Just two days after pre-releasing less-than-inspiring quarterly financial results, Centex announced equity awards and salary adjustments for three of its top executives.

The board of directors approved a committee decision to increase executive vice president and CFO Cathy Smith's fiscal 2008 annual base salary, effective Oct. 16, 2007, from $525,000 to $572,000. She was also awarded $2 million in restricted stock, which is subject to 25% annual vesting over four years after the grant date set for Oct. 26.

In addition, Joseph Bosch, senior vice president of human resources, received $785,000 in restricted stock, and Mark Kemp, senior vice president and controller, was awarded $300,000 in restricted stock units under the same terms.

According to the Centex SEC 8-K filing late Tuesday afternoon, "The committee believes that it is important to make these awards to assist the company in retaining these officers, who are making an important contribution to the company's overall business strategy and objectives, particularly in light of market conditions in the home building industry and a desire to protect long-term stockholder interests by motivating and retaining executive management personnel in a highly competitive environment."

Over the past few years, much has been made of the exorbitant compensation packages home building executives have paid themselves. It seems that as their companies bulked up and homeowners fixated on the escalating value of their homes, builders saw fit to unleash compensation packages based heavily on gross profits or profit growth.

But this year, in the season now full of strategic planning and budget meetings, home builder compensation committees will undoubtedly have their work cut out for them.

In an age where employee retention is critical, leveraging long-term incentives is one way to keep a top-level producer tied to a company. Sources expect the balance of that piece of the compensation pie to become more inline with other industries this year as the need to retain "A-players" comes under increasing pressure.

Across most industries, a typical executive package is structured to balance a projected total compensation equally among three sources of income: base salary, cash incentive/bonus, and long-term incentive. The latter represents awards granted either at the end of the prior calendar/fiscal year or the beginning of the current calendar/fiscal year but correspond to the prior calendar/fiscal year. Such awards include the estimated value of options at the date of grant (as calculated by the company, using its preferred option valuation method), the full value of restricted stock at the data of grant, and the annualized value of any other equity arrangements (i.e. multi-year programs).

Of course, the percentages of that payout structure shift around based on actual performance. If a company does not do well in a given year, base becomes a bigger percentage of actual payout while bonus and long-term go down. Conversely, most executives have capped amounts on their bonus--commonly two times base for CEOs and 1.5 times base for other executives.

But in home building, executive compensation packages have been much more heavily weighted on bonus than salary or long-term incentive, says Jeremy Banoff, senior director of FPL Associates Compensation. "Go outside the industry and you don't find that very often," he notes.

According to Banoff, relative comparisons will start to play a much stronger role in compensation committee negotiations since the industry is now in a down market. "There is a shift in what you will hear--a fundamental change in philosophy," says Banoff.

One shift will come as the justification for relative performance comparisons over absolute performance comps evolves. "In an up market, executives like to take credit for everything good; in bad times, they say they can't control events," Banoff says. "They say, 'Instead of looking at the fact [that we as a builder] have dropped 10%, look at the fact my competitors have dropped 20%, so we did really well ... Give me credit for that.'"

Another shift will occur as builders incorporate retention plan strategies. "Builders that have intellectual, emotional, and financial buy-in to riding this market contraction out and surviving on the other side are doing everything they can to incorporate retention plans," says Paul Copeland of the Sharrow Group."If you don't have them in place now, your chances of hanging onto the best and brightest are quickly becoming slimmer because of all the topgrading. Acknowledging those in your organization that are performing, doing whatever you can to hang on to those people, and maximizing their potential is absolutely key--much more so than even a year ago."

To the point of topgrading, many speculate that the boom lasted so long that home builders quickly went from being small companies to very large companies. In turn, many have gotten too big for the management teams that were running them. "Below the CEO level, you have people with advanced degrees who are in their 40s and understand Wall Street better than the CEOs do," notes one industry expert. "We'll probably will see a lot of leadership brought in from outside the industry."

That being said, its no surprise that Smith, who came to Centex just one year ago, has already made herself invaluable to the company. As Centex grapples with repositioning itself as a "manufacturer of homes" by offloading its smothering land supply and streamlining and consolidating operations, her financials skills have apparently transferred well from a career spent in the consolidating fields of biotech and aerospace and also in the industrial manufacturing arena.

"She is a bright, no-nonsense talent," says Stephen East, an analyst with Pali Capital. "Time will tell if she can do what they need."