An unlucky 13 public home builder chief executives saw their collective compensation opportunity drop by 41 percent—$39 million—from 2010 to 2011. Did they all have that bad a year?
Yes and no, but the reason for the radical drop in pay was less a matter of performance than public company decorum in the Occupy Wall Street, post–Dodd-Frank Act era.
Activism by shareholders—including labor unions’ pension funds—was already heading into a hot zone five years ago. At that point, home building management teams mostly took mild note of and summarily dismissed it, as the market rose and everybody made lots of money.
Then came the rout of the past five years. Business caved, shareholders’ grievances became louder and more strategically coordinated, and the Dodd-Frank Wall Street Reform and Consumer Protection Act actually gave stockholders some real “say on pay.”
As a result, our annual line-up of chief executives’ total compensation packages looks quite different than it has in years past. The odds of seeing eight- or even nine-figure annual compensation deals (KB Home CEO Bruce Karatz grossed $135 million-plus in 2006, including stock gains) may be gone for good.
Welcome to the new rules for executive compensation’s era of less. 1) The packages that aim to pay, reward, and incentivize business leaders for strategy and tactics performance had better have clear, measurable, consistent, and comparable targets, thresholds, and maximums for fixed and variable cash and non-cash recompense. 2) They’d better index to a wide bucket of industry sector peers and other public company pay trends. 3) And they’d better be subject to clawback in cases of venal behavior.
Like it or not, public companies and their management teams exist in a fishbowl environment, where anyone can observe their actions and say they don’t like what they see. Now, each of the companies deliberately fields a vote of support, not only on the compensation packages themselves, but on the need for more or less regular scrutiny on such matters. Some shareholders give management a three-year leash on the issue, but others insist on an annual advisory vote to say “yea” or “nay” on executive pay.
|Total Comp. Breakdown||Change in Comp. 2010 to 2011||Pretax Home Building Income YOY % change||Debt/Total Cap YOY BPS Change||Total Shareholder Return|
|Miller's $1,552,580 cash bonus is the result of the plan to award him 2% of Lennar's 2011 pretax earnings.|
The Ryland Group
|Nicholson earned 93% of an annual bonus based on adjusted pretax earnings and 59.6% of a retention incentive.|
|Mezger's nearly $2 million annual cash incentive compensation reflects his having met targeted goals—i.e., narrowing pretax losses to $90.6 million.|
|Yearley earned 100% of his plan-year bonus, based on Toll's having exceeded a goal of $1.1 billion in consolidated revenues in 2011.|
|Dugas' $1.84 million cash incentive compensation derives from hitting a 58% weighted goal on a pretax income and revenue target, yielding $1.4 million, plus long-term incentives worth $448,000.|
|None of the company’s 2011 performance goals were met, so Mizel got no annual cash bonus, stock, or options grants for 2011 performance.|
|The compensation committee reduced Tomnitz's pretax income bonus from $1,989,755 in fiscal 2010 to $240,798 in fiscal 2011.|
Meritage Homes Corp.
|Hilton received no annual incentive cash award but he earned an $800,000 discretionary bonus for his achievements.|
|Hovnanian earned a cash bonus of $949,500, attributed to EBITDA improvement of $84.4 million and a cash balance minimum of $200 million. |
Standard Pacific Corp.
|Campbell met incentive compensation worth $1,867,224 (35% cash/65% stock) and was awarded $1,000,000 in cash for succession planning and executive transition during 2011.|
Beazer Homes USA
|Missed EBIT goal but met minimum threshold for return to profitability goal and met 81% of goal for a medium-term cash incentive.|
|Robert SchottensteinM/I Homes||$1,504,485||-14.00%||-36.50%||260||-37.60%|
|Schottenstein missed pretax income targets for an annual cash bonus but he met a customer satisfaction target for a $236,000 cash award.|
|Saville, by rights, earned 5.8% of his base salary based on a new orders target but he declined to accept a bonus. |
|* Stepped down as CEO, Dec. 31, 2011|
|** Promoted from EVP, COO in June 2011|