the time they acquired their shares. Accordingly, the Board believes that extending the expiration date of the Rights Agreement is in the best interests of all of the shareholders.

 

     LOGO          

The Board recommends a vote FOR the approval of an amendment to extend the term of the Company’s Amended and Restated Section 382 Rights Agreement.

 

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OTHER MATTERS

Multiple Shareholders Sharing the Same Address

The SEC permits companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy materials with respect to two or more shareholders sharing the same address by delivering a single proxy statement and annual report or Notice of Internet Availability of Proxy materials, as applicable, addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for shareholders and cost savings for companies. Shareholders who hold their shares through a broker may receive notice from their broker regarding the householding of proxy materials. As indicated in the notice that will be provided by these brokers, a single proxy statement and annual report or Notice of Internet Availability of Proxy Materials, as applicable, will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholder. Once a shareholder has received notice that the broker will be householding, such householding will continue until the shareholder is notified otherwise or until the shareholder revokes its consent. If you would prefer to receive separate copies of the proxy materials, please contact your bank, broker or other intermediary. If you currently share an address with another shareholder but are nonetheless receiving separate copies of the proxy materials, you may request delivery of a single copy in the future by contacting your bank, broker or other intermediary. If you are a shareholder, you may request a copy of proxy materials by sending such request in writing to ATTN: Corporate Secretary at PulteGroup, Inc., 3350 Peachtree Road Northeast, Suite 150, Atlanta, Georgia, 30326, and we will provide copies of the proxy materials. Alternatively, you may call 1-866-641-4276 to receive proxy materials.

Proxy solicitation cost

PulteGroup pays the cost of soliciting proxies. Additionally, we hired D.F. King & Co., Inc. to assist in the distribution of proxy materials. The fee is expected not to exceed $15,000, plus reasonable out-of-pocket expenses. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation material to shareholders.

Shareholder proposals for the 2020 Annual Meeting of Shareholders

To be included in our proxy statement for next year’s annual meeting of shareholders, shareholder proposals must be in writing, comply with SEC Rule 14a-8 and be received by PulteGroup by November 26, 2019. Shareholder proposals must be sent to Todd N. Sheldon, our Corporate Secretary, by certified mail, return receipt requested, or by recognized overnight courier, at the following address:

Todd N. Sheldon

Corporate Secretary

PulteGroup, Inc.

3350 Peachtree Road NE, Suite 150

Atlanta, Georgia 30326

The Company’s by-laws also permit a shareholder, or a group of up to 20 shareholders, that has owned at least 3% of our outstanding common stock for at least three years to nominate and include in our proxy statement candidates for our Board, subject to certain requirements (a “proxy access director nomination”). To be properly brought before the 2020 annual meeting of shareholders, a shareholder’s notice of a proxy access director nomination must be received by our Corporate Secretary, by certified mail, return receipt requested, or recognized overnight courier at the mailing address specified for him above, no earlier than October 27, 2019 and no later than November 26, 2019. Any such notice must meet the other requirements set forth in our by-laws.

Shareholder proposals that are intended to be presented at our 2020 annual meeting of shareholders, other than pursuant to Rule 14a-8 or a proxy access director nomination, must be made in writing and sent to our Corporate Secretary by certified mail, return receipt requested, or recognized overnight courier at the mailing address specified for him above, and must be received by PulteGroup by February 9, 2020. Our form of proxy will confer discretionary authority to vote on proposals not received by that date, and the persons named in our form of proxy will vote the shares represented by such proxies in accordance with their best judgment.

See “Director Nomination Recommendations” on page 19 for additional information.

Communicating with the Board

You (and any other shareholder or interested party) may communicate directly with the Board, the non-management directors as a group or any individual director or directors by writing to our Corporate Secretary at the mailing address specified for him above. You should indicate on the outside of the envelope the intended recipient (i.e., full Board, non-management directors as a group or any individual director or directors) of your communication. Each communication intended for the Board or any of PulteGroup’s non-management directors and received by our Corporate Secretary will be promptly forwarded to the specified party.

 

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QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING :

What am I voting on?

You are voting on four proposals:

 

  1.

The election of the eleven nominees for director named in this Proxy Statement to serve a term of one year.

 

  2.

The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019.

 

  3.

An advisory vote to approve executive compensation.

 

  4.

Approval of an amendment to extend the term of our Amended and Restated Section 382 Rights Agreement.

What are the voting recommendations of the Board?

The board of directors recommends the following votes:

 

   

FOR the election of the eleven nominees for director named in this Proxy Statement.

 

   

FOR ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2019.