DEF 14A 1 tol2017def14a.htm DEF 14A Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.     )
Filed by the Registrant ý 
Filed by a Party other than the Registrant ¨
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material under §240.14a-12

TOLL BROTHERS, 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):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 
(1
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Title of each class of securities to which transaction applies:
 
 
(2
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(3
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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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Proposed maximum aggregate value of transaction:
 
 
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Total fee paid:
 
 
 
 
 
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Fee paid previously with preliminary materials.
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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.
 
 
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Amount Previously Paid:    
 
 
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Date Filed:  





tollogoa04.jpg
TOLL BROTHERS, INC.
250 Gibraltar Road
Horsham, Pennsylvania 19044
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on Tuesday, March 14, 2017
The 2017 Annual Meeting of Stockholders (the “Meeting”) of Toll Brothers, Inc. (the “Company”) will be held on Tuesday, March 14, 2017 at 12:00 noon EDT, at the offices of the Company, 250 Gibraltar Road, Horsham, Pennsylvania 19044, for the following purposes:
1.
To elect the nine directors nominated by the Board of Directors of the Company (the “Board” or "Board of Directors") and named in the proxy statement to hold office until the 2018 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified.
2.
To ratify, in a non-binding vote, the re-appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the 2017 fiscal year.
3.
To approve, in an advisory and non-binding vote, the compensation of the Company’s named executive officers as disclosed in the proxy statement.
4.
To recommend, in an advisory and non-binding vote, whether a non-binding stockholder vote to approve the compensation of the Company’s named executive officers should occur every one, two, or three years.
5.
To approve the Toll Brothers, Inc. Employee Stock Purchase Plan (2017).
6.
To transact such other business as may properly come before the Meeting or any adjournment or postponement thereof.
The Board has fixed the close of business on January 20, 2017 as the record date for the Meeting (the "Record Date"). Only stockholders of record at that time are entitled to notice of and to vote at the Meeting and any adjournment or postponement thereof.
The enclosed proxy card is solicited by the Board. Reference is made to the attached proxy statement for further information with respect to the business to be transacted at the Meeting. This proxy statement, our annual report, and the enclosed proxy card are first being sent to stockholders on or about February 9, 2017. The Board urges you to sign, date, and return the enclosed proxy card promptly, although you are cordially invited to attend the Meeting in person. The return of the enclosed proxy card will not affect your right to vote in person if you do attend the Meeting.
Please note the admission policy and procedures regarding attendance at the Meeting, which are set forth below.
By Order of the Board of Directors,
MICHAEL I. SNYDER
Secretary
January 31, 2017





IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON MARCH 14, 2017
The proxy statement and 2016 Annual Report of Toll Brothers, Inc. are available at:
http://astproxyportal.com/ast/12483
ANNUAL MEETING INFORMATION
The Meeting will be held at the Company’s offices at 250 Gibraltar Road, Horsham, Pennsylvania 19044 and will begin promptly at 12:00 noon EDT. Directions to the Meeting are available under "Corporate Address" at www.tollcareercenter.com. You must present a valid photo identification to be admitted to the Meeting. Cameras (including cellular phones or personal digital assistants, or “PDAs”, with photographic capabilities), recording devices and other electronic devices, and the use of cellular phones or PDAs, will not be permitted at the Meeting. Representatives will be at the entrance to the Meeting, and these representatives will have the authority, on the Company’s behalf, to determine whether the admission policy and procedures have been followed and whether you will be granted admission to the Meeting.
Attendance at the Meeting is limited to stockholders, who may own shares directly in their names (“record holders”), or in “street name” by banks, brokerages, or other intermediaries (“beneficial holders”). In addition to photo identification, you must present evidence of ownership as of the Record Date, such as a letter from the bank, broker, or other intermediary confirming ownership, or the relevant portion of a bank or brokerage firm account statement. If you are the authorized representative of an entity that is a beneficial holder, you must present a letter from the entity certifying the beneficial ownership of the entity and your status as an authorized representative.
FOR RECORD HOLDERS:
FOR BENEFICIAL HOLDERS:
If you plan to vote by proxy but attend the Meeting
in person:
If you plan to vote by proxy but attend the Meeting
in person:
1.
Indicate your votes on your proxy card;
1.
Indicate your votes on the voting instruction card;
2.
Mark the box on your proxy card indicating your intention to attend;
2.
Mark the box on the voting instruction card
indicating your intention to attend;
3.
Return the proxy card to the address indicated therein; and
3.
Return the voting instruction card to the address indicated therein; and
4.
Follow all admissions policies set forth above.
4.
Follow all admissions policies set forth above.
 
 
 
 
If you plan to attend and vote at the Meeting:
If you plan to attend and vote at the Meeting:
1.
Bring your proxy card with you to the Meeting;
1.
Contact your bank or broker to obtain a written
legal proxy form in order to vote your shares at
the Meeting; failure to obtain a legal proxy form
from your bank or broker will prevent you from
voting your shares at the Meeting;
2.
Send written notice* of your intention to attend
the Meeting to the Company's headquarters by February 27, 2017 to the attention of Michael I. Snyder, Secretary; and
2.
Send written notice* of your intention to attend
the Meeting to the Company's headquarters by February 27, 2017 to the attention of Michael I. Snyder, Secretary; and
3.
Follow all admissions policies set forth above.
3.
Follow all admissions policies set forth above.
         
*
Written notice should include: (1) your name, complete mailing address and phone number, (2) if you are a beneficial holder, evidence of your ownership, and (3) if you are a beneficial holder who is not a natural person and will be naming a representative to attend on your behalf, the name, complete mailing address and phone number of that individual. If you do not provide the requested information by February 27, 2017, please be prepared to show it at the entrance to the Meeting in order to gain admission. Failure to provide such information either in advance or at the Meeting may result in non-admission to the Meeting.





TABLE OF CONTENTS
 
Page
A-1







TOLL BROTHERS, INC.
PROXY STATEMENT
Annual Meeting of Stockholders
Tuesday, March 14, 2017
PROXY SUMMARY
Highlights of certain information in this proxy statement are provided below. Please review the complete proxy statement and 2016 annual report for Toll Brothers, Inc. (the “Company,” “we,” “us” or “our”) before you vote.
Fiscal 2016 Performance Highlights
In determining fiscal 2016 compensation for our named executive officers ("NEOs"), the Executive Compensation Committee of our Board of Directors (the "Compensation Committee") considered the contributions of each of our executive officers to the Company’s strategy to diversify our geographic footprint and broaden our platform of residential product lines. The Compensation Committee also considered Company performance in fiscal 2016 and paid particular attention to the notable areas of our performance and our management’s achievements in fiscal 2016 in the following areas:
Revenues: Our revenues in fiscal 2016 of $5.17 billion and home building deliveries of 6,098 units rose 24% in dollars and 10% in units compared to fiscal 2015 and were the highest for any fiscal year since fiscal 2007.
Income: Our pre-tax income improved to $589.0 million in fiscal 2016, compared to pre-tax income of $535.6 million in fiscal 2015. Impacting FY 2016’s pre-tax income, reported in cost of sales, were $13.8 million of inventory impairments and $125.6 million of warranty charges primarily related to older stucco homes. Fiscal 2015’s pre-tax income included $35.7 million of inventory impairments and a comparable $14.7 million warranty charge. We reported net income of $382.1 million in fiscal 2016, or $2.18 per share diluted, compared to net income of $363.2 million in fiscal 2015, or $1.97 per share diluted, a 10.7% increase in diluted earnings per share.
Contracts: Our net signed contracts in fiscal 2016 of $5.65 billion and 6,719 units rose 14% in dollars and 14% in units compared to fiscal 2015.
Backlog: Our fiscal year-end 2016 backlog was $3.98 billion, up 14% compared to fiscal year-end 2015.
The Compensation Committee recognized management’s efforts in achieving the performance outcomes set forth above. Our “Compensation Discussion and Analysis” is on pages 27 to 49, the “Compensation Committee Report” is on page 49, and our Summary Compensation Table and the other compensation tables and narrative discussion are on pages 50 to 61.
Meeting Agenda Items
Proposal One—Election of Directors. We are asking stockholders to elect nine director nominees to hold office until the 2018 Annual Meeting of Stockholders and until his or her respective successor has been duly elected and qualified. The Board has nominated the nine current directors for election at the Annual Meeting. All of our current directors attended over 75% or more of the meetings of the Board and Board Committees on which they served.

1



Set forth below is summary information concerning our director nominees. For more information regarding the experience and qualifications of our directors, see “Proposal One—Election of Directors” on page 7.
Name
Age
Director
Since
Principal Occupation
Independent
 
 
 
 
 
Robert I. Toll
76
1986
Executive Chairman of the Board of Directors, Toll Brothers, Inc.
 
Douglas C. Yearley, Jr.
56
2010
Chief Executive Officer, Toll Brothers, Inc.
 
Edward G. Boehne
76
2000
Retired President, Federal Reserve Bank of Philadelphia
ü
Richard J. Braemer
75
1986
Senior Counsel, Ballard Spahr LLP
ü
Christine N. Garvey
71
2009
Retired Global Head of Corporate Real Estate Services,
  Deutsche Bank AG
ü
Carl B. Marbach
75
1991
President, Greater Marbach Airlines, Inc.
ü
John A. McLean
47
2016
Chief Executive Officer and Distribution Principal, Hartford
  Funds Distributors
ü
Stephen A. Novick
76
2003
Senior Advisor, Chasbro Investments
ü
Paul E. Shapiro
75
1993
Chairman, Q Capital Holdings LLC
ü
The Board of Directors recommends that you vote “FOR” all Nominees
Proposal Two—Ratification of the Re-Appointment of Independent Registered Public Accounting Firm. We are asking stockholders to ratify, in a non-binding vote, the re-appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending October 31, 2017. For more information regarding our engagement of Ernst & Young LLP, including the fees billed for services rendered by Ernst & Young LLP in fiscal 2016 and fiscal 2015, see “Proposal Two—Ratification of the Re-Appointment of Independent Registered Public Accounting Firm” on page 11.
The Board of Directors recommends that you vote “FOR” Proposal Two
Proposal Three—Advisory and Non-Binding Vote on Executive Compensation (Say on Pay). As described on page 12 under “Proposal Three—Advisory and Non-Binding Vote on Executive Compensation (Say on Pay)," we are asking stockholders to approve, on an advisory basis, the compensation of our NEOs. We hold this advisory vote on an annual basis.
The Board of Directors recommends that you vote “FOR” Proposal Three
Proposal Four—Advisory and Non-Binding Vote on Frequency of Vote Regarding Executive Compensation (Say on Pay Frequency). As described on page 13 under “Proposal Four—Advisory and Non-Binding Vote on Frequency of Vote Regarding Executive Compensation (Say on Pay Frequency)," we are asking stockholders to cast an advisory vote on how often we should include a Say on Pay proposal in our proxy materials for future stockholder meetings. Stockholders may vote to recommend having the Say on Pay vote every year, every two years, or every three years.
The Board of Directors recommends that you vote to hold Say on Pay votes every ONE YEAR

2



Proposal Five—Approval of the Toll Brothers, Inc. Employee Stock Purchase Plan (2017). As described on page 14 under “Proposal Five—Approval of the Toll Brothers, Inc. Employee Stock Purchase Plan (2017),” we are asking stockholders to approve the Company’s Employee Stock Purchase Plan, which is intended to provide a convenient and practical means by which employees may participate in stock ownership of the Company. For more information regarding the Employee Stock Purchase Plan, see “Proposal Five—Approval of the Toll Brothers, Inc. Employee Stock Purchase Plan (2017)" on pages 14 to 16.
The Board of Directors recommends that you vote “FOR” Proposal Five
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Toll Brothers, Inc., a Delaware corporation, for use at the Meeting, which will be held on the date, at the time and place, and for the purposes set forth in the foregoing notice, and any adjournment or postponement thereof. The Board does not intend to bring any matter before the Meeting except as specifically indicated in the notice and does not know of anyone else who intends to do so; however, if any other matters properly come before the Meeting, Mr. Robert I. Toll and Mr. Douglas C. Yearley, Jr., or either of them, will vote or otherwise act thereon in accordance with his or their judgment on such matters, acting as proxies for stockholders who have returned an executed proxy to us.
If the enclosed proxy card is properly executed and returned to and received by us prior to voting at the Meeting, the shares represented thereby will be voted in accordance with the instructions marked thereon. If the enclosed proxy card is properly executed, returned, and received by us prior to voting at the Meeting without specific instructions, Mr. Robert I. Toll and Mr. Douglas C. Yearley, Jr., or either of them, acting as your proxies, will vote your shares “FOR” all nominees under Proposal One, to hold Say on Pay votes every "1 YEAR," and “FOR” each of the other proposals. Any proxy card may be revoked at any time before its exercise by notifying the Secretary of the Company in writing, by delivering a duly executed proxy card bearing a later date, or by attending the Meeting and voting in person.

3



VOTING SECURITIES AND BENEFICIAL OWNERSHIP
The Record Date fixed by our Board for the determination of stockholders entitled to notice of and to vote at the Meeting is January 20, 2017. At the close of business on the Record Date, there were 162,464,448 shares of our common stock outstanding and eligible to vote at the Meeting. We have no other class of voting securities outstanding. At the Meeting, stockholders will be entitled to one vote for each share of common stock owned at the close of business on the Record Date.
The presence at the Meeting, in person or by proxy, of persons entitled to cast the votes of a majority of such outstanding shares of common stock will constitute a quorum for the proposals expected to be voted on at the Meeting. Abstentions and broker non-votes represented by submitted proxies will be included in the calculation of the number of the shares present at the Meeting for the purposes of determining a quorum. “Broker non-votes” are shares held of record by a broker that are not voted on a matter because the broker has not received voting instructions from the beneficial owner of the shares and lacks the authority to vote the shares in its discretion.
Under the New York Stock Exchange (NYSE) rules, your brokerage firm or other nominee may not vote your shares with respect to Proposals One, Three, Four, and Five without specific instructions from you as to how to vote, because each of these proposals is not considered a “routine” matter under the NYSE rules. Proposal Two is considered a “routine” matter and therefore brokerage firms and nominees that are members of the NYSE are permitted to vote their customers’ shares if the customers have not furnished voting instructions prior to the Meeting. To elect directors and adopt the other proposals, the following votes are required:
 
 
 
 
 
 
 
Effect of Broker Non-Votes and Abstentions/Withhold Votes
Proposal
 
Vote Required
 
Broker
Discretionary
Voting Allowed
 
Broker Non-
Votes
  
Abstentions/ Withhold Votes
 
 
 
 
 
 
 
 
 
 
1.
Election of Directors
 
Majority of votes cast
 
No
 
No effect
  
No effect
2.
Ratification of Independent Auditors
 
Majority of votes cast
 
Yes
 
Not applicable
  
No effect
3.
Advisory Say on
Pay Vote
 
Majority of votes cast
 
No
 
No effect
  
No effect
4.
Advisory Say on Pay Frequency Vote
 
Plurality of votes cast
 
No
 
No effect
  
No effect
5.
Approval of Employee Stock Purchase Plan (2017)
 
Majority of votes cast
 
No
 
No effect
 
Against


4



Security Ownership of Principal Stockholders and Management
The following table sets forth beneficial ownership, as of the Record Date, of our common stock by: (1) each person known to us to be the beneficial owner of more than 5% of our common stock; (2) each of our directors (which includes nominees for director) and NEOs; and (3) all of our directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated.
Name of Beneficial Owner
 
Amount and Nature of
Beneficial Ownership (1)
 
Percent of
Common Stock
 
 
 
 
 
BlackRock, Inc. (2)
 
15,855,736

 
9.76
%
40 East 52nd Street
New York, New York 10022
 
 
 
 
The Vanguard Group (3)
 
11,107,211

 
6.84
%
100 Vanguard Blvd.
Malvern, PA 19355
 
 
 
 
Robert I. Toll (4)
 
12,057,459

 
7.37
%
250 Gibraltar Road
Horsham, Pennsylvania 19044
 
 
 
 
Edward G. Boehne
 
142,148

 
*

Richard J. Braemer
 
204,756

 
*

Christine N. Garvey
 
31,627

 
*

Carl B. Marbach (5)
 
206,228

 
*

John A. McLean
 
100

 
*

Stephen A. Novick
 
106,398

 
*

Paul E. Shapiro
 
228,549

 
*

Douglas C. Yearley, Jr.
 
1,049,182

 
*

Richard T. Hartman
 
287,757

 
*

Martin P. Connor
 
202,955

 
*

All directors and executive officers as a group (11 persons) (1)
 
14,517,159

 
8.78
%
        
*    Less than 1%
(1)
Shares issuable pursuant to restricted stock units (“RSUs”) vesting and options exercisable within 60 days after the Record Date are deemed to be beneficially owned. Accordingly, the information presented above includes the following numbers of shares of common stock underlying RSUs and options held by the following individuals, and all directors and executive officers as a group: Mr. Robert I. Toll, 1,195,661 shares; Mr. Boehne, 98,981 shares; Mr. Braemer, 86,883 shares; Ms. Garvey, 28,582 shares; Mr. Marbach, 99,679 shares; Mr. Novick, 98,981 shares; Mr. Shapiro, 96,231 shares; Mr. Yearley, 851,263 shares; Mr. Hartman, 237,609 shares; Mr. Connor, 170,119 shares; and all directors and executive officers as a group, 2,963,989 shares.
(2)
BlackRock, Inc. (“BlackRock”) filed a Schedule 13G/A on January 27, 2017, which states that BlackRock has sole voting power with respect to 14,862,920 shares and sole dispositive power with respect to 15,855,736 shares. According to the Schedule 13G/A filed by BlackRock, various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares, and no one person’s interest in our common stock was more than 5% of the total outstanding common stock, as of the date the Schedule 13G/A was filed.
(3)
The Vanguard Group ("Vanguard") filed a Schedule 13G on February 10, 2016, which states that Vanguard has sole dispositive power with respect to 10,932,171 shares, sole voting power with respect to 163,597 shares, shared dispositive power with respect to 175,040 shares, and shared voting power with respect to 15,800 shares. According to the Schedule 13G filed by Vanguard, various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares, and no one person’s interest in our common stock was more than 5% of the total outstanding common stock, as of the date the Schedule 13G was filed.

5



(4)
Amount includes 158,580 shares held by trusts for Mr. Robert I. Toll’s children and grandchildren, of which Mrs. Jane Toll, Mr. Robert I. Toll’s spouse, is a trustee with voting and dispositive power and as to which he disclaims beneficial ownership. Amount includes 4,950,316 shares pledged to financial institutions to secure personal obligations of Mr. Robert I. Toll.
(5)
Amount includes an aggregate of 9,400 shares beneficially owned by individual retirement accounts (“IRAs”) for the benefit of Mr. Marbach and his wife. Mr. Marbach disclaims beneficial ownership of the 4,700 shares held by his wife’s IRA.


6



PROPOSAL ONE—ELECTION OF DIRECTORS
Board Membership Criteria
The Nominating and Corporate Governance Committee of the Board of Directors (the "Governance Committee") identifies individuals qualified to become members of the Board of Directors consistent with criteria approved by the Board of Directors. The Governance Committee, in selecting, or in recommending the selection of, nominees for directors, considers applicable statutory, regulatory, case law, and NYSE requirements, including when appropriate those applicable to membership on the Audit and Risk Committee and the Compensation Committee, as well as other criteria it deems appropriate.
The Governance Committee requires that, at a minimum, candidates possess a background that includes a strong education, extensive business experience, and the requisite reputation, character, integrity, skills, judgment, and temperament, which, in the view of the Governance Committee, have prepared them for dealing with the multi-faceted financial, business, governance, and other issues that confront a Board of Directors of a corporation with the size, complexity, reputation, and success of the Company. Although the Governance Committee does not have a separate policy specifically governing diversity, it values diversity of viewpoints, background, and experience in evaluating candidates for Board membership and will consider a candidate’s experience, education, skills, background, gender, race, ethnicity, and other qualities and attributes, including the contributions of these qualities and attributes to the Board as a whole.
Board Composition
The Governance Committee assesses annually the composition of the Board, including a review of Board size, the skills and qualifications represented on the Board, and director tenure. In its review of the skills and qualifications of each director, the Governance Committee considers the characteristics that it believes should be represented on the Board as well as each Committee of the Board.
The findings of the Governance Committee's annual review of Board composition are reported to and discussed with the full Board. Based on its evaluation, the Governance Committee may recommend an increase or decrease in the size of the Board or changes in the composition of the Board so as to best reflect the objectives and needs of the Company and the desired skill sets of the directors. Similarly, the Governance Committee may establish processes for developing candidates for Board membership and conducting searches for Board candidates. The Governance Committee, which periodically evaluates potential director candidates, recommended that Mr. McLean be included as a director nominee for election at the 2016 Annual Meeting of Stockholders.
As part of this annual review of Board composition, the Governance Committee considers director tenure, including a comparison of director tenure to the Company's peer group. To assist in its review, the Chair of the Governance Committee periodically conducts individual meetings with the independent directors to discuss Board composition and determine whether such director's future plans may assist the Governance Committee in its consideration of the issue of director tenure.
Our Lead Independent Director (who also is the Chair of the Governance Committee) leads the annual Board self-evaluation procedure to review the Board's effectiveness and to identify any opportunities for improvement. As part of this process, the Lead Independent Director receives feedback from each director regarding Board and committee composition, Board practices, Board accountability, and director standards of conduct. The Lead Independent Director leads the discussion with the Board to review this information and to identify any areas for improvement.
The Board believes that, through its annual review of Board composition and nomination process, coupled with its annual self-evaluation procedure, the Board will continue to meet the needs of the Company.

7



Our Director Nominees
The Board currently consists of nine directors. Each current director is standing for re-election to hold office until the 2018 Annual Meeting of Stockholders and until his or her respective successor has been duly elected and qualified. Each nominee has indicated a willingness to continue to serve as a director.
During fiscal 2016, the Board adopted a majority voting standard for uncontested director elections. Under the new majority voting standard, in uncontested elections a nominee for director shall be elected to the Board if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. Directors will continue to be elected by plurality vote in the event of a contested election.
Director Qualifications
The Governance Committee has reviewed the business experience and qualifications of each director nominee and has concluded that the directors possess business experience in the areas set forth below. The Governance Committee believes that the directors' business experience in these areas brings value to the Board and to the Company in light of our business strategy, structure, and direction.
This business experience, coupled with our directors' knowledge and understanding of the Company's operations, governance, personnel, and business ethic gained by them over time, have led the Governance Committee and the Board of Directors to the conclusion that each director provides the Company with unique perspective, insight, and skills that enable him or her to provide strong guidance and leadership during all phases of the cycle of the real estate market and in times of management transition, and that each should serve as a director of the Company.
The table below summarizes certain key qualifications and skills of each director nominee that were relevant to the decision to nominate him or her to serve on the Board. The lack of a mark does not mean the director does not possess that qualification or skill; rather, a mark indicates a specific area of focus or expertise on which the Board relies most heavily. Each director's biography below describes his or her qualifications and relevant experience in more detail.
Skills and Qualifications of our Director Nominees
Name
Leadership
Industry
Operating
Accounting
 and
Financial
Business Development and Marketing
Corporate Governance and Law
Other Board Experience
 
 
 
 
 
 
 
 
Robert I. Toll
ü
ü
ü
 
ü
ü
ü
Douglas C. Yearley, Jr.
ü
ü
ü
 
ü
ü
 
Edward G. Boehne
ü
 
 
ü
ü
ü
ü
Richard J. Braemer
ü
ü
 
ü
ü
ü
ü
Christine N. Garvey
ü
ü
ü
ü
 
ü
ü
Carl B. Marbach
ü
 
ü
ü
ü
 
 
John A. McLean
ü
 
ü
ü
ü
 
 
Stephen A. Novick
ü
 
 
 
ü
ü
ü
Paul E. Shapiro
ü
 
ü
ü
ü
ü
ü
In addition to the skills and qualifications referenced above, we include below other information about the backgrounds and experience of our director nominees, including specific qualifications, experience, skills, and expertise considered by the Governance Committee as relevant to each of the nominee's candidacy as a director.

8



Robert I. Toll, with his brother Bruce E. Toll, founded our predecessor’s operations in 1967. He has been a member of our Board since our inception in May 1986. He served as Chairman of the Board and Chief Executive Officer from our inception until June 2010, when he assumed the position of Executive Chairman of the Board. He brings to the Board his dynamic entrepreneurial and leadership experience as a founder, Chairman of the Board, Chief Executive Officer and, currently, Executive Chairman of the Company, and has established the Company as the country’s leading luxury home builder.
Douglas C. Yearley, Jr. has been a member of our Board since June 2010. He joined us in 1990, specializing in land acquisitions from financial institutions. He has been an officer since 1994, holding the position of Senior Vice President from January 2002 until November 2005, and the position of Regional President from November 2005 until November 2009, when he was promoted to Executive Vice President. Since June 2010, he has been our Chief Executive Officer. Prior to joining us, Mr. Yearley practiced law in New Jersey as a commercial litigator. He brings to the Board a deep understanding of our industry and our business as a result of the significant operational roles in which he has served over the 25 years he has been with the Company, his managerial and leadership experience, and his legal background.
Edward G. Boehne has been a member of our Board since July 2000 and our Lead Independent Director since March 2011. He is the Chair of the Nominating and Corporate Governance Committee and a member of the Audit and Risk Committee. From 1981 until his retirement in May 2000, Mr. Boehne was the President of the Federal Reserve Bank of Philadelphia. Mr. Boehne is a member of the board of directors of Beneficial Bancorp, Inc. and its subsidiary, Beneficial Bank. Mr. Boehne is also a member of the board of directors of, and Senior Economic Advisor to, the Haverford Trust Company. He brings to the Board his reputation and accomplishments as a leader and expert in the Federal bank regulatory field, as well as his current service in various board and advisory positions with high profile companies in the banking and insurance industries.
Richard J. Braemer has been a member of our Board since September 1986. He is the Chair of the Public Debt and Equity Securities Committee. He is senior counsel at the law firm of Ballard Spahr LLP, where he was a partner from 1994 through 2008. Mr. Braemer is a director and past Chairman of the Board of Directors of the Albert Einstein Healthcare Network, a Philadelphia-based, non-profit healthcare network. In addition to his professional skills as an attorney practicing primarily in the field of mergers and acquisitions, including real estate transactions, he brings to our Board the experience gained both as a former board member and audit committee chair of a public company and as an advisor to boards, board committees, and independent directors of publicly and privately held corporations.
Christine N. Garvey has been a member of our Board since September 2009. She is a member of the Audit and Risk Committee and the Public Debt and Equity Securities Committee. She was the Global Head of Corporate Real Estate Services at Deutsche Bank AG from 2001 to 2004. Prior to that, she served as Vice President of Worldwide Real Estate and Workplace Resources at Cisco Systems, Inc. and as Group Executive Vice President at Bank of America. Ms. Garvey has been a member of the board of directors of HCP, Inc. since 2007. She also has served as a member of the board of ProLogis since September 2005, when Catellus Development Corporation, of which she had been a member of the board since 1995, merged into a subsidiary of ProLogis. Ms. Garvey served on the board of directors of Hilton Hotels Corporation through October 2007. She brings to the Board her extensive knowledge of and background in real estate and banking and her experience in executive leadership positions and board memberships with various public entities in the national real estate market.

9



Carl B. Marbach has been a member of our Board since December 1991. He is the Chair of the Executive Compensation Committee and a member of the Audit and Risk Committee and the Public Debt and Equity Securities Committee. Since January 2004, Mr. Marbach has been President of Greater Marbach Airlines, Inc., a company that provides aviation and consulting services. From January 1995 to January 2004, Mr. Marbach was President of Internetwork Publishing Corp., an electronic publisher, which he founded. He brings to the Board his expertise in the field of information technology, as well as his entrepreneurial experiences in building businesses in that and other industries.
John A. McLean has been a member of our Board since March 2016. He is a member of the Nominating and Corporate Governance Committee. Mr. McLean is the Chief Executive Officer and Distribution Principal for Hartford Funds Distributors, a subsidiary of Hartford Funds, a position he has held since January 2013. From April 2009 to May 2012, he was the Head of U.S. Retail and Offshore Sales at Eaton Vance Investment Managers. Prior to that time, Mr. McLean held positions of increasing responsibility at MFS Fund Distributors. He serves on the Board of Trustees of Gateway to Leadership. Mr. McLean brings to the Board his expertise in building and leading high performance sales and marketing organizations and his strategic and tactical leadership skills.
Stephen A. Novick has been a member of our Board since January 2003. He is a member of the Executive Compensation and the Nominating and Corporate Governance Committees. Mr. Novick serves as Senior Advisor to Chasbro Investments. Until December 2006, Mr. Novick was a consultant to Grey Global Group, a marketing communications company. From 1990 until his retirement in December 2004, Mr. Novick was Chief Creative Officer-Worldwide, and from April 2000 to December 2004 was Vice Chairman, of Grey Global Group. Mr. Novick is also a member of the board of directors of Ark Restaurant Corp. In April 2015, he was elected to the Board of Trustees of The Julliard School. In addition to the experience gained in his roles in the corporate and non-profit sectors, he brings to our Board his creative skills, leadership, and expertise in the field of marketing communications.
Paul E. Shapiro has been a member of our Board since December 1993. He is the Chair of the Audit and Risk Committee and a member of the Executive Compensation Committee. Since June 2004, Mr. Shapiro has been Chairman of the Board of Q Capital Holdings LLC, and he is Chairman of the Board of its two operating companies that are in the life settlement business. From January 2004 to June 2004, Mr. Shapiro was Senior Vice President of MacAndrews & Forbes Holdings, Inc., a private holding company of operating businesses. From June 2001 to December 2003, Mr. Shapiro was Executive Vice President and Chief Administrative Officer of Revlon Inc. Prior thereto, Mr. Shapiro practiced corporate and securities law as a managing shareholder of the Palm Beach County office of Greenberg Traurig LLP (which acquired Shapiro and Bregman, a firm he co-founded) and was a partner in Wolf, Block, Schorr and Solis-Cohen. He brings to the Board his extensive business experience in executive positions with various nationally known companies, which he has served in a wide variety of capacities that have drawn upon his legal and entrepreneurial skills, including those in the areas of corporate governance and the regulatory corporate environment.
Required Vote
Director nominees are elected by a majority of the votes cast at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” ALL NOMINEES.


10



PROPOSAL TWO—RATIFICATION OF THE RE-APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
As part of its oversight of the Company’s relationship with our independent auditors, the Audit and Risk Committee (the "Audit Committee") reviews annually our independent auditors’ qualifications, performance, and independence. Based on the results of this review, the Audit Committee re-appointed Ernst & Young LLP to serve as the Company’s independent auditors for the fiscal year ending October 31, 2017. Ratification is being sought at the Meeting in a non-binding vote of stockholders. Although ratification is not required by our bylaws or otherwise, the Board is submitting the selection of Ernst & Young LLP to our stockholders for ratification because we value our stockholders' views on the Company’s independent auditors. If our stockholders fail to ratify the selection, it will be considered notice to the Board and Audit Committee to consider the selection of a different firm.
A representative of Ernst & Young LLP is expected to be present at the Meeting, will be afforded the opportunity to make a statement, and is expected to be available to respond to appropriate questions. We have been advised by Ernst & Young LLP that neither the firm, nor any member of the firm, has any financial interest, direct or indirect, in any capacity in us or our subsidiaries.
Audit and Non-Audit Fees
The following table sets forth the fees earned for services rendered by Ernst & Young LLP for professional services for the fiscal years ended October 31, 2016 and 2015:
 
 
2016
 
2015
 
 
 
 
 
Audit Fees (1)
 
$
1,360,000

 
$
1,257,500

Audit-Related Fees (2)
 
1,995

 
31,990

Tax Fees (3)
 
74,000

 
51,343

All Other Fees
 

 

 
 
$
1,435,995

 
$
1,340,833

 
(1)
“Audit Fees” include fees billed for (a) the audit of Toll Brothers, Inc. and its consolidated subsidiaries, (b) the audit of the Company’s internal control over financial reporting, (c) the review of quarterly financial information, and (d) the issuance of consents and comfort letters to underwriters in various filings with the Securities and Exchange Commission ("SEC").
(2)
“Audit-Related Fees” include fees billed for audits of a certain joint venture in which we have an interest and fees for the use of the independent auditors’ technical accounting research tool.
(3)
“Tax Fees” include fees billed for consulting on tax planning matters and tax compliance matters.
The Audit Committee meets and agrees upon the annual audit fee directly with our independent auditors. The Audit Committee also establishes pre-approved limits for which our management may engage our independent auditors for specified services. Any work that exceeds these pre-approved limits for the specified services in a quarter requires the advance approval of the Audit Committee. Each quarter the Audit Committee reviews the matters worked on by the independent auditors during the previous quarter and establishes any pre-approved limits for the current quarter. All fees and services for fiscal 2016 were approved by the Audit Committee. The Audit Committee also reviewed and approved the compatibility of non-audit services, including tax services, with Ernst & Young LLP’s independence. The Audit Committee reviewed and pre-approved the services provided by Ernst & Young LLP and approved the fees paid to Ernst & Young LLP for all services for fiscal 2016.
Required Vote
To be approved, this proposal must receive an affirmative majority of the votes cast on the proposal at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL TWO.

11



PROPOSAL THREE—ADVISORY AND NON-BINDING VOTE
ON EXECUTIVE COMPENSATION (SAY ON PAY)
Our stockholders voted in 2011, in an advisory vote, in favor of the annual submission of the Company’s compensation of its NEOs to our stockholders for approval on a non-binding basis, and our Board adopted this approach. In accordance with this outcome of that stockholder vote and regulations under Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are including in this proxy statement a separate resolution, subject to a non-binding stockholder vote, to approve the compensation of our NEOs as disclosed in this proxy statement. We encourage stockholders to carefully review our compensation policies and decisions regarding our NEOs as presented in the “Compensation Discussion and Analysis” and the tabular (and accompanying narrative) disclosure on pages 27 to 49.
Our Compensation Committee has developed and maintained a compensation program that is intended to reward performance and encourage actions that drive success in our short- and long-term business strategy. Our executive compensation program received the support of 98%, 87%, 98%, 99%, 98%, and 99% of our stockholders who voted at our Annual Meeting of Stockholders in 2016, 2015, 2014, 2013, 2012, and 2011, respectively.
In December 2015, the Compensation Committee changed several components of our executive compensation program to strengthen the alignment between pay and performance. These changes, which were effective for fiscal 2016 compensation, reflect feedback from stockholders and proxy advisory firms, current market practice, input from the Compensation Committee’s independent compensation consultant, and the Compensation Committee’s consideration of the results of past Say on Pay advisory votes.
In determining fiscal 2016 compensation for our NEOs, as described in the “Compensation Discussion and Analysis” starting on page 27, the Compensation Committee considered the contributions of each of our executive officers to the Company’s strategy to diversify our geographic footprint and broaden our platform of residential product lines. The Compensation Committee also considered Company performance in fiscal 2016 and paid particular attention to the notable areas of our performance and our management’s achievements in fiscal 2016 set forth under “Compensation Discussion and Analysis—Fiscal 2016 Company Performance” on pages 27 to 28.
Accordingly, we are asking our stockholders to approve, in a non-binding vote, the following resolution in respect of this Proposal Three:
“RESOLVED, that the stockholders approve, in a non-binding vote, the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis” beginning on page 27 of the proxy statement and the related compensation tables and narrative discussion.
Required Vote
To be approved, this proposal must receive an affirmative majority of the votes cast on the proposal at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL THREE.


12



PROPOSAL FOUR—ADVISORY AND NON-BINDING VOTE ON FREQUENCY OF VOTE REGARDING EXECUTIVE COMPENSATION (SAY ON PAY FREQUENCY)

In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, our stockholders have the opportunity to cast an advisory vote on how often we should include a Say on Pay proposal in our proxy materials for future annual stockholder meetings (the “Say on Pay Frequency" proposal). Stockholders may vote to recommend having the Say on Pay vote every year, every two years, or every three years.
Our stockholders voted in 2011, in an advisory vote, in favor of the annual submission of the Company’s executive compensation to our stockholders for approval on a non-binding basis, and our Board adopted this approach. We continue to believe that Say on Pay votes should continue to be conducted every year so that our stockholders may annually express their views on our executive compensation program.
As an advisory vote, this proposal is not binding on the Company, the Board, or the Compensation Committee; however, the Compensation Committee and the Board value the opinions expressed by our stockholders in their votes on this proposal and will consider the outcome of the vote when making future decisions regarding the frequency of conducting a Say on Pay vote. It is expected that the next vote on a Say on Pay Frequency proposal will occur at the 2023 Annual Meeting of Stockholders.
Stockholders may cast their advisory vote to recommend holding future advisory votes on executive compensation every “1 Year,” “2 Years,” or “3 Years,” or to “Abstain.”
Required Vote
A plurality of the votes cast on this proposal will determine the stockholders’ preferred frequency for holding future advisory votes on executive compensation, which means that the option for holding an advisory vote every 1 year, 2 years, or 3 years receiving the greatest number of votes will be considered the preferred frequency of the stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
TO HOLD SAY ON PAY VOTES EVERY 1 YEAR.









13



PROPOSAL FIVEAPPROVAL OF THE TOLL BROTHERS, INC.
EMPLOYEE STOCK PURCHASE PLAN (2017)
The Company’s Employee Stock Purchase Plan (2017) (the “ESPP”) is intended to provide a convenient and practical means by which employees may participate in stock ownership of the Company. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).
The Board believes that the ESPP promotes the interests of the Company and its stockholders by encouraging employees of the Company to become stockholders, and therefore promotes the Company’s growth and success. The Board also believes that the opportunity to acquire a proprietary interest in the success of the Company through the acquisition of shares of the Company's common stock pursuant to the ESPP is an important aspect of the Company’s ability to attract and retain highly qualified and motivated employees. The Board believes that it is desirable and in the best interests of the Company and its stockholders to continue to provide employees of the Company with benefits under the ESPP.
The Company is seeking approval of the ESPP since the current plan is scheduled to expire in December 2017. At October 31, 2016, there were 500,000 shares of common stock reserved for issuance under the expiring employee stock purchase plan. If the ESPP is approved by stockholders, the remaining shares available for grant under the expiring plan will be cancelled, and the ESPP will have 500,000 shares available for issuance.
A copy of the ESPP, as proposed to be amended, is attached to this proxy statement as Annex A. The following description of the ESPP is a summary of certain provisions and is qualified in its entirety by reference to Annex A.
Material Provisions of the ESPP
Subject to shareholder approval, a maximum of 500,000 shares of common stock may be issued under the ESPP. The number of shares issued or reserved pursuant to the ESPP (or pursuant to outstanding awards) is subject to adjustment on account of stock splits and/or stock dividends. The shares may consist of shares purchased specifically for purposes of the ESPP, shares otherwise held in treasury or shares originally issued by the Company for such purpose. If the ESPP is approved by shareholders, it will become effective as of April 3, 2017, and no new offering periods will commence on or after that date under the current Amended and Restated Employee Stock Purchase Plan, dated January 1, 2008.
Administration. The ESPP is administered by the Board of Directors (the “Board”) or by a committee of the Board consisting of one or more members designated by the Board (the Board or such a committee of the Board, the “Administrator”). The Administrator has the authority to interpret the ESPP, to issue rules for administering the ESPP, to change, alter, amend or rescind such rules, and to make all other determinations necessary or appropriate for the administration of the ESPP. All determinations, interpretations and constructions made by the Administrator with respect to the ESPP shall be final and conclusive.
Eligibility. Each of our (and our affiliates’) employees are eligible to participate in the ESPP, other than employees whose customary employment is for less than five months per calendar year or for less than 20 hours per week. Our employees who own stock possessing 5% or more of the total combined voting power or value of all classes of our stock will not be granted an option under the ESPP. As of the Record Date, approximately 4,550 employees of the Company and its affiliates, including four executive officers, were eligible to participate in the ESPP.
Participation in the Plan. Eligible employees may participate in the ESPP by electing to participate in a given offering period in either the 15% discount purchase program (“15% Program”) or the 5% discount purchase program (“5% Program”) by submitting a subscription agreement for either program authorizing specified payroll deductions and specifying a date to commence such deductions. A

14



participant’s participation in the ESPP will continue until the participant makes a new election or withdraws from an offering period or the ESPP.
Payroll Deductions. Payroll deductions are made from the compensation paid to each participant for each offering period as elected by the participant; provided that no participant will be entitled to purchase, during any calendar year, shares exceeding an aggregate fair market value in excess of $25,000. A participant can increase, decrease or revoke the rate of payroll deductions during an offering period. In addition, payment for shares purchased under the plan may be made in cash.
Termination of Participation in the Plan. A participant’s participation in the ESPP will be terminated upon the termination of such participant’s employment for any reason. Upon a termination of a participant’s employment, no payroll deductions shall be taken thereafter, no purchase shall be permitted on any purchase date following the termination date, and the balance of such former participant’s plan account will be paid without interest to the former participant or the former participant’s estate in the event of participant’s death.
Purchase of Shares. With respect to an offering period for both the 15% Program and the 5% Program, each participant will be granted an option to purchase a number of shares up to a maximum fair market value established by the Administrator (which maximum will be $6,250). On the last business day of each offering period (each, a “purchase date”), we will apply the funds in each participant’s account to purchase shares. The purchase price for shares under the (a) 15% Program is 85% of the fair market value of the shares on the purchase date and (b) 5% Program is 95% of the fair market value of the shares on the purchase date. As soon as practicable after each purchase date, the number of shares purchased by each participant will be deposited in an investment account established in such participant’s name. A participant will not be permitted to dispose of shares purchased pursuant to the 15% Program until the third anniversary of the applicable purchase date. Shares purchased under the 5% Program may be transferred by the employee at any time and there is no restriction on the disposition of such shares.
Amendment and Termination. The Administrator may amend the ESPP; provided, however, that no amendment will be made which, without shareholder approval, would increase the number of shares authorized for the ESPP, materially increase the benefits accruing to participants under the ESPP or modify the requirements as to eligibility for participation in the ESPP.
The ESPP will terminate upon the earliest of the termination of the ESPP by our Board of Directors or December 31, 2027.
Withholding. We reserve the right to withhold from shares distributed to a participant any amounts which we are required by law to withhold.
Certain Federal Income Tax Consequences
The following discussion of the U.S. federal income tax consequences relating to the ESPP is based on present federal tax laws and regulations and is not a complete description of the federal income tax laws. Participants may also be subject to certain state, local or non-U.S. taxes which are not described below.
Options to purchase shares of our common stock granted under the ESPP are intended to qualify for favorable federal income tax treatment associated with rights granted under an employee stock purchase plan that qualifies under the provisions of Section 423(b) of the Code. Under these provisions, no income will be taxable to a participant until the shares of common stock purchased under the ESPP are sold or otherwise disposed of. If the shares of common stock are disposed of within two years from the first day of the offering period, a transaction referred to as a “disqualifying disposition,” the participant will realize ordinary income in the year of such disposition equal to the difference between the fair market value of the shares of common stock on the purchase date and the purchase price. The amount of such ordinary income will be added to the participant’s basis in the shares of common stock, and any additional gain or resulting loss recognized on the disposition of the shares of common stock after such basis adjustment

15



will be a capital gain or loss. A capital gain or loss will be long-term if the participant holds the shares of common stock for more than one year after the purchase date.
If the shares of our common stock purchased under the ESPP are sold (or otherwise disposed of) more than two years after the first day of the offering period, then the lesser of (a) the excess of the fair market value of the stock at the time of such disposition over the purchase price and (b) the excess of the fair market value of the stock as of the purchase date over the purchase price will be treated as ordinary income. The amount of such ordinary income will be added to the participant’s basis in the shares of our common stock, and any additional gain recognized on the disposition of the shares of common stock after such basis adjustment will be long-term capital gain. If the fair market value of the shares of common stock on the date of disposition is less than the purchase price, there will be no ordinary income and any loss recognized will be a capital loss.
The company will generally be entitled to a deduction in the year of a disqualifying disposition equal to the amount of ordinary income realized in the United States by the participant as a result of such disposition, subject to the satisfaction of any tax-reporting obligations. In all other cases, no deduction is allowed.
Required Vote
To be approved, this proposal must receive an affirmative majority of the votes cast on the proposal at the Meeting.     
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL FIVE.

Equity Compensation Plan Information
The following table provides information as of October 31, 2016 with respect to compensation plans (including individual compensation arrangements) under which the Company’s equity securities are authorized for issuance. There are no plans that have not been approved by stockholders.
Plan Category
 
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants
and Rights(1)
 
Weighted-
Average
Exercise Price
of Outstanding
Options,
Warrants
and Rights(2)
 
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column(a))
 
 
 
 
 
 
 
 
 
(a)
 
(b)
 
(c)
 
 
(In thousands)
 
 
 
(In thousands)
Equity compensation plans approved by security holders
 
10,349

 
$
26.3553

 
6,771

Equity compensation plans not approved by security holders
 

 
 
 

Total
 
10,349

 
$
26.3553

 
6,771

        
(1)
Amount includes 8,514,000 shares and 1,835,000 shares of stock options and RSUs, respectively, outstanding as of October 31, 2016. The amount of performance-based RSUs, which is included in the RSU amount, reflects the maximum number of shares that could be issued under the fiscal 2016 award as further described under "2016 Performance-Based RSUs" starting on page 41.
(2)
The weighted-average exercise price does not take into account the 1,835,000 shares of RSUs outstanding as of October 31, 2016.

16



CORPORATE GOVERNANCE
We are committed to operating within a comprehensive plan of corporate governance for the purpose of defining and evaluating director independence, assigning Board committee responsibilities, setting high standards of professional and personal conduct, and assuring compliance with such responsibilities and standards. The Board and the Governance Committee regularly monitor developments in the area of corporate governance to ensure that our corporate governance practices continue to evolve as appropriate.
Corporate Governance Guidelines and Practices
The Board has adopted Corporate Governance Guidelines, which describe the Board’s views on a number of governance topics. The guidelines are posted on, and can be obtained free of charge from, our website at www.tollbrothers.com under “Investor Relations: Corporate Governance.”
Leadership Structure
In fiscal 2010, the Board appointed Mr. Douglas C. Yearley, Jr. as Chief Executive Officer ("CEO") and Mr. Robert I. Toll, our co-founder and prior CEO, as Executive Chairman of the Board. Mr. Yearley is responsible for our day-to-day operations and for formulating and executing our long-term strategies in collaboration with Mr. Robert I. Toll and the Board. As Executive Chairman of the Board, Mr. Robert I. Toll is actively involved in our business by chairing the Board, acting as advisor to the executive officers, and regularly engaging in the review of land transactions.
In the Board’s view, an appropriate leadership structure depends on the opportunities and challenges facing a company at a given time. The Board believes that the current leadership structure is appropriate for us at this time as it enables us and the Board to continue to benefit from Mr. Robert I. Toll’s vast experience, skills, expertise, and knowledge of the Company and the home building industry.
Since March 2011, Edward G. Boehne has served as the Lead Independent Director of the Board of Directors. Mr. Boehne helps ensure that there is an appropriate balance between management and the independent directors and that the independent directors are fully informed and able to discuss and debate the issues that they deem important. The role of the Lead Independent Director includes:
presiding over all executive sessions and other meetings of the independent directors;
acting as principal liaison between the Executive Chairman of the Board, the CEO and the non-independent directors, on the one hand, and the independent directors, on the other hand;
serving as the director whom stockholders may contact;
leading the process for evaluating the Board of Directors and the committees of the Board of Directors;
participating in the communication of sensitive issues to the other directors; and
performing such other duties as the Board of Directors may deem necessary and appropriate from time to time.
Codes of Business Conduct and Ethics
The Governance Committee is responsible for reviewing proposed changes to the Company's governance instruments, including its codes of ethics. In December 2016, upon the recommendation of the Governance Committee, the Board approved a revised Code of Ethics and Business Conduct which applies to all employees, as well as a Code of Ethics for Members of the Board of Directors. These codes of ethics supersede the prior versions for employees and for the principal executive officer and senior financial officers. They are available free of charge from our website at www.tollbrothers.com under “Investor Relations: Corporate Governance.”

17



Director Independence
Under the NYSE rules and the standards adopted by the Board, a director is not “independent” unless the Board affirmatively determines that the director has no direct or indirect material relationship with us. In addition, the director must meet the requirements for independence set forth by the NYSE rules.
The Board has established categorical standards of director independence to assist it in making independence determinations. These standards, which are described below, set forth certain relationships between us and the directors, and their immediate family members or entities with which they are affiliated, that the Board, in its judgment, has determined to be material in assessing a director’s independence. The standards applied by the Board in affirmatively determining whether a director is “independent” provide that a director is not independent if:
(1)
the director is, or has been within the last three years, our employee or an immediate family member (defined as including a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone, other than domestic employees, who shares such person’s home) of, or is, or has been within the last three years, one of our executive officers;
(2)
the director has received, or has an immediate family member who has received, during any 12-month period within the last three years, more than $120,000 per year in direct compensation from us, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);
(3)
(a) the director is a current partner or employee of a firm that is our internal or external auditor; (b) the director has an immediate family member who is a current partner of such a firm; (c) the director has an immediate family member who is a current employee of such a firm and personally works on our audit; or (d) the director or an immediate family member was, within the last three years, a partner or employee of such a firm and personally worked on our audit within that time;
(4)
the director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of our present executive officers at the same time serves or served on that company’s compensation committee;
(5)
the director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to or received payments from us for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or two percent of such other company’s consolidated gross revenues; or
(6)
the director or an immediate family member is, or within the past three years has been, an affiliate of another company in which, in any of the last three years, any of our present executive officers directly or indirectly either: (a) owned more than five percent of the total equity interests of such other company, or (b) invested or committed to invest more than $900,000 in such other company.
The Board annually reviews the independence of all directors. The Board, in applying the above-referenced standards, has affirmatively determined that all of our directors are independent, other than Mr. Robert I. Toll and Mr. Yearley. As part of the Board’s process in making such determination, the Board determined that all of the above-cited objective criteria for independence are satisfied, and that no independent director has any material relationship with us that could interfere with his or her ability to exercise independent judgment.


18



Compensation Committee Interlocks and Insider Participation
None of the members who served on the Compensation Committee during the fiscal year ended October 31, 2016 has ever been an officer or employee of the Company or its subsidiaries. None of the members has any relationship required to be disclosed under this caption under the rules of the SEC.
Communication with the Board
Any person who wishes to communicate with the Board or specific individual directors, including the Lead Independent Director or the independent directors as a group, may do so by directing a written request addressed to such directors or director in care of the General Counsel, Toll Brothers, Inc., at the address appearing on the cover page of this proxy statement. Communications directed to members of the Board who are management directors will be referred to the intended Board member(s) except to the extent that it is deemed unnecessary or inappropriate to do so pursuant to the procedures established by the independent directors. Communications directed to independent directors will be referred to the intended Board member(s).
Committees of the Board and Meetings
The Board currently has the following standing committees: Audit and Risk Committee; Executive Compensation Committee; Nominating and Corporate Governance Committee; and Public Debt and Equity Securities Committee. The following table lists our four Board committees, as well as the chairs and members of each committee.
Name
Independent
Audit and Risk Committee
Executive Compensation
Committee
Nominating
& Corporate
Governance
Committee
Public Debt & Equity
Securities
Committee
 
 
 
 
 
 
Robert I. Toll
 
 
 
 
 
Douglas C. Yearley, Jr.
 
 
 
 
 
Edward G. Boehne
ü
M
 
C
 
Richard J. Braemer
ü
 
 
 
C
Christine N. Garvey
ü
M
 
 
M
John A. McLean
ü
 
 
M
 
Carl B. Marbach
ü
M
C
 
M
Stephen A. Novick
ü
 
M
M
 
Paul E. Shapiro
ü
C
M
 
 
        
C-Chair     M-Member
Audit and Risk Committee
The Audit Committee is, and for the entire 2016 fiscal year was, composed of Paul E. Shapiro (Chair), Edward G. Boehne, Christine N. Garvey, and Carl B. Marbach, each of whom has been determined by the Board to meet the standards of independence required of audit committee members by the NYSE and applicable SEC rules. The Board has also determined that all members of the Audit Committee are financially literate, and that Edward G. Boehne possesses accounting and related financial management expertise within the meaning of the listing standards of the NYSE and is an “audit committee financial expert” within the meaning of the applicable SEC rules. For a description of Mr. Boehne’s relevant experience, see “Proposal One—Election of Directors” starting on page 7.

19



The duties and responsibilities of the Audit Committee are set forth in its charter, which may be found at www.tollbrothers.com under “Investor Relations: Corporate Governance,” and include, among other things:
acting on behalf of our Board to discharge the Board’s responsibilities relating to the quality and integrity of our financial statements;
overseeing our compliance with legal and regulatory requirements;
overseeing risk oversight and assessment;
the appointment, qualifications, performance and independence of the independent registered public accounting firm;
pre-approval of all audit engagement fees and terms, all internal-control related services, and all permitted non-audit engagements (including the terms thereof) with the independent auditor;
review of the performance of our internal audit function; and
management of the Company’s significant risks and exposures, including strategic, operational, compliance, and reporting risks.
The duties of the Audit Committee with respect to oversight of the Company’s financial reporting process are described more fully on page 62 under “Audit and Risk Committee Report.” During fiscal 2016, the Audit Committee held 11 meetings. All of its meetings were attended by representatives from Ernst & Young LLP, our independent registered public accounting firm. The Audit Committee meets regularly in executive session with management, the company’s Chief Audit Officer, and our independent registered public accounting firm.
Executive Compensation Committee
The Compensation Committee is, and for the entire 2016 fiscal year was, composed of Carl B. Marbach (Chair), Stephen A. Novick, and Paul E. Shapiro, each of whom has been determined by the Board to meet the NYSE’s standards for independence required of compensation committee members. In addition, each committee member qualifies as a “Non-Employee Director” as defined in Rule 16b-3 under the Exchange Act and as an “outside director” as defined for purposes of Section 162(m) of the Code.
The duties and responsibilities of the Compensation Committee are set forth in its charter, which may be found at www.tollbrothers.com under “Investor Relations: Corporate Governance,” and include, among other things:
establishing our compensation philosophy and objectives;
overseeing the implementation and development of our compensation programs;
annually reviewing and approving corporate goals and objectives relevant to the compensation of the Executive Chairman of the Board and the CEO;
evaluating the performance of the Executive Chairman of the Board and the CEO in light of those goals and objectives and determining each of the Executive Chairman of the Board’s and CEO’s compensation level based on these evaluations;
reviewing and approving all elements and levels of compensation for our executive officers and any other officers recommended by the Board;
discussing the results of the stockholder advisory vote on Say on Pay;
making recommendations to the Board with respect to incentive compensation plans and equity-based plans;

20



administering (in some cases, along with the Board) all of our stock-based compensation plans, as well as the Company's Senior Officer Bonus Plan ("Senior Officer Plan) and its Supplemental Executive Retirement Plan ("SERP");
reviewing and approving, or making recommendations to the full Board regarding, equity-based awards; and
reviewing our regulatory compliance with respect to compensation matters.
In fulfilling its responsibilities, the Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the committee. For a discussion concerning the process and procedures for determining executive compensation and the role of executive officers and compensation consultants in determining or recommending the amount or form of compensation, see the “Compensation Discussion and Analysis” beginning on page 27. The Compensation Committee held five meetings during fiscal 2016. During fiscal 2016, the Compensation Committee's independent compensation consultant and its affiliates did not provide any services to the Company or its affiliates other than advising the Compensation Committee on executive officer compensation and advising the Governance Committee on director compensation.
Nominating and Corporate Governance Committee
The Governance Committee is composed of Edward G. Boehne (Chair), John A. McLean, and Stephen A. Novick, each of whom has been determined by the Board to meet the NYSE’s standards for independence. Mr. McLean joined the Governance Committee in May 2016.
The duties and responsibilities of the Governance Committee are set forth in its charter, which may be found at www.tollbrothers.com under “Investor Relations: Corporate Governance,” and include, among other things:
identifying individuals qualified to become members of the Board and recommending to the Board the nominees for election to the Board;
evaluating from time to time the appropriate size of the Board and recommending any changes in the composition of the Board so as to best reflect our objectives;
assessing annually the composition of the Board, including a review of Board size, the skills and qualifications represented on the Board, and director tenure;
evaluating and making recommendations to the Board with respect to the compensation of the non-management directors;
adopting and reviewing, at least annually, corporate governance guidelines consistent with the requirements of the NYSE;
establishing procedures for submission of recommendations or nominations of candidates to the Board by stockholders;
reviewing the Board’s committee structure;
reviewing proposed changes to our governance instruments;
reviewing and recommending director orientation and continuing orientation programs; and
reviewing and approving related person transactions.
The Governance Committee is responsible for evaluating and making recommendations to the Board with respect to compensation of our directors. The Governance Committee held five meetings during fiscal 2016.

21



Public Debt and Equity Securities Committee
The Public Debt and Equity Securities Committee is composed of Richard J. Braemer (Chair), Christine N. Garvey, and Carl B. Marbach. Ms. Garvey joined the Public Debt and Equity Securities Committee in June 2016.
The duties and responsibilities of the Public Debt and Equity Securities Committee are set forth in its charter, which may be found at www.tollbrothers.com under “Investor Relations: Corporate Governance,” and include reviewing and approving, pursuant to authority granted by the Board, certain transactions relating to our public debt and equity securities and those of our affiliates. The Public Debt and Equity Securities Committee held one meeting during fiscal 2016.
Director Attendance
Attendance at Board Meetings
The Board held six meetings during fiscal 2016.
All directors attended over 75% or more of the meetings of the Board and Board Committees on which they served.
Our independent directors hold separate meetings. Edward G. Boehne, our Lead Independent Director, acts as chair at meetings of the independent directors. During fiscal 2016, the independent directors met four times.
Attendance at Annual Meetings of Stockholders
It is the policy of our Board that all directors attend annual meetings of stockholders except where the failure to attend is due to unavoidable circumstances or conflicts discussed in advance by the director with the Executive Chairman of the Board. All of our directors except Mr. Marbach attended our 2016 Annual Meeting of Stockholders.
Risk Oversight
Our Audit Committee regularly receives reports from an enterprise risk management committee composed of representatives from various business functions within the Company that are charged with risk assessment and business continuity planning. This committee meets regularly and performs an enterprise risk assessment to identify and assess risks to the Company based on the probability of occurrence and the financial impact to the Company, the results of which are presented to the Audit Committee.
The enterprise risk committee also selects topics related to specific risks and potential vulnerabilities related to particular business functions of the Company, which topics are then presented to the Audit Committee along with a summary of the measures we have taken or plan to take in order to define and mitigate such risks and prepare for and address such vulnerabilities.
In addition, our Compensation Committee oversees risks arising from our compensation practices, and our Governance Committee oversees succession risks. Each of these committees regularly reports to the full Board, which is ultimately responsible for overseeing risks at the enterprise level. In addition, our full Board oversees strategic risks through its focus on overall corporate strategy and execution. The Compensation Committee has reviewed the design and operation of our compensation structures and policies as they pertain to risk and has determined that our compensation programs do not create or encourage the taking of risks that are reasonably likely to have a material adverse effect on us.

22



DIRECTOR COMPENSATION
Director Compensation Program
The Governance Committee is responsible for evaluating and recommending compensation for non-executive directors to the Board. Our non-executive directors are compensated in cash, stock options, and RSUs for their service as directors. The equity portion of annual compensation is paid following the end of the fiscal year, so the equity grant for service in the fiscal year ended October 31, 2015 was made at the beginning of fiscal 2016.
The compensation program in effect for fiscal 2015 and 2016 for non-executive directors consisted of the following components:
Board Retainer. The principal form of compensation for non-executive directors for their service as directors is an annual retainer, consisting of a combination of cash and equity, with an annual aggregate value of $160,000 as follows:
Cash. Each non-executive director receives one-third of the annual retainer in cash.
Equity. The equity portion of the annual retainer for a non-executive director consists of two components: (a) non-qualified stock options having a grant date fair value of one-third of the annual retainer and (b) RSUs having a grant date fair value of one-third of the annual retainer, except that fractional share options and units are not issued. Equity grants made in fiscal 2016 were issued under the Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Non-Employee Directors (2007) for the non-employee directors and the Stock Incentive Plan for Employees (2014) for Mr. Bruce E. Toll.
Stock options are granted on a date within the last 15 days of December that is determined in advance by the Board for service during the immediately preceding fiscal year and are granted by the Board with an exercise price equal to the closing price of the underlying common stock on the date of grant. Each option grant made to a non-executive director has a ten-year term and vests in equal annual installments over a two-year period, with a provision for automatic vesting upon a change of control of the Company. For directors with five or more years of service, options continue to vest and remain exercisable for the ten-year term in the event of the director's death, disability, or retirement.
RSUs are granted on the same equity award grant date as stock options. RSUs granted as director compensation vest in equal annual installments over two years, and shares underlying RSUs are generally deliverable 30 days after the vesting of the second installment. Upon a change of control of the Company or upon the death, disability, or retirement of the director, RSUs granted as director compensation will vest immediately and will be deliverable 30 days after vesting.
Committee Retainer. Each member of the Audit Committee, the Governance Committee, and the Compensation Committee receives annually, for service on each such Committee, a combination of cash and equity with a grant date fair value of $20,000 as follows (except that fractional share options and units are not issued): (a) one-third of this amount in cash; (b) non-qualified stock options having a grant date fair value of one-third of this amount; and (c) RSUs having a grant date fair value of one-third of this amount, in each case with the same material terms described above under “Equity.” In addition, the Chair of each of these committees receives an additional annual cash retainer of $10,000.
Each member of the Public Debt and Equity Securities Committee receives annually for any fiscal year in which the Committee meets or takes official actions, for service on such Committee, a combination of cash and equity with a grant date fair value of $10,000 as follows (except that fractional share options and units are not issued): (a) one-third of this amount in cash; (b) non-qualified stock options having a grant date fair value of one-third of this amount; and (c) RSUs

23



having a grant date fair value of one-third of this amount, in each case with the same features described above under “Equity.” In addition, the Chair of that Committee receives an additional cash retainer of $5,000 for any fiscal year in which the Committee meets or takes official action.
Attendance at Board and Committee Meetings. Directors, Committee Chairs and Committee members do not receive any additional compensation for attendance at Board or Committee meetings.
Lead Independent Director. The Lead Independent Director, Mr. Edward G. Boehne, receives annually $10,000 in cash for his services in that capacity.
Fiscal 2017 Changes to Director Compensation Program
In fiscal 2016, the Board adopted changes to the non-executive director compensation program that will be effective for service starting in fiscal 2017. The Board increased the annual retainer to $210,000 and determined that the equity portion of each of the annual retainers for Board and Committee service would consist of RSUs having a grant date fair value of two-thirds of the annual retainer.
Other Director Compensation Arrangements
Mr. Bruce E. Toll entered into an Advisory and Non-Competition Agreement (the “Advisory Agreement”) with the Company as of November 1, 2010. The Advisory Agreement was terminated on March 8, 2016, the date that Mr. Bruce E. Toll ceased to be a director and an employee of the Company. The Advisory Agreement provided, among other things, that the Company would retain Mr. Bruce E. Toll as Special Advisor to the Executive Chairman of the Board and the CEO. In fiscal 2016, Mr. Bruce E. Toll received $114,808 as compensation under the Advisory Agreement, which was a pro-rated payment of his annual compensation of $300,000 for his period of service in fiscal 2016 through March 8, 2016.
The Advisory Agreement provided that during its term, Mr. Bruce E. Toll would be an employee and entitled to receive the health plan benefits provided to our NEOs, which in fiscal 2016 were the same as those provided to all of our employees after 60 days of service with us. Mr. Bruce E. Toll was a participant in the Company’s 401(k) retirement plan during fiscal 2016 through March 8, 2016, and we provided Mr. Bruce E. Toll with a contribution to the Company’s 401(k) retirement plan in the amount of $6,562 during this period.
In addition, Mr. Bruce E. Toll is a participant in the SERP, which provides an annual benefit to him of $230,000 for 20 years. Mr. Bruce E. Toll became eligible to receive his SERP benefits when he ceased to provide services to the Company on March 8, 2016. See “Executive Compensation Tables—Pension Benefits During Fiscal 2016—Supplemental Executive Retirement Plan” on page 56 for a more detailed description of the SERP.


24



Director Compensation Table
The following table sets forth information concerning the fiscal 2016 compensation awarded to or earned by our non-executive directors. Executive directors are not compensated for their service as directors. The compensation received by our executive directors for their services as employees is shown in the Summary Compensation Table on page 50 of this proxy statement.
Director Compensation during Fiscal 2016
Name
 
Fees
Earned or
Paid in
Cash ($)
 
Stock
Awards
($)(1)(2)
 
Option
Awards
($)(3)(4)
 
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)(5)
 
All Other
Compensation
($)(6)
 
Total ($)
 
 
 
 
 
 
 
 
 
 
 
 
 
Robert S. Blank (7)
 
90,002

 
63,335

 
63,349

 

 

 
216,686

Edward G. Boehne
 
86,670

 
66,653

 
66,672

 

 

 
219,995

Richard J. Braemer
 
61,668

 
56,666

 
56,685

 

 

 
175,019

Christine N. Garvey
 
60,002

 
59,984

 
60,008

 

 

 
179,994

Carl B. Marbach
 
80,004

 
70,003

 
70,012

 

 

 
220,019

John A. McLean (8)
 
38,890

 

 

 

 

 
38,890

Stephen A. Novick
 
66,670

 
66,653

 
66,672

 

 

 
199,995

Paul E. Shapiro
 
76,670

 
66,653

 
66,672

 

 

 
209,995

Bruce E. Toll (9)
 
13,334

 
56,666

 
56,685

 
333,444

 
121,370

 
581,499

        
(1)
Annual RSU grants to non-executive directors are made during the first quarter of each fiscal year for service on the Board and Board committees during the immediately preceding fiscal year; accordingly, the values reflected in the table above are values of grants for service in fiscal 2015.
Each non-executive director received RSUs having a value of $53,333 for Board service. In addition, non-executive directors received RSUs having a value of $6,666 for service on each of the Audit Committee, the Governance Committee, and the Compensation Committee, and RSUs having a value of $3,333 for service on the Public Debt and Equity Securities Committee. For purposes of determining the number of RSUs that are awarded, the RSU grant date fair value per share is the closing price of our common stock on December 18, 2015, the grant date of the awards. Fractional RSUs are not granted.
(2)
The non-executive directors held the following amounts of outstanding unvested RSUs at October 31, 2016: Mr. Boehne, 3,055 units; Mr. Braemer, 2,597 units, Ms. Garvey, 2,750 units; Mr. Marbach, 3,208 units; Mr. Novick, 3,055 units; and Mr. Shapiro, 3,055 units. The non-executive directors held the following amounts of outstanding vested RSUs at October 31, 2016: Mr. Boehne, 1,026 units; Mr. Braemer, 872 units; Ms. Garvey, 923 units; Mr. Marbach, 1,077 units; Mr. Novick, 1,026 units; and Mr. Shapiro, 1,026 units.
(3)
The annual stock option grants to non-executive directors are made during the first quarter of each fiscal year for service on the Board and Board committees during the immediately preceding fiscal year; accordingly, the values reflected in the table above are values of grants for service in fiscal 2015.
Each non-executive director received options having a value of $53,333 for Board service. In addition, non-executive directors received options having a value of $6,666 for service on each of the Audit Committee, the Governance Committee, and the Compensation Committee; and options having a value of $3,333 for service on the Public Debt and Equity Securities Committee. Options for fractional shares are not granted. The option grant values reflected in the table may vary from these amounts because the option grant date fair value per share is determined as follows:
For purposes of determining the number of shares that are subject to the options granted, the assigned value per share of the options was determined by multiplying the closing price of our stock on December 18, 2015, the date of the awards, by the average of the “Fair Value Quotient” for the three immediately previous fiscal years of the Company. The “Fair Value Quotient” is the fraction in which (x) the denominator is the closing price of our common stock on the date of the awards for the relevant date, and (y) the numerator is the grant date fair value of the options granted in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation ("ASC 718"); assumptions used in the calculation

25



of the ASC 718 amounts are included in Note 9 to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2016, excluding the effect of estimated forfeitures.
(4)
The non-executive directors held unexercised stock options to acquire the following amounts of our common stock at October 31, 2016 : Mr. Blank's estate, 110,129 shares; Mr. Boehne, 116,873 shares; Mr. Braemer, 102,642 shares; Ms. Garvey, 29,385 shares; Mr. Marbach, 117,116 shares; Mr. Novick, 116,373 shares; Mr. Shapiro, 113,123 shares; and Mr. Bruce E. Toll, 102,642 shares.
(5)
The amount in this column represents the increase in the actuarial present value of accumulated benefits under the SERP for Mr. Bruce E. Toll through October 31, 2016.
(6)
“All Other Compensation” consists of the following annual compensation and benefits provided to Mr. Bruce E. Toll pursuant to the Advisory Agreement through March 8, 2016, the date he ceased to be a director and the Agreement was terminated. See “Other Director Compensation Arrangements,” above.
Compensation under Advisory Agreement
 
$
114,808

Company contribution to 401(k) plan
 
6,562

Total
 
$
121,370

(7)
Mr. Blank died on April 30, 2016. In fiscal 2016, his estate received a cash payment of $60,000, since the non-executive director compensation program provides that in the event of a non-executive director’s death, the heirs or legal representative of such director are entitled to a cash payment equal to two-thirds of the annual retainers for service as a director and Committee member (as applicable) in lieu of the equity portion of the annual retainers earned for such period, pro-rated through the date of death.
(8)
Mr. McLean was elected as a director on March 8, 2016 at the 2016 Annual Meeting of Stockholders.
(9)
Mr. Bruce E. Toll ceased to be a director on March 8, 2016.

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EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis ("CD&A") focuses on how our NEOs are compensated and how their compensation aligns with the Compensation Committee's objectives in setting compensation for our NEOs. In our CD&A, we will discuss:
 
Page

 
 
Fiscal 2016 Company Performance
27

New Developments for Fiscal 2016 Compensation
31

Compensation Philosophy and Objectives
32

Performance Assessment Process
33

Elements of Compensation
35

Cash Compensation Decisions
35

Long-Term Incentive Compensation Decisions
39

Compensation Decision-Making Process
44

Benefits and Perquisites
45

Other Compensation Practices and Policies
46

Fiscal 2016 Company Performance
In determining NEO compensation for fiscal 2016, the Compensation Committee considered the contributions of each of our NEOs to the Company’s strategy to diversify our geographic footprint and broaden our platform of residential product lines. The Compensation Committee also considered Company performance in fiscal 2016 and paid particular attention to the Company's performance in the areas of revenues, pre-tax income, contracts, and backlog:
Revenues: Our revenues in fiscal 2016 of $5.17 billion and home building deliveries of 6,098 units rose 24% in dollars and 10% in units compared to fiscal 2015 and were the highest for any fiscal year since fiscal 2007.
Income: Our pre-tax income improved to $589.0 million in fiscal 2016, compared to pre-tax income of $535.6 million in fiscal 2015. Impacting FY 2016’s pre-tax income, reported in cost of sales, were $13.8 million of inventory impairments and $125.6 million of warranty charges primarily related to older stucco homes. Fiscal 2015’s pre-tax income included $35.7 million of inventory impairments and a comparable $14.7 million warranty charge. We reported net income of $382.1 million in fiscal 2016, or $2.18 per share diluted, compared to net income of $363.2 million in fiscal 2015, or $1.97 per share diluted, a 10.7% increase in diluted earnings per share.
Contracts: Our net signed contracts in fiscal 2016 of $5.65 billion and 6,719 units rose 14% in dollars and 14% in units compared to fiscal 2015.
Backlog: Our fiscal year-end 2016 backlog was $3.98 billion, up 14% compared to fiscal year-end 2015.
The Compensation Committee also considered the following results and achievements:
Gross Margin: Our gross margin as a percentage of revenues for fiscal 2016 was 19.8%, compared to 21.6% for fiscal 2015. Impacting FY 2016’s gross margin, reported in cost of sales, were $13.8 million of inventory impairments and $125.6 million of warranty charges primarily related to older stucco homes. Fiscal 2015’s gross margin included $35.7 million of inventory impairments and a comparable $14.7 million warranty charge.
Selling, General and Administrative Expenses (“SG&A”): Our SG&A as a percentage of revenue improved to 10.4% for fiscal 2016 compared to 10.9% for fiscal 2015.

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Operating Margin: Our operating margin decreased to 9.5% for fiscal 2016 from 10.7% for fiscal 2015.
Joint Venture and Other Income: In fiscal 2016, we produced $99.0 million in pre-tax income from our joint ventures, ancillary operations, and other sources, compared to $88.7 million in fiscal 2015.
Honors: In fiscal 2016, we were named the Most Admired Home Building Company in Fortune magazine's survey of the World's Most Admired Companies for 2016. In addition, we ranked #6 among all 1,500 companies in the survey in the Quality of Products/Services category behind only Apple, Walt Disney, Amazon, Alphabet (Google), and Nordstrom.
Fiscal 2016 Pay for Performance
Fiscal 2016 LTIA Performance Targets. The Compensation Committee assesses alignment of our executive compensation program with our shareholders’ long-term interests as it determines the performance metrics for the Company’s long-term incentive awards (“LTIA”). Since fiscal 2012, the Compensation Committee has granted performance-based RSUs based on operational performance metrics ("Ops PRSUs"), specifically:
Pre-tax income, excluding specified gains and losses from litigation or claims, impairments, and other items in accordance with the Senior Officer Plan, as more fully described under "2016 Performance-Based RSU Awards—2016 Ops PRSUs" starting on page 41 ("PTI Metric");
Home building margin which is defined as home building cost of sales excluding interest expense, as a percentage of home building revenue, excluding specified gains and losses from litigation or claims, impairments, and other items in accordance with the Senior Officer Plan, as more fully described under "2016 Performance-Based RSU Awards—2016 Ops PRSUs" starting on page 41 ("Margin Metric"); and
Units delivered ("Units Metric").
In December 2015, the Compensation Committee established fiscal 2016 performance targets for the Ops PRSUs which in each case exceeded the targets for fiscal 2015. For the fiscal 2016 performance period:
The target level for the PTI Metric was set at 26.28% higher than the Company's actual performance for fiscal 2015, and the Company's fiscal 2016 performance rose 23.41% compared to fiscal 2015.
The target level for the Units Metric was set at 10.41% higher than the Company's actual performance for fiscal 2015, and the Company's fiscal 2016 performance rose 10.37% compared to fiscal 2015.
The target level for the Margin Metric was set to 26.10% compared to the Company's actual performance of 26.22% for fiscal 2015, and the Company's fiscal 2016 performance was 25.63%.
 
Fiscal 2016 LTIA Performance Metrics Compared to Fiscal 2015
 
Actual
 
Target (100%)
 
Payout (%)
2016
2015
 
2016
2015
 
2016
2015
PTI Metric
$719,470,000
$582,994,000
 
$736,176,000
$531,443,000
 
97.73%
109.70%
Margin Metric
25.63%
26.22%
 
26.10%
25.79%
 
98.20%
101.67%
Units Metric
6,098
5,525
 
6,100
5,500
 
99.97%
100.45%
The strength of the Company’s operations and profit margins in fiscal 2016 resulted in a payout in number of shares at 98.63% of target for the Ops PRSUs, as more fully described below and under "2016 Performance-Based RSU Awards—2016 Ops PRSUs" starting on page 41.

28



At the beginning of fiscal 2016, the Compensation Committee determined that it would add a fourth performance metric by awarding performance-based RSUs based on relative TSR ("TSR PRSUs") to further support the alignment between pay and performance. At that time, the Compensation Committee made an initial grant of TSR PRSU target awards, including a one-time grant of TSR PRSU target awards with performance periods of one and two years to phase in these awards, in addition to the regularly recurring grant with a three-year performance period.
Although the Company’s operational performance in fiscal 2016 was strong, total shareholder return lagged our peer group. Due to the Company’s stock price performance in fiscal 2016:
Stock options granted to our executive officers in fiscal 2016 had a realizable value of zero at the end of the fiscal year.
TSR PRSUs with a one-year performance period consisting of fiscal 2016 had a payout of zero.
Ops PRSUs based on operating metrics had a realizable value of 18% lower than targeted.
Realizable Value of 2016 Equity Compensation. The Compensation Committee believes that the substantial decrease in the realizable value of equity awards granted to our CEO in fiscal 2016 compared to the grant date fair value of such awards in the Summary Compensation Table (“SCT”) on page 50 demonstrates the strong pay for performance alignment of our compensation program. The Compensation Committee particularly noted that the one-time grant to the CEO of TSR PRSUs with a one-year performance period consisting of fiscal 2016 has a grant date fair value of $1.08 million in the SCT but had a payout of zero.
Realizable Value of Equity Awards Granted in 2016 Compared to SCT Valuetol2017def14a_chart-05286.jpg        
(1)
The realizable value of equity awards means the (a) the values of all performance-based RSUs granted in fiscal 2016 and (b) in the case of stock options, the intrinsic value of all awards granted in fiscal 2016 calculated by subtracting the exercise price from the share price on the last day of the fiscal year. Performance-based RSUs with performance periods ended within fiscal 2016 were valued at the determined outcome multiplied by the share price on the last day of fiscal 2016; performance-based RSUs for performance periods that have not yet been completed were valued at target based on the share price on the last day of fiscal 2016.

29



The Compensation Committee recognizes that it is important for it to consider how compensation outcomes are influenced by Company performance. This perspective is particularly important because equity-based awards account for the most significant portion of the total compensation of our CEO and other executive officers. Accordingly, the Compensation Committee evaluated the decrease of approximately $4.6 million in the realizable value of the CEO’s equity awards granted in fiscal 2016 compared to the SCT value.
The Compensation Committee believes that the changes that it made to our executive compensation program in December 2015 to enhance pay for performance alignment were effective, as demonstrated by the correlation between LTIA performance metrics and the corresponding payouts for fiscal 2016 performance.
Impact of 2016 One-Time TSR PRSU Grants. In its year-end review of fiscal 2016 pay and performance, the Compensation Committee evaluated the impact of the changes to the executive compensation program for fiscal 2016 in the first year of their implementation.
As part of this deliberation, the Compensation Committee noted that the TSR PRSUs were phased in by making a one-time grant of awards with performance periods of one and two years, in addition to the regularly recurring grant with a three-year performance period. In reviewing SCT values for fiscal 2016, the Compensation Committee assessed the inflation in total compensation levels caused by these one-time awards and considered that, net of these one-time awards, SCT total compensation levels for fiscal 2016 were comparable to or less than fiscal 2015:
 
 
2016 Adjusted SCT Total Compensation (1)
 
2015 SCT Total Compensation
Robert I. Toll
 
$6.99 million
 
$8.02 million
Douglas C. Yearley, Jr.
 
$9.99 million
 
$9.81 million
Richard T. Hartman
 
$4.06 million
 
$3.99 million
Martin P. Connor
 
$3.68 million
 
$3.46 million
        
(1)
2016 Adjusted SCT Total Compensation is the total compensation reported in the SCT for fiscal 2016, less the grant date fair value of the one-time grants of TSR PRSUs with performance periods of one and two years made in December 2015 to phase in the grant of TSR PRSUs which regularly will have a performance period of three years.
The Compensation Committee will continue to monitor and assess the impact of the recent changes to the compensation program and the effectiveness of the program to align pay and performance.

30



New Developments for Fiscal 2016 Compensation
In December 2015, the Compensation Committee changed several components of our executive compensation program to further support the alignment between pay and performance. These changes took into account feedback from stockholders and proxy advisory firms, current market practice, input from the Compensation Committee’s independent compensation consultant, and the Compensation Committee’s consideration of the results of the Say on Pay advisory vote held in 2015.
Summary of Executive Compensation Program Changes
Prior Program
 
New Program
Annual incentive bonus based 100% on qualitative performance assessment
è
Payout of 60% of annual incentive bonus based on pre-tax income targets, with qualitative performance assessment limited to 40%
Long-term incentive award performance metrics based on pre-tax income, home building margin, and units delivered
è
Relative total shareholder return
added as LTIA performance metric
One-year performance period for all
performance-based RSUs
è
Three-year performance period for TSR PRSUs (after phase-in of awards)
Mix of equity awards varied among NEOs
è
Mix of 60% performance-based RSUs and 40% stock options awarded to all NEOs
other than the Executive Chairman
No clawback policy
è
Incentive compensation, including stock-based compensation, is subject to a clawback policy
In addition, starting with grants made in December 2016, in no event will the payout for the TSR PRSUs be greater than 125% if the Company’s own TSR is negative for the performance period. Additional detail regarding these executive compensation program features can be found under "Cash Compensation Decisions—Annual Incentive Bonus" starting on page 36, "Long-Term Incentive Compensation Decisions—Performance-Based RSUs" starting on page 40, and "Other Compensation Practices and Policies—Clawback Policy" on page 48.
Consideration of Say on Pay Results
At our 2016 Annual Meeting of Stockholders, 98% of those stockholders voting on the Say on Pay proposal voted in support of the compensation of our NEOs. The results of our Say on Pay votes held to date are as follows:
Annual Meeting Year
 
Stockholder Support on
Say on Pay Vote
2016
 
98%
2015
 
87%
2014
 
98%
2013
 
99%
2012
 
98%
2011
 
99%
In response to the decrease in support in fiscal 2015, the Compensation Committee undertook a comprehensive review of the Company's executive compensation program with the goal of making changes in the program for fiscal 2016 compensation. As part of this review, we considered the assessments of our program by the two major proxy advisory firms, and we held discussions with a number of our largest institutional stockholders and a proxy advisory firm regarding their views on the existing and proposed new components of the program.

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As a result of this review and the feedback received from stockholders, proxy advisory firms, and the Compensation Committee’s independent compensation consultant, the Compensation Committee made the changes summarized above to the executive compensation program effective for fiscal 2016. The Compensation Committee viewed the results of the 2016 Say on Pay vote as an affirmation of the changes made to the executive compensation program made in December 2015 and, accordingly, did not implement further significant changes to the program during fiscal 2016.
Compensation Philosophy and Objectives
We face competition for talent from a number of other home builders in markets in which we operate. It is vital to our success and long-term viability that our business continues to be managed by highly experienced, focused, and capable executives who possess the experience and vision to anticipate and respond to market developments. The Compensation Committee’s primary objectives in setting compensation for our NEOs are:
Set compensation levels that are sufficiently competitive to attract, motivate, and reward the highest quality individuals to contribute to our goals and overall financial success. By keeping compensation competitive during times of growth as well as contraction, the Compensation Committee attempts to retain executives through the phases of the cycle of the real estate market.
Retain executives and encourage continued service. It is important that we concentrate on retaining and developing the capabilities of our current leaders and emerging leaders to ensure that we continue to have an appropriate depth of executive talent.
Incentivize executives to manage risks appropriately while attempting to improve our financial results, performance, and condition over both the short-term and the long-term. The Compensation Committee, by seeking a balance of short-term and long-term compensation, seeks to motivate and reward NEOs for decisions made today that may not produce immediate or short-term results, but are intended to have a positive long-term effect. 
Align executive and stockholder interests. The Compensation Committee believes that the use of equity compensation, including use of performance-based RSU grants as a key component of executive compensation, is a valuable tool for aligning the interests of our NEOs with those of our stockholders, including the use of such compensation to reward actions that demonstrate long-term vision.
Consider tax deductibility for incentive compensation. Although the Compensation Committee may award compensation to NEOs that is not tax-deductible when it deems that such compensation is in the best interests of the Company, it generally attempts to structure compensation for NEOs to meet the Code requirements for deductibility, including deductibility of compensation awarded under performance-based compensation plans.
Use pay practices that support good governance.
We do not enter into employment agreements with NEOs or agreements that provide “golden parachute" cash payouts or excise tax gross-ups for our NEOs.
Benefits conditioned upon a change of control are limited to vesting and potential payment of existing SERP benefits and vesting of previously granted equity awards.
Perquisites are limited, and we do not provide tax gross ups on perquisites.
We have a policy that restricts NEOs' hedging and pledging of Company shares.
Incentive compensation, including stock-based compensation, is subject to a clawback policy starting in fiscal 2016.

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Performance Assessment Process
Compensation Decision-Making Timeline
The Compensation Committee reviews and determines base salary, annual incentive bonuses, and long-term incentive compensation, as well as benefits and perquisites, on an annual basis. For compensation relating to fiscal 2016, the primary steps taken by the Compensation Committee to establish and award compensation to our NEOs were as follows:
 
 
Compensation Committee Action Taken
 
 
 
December 2015
 
Set performance goals for fiscal 2016 annual incentive bonus and performance-based RSU awards and fixed target number of 2016 performance-based RSU awards for NEOs
Set calendar year 2016 base salaries for the NEOs
 
 
 
June 2016
 
Reviewed the Say on Pay voting results from the 2016 annual meeting of stockholders, as well as feedback received from stockholders and proxy advisory firms on our executive compensation program
Reviewed fiscal 2015 NEO compensation compared to our Peer Group (defined on page 45)
Reviewed a market assessment prepared by the Compensation Committee's independent compensation consultant of fiscal 2015 senior executive pay versus performance for the Company compared to the Peer Group
Reviewed Company financial results compared to the Peer Group for the prior fiscal year and the current fiscal year to date
Consulted with the independent compensation consultant regarding industry trends in executive compensation
 
 
 
November 2016
 
Reviewed market assessment prepared by the independent compensation consultant of Company fiscal 2015 senior executive pay versus projected Company fiscal 2016 performance compared to the Peer Group
Commenced discussions with our largest stockholders and proxy advisory firms to gain their input on our executive compensation program
Held preliminary discussions regarding NEO individual performance during fiscal 2016
 
 
 
December 2016
 
Reviewed market assessment prepared by the independent compensation consultant of fiscal 2015 Company senior executive pay versus actual Company fiscal 2016 performance compared to the Peer Group
Reviewed each NEO’s individual performance during fiscal 2016
Reviewed fiscal 2016 performance goals and certified the level of performance attained for annual incentive bonus eligibility and performance-based RSU payouts
Determined fiscal 2016 annual incentive bonuses for the NEOs
Determined and granted equity awards for fiscal 2016 performance

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Review of Company Performance
Throughout the fiscal year, the full Board monitored our financial performance in relation to our recent historical performance and in relation to our Peer Group. The Compensation Committee also reviewed and considered our financial performance during the fiscal year when making final fiscal 2016 compensation decisions at the beginning of fiscal 2017. See "Fiscal 2016 Company Performance" starting on page 27.
Review of Individual Performance
As part of its evaluation of individual performance, the Compensation Committee considered the contributions of each NEO to the achievements described under “Fiscal 2016 Company Performance” above. The Compensation Committee also evaluated the contributions of each of our NEOs in fiscal 2016 to the following areas: the Company’s strategy to diversify our geographic footprint and broaden our platform of residential product lines; the Company's fiscal 2016 earnings per share and gross margin performance; and the Company's continuing growth, including its growth from approximately 3,900 full-time employees in fiscal 2015 to approximately 4,200 in fiscal 2016.
In making compensation decisions for fiscal 2016, the Compensation Committee further considered the following specific achievements of each of our NEOs in fiscal 2016:
The contributions of Mr. Toll, our Executive Chairman, as the Company's founder and his continuing guidance and oversight, in particular with respect to the Company's land acquisition;
The contributions of Mr. Yearley, our CEO, and Mr. Hartman, our President and Chief Operating Officer, to growth in backlog and the Company's realignment towards better-performing markets in fiscal 2016;
Mr. Yearley's and Mr. Hartman's efforts to further enhance the Company’s brand, which were reflected in industry honors received in fiscal 2016;
The contributions of Mr. Yearley and Mr. Connor, our Chief Financial Officer, to the Company's exploration of potential strategic transactions in fiscal 2016, including its acquisition of Coleman Homes at the start of fiscal 2017; and
Mr. Connor's contributions in the areas of new joint ventures formed; managing the Company’s balance sheet, including strategic repurchases of the Company's stock and the extension and expansion of the Company's corporate loans; assessing and managing risk; and oversight of initiatives to improve the Company’s information technology infrastructure.

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Elements of Compensation
Summary of Executive Compensation Program
 
 
Element
 
Time Horizon
 
Performance Measure
 
 
 
 
 
 
 
Fixed
 
Base Salary
 
Short 
(1 year)
 
Individual Performance
 
 
 
 
 
 
 
At Risk
 
Annual Incentive Bonus (1)
 
Short
(1 year; paid semi-annually)
 
60% Quantitative Component;
PTI Metric
40% Qualitative Component; Individual/Company Performance
 
Performance-Based RSUs
 
Medium 
(3-4 years) (2)
 
PTI Metric (25%)
Margin Metric (25%)
Units Metric (25%)
Relative TSR (25%)
 
Options
 
Long 
(10 years)
 
Stock Price Performance
 
 
 
 
 
 
 
Fixed
 
Retirement Benefits (SERP)
 
Long
(payable following retirement)
 
Individual Performance
        
(1)
Annual Incentive Bonus payments are subject to achievement of the consolidated revenues and PTI Metric performance goals under the Senior Officer Plan described under "Annual Incentive Bonus" starting on page 36.
(2)
The regularly recurring grant will have a three-year performance period; the TSR PRSUs were phased in by making a one-time grant of awards with performance periods of one and two years, in addition to the regularly recurring grant with a three-year performance period.
The Compensation Committee recognizes changing economic and industry conditions and changing compensation trends in its choice of methods to achieve the objectives discussed above, using a variety of compensation elements to accomplish its goals. In December 2015, the Compensation Committee changed certain features of our annual incentive bonus and LTIA program to further strengthen the alignment between pay and performance, as described more fully under "New Developments for Fiscal 2016 Compensation" on page 31 and in the specific decisions discussed below.
Cash Compensation Decisions
Base Salary
Generally, when establishing annual base salaries, the Compensation Committee takes into account each NEO’s performance of his role and responsibilities and, to the extent useful, the range of compensation of comparable executives within our Peer Group. The Compensation Committee believes that its compensation objectives are more effectively met when most of an executive’s compensation package is composed of at-risk performance-based bonuses and long-term incentive compensation, rather than fixed compensation such as base salaries. The Compensation Committee also takes into account tax deductibility of base salaries under Section 162(m) of the Code.
Fiscal 2016 Salary. In December 2015, the Compensation Committee determined that, for calendar year 2016, the base salaries of Mr. Toll, Mr. Yearley, and Mr. Hartman would remain at $1,000,000, and the base salary of Mr. Connor would be increased to $975,000. The increase in the base salary for Mr. Connor for calendar year 2016 was based on a consideration of his performance in fiscal 2016 and his increased tenure at the Company.

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Fiscal 2017 Salary. In December 2016, the Compensation Committee determined that, for calendar year 2017, the base salaries of the NEOs would remain unchanged, with Mr. Toll, Mr. Yearley, and Mr. Hartman remaining at $1,000,000, and Mr. Connor remaining at $975,000.
 
 
Calendar 2017 Salary
 
Calendar 2016 Salary
 
Calendar 2015 Salary
 
 
 
 
 
 
 
Robert I. Toll
 
$
1,000,000

 
$
1,000,000

 
$
1,000,000

Douglas C. Yearley, Jr.
 
$
1,000,000

 
$
1,000,000

 
$
1,000,000

Richard T. Hartman
 
$
1,000,000

 
$
1,000,000

 
$
1,000,000

Martin P. Connor
 
$
975,000

 
$
975,000

 
$
950,000

Annual Incentive Bonus
Senior Officer Bonus Plan. The stockholder-approved Senior Officer Plan is designed to be sufficiently flexible to allow the Compensation Committee to make awards in appropriate amounts and with appropriate performance periods and performance goals to the plan participants designated by the Compensation Committee. All of our NEOs have been designated as participants in the Senior Officer Plan. Awards paid under the Senior Officer Plan are designed to be tax deductible “qualified performance-based compensation” under Section 162(m) of the Code.
In order to maximize tax deductibility of awards under the Senior Officer Plan, the Compensation Committee has established that no award payable under the Senior Officer Plan can exceed an award cap of $8.5 million (the "Award Cap"). The Compensation Committee has no discretion to increase the amount of any awards beyond the Award Cap but may, in its sole discretion, reduce or completely eliminate an award based on such facts and circumstances as it deems relevant.
Fiscal 2016 Senior Officer Plan Performance Goals. For fiscal 2016, the Compensation Committee met in December 2015 and established that eligibility for award amounts under the Senior Officer Plan would be conditioned upon achievement of equally weighted consolidated revenue and PTI Metric target amounts. The Compensation Committee chose to maintain an equal weighting of consolidated revenue, as a measure of growth, and the PTI Metric, as a measure of both operating profitability and the Company’s performance in its joint venture and non-home building activities.
The consolidated revenue and PTI Metric targets are intended to meet the requirements for full tax deductibility of annual bonus payments to executive officers. Annual incentive bonus payments to the NEOs are subject to achievement of the consolidated revenue and PTI Metric target amounts under the Senior Officer Plan.
Bonus performance goals were set by the Compensation Committee based on forecasted results for the 2016 fiscal year and performance under the Senior Officer Plan in prior years. Eligibility for 50% of the amount available to the NEOs under the Senior Officer Plan was conditioned upon our achievement of at least 80% of these targets:
Performance Metric
 
100% Eligibility
 
50% Eligibility (80% of Targets)
 
Actual Company Performance
 
 
 
 
 
 
 
Consolidated Revenues
 
≥ $4.5 billion (50%)
 
≥ $3.6 billion (25%)
 
$5,169,508,000
PTI Metric
 
≥ $662,558,400 (50%)
 
≥ $530,046,720 (25%)
 
$719,470,000
The Compensation Committee met in December 2016 and determined that we had exceeded the consolidated revenues and PTI Metric targets for 100% eligibility under the Senior Officer Plan during fiscal 2016. For fiscal 2016 performance, the Compensation Committee awarded cash annual incentive bonuses discussed below that were well below the maximum amounts allowable under the Senior Officer Plan, which has been true since adoption of the initial plan in 2010.

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2016 Cash Annual Incentive Bonuses. In December 2015, the Compensation Committee determined that, in calculating the annual incentive bonus amounts to be paid for fiscal 2016 performance (subject to achievement of the 2016 performance goals under the Senior Officer Plan), payout of 60% of the annual incentive bonus would be based on achievement of a PTI Metric performance target, as discussed in more detail under "Formulaic Bonus Component" below. Each NEO would be eligible to earn the remaining 40% of the target level bonus through the Compensation Committee's qualitative assessment of individual and Company performance in fiscal 2016.
Formulaic Bonus Component. As discussed above, in December 2015 the Compensation Committee determined that, in calculating the amounts of annual incentive bonuses actually to be paid out of the amounts for which the NEOs were eligible under the Senior Officer Plan, payout of 60% of the annual incentive bonus for performance in fiscal 2016 would be based on achievement of a PTI Metric target amount.
For fiscal 2016, the bonus payment based on PTI Metric performance could range between 80% and 120% of the target bonus amount to the extent that the Company’s PTI Metric performance for fiscal 2016 was between 80% and 120% of the PTI Metric target amount. No amounts would have been paid for PTI Metric performance if the Company’s actual PTI Metric performance for fiscal 2016 was less than 80% of the PTI Metric target amount. The bonus payment for PTI Metric performance would have been paid at the maximum level of 120% of the target bonus amount if the Company’s PTI Metric performance for fiscal 2016 was equal to or greater than 120% of the PTI Metric target amount.
The Compensation Committee met in December 2016 and determined that the percent achieved of the PTI Metric target amount set forth below was 97.73% for fiscal 2016 performance:
 
 
2016 Annual Incentive Bonus Formulaic Bonus Component
 
 
Minimum (80%)
 
Target (100%)
 
Maximum (120%)
 
Fiscal 2016 Actual
 
 
 
 
 
 
 
 
 
PTI Metric
 
$588,940,800
 
$736,176,000
 
$883,411,200
 
$719,470,000
At that time, the Compensation Committee determined that the formulaic component of the annual incentive bonus amounts for fiscal 2016 based on PTI Metric performance were as follows:
 
 
Target Formulaic Bonus Component Amount
 
Actual Formulaic Bonus Component Award
 
 
 
 
 
Robert I .Toll
 
$
900,000

 
$
879,570

Douglas C. Yearley, Jr.
 
$
1,560,000

 
$
1,524,588

Robert T. Hartman
 
$
577,500

 
$
564,391

Martin P. Connor
 
$
577,500

 
$
564,391

Qualitative Assessment Bonus Component. As discussed above, in December 2015 the Compensation Committee determined that in calculating the amounts of annual incentive bonuses actually to be paid out of the amounts for which the NEOs were eligible under the Senior Officer Plan, each NEO would be eligible to earn the remaining 40% of the target level bonus through a qualitative assessment of individual and Company performance.
In its qualitative evaluation of performance for fiscal 2016, the Compensation Committee considered actual results as compared to performance targets set at the beginning of the fiscal year. As part of this assessment, the Compensation Committee considered the Company’s fiscal 2016 results in the following areas:
Results as reported under U.S. generally accepted accounting principles (GAAP) on an absolute basis and relative to the prior fiscal year, particularly in the areas of revenues and pre-tax income, both of which exceeded fiscal 2015 results;

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Actual fiscal 2016 results compared to performance targets for the PTI Metric, Margin Metric, and Units Metric established by the Compensation Committee at the beginning of the fiscal year;
Total shareholder return during fiscal 2016, which was negative and was lower than the median of the Peer Group for one- and three-year periods, but exceeded the median of the Peer Group for a ten-year period; and
One-year growth compared to the Peer Group in reported revenues, net income, earnings before interest and taxes, backlog, new orders, and settlements, as well as gross margin and pre-tax margin performance in fiscal 2016 compared to the Peer Group.
In its evaluation of individual performance, the Compensation Committee considered each NEO’s contribution to the financial and other business achievements in fiscal 2016. Additionally, the Compensation Committee recognized the contributions of each of our NEOs to the Company’s strategy to diversify our geographic footprint and broaden our platform of residential product lines in fiscal 2016. For further discussion of these considerations, see “Fiscal 2016 Company Performance” on pages 27 to 28 and "Performance Assessment Process” starting on page 33.
Based on this qualitative assessment of Company performance, the Compensation Committee decided to award the qualitative assessment component of the cash annual incentive bonuses for fiscal 2016 performance at 100% of target, as set forth below.
 
 
Target Qualitative Assessment Bonus Component Amount
 
Actual Qualitative Assessment Bonus Component Award
 
 
 
 
 
Robert I .Toll
 
$
600,000

 
$
600,000

Douglas C. Yearley, Jr.
 
$
1,040,000

 
$
1,040,000

Robert T. Hartman
 
$
385,000

 
$
385,000

Martin P. Connor
 
$
385,000

 
$
385,000

Total Fiscal 2016 Cash Compensation
Total cash compensation (base salary and annual incentive bonus) paid to or earned by the NEOs for fiscal 2016 is set forth below. Details on total compensation, measured and presented in the format required by the SEC, can be found in the Summary Compensation Table on page 50 of this proxy statement.
 
 
Base Salary
 
Annual Incentive
Bonus
 
Total Cash  Compensation
 
 
 
 
 
 
 
Robert I. Toll
 
$
1,000,000

 
$
1,479,570

 
$
2,479,570

Douglas C. Yearley, Jr.
 
$
1,000,000

 
$
2,564,588

 
$
3,564,588

Richard T. Hartman
 
$
1,000,000

 
$
949,391

 
$
1,949,391

Martin P. Connor (1)
 
$
970,833

 
$
949,391

 
$
1,920,224

        
(1)
Reflects base salary earned during fiscal 2016. Base salary is paid on a calendar year basis; the 2016 calendar year annual salary for Mr. Connor was $975,000.
Fiscal 2017 Bonus Performance Goals. In December 2016, the Compensation Committee set the fiscal 2017 performance goals for the Senior Officer Plan and determined that eligibility for award amounts under the Senior Officer Plan would continue to be conditioned upon achievement of equally weighted consolidated revenue and PTI Metric target amounts. The Compensation Committee also determined that the structure of the determination of the annual incentive bonus for fiscal 2017 performance would remain unchanged from fiscal 2016.

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For fiscal 2017 performance, payout of 60% of the annual incentive bonus will continue to be based on achievement of a PTI Metric target amount, and 40% will be based on the Compensation Committee's qualitative assessment of individual and Company performance (subject in each case to achievement of the 2017 performance goals under the Senior Officer Plan). The bonus payment under the formulaic bonus component will continue to range between 80% and 120% of target. Eligibility goals under the Senior Officer Plan for fiscal 2017 were set by the Compensation Committee based on forecasted results for the fiscal year and performance in prior years.
Long-Term Incentive Compensation Decisions
The Compensation Committee awards equity compensation to our NEOs in the form of stock options and performance-based RSUs. These equity awards are based on the Compensation Committee's assessment of the Company’s performance for a given fiscal year, as well as its determinations of the effectiveness of each NEO and the extent of his contributions to our success, and the economic climate in which we operate. Beginning with awards granted in fiscal 2016, the amount of stock options and performance-based RSUs awarded to each NEO has been determined on a fixed dollar basis, and the mix of equity awards for the NEOs (other than Mr. Toll) has been fixed at approximately 60% performance-based RSUs and 40% stock options.
Stock Options
Stock options for all employees, including NEOs, are granted on a date within the last 15 days of December that is set in advance by the Board. Because options are granted with exercise prices equal to the closing price of the underlying common stock on the date of the grant, any value that may ultimately be realized by an employee is based entirely upon our future stock price performance and return of capital to stockholders, which supports alignment with stockholder interests.
Options granted to our NEOs have a term of ten years from the date of the grant, and these options vest in equal annual amounts over a four-year period, beginning on the first anniversary of the date of the grant. Options would continue to vest and be exercisable for the remainder of the ten-year term upon death or disability, or qualified retirement following ten years of service, and would fully vest upon a change of control of the Company. In addition, all unexercised stock options, vested and unvested, granted to NEOs are subject to forfeiture in the event that, after the NEO retires or otherwise leaves our employ, the NEO competes with us. See “Potential Payments upon Termination or Change of Control” starting on page 57 of this proxy statement.
2016 Options. At the beginning of fiscal 2016, the Compensation Committee granted stock options to each of the NEOs, as set forth in the Grants of Plan-Based Awards During Fiscal 2016 table on page 52 of this proxy statement. These grants were awarded on December 18, 2015 in recognition of the respective NEO’s performance during fiscal 2015.
2017 Options. In December 2016, the Compensation Committee granted stock options to each of the NEOs in recognition of their fiscal 2016 performance in order to further the Compensation Committee’s objectives, as set forth above. Such grants have an exercise price of $31.61, the closing price on the Company's stock on December 20, 2016. Because they were granted in fiscal 2017, the grants below will be reflected in the executive compensation tables in next year’s proxy statement.

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The following table sets forth the number of stock options granted on December 20, 2016, in recognition of the respective NEOs' performance in fiscal 2016.
 
 
 
Option Grant for
2016 Performance (1)
 
 
 
Robert I. Toll
 
166,653
Douglas C. Yearley, Jr.
 
150,087
Richard T. Hartman
 
45,573
Martin P. Connor
 
37,673
        
(1)
For purposes of determining the number of shares that are subject to the options granted, the assigned value per share of the options was determined by multiplying the closing price of our stock on December 20, 2016, the date of the awards, by the average of the “Fair Value Quotient” for the three immediately previous fiscal years of the Company. The “Fair Value Quotient” is the fraction in which (x) the denominator is the closing price of our common stock on the date of the awards for the relevant date, and (y) the numerator is the grant date fair value of the options granted in accordance with ASC 718; assumptions used in the calculation of these amounts are included in Note 9 to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2016, excluding the effect of estimated forfeitures.
Performance-Based RSUs
Starting in fiscal 2012, the Compensation Committee has awarded performance-based RSUs to each of the NEOs in addition to granting stock options as described above. The Compensation Committee chose to award performance-based RSUs based on the recommendation of its independent compensation consultant to further encourage our growth and profitability through use of a medium-term equity award tied to pre-established performance metrics.
Operational Performance-Based RSUs. The Compensation Committee has awarded Ops PRSUs since fiscal 2012 measuring the Company's performance under the PTI Metric, the Margin Metric, and the Units Metric. The historical performance and payout levels for the three performance metrics for the Ops PRSUs are set forth below.
 
Historical Performance—Ops PRSU Performance Metrics
 
PTI Metric
 
Margin Metric
 
Units Metric
2016 Ops PRSUs
97.73%
 
98.20%
 
99.97%
2015 Ops PRSUs
109.70%
 
101.67%
 
100.45%
2014 Ops PRSUs
106.00%
 
97.78%
 
96.38%
2013 Ops PRSUs
108.13%
 
101.66%
 
104.60%
2012 Ops PRSUs
110.00%
 
110.00%
 
109.53%
Each performance metric has a minimum threshold level, which, if achieved, would earn 90% of the Ops PRSUs allocated to that metric; a target level, which, if achieved, would earn 100% of the Ops PRSUs allocated to that metric; and a maximum level, which, if achieved, would earn 110% of the Ops PRSUs allocated to that metric. To the extent that actual performance results fall between these levels, the Ops PRSUs earned would be determined proportionately between those levels. Because the Compensation Committee views these three Ops PRSU performance metrics as being equally important, they are evenly weighted in determining a blended average to calculate the payout for the Ops PRSUs. If the minimum threshold performance level of 90% is not achieved for any individual metric, none of the Ops PRSUs would be earned for that metric.
If the minimum performance criteria have been met, each Ops PRSU is subject to vesting in equal annual amounts over four years from the date of grant and the Ops PRSUs will not be delivered until the end of the four-year service vesting period, except that in the event of termination of service, the NEO

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would be entitled to receive shares underlying vested Ops PRSUs. Shares subject to Ops PRSUs held by an NEO fully vest and all restrictions immediately lapse upon a NEO’s termination of his employment due to death or disability. In addition, all shares subject to Ops PRSUs fully vest and all restrictions lapse upon a change of control of the Company. See “Potential Payments upon Termination or Change of Control” starting on page 57 of this proxy statement.
TSR Performance-Based RSUs. At the beginning of fiscal 2016, the Compensation Committee determined that it would add TSR as an additional performance metric for long-term incentive awards and award TSR PRSUs. The Compensation Committee determined that TSR would be weighted equally with the three performance metrics under the Ops PRSUs, so TSR PRSUs would account for one-fourth of the target value of performance-based RSUs awarded to any NEO, after the initial phase in of the TSR PRSUs grants.
The Compensation Committee determined that TSR PRSUs generally will have a three-year performance period, with vesting and settlement of the award to occur upon the conclusion of the performance period. Following the conclusion of the performance period, the Compensation Committee will determine the number of TSR PRSUs earned by multiplying the target award by the TSR multiplier. The TSR multiplier will be based on the TSR percentile ranking of the Company as follows:
Relative TSR Percentile Rank
 
TSR Multiplier (1)
 
 
 
Less than 25th Percentile
 
0%
25th Percentile
 
50% (threshold)
50th Percentile
 
100% (target)
75th Percentile or Above
 
200% (maximum)
        
(1)
The Total Shareholder Return Multiplier will be determined by linear interpolation for any achievement of the Relative TSR Percentile Rank which falls between the target percentages above.
In addition, starting with grants made in December 2016, in no event will the payout for the TSR PRSUs be greater than 125% if the Company’s own TSR is negative for the performance period.
Shares subject to TSR PRSUs held by an NEO fully vest and all restrictions immediately lapse upon a NEO’s termination of his employment due to death or disability. In addition, all shares subject to TSR PRSUs fully vest and all restrictions lapse upon a change of control of the Company. See “Potential Payments upon Termination or Change of Control” starting on page 57 of this proxy statement.
2016 Performance-Based RSU Awards
2016 Ops PRSUs. To measure performance in fiscal 2016, the Compensation Committee determined that it would continue to use the PTI Metric, Margin Metric, and Units Metric as the Ops PRSU performance metrics. In making this determination at the beginning of fiscal 2016, the Compensation Committee considered that the inclusion of the PTI Metric would measure operating profitability as well as the Company’s performance in its joint venture and non-home building activities. The Compensation Committee selected the Units Metric because it is a measure of growth, and it selected the Margin Metric because it measures profitability and efficiency.
In December 2015, the Compensation Committee granted 2016 Ops PRSUs relating to target levels of 59,818 shares to Mr. Toll; 81,049 shares to Mr. Yearley; 24,429 shares to Mr. Hartman; and 20,092 shares to Mr. Connor, respectively, based on the closing price of our common stock on the grant date. The 2016 Ops PRSUs were divided equally among the PTI Metric, Margin Metric, and Units Metric.

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The minimum, target, and maximum performance goals for the three 2016 Ops PRSU metrics, as well as actual fiscal 2016 performance, are set forth below.
2016 Performance Metric
 
Minimum (90%)
 
Target (100%)
 
Maximum (110%)
 
Fiscal 2016 Actual
 
 
 
 
 
 
 
 
 
PTI Metric (1)
 
$662,558,400
 
$736,176,000
 
$809,793,600
 
$719,470,000
Margin Metric (1)
 
23.49
%
 
26.10
%
 
28.71
%
 
25.63
%
Units Metric
 
5,490

 
6,100

 
6,710

 
6,098

        
(1)
The following items, to the extent disclosed in a press release or conference call, are excluded from these performance metrics:
Restructuring and severance costs pursuant to a plan approved by the Board, CEO and/or President and Chief Operating Officer
Gains or losses from litigation or claims, natural disasters, terrorism, fraud, or fraud investigations
Effect of changes in laws, regulations, or accounting principles
The gain or loss from the sale or discontinuance of a business segment, division, or unit and the budgeted, unrealized earnings before interest, taxes, depreciation, and amortization (EBITDA) for this business segment, division, or unit
Extraordinary items as defined by generally accepted accounting principles or non-recurring items
In addition, the following items are also excluded from these performance metrics:
Write-down or impairment of assets or joint venture investments
Stock-based compensation overages or underages compared to budget
Out-of-period charges or credits
Expense of an acquisition
Gains or losses from derivative transactions
Profits recognized by the Company from its share of income from the closings at Brooklyn Pier 1 Residential Investments, LP (due to ongoing litigation as of the date of grant)
In December 2016, the Compensation Committee determined the level of the performance criteria that had been met for the 2016 Ops PRSUs awarded in December 2015. The Compensation Committee determined that the percentages achieved for the PTI Metric, Margin Metric, and Units Metric were 97.73%, 98.20% and 99.97%, respectively, and the payout for the 2016 Ops PRSUs, based on a blended average of the metrics, would be at 98.63% of target.
Based on this payout at 98.63% of target, our NEOs earned the following numbers of 2016 Ops PRSUs:
 
Ops PRSUs for
2016 Performance
 
 
Robert I. Toll
58,998
Douglas C. Yearley, Jr.
79,938
Richard T. Hartman
24,094
Martin P. Connor
19,816
One-fourth of the 2016 Ops PRSUs vested on December 18, 2016, the first anniversary of the grant date and the remaining three-fourths of these RSUs remain subject to service-based vesting.

42



2016 TSR PRSUs. In December 2015, the Compensation Committee determined that it would phase in the TSR PRSU awards by making one-time grants of TSR PRSU target awards with performance periods of one and two years, in addition to the regularly recurring grant with a three-year performance period as follows:
 
 
December 2015 TSR PRSU Target Awards
 
 
1-Year
Performance Period
(11/1/2015-10/31/2016)
 
2-Year
Performance Period
(11/1/2015-10/31/2017)
 
3-Year
Performance Period
(11/1/2015-10/31/2018)
 
 
 
 
 
 
 
Robert I. Toll
 
19,939
 
15,373
 
10,822
Douglas C. Yearley, Jr.
 
27,017
 
27,017
 
27,017
Richard T. Hartman
 
8,143
 
8,143
 
8,143
Martin P. Connor
 
6,697
 
6,697
 
6,697
For the NEOs other than Mr. Toll, the target dollar amount of TSR PRSUs with a three-year performance period, plus the target number of Ops PRSUs, approximates 60% of the dollar value of equity awards granted to the NEOs in fiscal 2016, with the three-year TSR PRSUs representing 25% of the target number of performance-based RSUs. The one-time grants of TSR PRSU target awards with performance periods of one and two years were fixed at the number of three-year TSR PRSUs for the NEOs other than Mr. Toll. For Mr. Toll, given his role as Executive Chairman, the target numbers of TSR PRSUs were adjusted to award fewer TSR PRSUs with longer performance periods.
In December 2016, the Compensation Committee determined that the TSR PRSUs with a one-year performance period consisting of fiscal 2016 had a payout of zero.
2017 Performance-Based RSU Awards
2017 Ops PRSUs. In December 2016, the Compensation Committee approved the grant of Ops PRSU target awards for fiscal 2017, subject to achievement of the award performance metrics in fiscal 2017, relating to the target levels of 33,660 shares to Mr. Toll; 87,788 shares to Mr. Yearley; 26,573 shares to Mr. Hartman; and 21,828 shares to Mr. Connor, based on the closing price of our common stock on the grant date. The Compensation Committee determined that it would retain the PTI Metric, the Margin Metric, and the Units Metric as three equally-weighted performance metrics for the 2017 Ops PRSUs. The Compensation Committee also determined that Ops PRSUs would continue to account for three-fourths of the target value of performance-based RSUs awarded in fiscal 2017.
2017 TSR PRSUs. In December 2016, the Compensation Committee approved the grant of TSR PRSU target awards with a three-year performance period covering fiscal 2017 through fiscal 2019, subject to the Company’s relative TSR percentile rank at the conclusion of the performance period, relating to the target levels of 9,215 shares to Mr. Toll; 23,945 shares to Mr. Yearley; 7,248 shares to Mr. Hartman; and 5,953 shares to Mr. Connor, based on the grant date fair value calculated in accordance with ASC 718. The 2017 TSR PRSUs continue to account for one-fourth of the target value of performance-based RSUs awarded in fiscal 2017.

43



Compensation Decision-Making Process
Participation by Management
The Compensation Committee worked with management to establish its meeting agendas and determine meeting participants. Throughout the year, the Compensation Committee requested information from management and the Compensation Committee’s independent compensation consultant, including information about the compensation practices and financial performance of other companies in the home building industry and other industries. Our CEO and Chief Financial Officer were invited by the Compensation Committee to attend certain of its meetings in order to provide information and answer questions regarding the Company’s strategic objectives and financial performance. Our other NEOs were also available to Compensation Committee members and to attend its meetings upon request.
With regard to compensation decisions relating to the Executive Chairman, the Compensation Committee, in addition to its own assessment of the Executive Chairman’s performance during fiscal 2016, gained significant insight into the performance of the Executive Chairman during that same period from its many exchanges with the other NEOs, other Company officers, and the other directors. The Executive Chairman submitted recommendations to the Compensation Committee regarding salary, bonus, equity compensation, and overall compensation levels for the CEO. Our CEO, in conjunction with the Executive Chairman, submitted recommendations to the Compensation Committee regarding salary, bonus, equity compensation, and overall compensation levels for the President and Chief Operating Officer and the Chief Financial Officer. The Compensation Committee, after consideration of all of these inputs, determined the actual awards to the Executive Chairman, the CEO, the President and Chief Operating Officer, and the Chief Financial Officer.
Use of Independent Compensation Consultant
The Compensation Committee engaged Compensation Advisory Partners LLC (“CAP”) to serve as its independent compensation consultant for fiscal 2016. CAP received instructions from, and reported to, the Compensation Committee on an independent basis. CAP was also authorized by the Compensation Committee to share with and request and receive from management specified information in order to prepare for Compensation Committee meetings.
The Compensation Committee requested CAP’s advice on a variety of matters, including the amount and form of executive compensation, compensation strategy, market comparisons, pay and performance alignment versus industry peers, executive pay trends, compensation best practices, compensation-related legislative matters and related rulemaking, and potential compensation plan designs and modifications. The Compensation Committee met with CAP, both with and without management, on several occasions during fiscal 2016, and also in early fiscal 2017 with respect to compensation decisions for fiscal 2016 performance. During fiscal 2016, CAP did not provide any services to the Company or its affiliates, other than advising the Compensation Committee on executive officer compensation and advising the Governance Committee on director compensation.
The Compensation Committee conducts a formal evaluation of the independence of CAP annually in the first quarter of the fiscal year. Based on this review, the Compensation Committee did not identify any conflict of interest raised by the work CAP performed in fiscal 2016. When conducting this evaluation, the Compensation Committee took into consideration the factors set forth in Rule 10C-1 under the Exchange Act and the NYSE’s listing standards.
Market Comparisons
Although the Compensation Committee does not believe that it is appropriate to establish compensation levels based solely on market comparisons or industry practices, it believes that information regarding pay practices at other companies is useful in three respects. First, marketplace information is one of many factors considered in assessing the reasonableness of compensation. Second, our compensation practices must be generally competitive for executive talent in the home

44



building industry and in the overall market. Third, marketplace information reflects emerging and changing components and forms of compensation. While the Compensation Committee considers peer compensation levels and practices when making its compensation decisions, it does not target compensation at any particular point within a range established by a comparison of the financial performance or compensation levels of our peer companies.
In 2016, the Compensation Committee, with guidance from CAP, reviewed our NEOs’ compensation against a peer group of publicly-traded home building companies (the “Peer Group”), which remained unchanged from the prior year. The Peer Group consisted of the following companies with whom the Compensation Committee believes we primarily compete for talent and market share:
Beazer Homes USA, Inc.
 
KB Home
 
Meritage Homes Corporation
CalAtlantic Group, Inc.
 
Lennar Corporation
 
NVR, Inc.
D. R. Horton, Inc.
 
M. D. C. Holdings, Inc.
 
PulteGroup, Inc.
Hovnanian Enterprises, Inc.
 
M/I Homes, Inc.
 
Taylor Morrison Home Corporation
 
 
 
 
Tri Pointe Group, Inc.
Of the companies within our Peer Group, only CalAtlantic Group, Inc. and D.R. Horton, Inc. have an executive chairman. The Compensation Committee considered the executive chairman compensation information for these two companies in its review of Peer Group pay practices. CAP also discussed compensation practices generally for executive chairmen in companies of similar size outside of the home building sector but advised that the role of executive chairman is highly individualized among those companies that have one, and therefore compensation for this role varies considerably.
Benefits and Perquisites
We provide all of our employees (after 60 days of service with us), including our NEOs, with specified employee benefits programs. These include the opportunity to save for retirement through the Toll Brothers 401(k) Savings Plan (the “401(k) Plan”) and various health and welfare benefit programs, including medical, dental, life insurance, and long-term disability insurance.
The 401(k) Plan is a qualified retirement savings plan under the Code. Participants in the 401(k) Plan may contribute a portion of their compensation, subject to IRS regulations and specified limitations applicable to “highly compensated employees,” as such term is defined in the Code. After a year of service, we may match a portion of each participant’s contribution and also may make an annual discretionary contribution to each active participant’s account. All of the NEOs were participants in the 401(k) Plan during fiscal 2016. We share the cost of the above programs with our employees. Our NEOs participate in these programs on the same terms as our other employees. These programs are intended to promote the health and financial security of our employees and are provided at competitive market levels to attract, retain, and reward employees.
Supplemental Executive Retirement Plan
We also maintain a SERP, which provides retirement benefits to our NEOs. The Board’s intention when adopting the SERP was to provide competitive retirement benefits, to protect against reductions in retirement benefits due to tax law limitations on qualified plans, and to encourage continued employment or service with the Company. For a discussion of the material terms of the SERP, please see “Executive Compensation Tables—Pension Benefits During Fiscal 2016—Supplemental Executive Retirement Plan” on page 56.
The Compensation Committee did not increase the SERP annual benefit payment amounts to the NEOs in fiscal 2016. The annual benefit amounts to our NEOs under the SERP as of the end of fiscal 2016 are set forth in the table under “Executive Compensation Tables—Pension Benefits During Fiscal 2016—Supplemental Executive Retirement Plan” on page 56.

45



Perquisites
Perquisites did not constitute a material portion of the compensation paid to our NEOs for fiscal 2016, and we do not provide tax gross ups on perquisites. We provide our NEOs with limited perquisites and personal benefits that the Compensation Committee believes are consistent with our executive compensation philosophy and objectives. Each fiscal year, the Compensation Committee reviews and approves those perquisites that are provided to our NEOs.
The Compensation Committee believes the perquisites for fiscal 2016, which included auto and gas allowances, insurance, and tax and financial statement preparation assistance, as more fully described in the footnotes to the Summary Compensation Table on page 50, are reasonable, consistent with our past practices, and consistent with general practices in our industry.
Deferred Compensation Plan
The Toll Bros., Inc. Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”) was designed to enable certain management and highly compensated employees, including our NEOs, to defer a portion of their cash compensation during any calendar year. In December 2014, the Company amended and restated the Deferred Compensation Plan (the "2015 Plan"), which had been frozen for compensation earned after December 31, 2011, to enable employees to defer a portion of their cash compensation starting in January 1, 2015. Mr. Hartman and Mr. Connor are participants in the 2015 Plan.
Amounts deferred prior to January 1, 2015, which are not re-deferred under the 2015 Plan, will continue to be governed by the terms of the Deferred Compensation Plan in effect prior to January 1, 2015. Mr. Hartman is the only NEO who participated in the Deferred Compensation Plan prior to January 1, 2015. We have the right under the 2015 Plan to make discretionary contributions for the benefit of any participant in the 2015 Plan. We did not make discretionary contributions to any NEO under the 2015 Plan in fiscal 2016.
Interest earned during fiscal 2016 on NEO deferred compensation that is considered above-market interest under SEC rules is included under “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the Summary Compensation Table on page 50, and further information about NEO deferred compensation is contained in the Nonqualified Deferred Compensation During Fiscal 2016 table on page 57.
Other Compensation Practices and Policies
Employment Agreements, Change of Control Provisions and Severance Payments
None of our NEOs has an employment agreement with us. We do not have a severance plan for our NEOs. We have no change of control agreements relating to employment benefits or additional benefits that arise simply from a change of control or related severance; however, under our equity compensation plans and our SERP, awards and benefits are generally subject to special provisions upon a defined “change of control” transaction.
Upon a change of control, any outstanding options, RSUs, deferred cash, or other plan awards will generally immediately vest, and any restrictions will immediately lapse. Under the SERP, if there is a change of control of the Company, all participants in the SERP would be fully vested in their SERP benefits and potentially eligible for a lump sum payout. See “Potential Payments upon Termination or Change of Control” starting on page 57 of this proxy statement.

46



Stock Ownership Guidelines
We maintain Stock Ownership Guidelines ("Guidelines") pursuant to which our executive officers and non-management directors are expected to acquire a meaningful level of stock ownership in the Company so as to further align their interests with those of our stockholders. Under the Guidelines, the executive officers and non-management directors are expected to own shares equivalent in value to a multiple of his or her base salary or annual cash retainer, as applicable, as set forth below:
Position
  
Multiple
 
 
 
Executive Chairman and CEO
  
3.0 x base salary
Other Executive Officers
  
1.0 x base salary
Directors
  
3.0 x annual cash retainer
Executive officers and directors are expected to achieve compliance with these levels of ownership within five years from the later of adoption of the Guidelines in December 2012 or the date he or she assumes the position of executive officer or director, and may not sell net shares of stock received upon the exercise of stock options (that is, shares other than those sold to pay withholding taxes, brokerage fees, and the exercise price) unless and until he or she has met these required levels of ownership.
On an annual basis, the Governance Committee reviews adherence to the Guidelines. For purposes of the Guidelines, the following are included as “owned”:
shares of stock owned by the executive officer or director, including shares held in a trust controlled by the executive officer or director, by a spouse or by minor children that are deemed beneficially owned by the executive officer or director under Rule 13d-3 under the Exchange Act;
one-third of the shares underlying vested stock options that were “in the money” at the beginning of the fiscal year of review; and
shares of stock underlying vested performance stock units, RSUs, and restricted stock awards, regardless of provisions relating to delivery.
Specifically excluded from ownership under the Guidelines as “owned” shares are any shares of stock or other equity-based awards which are pledged as collateral for a loan to a third party so long as such pledge remains in effect.
If an executive officer or director satisfies these Guidelines, they are generally deemed satisfied for subsequent annual review periods, regardless of decreases in the Company’s stock price so long as the executive officer or director continues to hold the shares originally included in determining compliance. At the time of the Governance Committee's annual review of adherence to the Guidelines in December 2016, the Committee determined that each NEO and director was in compliance with the Guidelines.
Anti-Hedging Policy
We have an insider trading policy that sets forth guidelines and restrictions applicable to employees’ transactions involving our stock. Among other things, this policy prohibits our employees from engaging in puts, calls, or similar options on our stock or in any derivative equity securities of the Company, or selling our stock short. In addition, this policy prohibits directors and executive officers from entering into hedging arrangements with respect to our equity securities that are designed to offset or reduce the risk of price fluctuations in the underlying security (such as covered calls, collars, or other transactions that sever the ultimate alignment with our stockholders’ interests).

47



Pledging Policy
In fiscal 2013, the Governance Committee adopted a policy that prohibits any pledging of the Company’s equity securities by executive officers and directors with limited exceptions. At the time it established this policy, the Governance Committee considered the particular circumstances of Mr. Robert I. Toll and Mr. Bruce E. Toll as co-founders of the Company with substantial ownership of the Company’s equity securities and included specific exceptions for the two co-founders. In December 2016, the Governance Committee updated this policy to reflect Mr. Bruce E. Toll's departure from the Board.
With respect to Mr. Robert I. Toll, any increase in the aggregate number of shares of Company stock that he has pledged is prohibited under the policy except in situations, and on conditions, pre-approved by the Company’s General Counsel. Approvals will be based on the particular facts and circumstances of the request, including, but not limited to:
the percentage of the individual’s equity holdings that are currently pledged;
the percentage of the Company’s outstanding class of equity securities represented by the number of securities of that class being pledged;
the market value of the securities being pledged and the total market value of the Company’s outstanding equity securities;
the historical trading volume of the Company’s equity securities; and
any compelling needs of the individual justifying the pledge transaction under the circumstances.
The General Counsel’s decisions are reviewed by the Governance Committee.
As a result of this policy, no executive officer or director, other than Mr. Robert I. Toll, has Company shares that are pledged as of the date of this proxy statement. The number of shares pledged by Mr. Robert I. Toll as of the Record Date represents 3.0% of the Company’s outstanding stock. The Governance Committee continues to monitor and seek reductions in the shares pledged by Mr. Robert I. Toll.
Clawback Policy
In January 2016, the Board adopted a policy regarding the recoupment of incentive compensation from executives in specified situations involving fraud or intentional misconduct. The policy provides that, subject to the discretion and approval of the Board, the Company will, to the extent permitted by governing law, in all appropriate cases as determined by the Board, require reimbursement and/or cancellation of any cash bonus or other incentive compensation subject to the policy, including vested and unvested stock-based compensation, awarded to an executive officer where all of the following factors are present: (a) the award was predicated upon the achievement of specified financial results that were subsequently the subject of a restatement, (b) in the Board’s view, the executive engaged in fraud or intentional misconduct that was a substantial contributing cause to the need for the restatement, and (c) a lower award would have been made to the executive based upon the restated financial results. Under this policy, the Board may seek to recover payments of incentive compensation if the financial results leading to the award of incentive compensation are subsequently the subject of a restatement. The Board may use its judgment in determining the amount to be recovered where the incentive compensation was awarded on a discretionary basis.
Tax and Accounting Implications
Tax Regulations. Section 162(m) of the Code generally disallows a tax deduction to a public company for compensation over $1 million paid to specified “covered employees” (its chief executive officer and any of its three other most highly-compensated executive officers other than its chief financial officer). Performance-based compensation will not be subject to the deduction limitation if specified requirements set forth in the Code and applicable Treasury Regulations are met.

48



We intend to structure our compensation plans for our NEOs to comply with the performance-based compensation exemption requirements of Section 162(m) of the Code; however, since corporate objectives may not always be consistent with the requirements for full deductibility, the Board and the Compensation Committee may award non-deductible compensation to our NEOs as they deem appropriate. Our Senior Officer Plan, stock option grants, and performance-based RSUs are currently designed to be tax deductible under Section 162(m).
Accounting Considerations. When making decisions about executive compensation, the Compensation Committee considers the accounting implications of the various elements of our compensation program, including the impact on our financial results and the dilutive impact to stockholders of various forms of compensation.
For equity compensation grants, ASC 718 requires us to recognize compensation expense for all share-based payment arrangements based upon the grant date fair value of those awards and period of vesting. The aggregate expense estimated to be recognized over the period of vesting is included in the Summary Compensation Table contained in this proxy statement as part of the NEOs’ total compensation in the fiscal year of the grant. This number, while required by the SEC rules and important for understanding the impact of granting equity on our financial statements, may not accurately represent the value received by the NEO.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with our management the Compensation Discussion and Analysis section of this proxy statement. Based on such review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2016.
Respectfully submitted by the members of the Compensation Committee of the Board of Directors.
Carl B. Marbach (Chair)
Stephen A. Novick
Paul E. Shapiro

49



EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
Name and Principal
Position
 
Year
 
Salary
($)
 
Stock
Awards
($)(1)
 
Option
Awards
($)(1)
 
Non-Equity
Incentive Plan
Compensation
($)(2)
 
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(3)
 
All Other
Compensation
($)(4)
 
Total
($)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Robert I. Toll
 
2016
 
1,000,000

 
3,856,026

 
1,474,706

 
1,479,570

 
501,063

 
111,026

 
8,422,391

Executive Chairman of the Board
 
2015
 
1,000,000

 
4,342,841

 
1,026,000

 
1,500,000

 

 
148,601

 
8,017,442

2014
 
1,000,000

 
4,699,732

 
1,302,000

 
1,500,000

 
368,131

 
163,356

 
9,033,219

Douglas C. Yearley, Jr.
 
2016
 
1,000,000

 
6,003,112

 
2,305,908

 
2,564,588

 
272,999

 
37,271

 
12,183,878

Chief Executive Officer
 
2015
 
1,000,000

 
3,249,000

 
2,662,400

 
2,500,000

 
359,321

 
39,166

 
9,809,887

2014
 
1,000,000

 
3,516,000

 
3,016,230

 
2,300,000

 
198,902

 
40,922

 
10,072,054

Richard T. Hartman
 
2016
 
1,000,000

 
1,809,375

 
702,898

 
949,391

 
233,180

 
30,762

 
4,725,606

President and Chief Operating Officer
 
2015
 
1,000,000

 
974,700

 
715,520

 
875,000

 
396,975

 
30,726

 
3,992,921

 
2014
 
991,667

 
1,054,800

 
796,740

 
800,000

 
163,969

 
31,079

 
3,838,255

Martin P. Connor
 
2016
 
970,833

 
1,488,106

 
580,868

 
949,391

 
208,558

 
24,356

 
4,222,112

Chief Financial Officer
 
2015
 
933,333

 
812,250

 
565,760

 
875,000

 
244,696

 
24,410

 
3,455,449

2014
 
841,667

 
879,000

 
626,010

 
800,000

 
142,288

 
24,635

 
3,313,600

 
(1)
These columns present the aggregate grant date fair value of RSUs and stock options, respectively, granted in the indicated fiscal year, calculated in accordance with ASC 718 utilizing the assumptions discussed in Note 9 in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended October 31, 2016, excluding the effect of estimated forfeitures. The amounts shown in these columns do not reflect compensation actually received by the NEOs. The actual value, if any, that a NEO may realize from an award is contingent upon the satisfaction of the conditions to vesting in that award, including performance conditions in the case of performance-based RSUs, and, for stock options, upon the excess of the share price over the exercise price, if any, on the date the options are exercised. Thus, there is no assurance that the value, if any, eventually realized by the NEOs will correspond to the amounts shown in the table.
With respect to the Ops PRSUs granted in fiscal 2016, the estimate of the grant date fair value determined in accordance with ASC 718 assumes the vesting of 100% of the RSUs granted. Assuming the highest level of performance is achieved (which would result in the vesting of 110% of the RSUs granted), the aggregate grant date fair value of the RSUs set forth in the stock awards column above for fiscal 2016 would be: Mr. Toll—$2,161,497; Mr. Yearley—$2,928,676; Mr. Hartman—$882,712; and Mr. Connor—$726,018. The actual performance achieved for fiscal 2016 resulted in 98.63% of the Ops PRSUs granted being earned, subject to service-based vesting.
(2)
The annual incentive bonuses for Mr. Toll, Mr. Yearley, Mr. Hartman, and Mr. Connor for fiscal 2016 were earned based on target bonus amounts established by the Compensation Committee for PTI Metric performance (60% of bonus amount) and its qualitative assessment of individual and Company performance (40% of bonus amount), subject to achievement of the 2016 performance goals under the Senior Officer Plan, as more fully described under "Annual Incentive Bonus" starting on page 36.
(3)
The amounts in this column represent the increase in the actuarial present value of accumulated benefits under the SERP for each NEO and the amount of above-market interest earned on their respective balances, if applicable, in the Deferred Compensation Plan. Mr. Toll and Mr. Yearley did not participate in the Deferred Compensation Plan during the fiscal years indicated in the table above. The amounts attributed to the increase or decrease in actuarial present value of SERP benefits and above-market interest on deferred compensation are as follows (see also the Pension Benefits During Fiscal 2016 table on page 55 of this proxy statement):

50



Name
 
Fiscal
Year
 
Increase (Decrease) in
Actuarial Present Value of
Accumulated
SERP Benefits ($)
 
Above-Market
Interest Earned on
Deferred
Compensation ($)
 
Total ($)
Robert I. Toll
 
2016
 
501,063

 
N/A

 
501,063

 
 
2015
 
(8,614
)
 
N/A

 
(8,614
)
 
 
2014
 
368,131

 
N/A

 
368,131

Douglas C. Yearley, Jr.
 
2016
 
272,999

 
N/A

 
272,999

 
 
2015
 
359,321

 
N/A

 
359,321

 
 
2014
 
198,902

 
N/A

 
198,902

Richard T. Hartman
 
2016
 
185,774

 
47,406

 
233,180

 
 
2015
 
313,163

 
83,812

 
396,975

 
 
2014
 
139,583

 
24,386

 
163,969

Martin P. Connor
 
2016
 
208,347

 
211

 
208,558

 
 
2015
 
244,647

 
49

 
244,696

 
 
2014
 
142,288

 
N/A

 
142,288

(4)
Fiscal 2016 “All Other Compensation” consists of:
 
 
Fiscal 2016
 
 
Robert I.
Toll
 
Douglas C.
Yearley, Jr.
 
Richard T.
Hartman
 
Martin P.
Connor
Payments for tax and financial statement preparation assistance
 
$
58,124

 
$
3,407

 
$

 
$

Company contribution to 401(k) Plan
 
10,600

 
10,600

 
10,600

 
10,600

Life and disability insurance premiums (5)
 
3,542

 
3,569

 
3,902

 
3,856

Auto and gas allowance
 
19,500

 
15,900

 
15,900

 
9,900

Non-business use of cars and drivers
 
19,260

 
3,795

 
360

 

Total
 
$
111,026

 
$
37,271

 
$
30,762

 
$
24,356

 
(5)
Includes annual premiums for annual life, accidental death and dismemberment, and long term disability insurance provided to all employees; supplemental long-term disability insurance provided to executives.

51



Grants of Plan-Based Awards During Fiscal 2016
 
 
 
 
 
 
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
 
Estimated Future Payouts
Under Equity Incentive
Plan Awards(2)
 
All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)
 
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(3)
 
Exer-
cise
or Base
Price of
Option
Awards
($/Sh)
 
Grant
Date
Fair
Value of
Stock
and
Option
Awards
($)(4)
Name/
Award Type
 
Grant
Date
 
Action
Date(1)
 
Threshold
($)
 
Target
($)
 
Maximum
($)
 
Threshold
(#)
 
Target
(#)
 
Maximum
(#)
 
Robert I. Toll
 
 
 
 
 
(5)
 
(6)
 
8,500,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ops PRSUs
 
12/18/2015
 
12/15/2015
 
 
 
 
 
 
 
53,836

 
59,818

 
65,800

 
 
 
 
 
 
 
1,965,021

TSR PRSUs
 
12/18/2015
 
12/15/2015
 
 
 
 
 
 
 
9,970

 
19,939

 
39,878

 
 
 
 
 
 
 
798,158

TSR PRSUs
 
12/18/2015
 
12/15/2015
 
 
 
 
 
 
 
7,687

 
15,373

 
30,746

 
 
 
 
 
 
 
634,751

TSR PRSUs
 
12/18/2015
 
12/15/2015
 
 
 
 
 
 
 
5,411

 
10,822

 
21,644

 
 
 
 
 
 
 
458,095

Stock Options
 
12/18/2015
 
12/15/2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
144,579

 
32.85

 
1,474,706

Douglas C. Yearley, Jr.
 
 
 
(5)
 
(6)
 
8,500,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ops PRSUs
 
12/18/2015
 
12/10/2015
 
 
 
 
 
 
 
72,944

 
81,049

 
89,154

 
 
 
 
 
 
 
2,662,460

TSR PRSUs
 
12/18/2015
 
12/10/2015
 
 
 
 
 
 
 
13,509

 
27,017

 
54,034

 
 
 
 
 
 
 
1,081,491

TSR PRSUs
 
12/18/2015
 
12/10/2015
 
 
 
 
 
 
 
13,509

 
27,017

 
54,034

 
 
 
 
 
 
 
1,115,532

TSR PRSUs
 
12/18/2015
 
12/10/2015
 
 
 
 
 
 
 
13,509

 
27,017

 
54,034

 
 
 
 
 
 
 
1,143,630

Stock Options
 
12/18/2015
 
12/10/2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
137,584

 
32.85

 
2,305,908

Richard T. Hartman
 
 
 
(5)
 
(6)
 
8,500,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ops PRSUs
 
12/18/2015
 
12/10/2015
 
 
 
 
 
 
 
21,986

 
24,429

 
26,872

 
 
 
 
 
 
 
802,493

TSR PRSUs
 
12/18/2015
 
12/10/2015
 
 
 
 
 
 
 
4,072

 
8,143

 
16,286

 
 
 
 
 
 
 
325,964

TSR PRSUs
 
12/18/2015
 
12/10/2015
 
 
 
 
 
 
 
4,072

 
8,143

 
16,286

 
 
 
 
 
 
 
336,224

TSR PRSUs
 
12/18/2015
 
12/10/2015
 
 
 
 
 
 
 
4,072

 
8,143

 
16,286