There are almost as many theories on how best to compensate CEOs as there are CEOs. But no matter which performance method builders' boards used, 2002 was a very good year to be the chief of a public home building company.

According to a recent Credit Suisse First Boston review of top executive pay in the building industry, home building chiefs took home pay packages that generally surpassed those running companies in other industries, including the CEOs of General Electric and Microsoft.

R. Chad Dreier, of The Ryland Group, in Calabasas, Calif., was the most richly compensated builder CEO, taking home $7.2 million in salary and bonuses, plus another $18.8 million in restricted stock, deferred earnings, and other awards for a cool $26 million. While stock rewards tend to distort year-to-year comparisons, Dreier's compensation -- 247 percent over his 2001 pay -- equaled 14 percent of Ryland's net income, according to CSFB's analysis. Rounding out the top half of the best-compensated builders are Bruce Karatz, of KB Home, ($23.9 million); Bob Toll, of Toll Brothers, ($16.7 million); Larry Mizel, of M.D.C. Holdings ($14.4 million); Mark O'Brien, of Pulte Homes ($13.5 million); Larry Hirsch, of Centex Corp. ($10.9 million); and Ara Hovnanian, of Hovnanian Enterprises ($10.6 million).

The relative bargains among big builder CEOs, in comparison, are Stuart Miller, of Lennar Corp., whose total compensation was $9.4 million, which represented 1.7 percent of Lennar's net income; and Dwight Schar, of NVR, whose $3.0 million package, at just 0.9 percent of net income, delivered the best return on compensation to shareholders in 2002.

Looking beyond the totals, however, CSFB's latest survey sheds light on the different ways that boards of directors chose to reward CEOs and how widely pay packages vary in salaries, bonuses, stock options, and other compensation among the 14 largest public home building companies. According to the CSFB findings, pre-tax income, return on earnings, and earnings per share (EPS) were the most common criteria for assessing executive performance and determining annual bonuses.

The survey showed the median cash salary for CEO builders was $903,900. The median cash bonus was far higher: $2.9 million, with Bob Toll of Toll Brothers receiving the highest bonus ($9.7 million) despite the fact that Toll's EPS growth, at 5 percent in 2002, was near the bottom of the list. Ara Hovnanian was perhaps most deserving of his $4.4 million bonus, presiding over a 98 percent run up in EPS. WCI's Albert Hoffman Jr. netted the lowest bonus, $1.2 million, but then WCI's EPS fell 15 percent in 2002.

"While it is intuitive to assume that high levels of CEO compensation would be a result of superior performance as compared to peer companies, this is not always the case in the short run," observes the Credit Suisse research team, led by Ivy Zelman. The highest-paid CEO in 2001, Dwight Schar of NVR, saw his compensation decrease by the largest amount both in real and percentage terms -- due to hefty stock option payouts last year -- while NVR shares recorded the largest increase in 2002, up 60 percent.

Overall, the median compensation of builder CEOs increased 43 percent over 2002. That may seem rich given that stock prices declined for half the companies on the list compared to last year. Based on EPS growth, however, where the median growth rate was 29 percent, it would appear most CEOs on average delivered the kind of earnings to deserve at least better-than-average paychecks.

Executive Compensation -- 2002 2002 Pay ($000) YOY % Chg. Comp.
% of
Criteria for Determining Executive Bonuses
Company CEO Sales +
EPS Net Income EPS Pre-tax
Ryland Chad Dreier 7,208 26,046 247 43 14.0 4 4 4
KB Home Bruce Karatz 10,481 23,870 82 30 7.6 4 4 4 1
Toll Brothers Bob Toll 10,648 16,739 63 5 7.6 4 4
M.D.C. Holdings Larry Mizel 9,512 14,368 8 3 8.6 4 4 4 4 4 4 2
Pulte Mark O'Brien 6,700 13,505 65 20 3.0 4 4 4
Centex Larry Hirsch 6,300 10,863 13 45 2.3 4 4 4 4 4 4 3
Hovnanian Ara Hovnanian 4,657 10,546 158 98 7.6 4
Lennar Stuart Miller 9,357 9,364 47 28 1.7 4 4 4
Standard Pacific Stephen Scarborough 5,105 6,074 19 3 5.1 4
Beazer Ian McCarthy 2,800 5,858 166 30 4.3 4
D.R.Horton Donald Tomnitz 3,566 4,511 63 30 1.0 4
M/I Schottenstein Irving Schottenstein 3,450 4,113 -1 27 6.5 4 4 4
NVR Dwight Schar 3,000 3,011 -94 45 0.9 4 4 4 4 5
WCI Comm. Albert Hoffman Jr. 2,287 2,296 15 -15 2.1 6
Source: Credit Suisse First Boston Equity Research
Notes: Net Income, EPS for fiscal yr./other criteria: 1=ROI; 2=Revenue growth/credit ratings 3=EBITDA; 4=EVA; 5=EBIT; 6=ROS.