DEF 14A 1 d469161ddef14a.htm DEF 14A DEF 14A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant  x                             Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨ Preliminary Proxy Statement

 

¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

¨ Soliciting Material Pursuant to §240.14a-12

PulteGroup, Inc.

(Name of Registrant as Specified In Its Charter)

 

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

Payment of Filing Fee (Check the appropriate box):

 

x No fee required.

 

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

 

  (1) Title of each class of securities to which transaction applies:

 

      

 

  (2) Aggregate number of securities to which transaction applies:

 

      

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

      

 

  (4) Proposed maximum aggregate value of transaction:

 

      

 

  (5) Total fee paid:

 

      

 

 

¨ Fee paid previously with preliminary materials.

 

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

 

  (1) Amount Previously Paid:

 

      

 

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  (4) Date Filed:

 

      

 

 

 

 


LOGO

PULTEGROUP, INC.

100 Bloomfield Hills Parkway, Suite 300

Bloomfield Hills, Michigan 48304

NOTICE OF 2013 ANNUAL MEETING OF SHAREHOLDERS

Dear Shareholder:

We will hold our annual meeting of shareholders at the Detroit Metro Airport Marriott, 30559 Flynn Drive, Romulus, Michigan, on May 8, 2013, at 4:00 p.m., Eastern Time. At this meeting, shareholders will vote on:

 

   

The election of nine nominees for director to serve a term of one year.

 

   

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

 

   

An advisory vote on executive compensation.

 

   

Approval of our 2013 Senior Management Incentive Plan.

 

   

Approval of our 2013 Stock Incentive Plan.

 

   

Approval of an amendment to extend the term of our amended and restated Section 382 rights agreement.

 

   

Two shareholder proposals, if properly presented at the meeting.

 

   

Such other business as may properly come before the meeting.

You can vote if you were a shareholder of record at the close of business on March 11, 2013. You may vote by internet, telephone, written proxy or written ballot at the meeting.

This proxy statement and the enclosed form of proxy, as well as our 2012 annual report, are first being mailed to shareholders beginning on April 3, 2013. We encourage you to sign and return the accompanying proxy card in the enclosed envelope or instruct us via the internet or by telephone as to how you would like your shares voted.

By Order of the Board of Directors

 

LOGO

STEVEN M. COOK

Senior Vice President, General Counsel

and Secretary

Bloomfield Hills, Michigan

April 3, 2013

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON May 8, 2013.

The Company’s Proxy Statement for the 2013 Annual Meeting of Shareholders and the Annual Report to Shareholders for the fiscal year ended December 31, 2012 are available at: http://phx.corporate-ir.net/phoenix.zhtml?c=77968&p=irol-sec.


LOGO

PROXY STATEMENT

The Board of Directors of PulteGroup, Inc. (“PulteGroup” or the “Company”) is soliciting proxies to be used at the annual meeting of shareholders to be held on May 8, 2013, at 4:00 p.m., Eastern Time, at the Detroit Metro Airport Marriott, 30559 Flynn Drive, Romulus, Michigan. This proxy statement and the enclosed form of proxy are first being mailed to shareholders beginning April 3, 2013.

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

What am I voting on?

You are voting on eight proposals:

 

  1. The election of nine nominees for director to serve a term of one year.

 

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

 

  3. An advisory vote on executive compensation.

 

  4. Approval of our 2013 Senior Management Incentive Plan.

 

  5. Approval of our 2013 Stock Incentive Plan.

 

  6. Approval of an amendment to extend the term of our amended and restated Section 382 rights agreement.

 

  7. A shareholder proposal requesting the election of directors by a majority, rather than plurality, vote, if properly presented at the meeting.

 

  8. A shareholder proposal regarding the use of performance-based options, if properly presented at the meeting.

What are the voting recommendations of the Board?

The Board of Directors recommends the following votes:

 

   

FOR the election of all of the nominees for director.

 

   

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

 

   

FOR the proposal relating to the Company’s executive compensation.

 

   

FOR the proposal approving our 2013 Senior Management Incentive Plan.

 

   

FOR the proposal approving our 2013 Stock Incentive Plan.

 

   

FOR the proposal approving an amendment to extend the term of our amended and restated Section 382 rights agreement.

 

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AGAINST the shareholder proposal requesting the election of directors by a majority, rather than plurality, vote.

 

   

AGAINST the shareholder proposal regarding the use of performance-based options.

Will any other matter be voted on?

We are not aware of any other matters on which you will be asked to vote at the meeting. If you have completed and mailed your proxy card and any other matter is properly brought before the meeting, Richard J. Dugas, Jr. and Steven M. Cook, acting as your proxies, will vote for you in their discretion.

How do I vote my shares?

If you are a shareholder of record as of the close of business on March 11, 2013 (the record date), you can give a proxy to be voted at the meeting either:

 

   

by mailing in the enclosed proxy card;

 

   

by written ballot at the meeting;

 

   

over the telephone by calling a toll-free number; or

 

   

electronically, using the internet.

If you complete and mail in your proxy card, your shares will be voted as you indicate. If you do not indicate your voting preferences, Richard J. Dugas, Jr. and Steven M. Cook, acting as your proxies, will vote your shares FOR Items 1, 2, 3, 4, 5 and 6 and AGAINST Items 7 and 8.

The telephone and internet voting procedures have been set up for your convenience and have been designed to authenticate your identity, to allow you to give voting instructions and to confirm that those instructions have been recorded properly. If you are a shareholder of record and you would like to vote by telephone or by using the internet, please refer to the instructions on the enclosed proxy card.

If you hold your shares in “street name,” you must vote your shares in the manner prescribed by your broker or nominee. Your broker or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee on how to vote your shares.

What is the difference between a shareholder of record and a “street name” holder?

If your shares are registered directly in your name with Computershare Trust Company, N.A. (“Computershare”), the Company’s stock transfer agent, you are considered the shareholder of record with respect to those shares.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of these shares, and your shares are held in “street name.”

Can I change my vote?

Yes. You can change your vote or revoke your proxy before the meeting in any of three ways:

 

   

by submitting another proxy by telephone, via the internet or by mail that is later dated and, if by mail, that is properly signed; or

 

   

by submitting written notice to the Secretary of the Company, which notice must be received by the Company by 5:00 p.m., Eastern Time, on May 7, 2013; or

 

   

by voting in person at the meeting.

 

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What percentage of the vote is required for a proposal to be approved?

The nine director nominees receiving the greatest number of votes will be elected. The service of such directors will be subject to the Corporate Governance Guidelines of the Company. The ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm, the advisory vote on executive compensation, the proposals regarding approval of the our 2013 Senior Management Incentive Plan, 2013 Stock Incentive Plan and an amendment to extend the term of our amended and restated Section 382 rights agreement and the shareholder proposals each require the affirmative vote of a majority of the votes cast at the meeting. Although the advisory vote on executive compensation is non-binding, the Board of Directors will review the results of the vote and will take them into account in making a determination concerning executive compensation.

Who will count the vote?

Computershare will act as the independent tabulator to receive and tabulate the proxies and as the independent inspector of election to certify the results.

What does it mean if I get more than one proxy card?

It means your shares are held in more than one account. You should vote the shares on all your proxy cards. To provide better shareholder service, we encourage you to have all your shares registered in the same name and address. You may do this by contacting our transfer agent, Computershare, by phone at (877) 282-1168, by mail at Computershare Investor Services, P.O. Box 43078, Providence, Rhode Island 02940-3078, or via the internet at www.computershare.com.

Who can attend the annual meeting?

All shareholders of record as of the close of business on March 11, 2013 can attend. Registration will begin at 3:30 p.m., Eastern Time. Institutional or entity shareholders are allowed to bring one representative. Attendance at the meeting will be on a first-come, first-served basis, upon arrival at the meeting.

What do I need to do to attend the annual meeting?

You should plan to arrive at the Detroit Metro Airport Marriott, 30559 Flynn Drive, Romulus, Michigan, on May 8, 2013 by 3:30 p.m., Eastern Time. Upon your arrival, please follow the signs to the registration desk where you will register for the meeting.

An admission ticket (or other proof of stock ownership) and a government-issued photo identification (such as a valid driver’s license or passport) will be required for admission to the annual meeting. Representatives of PulteGroup will be present at the registration desk to review and determine the validity of such documentation. Only shareholders who own PulteGroup common shares as of the close of business on March 11, 2013 will be entitled to attend the meeting. An admission ticket or recent bank or brokerage statement will serve as verification of your ownership.

 

   

If your PulteGroup shares are registered in your name and you receive your proxy materials by mail, an admission ticket will be attached to your proxy card.

 

   

If your PulteGroup shares are registered in your name and you vote your shares electronically over the Internet, you may access and print an admission ticket after voting such shares.

 

   

If your PulteGroup shares are held in a bank or brokerage account, contact your bank or broker to obtain a written legal proxy in order to vote your shares at the meeting. If you do not

 

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obtain a legal proxy from your bank or broker, you will not be entitled to vote your shares, but you can still attend the annual meeting if you bring a recent bank or brokerage statement showing that you owned PulteGroup shares on March 11, 2013.

For your comfort and security, no cameras (including cell phones with built-in cameras), recording devices or other electronic devices, packages, signage or costumes will be permitted in the meeting room. We encourage you to leave any such items at home. We will not be responsible for any items checked at the door. Attendees (including their personal belongings) will be subject to security inspections.

What is the quorum requirement of the annual meeting?

On March 11, 2013, there were 387,499,939 shares issued and outstanding. Of these, 387,430,057 were eligible to vote. The balance of the shares, which are not eligible to vote, represent shares in companies we have acquired that have not yet been exchanged for our common shares in accordance with the terms of the applicable mergers. A majority of the 387,430,057 shares outstanding and entitled to vote at a meeting on March 11, 2013 constitutes a quorum for voting at the meeting. If you vote, your shares will be part of the quorum. Each share you owned on the record date shall be entitled to one vote.

How will abstentions be treated?

Abstentions will be counted as shares present at the meeting for purposes of determining whether a quorum exists. You may not abstain with respect to the election of directors. With respect to the proposals to ratify the appointment of Ernst & Young LLP, the advisory vote on executive compensation, the proposals regarding approval of the 2013 Senior Management Incentive Plan, 2013 Stock Incentive Plan and an amendment to extend the term of our amended and restated Section 382 rights agreement and with respect to the shareholder proposals, an abstention will not be counted as a vote cast and therefore will have no effect on whether the proposal is approved.

How will broker non-votes be treated?

Broker non-votes will be treated in the same manner, and have the same effect, as abstentions. A broker non-vote occurs when a broker cannot vote on a matter because the broker has not received instructions from the beneficial owner and lacks discretionary voting authority with respect to that matter. Brokers will lack discretionary voting authority with respect to the election of directors, the advisory vote on executive compensation, the proposals regarding approval of the 2013 Senior Management Incentive Plan, 2013 Stock Incentive Plan and an amendment to extend the term of our amended and restated Section 382 rights agreement and with respect to the shareholder proposals. Brokers will not lack discretionary voting authority with respect to the proposal to ratify the appointment of Ernst & Young LLP.

 

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BENEFICIAL SECURITY OWNERSHIP

The table below shows the number of our common shares beneficially owned as of March 11, 2013 by each of our directors and each of our executive officers named in the Summary Compensation Table on page 43, as well as the number of shares beneficially owned by all of our directors and executive officers as a group. The table also includes information about stock options exercisable within 60 days after March 11, 2013, restricted shares, and our common shares held in our 401(k) Plan.

 

Directors And Named Executive Officers    Shares(1)    

Exercisable

Stock Options(13)

    

Percentage of

Outstanding Shares

 

Brian P. Anderson

     66,687 (2)      40,000         *   

John J. Bertero III

     88,384 (3)      92,065         *   

Bryce Blair

     57,307 (4)      0         *   

John J. Chadwick

     190,502 (5)      193,750         *   

Richard J. Dugas, Jr.

     1,254,206 (6)      2,477,500         *   

James R. Ellinghausen

     364,071 (7)      572,500         *   

Thomas J. Folliard

     12,734        0         *   

Cheryl W. Grisé

     8,200        14,000         *   

Debra J. Kelly-Ennis

     72,142 (8)      76,000         *   

David N. McCammon

     211,787 (9)      76,000         *   

Patrick J. O’Leary

     83,687        40,000         *   

Robert O’Shaughnessy

     221,425 (10)      0         *   

James J. Postl

     92,066        0         *   

Bernard W. Reznicek

     89,059 (11)      76,000         *   

Harmon D. Smith

     260,027 (12)      202,750         *   

All directors and executive officers as a group (22), including the above

     3,836,982        4,773,750         2.22

 

* Less than 1%.

Notes:

 

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

 

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

 

(3) These are shares that are known to be owned by Mr. Bertero after his departure from the Company effective November 30, 2012.

 

(4) These shares Mr. Blair owns jointly with his wife.

 

(5) Includes (i) 97,562 shares owned in a trust of which Mr. Chadwick is a trustee and a beneficiary; (ii) 15,000 restricted shares that are scheduled to vest on September 10, 2013; (iii) 12,000 restricted shares that are scheduled to vest on February 10, 2014; (iv) 28,265 restricted shares that are scheduled to vest on February 9, 2015; (v) 12,675 restricted shares that are scheduled to vest on February 6, 2016; and (vi) 25,000 restricted shares under performance-based equity awards based on a quarterly gross margin goal being met that are scheduled to vest on December 11, 2013.

 

(6)

Includes (i) 69,800 shares that Mr. Dugas owns jointly with his wife; (ii) 617,697 shares owned in a trust of which Mr. Dugas is the trustee and beneficiary; (iii) 40,612 shares owned in a trust of which Mr. Dugas is a beneficiary; (iv) 140,000 restricted

 

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  shares that are scheduled to vest on February 10, 2014; (v) 254,382 restricted shares that are scheduled to vest on February 9, 2015; (vi) 114,069 restricted shares that are scheduled to vest on February 6, 2016; and (vii) 17,637 shares held in our 401(k) Plan; and (viii) 9 shares that are held in an Individual Retirement Account.

 

(7) Includes (i) 174,442 shares owned in a trust of which Mr. Ellinghausen is the trustee and beneficiary; (ii) 75,000 restricted shares that are scheduled to vest on February 10, 2014; (iii) 79,141 restricted shares that are scheduled to vest on February 9, 2015; (iv) 35,488 restricted shares that are scheduled to vest on February 6, 2016; and 25,000 restricted shares under performance-based equity awards based on a quarterly gross margin goal being met that are scheduled to vest on December 11, 2013.

 

(8) Includes (i) 70,942 shares that are owned in a trust of which Ms. Kelly-Ennis is a trustee and a beneficiary and (ii) 1,200 shares that are held in an Individual Retirement Account.

 

(9) These shares are owned in a trust of which Mr. McCammon is a trustee and a beneficiary.

 

(10) Includes (i) 69,513 restricted shares that are scheduled to vest on February 10, 2014; (ii) 87,621 restricted shares that are scheduled to vest on February 9, 2015; (iii) 39,291 restricted shares that are scheduled to vest on February 6, 2016; and (iv) 25,000 restricted shares under performance-based equity awards based on a quarterly gross margin goal being met that are scheduled to vest on December 5, 2013.

 

(11) Includes 44,745 shares that Mr. Reznicek owns jointly with his wife.

 

(12) Includes (i) 26,000 restricted shares that are scheduled to vest on February 10, 2014; (ii) 33,918 restricted shares that are scheduled to vest on February 9, 2015; (iii) 25,349 restricted shares that are scheduled to vest on February 6, 2016; (iv) 13,107 shares held in our 401(k) Plan; and (v) 25,000 restricted shares under performance-based equity awards based on a quarterly gross margin goal being met that are scheduled to vest on December 5, 2013.

 

(13) These are shares which the listed director or executive officer has the right to acquire within 60 days of March 11, 2013 pursuant to PulteGroup’s stock option plans.

Beneficial Ownership of Significant Shareholders

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

 

Name and Address of

Beneficial Owner

 

Beneficial Ownership

of Common Shares

 

Percentage of Outstanding

Common Shares on

March 11, 2013

FMR LLC

  41,576,885(1)   10.73%

82 Devonshire Street

Boston, MA 02109

   

William J. Pulte

  35,355,366(2)     9.13%

8111 Bay Colony Drive #2001

Naples, FL 34108

   

BlackRock, Inc.

  32,102,420(3)     8.29%

40 East 52nd Street

New York, NY 10022

   

The Vanguard Group

  22,705,217(4)     5.86%

100 Vanguard Blvd.

Malvern, PA 19355

   

Notes:

 

(1) This information is derived from a Schedule 13G/A filed by FMR LLC on February 14, 2013. According to the Schedule 13G/A, FMR LLC had sole power to vote or direct the vote of 817,053 shares, sole power to dispose of or direct the disposition of 41,576,885 shares, and shared power to vote or direct the vote of, and shared power to dispose of or direct the disposition of, no shares.

 

(2) This information is derived from a Schedule 13D/A filed by Mr. Pulte on October 12, 2012. According to the Schedule 13D/A, Mr. Pulte had sole power to vote or direct the vote of 35,355,366 shares, sole power to dispose of or direct the disposition of 13,155,376 shares, shared power to vote or direct the vote of no shares, and shared power to dispose of or direct the disposition of 22,199,990 shares.

 

(3) This information is derived from a Schedule 13G/A filed by BlackRock, Inc. on February 1, 2013. According to the Schedule 13G/A, BlackRock, Inc. had sole power to vote or direct the vote of, and sole power to dispose of or direct the disposition of, 32,102,420 shares, and shared power to vote or direct the vote of, and shared power to dispose of or direct the disposition of, no shares.

 

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(4) This information is derived from a Schedule 13G filed by The Vanguard Group on February 13, 2013. According to the Schedule 13G, The Vanguard Group had sole power to vote or direct the vote of 578,838 shares, sole power to dispose of or direct the disposition of 22,152,679 shares, shared power to vote or direct the vote of no shares and shared power to dispose of or direct the disposition of 552,538 shares.

Section 16(a) Beneficial Ownership Reporting Compliance

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

Based on these reports and representations, PulteGroup believes that during 2012 our directors and executive officers complied with all Section 16(a) reporting requirements, except that James R. Ellinghausen, our Executive Vice President, Human Resources, filed a late Form 4 in connection with purchases by each of his son and daughter of 100 PulteGroup common shares.

 

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PROPOSAL ONE

ELECTION OF DIRECTORS

Our Restated Articles of Incorporation, as amended, require that we have at least three, but no more than 15, directors. The exact number of directors is set by the Board of Directors and is currently ten. All directors will be elected on an annual basis for one year terms. The ten directors comprising the Board of Directors, all of whose terms are expiring at the 2013 annual meeting, are Brian P. Anderson, Bryce Blair, Richard J. Dugas, Jr., Thomas Folliard, Cheryl W. Grisé, Debra J. Kelly-Ennis, David McCammon, Patrick J. O’Leary, James J. Postl and Bernard Reznicek.

The Corporate Governance Guidelines of the Company provide that no director shall stand for election after the age of 75. Any director elected to the Board of Directors at or before the age of 75 may continue to serve until the expiration of the term during which such director turns 76. In accordance with this policy, David McCammon and Bernard Reznicek will retire as directors at the conclusion of the 2013 annual meeting. In light of the retirement of Mr. McCammon and Mr. Reznicek and the nomination of one new director to fill one of those positions, by resolution of the Board of Directors effective at the end of the 2013 annual meeting, the number of directors on the Board of Directors will be reduced to nine.

The nine nominees for the Board of Directors are Brian P. Anderson, Bryce Blair, Richard J. Dugas, Jr., Thomas Folliard, Cheryl W. Grisé, André J. Hawaux, Debra J. Kelly-Ennis, Patrick J. O’Leary and James J. Postl, each of whom has agreed to serve the one-year term for which they have been nominated, if elected. Please see below for a description of the occupations and recent business experience of all director nominees. In addition, the specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to the conclusion that each of the director nominees should serve as a director of the Company are included in the descriptions below.

The Corporate Governance Guidelines of the Company provide that any nominee for director who, in an uncontested election receives a greater number of votes “withheld” from his or her election than votes “for” his or her election at the annual meeting (“Majority Withheld Vote”) will promptly tender his or her resignation from the Board of Directors. The Nominating and Governance Committee, which is comprised exclusively of independent directors, will consider the resignation and recommend to the Board of Directors whether to accept the tendered resignation or reject it. The Board of Directors will act upon the Nominating and Governance Committee’s recommendation no later than the first regularly scheduled meeting of the Board of Directors following certification of the Majority Withheld Vote. The action taken by the Board of Directors will be publicly disclosed in a report filed with the SEC and may include, without limitation, acceptance or rejection of the tendered resignation or adoption of measures designed to address the issues underlying the Majority Withheld Vote. The foregoing description is qualified in its entirety by reference to our Corporate Governance Guidelines, which are available for viewing on our website at www.pultegroupinc.com.

 

Nominees to Serve a One Year Term Expiring at the 2014 Annual Meeting

Brian P. Anderson

Age:    62
Director since:    2005
Principal Occupation:    Former Chief Financial Officer of OfficeMax Incorporated

 

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Recent Business Experience:    Mr. Anderson is the former Executive Vice President of Finance and Chief Financial Officer of OfficeMax Incorporated, a distributor of business-to-business and retail office products. Prior to assuming this position in 2004, Mr. Anderson was Senior Vice President and Chief Financial Officer of Baxter International Inc., a global diversified medical products and services company, a position he assumed in 1998.
Outside Directorships (Last Five Years):    Mr. Anderson currently serves as a member of the board of directors of W.W. Grainger, Inc. (Lead Director), A.M. Castle & Co. (Chairman), and James Hardie Industries.
Qualifications:   

The specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to conclude that Mr. Anderson should serve as a director in light of our business and structure include his significant experience as a chief financial officer of two large multinational companies and as a director of several large public companies. In addition, he has held finance positions including corporate controller and vice president of audit and was an audit partner at an international public accounting firm. Mr. Anderson has significant experience in the preparation and review of complex financial reporting statements as well as experience in risk management and risk assessment. Mr. Anderson also brings to the Board of Directors meaningful experience based on his service as Lead Director of W.W. Grainger, Inc. and Chairman of A.M. Castle & Co. Mr. Anderson is an audit committee financial expert for purposes of the SEC’s rules.

 

Bryce Blair

Age:    54
Director since:    2011
Principal Occupation:    Chairman of the Board and Former Chief Executive Officer, AvalonBay Communities, Inc.
Recent Business Experience:    Mr. Blair has served as Chairman of the board of directors of AvalonBay Communities, Inc., a publicly-traded multifamily real estate investment trust, since January 2002. Mr. Blair will not stand for reelection to the board of directors of AvalonBay Communities, Inc. at its May 22, 2013 annual meeting of stockholders. In addition, Mr. Blair served in a number of senior leadership positions with AvalonBay Communities, Inc., including Chief Executive Officer from February 2001 through December 2011, President from September 2000 through February 2005 and Chief Operating Officer from February 1999 to February 2001. Mr. Blair is also a past member of the National Association of Real Estate Investment Trusts, where he served as Chairman and was on the Executive Committee and the Board of Governors, and the Urban Land Institute, where he is past Chairman of the Multifamily Council and is a past Trustee.
Outside Directorships (Last Five Years):    Mr. Blair currently serves as the chairman of the board of directors of AvalonBay Communities, Inc.
Qualifications:    The specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to conclude that Mr. Blair should serve as a director in light of our business and structure include his substantial experience in real estate development and investment, including having spent over ten years as chairman and chief executive officer of a public real estate investment trust. In addition, in his former role as chief executive officer of AvalonBay Communities, Inc., Mr. Blair was responsible for day to day operations and he was regularly involved in the preparation and review of complex financial reporting statements.

 

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Richard J. Dugas, Jr.

Age:    47
Director since:    2003
Principal Occupation:    Chairman, President and Chief Executive Officer, PulteGroup, Inc.
Recent Business Experience:    Mr. Dugas has served as Chairman of the Board of Directors of PulteGroup, Inc. since August 18, 2009 and as President and Chief Executive Officer of PulteGroup since July 1, 2003. Prior to that, he served as Chief Operating Officer of PulteGroup from May 2002 through June 2003. Mr. Dugas previously served in various management positions with PulteGroup since 1994, including, most recently, Coastal Region President with responsibility for the Georgia, North Carolina, South Carolina and Tennessee operations.
Qualifications:   

The specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to conclude that Mr. Dugas should serve as a director in light of our business and structure include the insight he brings to the Board of Directors from his 18-year tenure at PulteGroup, including more than nine years as President and Chief Executive Officer. Mr. Dugas’ many years of experience as the Chief Executive Officer of the Company provides an in-depth understanding of PulteGroup’s history and complexity and adds a valuable perspective for Board decision making.

 

Thomas J. Folliard

Age:    48
Director since:    2012
Principal Occupation:    President and Chief Executive Officer of CarMax, Inc.
Recent Business Experience:    Mr. Folliard has served as President and Chief Executive Officer of CarMax since 2006. He joined CarMax in 1993 as the senior buyer and became the director of purchasing in 1994. Mr. Folliard was promoted to vice president of merchandising in 1996, senior vice president of store operations in 2000 and executive vice president of store operations in 2001.
Outside Directorships (Last Five Years):    Mr. Folliard currently serves as a member of the board of directors of CarMax, Inc.
Qualifications:   

The specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to conclude that Mr. Folliard should serve as a director in light of our business and structure include his experience as Chief Executive Officer of a large, customer-focused public company. In connection with that role, Mr. Folliard has extensive experience in operational matters and business strategy, which adds a valuable perspective for the Board’s decision making. Mr. Folliard also brings to the Board of Directors meaningful experience based on his service on the board of directors of CarMax, Inc.

 

 

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Cheryl W. Grisé

Age:    60
Director since:    2008
Principal Occupation:    Former Executive Vice President of Northeast Utilities
Recent Business Experience:    Ms. Grisé was Executive Vice President of Northeast Utilities, a public utility holding company, from December 2005 until her retirement effective July 2007; Chief Executive Officer of its principal operating subsidiaries from September 2002 to January 2007; President of the Utility Group of Northeast Utilities Service Company from May 2001 to January 2007; and Senior Vice President, Secretary and General Counsel of Northeast Utilities from 1998 to 2001. Ms. Grisé is a Senior Fellow of the American Leadership Forum.
Outside Directorships (Last Five Years):    Ms. Grisé currently serves as a member of the board of directors of Pall Corporation, MetLife, Inc. (Lead Director) and ICF International, and previously served as a member of the board of directors of Dana Corporation.
Qualifications:   

The specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to conclude that Ms. Grisé should serve as a director in light of our business and structure include her significant experience based on her service as a director of several large public corporations and as a former executive officer of a public utility holding company. Ms. Grisé’s substantial experience, including earlier experience as general counsel and secretary, provide her with a unique perspective on the complex legal, compensation, and other issues that affect companies in regulated industries and the Board’s roles and responsibilities with respect to the effective functioning of the Company’s corporate governance structures. Ms. Grisé also brings to the Board of Directors meaningful experience based on her service as Lead Director of MetLife, Inc.

 

André J. Hawaux

Age:    52
Director since:    New nominee
Principal Occupation:    President, Consumer Foods, ConAgra Foods, Inc.
Recent Business Experience:    Mr. Hawaux was named president of the Consumer Foods business of ConAgra Foods, Inc. in 2009. He joined ConAgra Foods as executive vice president and chief financial officer in 2006, and prior to ConAgra Foods, he served as general manager of a large U.S. division of PepsiAmericas. Mr. Hawaux also previously served as chief financial officer for Pepsi-Cola North America and Pepsi International’s China business unit.
Outside Directorships (Last Five Years):    Mr. Hawaux previously served as a member of the board of directors of The Timberland Company.

 

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Qualifications:   

The specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to conclude that Mr. Hawaux should serve as a director in light of our business and structure include his significant experience serving as a senior officer of several corporations, most recently as president of a large division of a customer-focused public company. In connection with that role, Mr. Hawaux has extensive experience in operational matters and business strategy, which adds a valuable perspective for the Board’s decision making. In addition, Mr. Hawaux has significant experience in the preparation and review of complex financial reporting statements and is an audit committee financial expert for purposes of the SEC’s rules. Mr. Hawaux also brings to the Board of Directors meaningful experience based on his service on the board of directors of The Timberland Company.

 

Debra J. Kelly-Ennis

Age:    56
Director since:    1997
Principal Occupation:    Former President and CEO, Diageo Canada, Inc., Etobicoke, Ontario, Canada
Recent Business Experience:    Ms. Kelly-Ennis served as President and Chief Executive Officer of Diageo Canada, Inc., an adult spirits company, from September 2008 until July 2012. She served as Chief Marketing Officer of Diageo North America from April 2005 to September 2008. She served as President of Saab Cars USA, a wholly-owned subsidiary of General Motors Europe, from October 2002 to April 2005. Ms. Kelly-Ennis served as General Manager of the Oldsmobile Division of General Motors Corporation from May 2000 until September 2001, and served as Brand Manager of General Motors’ Chevrolet Division from March 1999 until April 2000.
Outside Directorships (Last Five Years):    Ms. Kelly-Ennis currently serves as a member of the board of directors of Altria Group, Inc., Carnival Corporation & plc and Dress for Success Worldwide.
Qualifications:   

The specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to conclude that Ms. Kelly-Ennis should serve as a director in light of our business and structure include her significant experience as an executive with several large, customer-focused companies in multiple industries. In addition, Ms. Kelly-Ennis’s significant amount of marketing and distribution experience provides an in-depth understanding of PulteGroup’s customers’ needs and adds a valuable perspective for Board decision making. Ms. Kelly-Ennis also brings to the Board of Directors meaningful experience based on her service on the board of directors of Carnival Corporation & plc.

 

Patrick J. O’Leary

Age:    55
Director since:    2005
Principal Occupation:    Former Executive Vice President and Chief Financial Officer of SPX Corporation
Recent Business Experience:    Mr. O’Leary served as Executive Vice President and Chief Financial Officer of SPX Corporation, a global industrial and technological services and products company, from December 2004 until August 2012, when he retired. Prior to that time, he served as Chief Financial Officer and Treasurer of SPX Corporation from October 1996 to December 2004.

 

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Qualifications:   

The specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to conclude that Mr. O’Leary should serve as a director in light of our business and structure include his significant experience as a chief financial officer of a large multinational corporation. In addition, Mr. O’Leary has significant experience in the preparation and review of complex financial reporting statements and is an audit committee financial expert for purposes of the SEC’s rules.

 

James J. Postl

    
Age:    67
Director since:    2009
Principal Occupation:    Former President and Chief Executive Officer of Pennzoil-Quaker State Company
Recent Business Experience:    Mr. Postl retired as president and chief executive officer of Pennzoil-Quaker State Company following its acquisition by Shell Products U.S. in October 2002. He joined Pennzoil in October 1998, prior to the formation of Pennzoil-Quaker State Company in December 1998, when he was named president and chief operating officer and was elected to the board of directors of the new company. In May 2000, he was named president and chief executive officer. Prior to joining Pennzoil-Quaker State, he served as president of Nabisco Biscuit Company from 1996 and was president and chief executive officer of Nabisco International from 1994 to 1996. Prior to joining Nabisco, he held a variety of management positions with PepsiCo, Inc. over a 19-year period.
Outside Directorships (Last Five Years):    Mr. Postl currently serves as a member of the board of directors of American Funds, and previously served as a member of the board of directors of Cooper Industries, Ltd. and Northwest Airlines Corporation.
Qualifications:   

The specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to conclude that Mr. Postl should serve as a director in light of our business and structure include his significant experience serving as an executive officer of several corporations and as a director of several public corporations. Mr. Postl has substantial experience in operational matters, having served as president and chief executive officer of several corporations and large business divisions. Mr. Postl also brings to the Board of Directors significant public company management experience, having served as president and chief executive officer of Pennzoil-Quaker State Company, a large public company.

 

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

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

Independence

Under the Company’s Corporate Governance Guidelines, a substantial majority of the members of our Board of Directors must be independent. The Board of Directors has adopted categorical independence standards to assist the Nominating and Governance Committee in determining director

 

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independence, which standards either meet or exceed the independence requirements of the New York Stock Exchange’s (“NYSE”) corporate governance standards. Under these standards, no director can qualify as independent unless (i) the Board of Directors affirmatively determines that the director has no material relationship with the Company directly or as an officer, shareholder or partner of an organization that has a relationship with the Company, and (ii) the director meets the following categorical standards:

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

The Board of Directors considered all relevant facts and circumstances in assessing director independence and affirmatively determined that Brian P. Anderson, Bryce Blair, Thomas Folliard, Cheryl W. Grisé, André J. Hawaux, Debra J. Kelly-Ennis, Patrick J. O’Leary and James J. Postl are independent within the meaning of the Company’s categorical standards and the NYSE listing standards. The Board of Directors further determined that Richard J. Dugas, Jr., who is a current PulteGroup employee, is not independent within the meaning of the Company’s categorical standards and the NYSE listing standards.

 

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Board Qualifications

In addition to the individual attributes of each of the directors described above, PulteGroup highly values the collective experience and qualifications of the directors. PulteGroup believes that the collective experiences, viewpoints and perspectives of its directors results in a Board with the commitment and energy to advance the interests of PulteGroup’s shareholders.

COMMITTEES OF THE BOARD OF DIRECTORS

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

 

Director Name   

Audit

Committee

    

Compensation and

Management

Development

Committee

    

Nominating and

Governance

Committee

    

Finance

and

Investment

Committee

Brian P. Anderson

   X*             X       

Bryce Blair

          X             X*

Richard J. Dugas, Jr.

                        X

Thomas J. Folliard

   X                    X

Cheryl W. Grisé

          X      X*       

Debra J. Kelly-Ennis

   X             X       

David N. McCammon

   X                    X

Patrick J. O’Leary

          X*             X

James J. Postl**

          X      X       

Bernard W. Reznicek

   X      X              

 

* Chair

 

** Lead Director

Audit Committee

The Audit Committee met nine times in 2012. The Committee represents and assists the Board of Directors with the oversight of the integrity of the Company’s financial statements and internal controls, the performance of the Company’s internal audit function, the annual independent audit of the Company’s financial statements and the independent auditor’s engagement, qualifications and independence, the Company’s compliance with legal and regulatory requirements, and the evaluation of enterprise risk issues.

The Audit Committee is also responsible for selecting (subject to ratification by our shareholders) the independent auditor as well as setting the compensation for and overseeing the work of the independent auditor and pre-approving all audit services to be provided by the independent auditor. The Board of Directors has determined that each of the members of the Audit Committee is independent within the meaning of the Company’s categorical standards and the applicable NYSE and SEC rules and financially literate as defined by the NYSE rules, and that David N. McCammon,

 

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Bernard W. Reznicek, Brian P. Anderson and Thomas J. Folliard are audit committee financial experts for purposes of the SEC’s rules.

Compensation and Management Development Committee

The Compensation and Management Development Committee met ten times in 2012. The Compensation and Management Development Committee is responsible for the review, approval, and administration of the compensation and benefit programs for the Chief Executive Officer and the other named executive officers. It also reviews and makes recommendations regarding the Company’s incentive plans and certain other compensation plans and reviews the Company’s leadership development programs and initiatives and discusses performance, leadership development, and succession planning for key officers with the Chairman of the Board, President and Chief Executive Officer, as appropriate. The Board of Directors has determined that each of the members of the Compensation and Management Development Committee is independent within the meaning of the Company’s categorical standards and the NYSE rules.

The Compensation and Management Development Committee meets regularly in person and via teleconference to discharge its duties and responsibilities. Mr. Patrick J. O’Leary is the Chair of the Compensation and Management Development Committee. Mr. O’Leary works with Mr. James R. Ellinghausen, the Company’s Executive Vice President, Human Resources, to establish meeting agendas and determine whether any members of PulteGroup’s management or outside advisors should attend meetings. The Compensation and Management Development Committee also meets regularly in executive session. At various times during the year at the request of the Compensation and Management Development Committee, Mr. Robert T. O’Shaughnessy, our Executive Vice President and Chief Financial Officer, may attend Compensation and Management Development Committee meetings, or portions of Compensation and Management Development Committee meetings, to provide the Compensation and Management Development Committee with information regarding the Company’s operational performance, financial performance, or other topics requested by the Compensation and Management Development Committee to assist it in making its compensation decisions.

The Chairman of the Board, President and Chief Executive Officer, Mr. Richard J. Dugas, Jr., annually reviews the performance of each member of senior management (other than Mr. Dugas, whose performance is reviewed by the Compensation and Management Development Committee). Recommendations based on these reviews, including salary adjustments, annual bonuses, and equity grants, are presented to the Compensation and Management Development Committee. Decisions regarding salary adjustments, annual bonuses, and equity grants for Mr. Dugas are made by the Compensation and Management Development Committee. All decisions for 2012 made with respect to the executives listed in the Summary Compensation Table were made after deliberation with Mr. Dugas.

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

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

 

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

The activities of the compensation consultant are directed by the Compensation and Management Development Committee, although the consultant may communicate with members of management, as appropriate, to gather data and prepare analyses as requested by the Compensation and Management Development Committee. During 2012, the Compensation and Management Development Committee asked Pearl Meyer to assist the Committee in establishing a new compensation peer group to be used for evaluating 2013 compensation decisions; review market data and advise the Committee on setting executive compensation and the competitiveness and reasonableness of the Company’s executive compensation program; review and advise the Compensation and Management Development Committee regarding the Company’s pay for performance, equity grant and dilution levels, each as relative to the Company’s peers; review and advise the Compensation and Management Development Committee with respect to new compensation plans and programs, such as the Executive Severance Policy and Retirement Policy; review and advise the Compensation and Management Development Committee regarding regulatory, disclosure and other technical matters; and review and advise the Compensation and Management Development Committee regarding the Company’s compensation risk assessment procedures. The Compensation and Management Development Committee also asked Pearl Meyer to provide opinions on named executive officer pay decisions.

In 2012, Pearl Meyer did not provide any other services to the Company. The Compensation and Management Development Committee assessed the independence of Pearl Meyer pursuant to SEC rules and concluded that Pearl Meyer’s work for the Compensation and Management Development Committee does not raise any conflict of interest.

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

Nominating and Governance Committee

The Nominating and Governance Committee met five times in 2012. The Nominating and Governance Committee is responsible for matters related to the governance of the Company and for developing and recommending to the Board of Directors the criteria for Board membership, the selection of new Board members, and the assignment of directors to the committees of the Board of Directors. The Nominating and Governance Committee assures that a regular evaluation is conducted of the performance, qualifications, and integrity of the Board of Directors and the committees of the Board. The Nominating and Governance Committee also reviews and makes recommendations with respect to the compensation of members of the Board of Directors and asked Pearl Meyer to provide opinions on Board of Director compensation. The Board of Directors has determined that each of the members of the Nominating and Governance Committee is independent within the meaning of the Company’s categorical standards and the NYSE rules.

 

17


Finance and Investment Committee

The Finance and Investment Committee met five times in 2012. The Finance and Investment Committee reviews all aspects of the Company’s policies that relate to the management of the Company’s financial affairs. The Finance and Investment Committee also reviews the Company’s long-term strategic plans and annual budgets, capital commitments budget, and the Company’s cash needs and funding plans.

Board Meeting Information

The Board of Directors held a total of six meetings in 2012. During 2012, each director attended at least 75% of the aggregate number of meetings of the Board of Directors and of the committees on which such director served that were held during the period that such director served as a member of the Board of Directors and as a member of such committees.

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

Throughout the year, PulteGroup held regularly scheduled executive sessions of its non-management directors without management participation. In addition, in 2013, PulteGroup will hold at least one executive session of its non-management directors without the participation of management. James J. Postl, our Lead Director, presides at these executive sessions.

 

18


2012 DIRECTOR COMPENSATION

The table below shows compensation for the Company’s non-employee directors for the fiscal year ended December 31, 2012. Richard J. Dugas, Jr. our Chairman of the Board, President and Chief Executive Officer, receives no additional compensation for his services as a director of the Company. The compensation received by Mr. Dugas as an employee of the Company is shown in the 2012 Summary Compensation Table set forth in this proxy statement.

 

Name  

Fees Earned

or Paid

in Cash

(1)

   

Stock

Awards

(2)

   

All Other

Compensation

   

Total

(3)

 

Brian P. Anderson

  $ 111,898       $ 140,000      $  —       $ 251,898   

Bryce Blair

  $ 111,898      $ 140,000      $      $ 251,898   

Thomas J. Folliard (4)

  $ 47,500      $ 140,000      $      $ 187,500   

Cheryl W. Grisé

  $ 111,898      $ 140,000      $      $ 251,898   

Debra J. Kelly-Ennis

  $ 103,102      $ 140,000      $      $ 243,102   

David N. McCammon

  $ 103,102      $ 140,000      $      $ 243,102   

Patrick J. O’Leary

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

James J. Postl

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

Bernard W. Reznicek

  $ 103,102      $ 140,000      $      $ 243,102   

Thomas M. Schoewe (5)

  $ 33,929      $      $      $ 33,929   

 

(1) The amounts in this column represent the fees earned or paid in cash for services as a director, including annual retainer, committee chairmanship, and lead director fees.

 

(2) The amounts reported in this column are valued based on the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“FASB ASC Topic 718”). Assumptions used in the calculation of these amounts are included in note 9 to the Company’s audited financial statements included in our Annual Report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2012. On June 1, 2012, the directors received their annual equity grant of 16,242 shares, which represents $140,000 divided by the average of the high and low share price on the date of grant. On July 9, 2012, Mr. Folliard received his annual equity grant of 12,734 shares, which represents $140,000 divided by the average of the high and low share price on the date of grant. The amounts reported in this column for Ms. Grisé represent the value of stock units deferred under the PulteGroup, Inc. Deferred Compensation Plan for Non-Employee Directors. The stock units consist of fully vested deferred stock units that are settled in common shares and may be subject to a deferral election consistent with Internal Revenue Code Section 409A.

 

(3) As of December 31, 2012, each individual serving as an outside director during 2012 had outstanding the following number of deferred stock units and stock options:

 

Director   Deferred Stock Units     Options  

Brian P. Anderson

            40,000   

Bryce Blair

               

Thomas J. Folliard

               

Cheryl W. Grisé

    46,587        14,000   

Debra J. Kelly-Ennis

            76,000   

David N. McCammon

            76,000   

Patrick J. O’Leary

            40,000   

James J. Postl

               

Bernard W. Reznicek

            76,000   

Thomas M. Schoewe

               

 

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(4) On July 9, 2012, Mr. Folliard was appointed as a member of the Company’s Board of Directors.

 

(5) Mr. Schoewe ceased to serve as a member of the Board of Directors, effective at the Company’s 2012 Annual Meeting of Shareholders.

Director Compensation

The Nominating and Governance Committee, with input from an independent compensation consultant, annually reviews the compensation of the Company’s non-employee directors. Based on a 2012 review of director compensation levels, the Nominating and Governance Committee did not make any changes to the non-employee director compensation program. During 2012, non-employee directors received the following compensation for service as members of the Board of Directors and as members of Board committees:

 

   

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

 

   

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

 

   

Lead Director retainer fee of $25,000 in cash; and

 

   

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

Director Deferred Compensation

In 2012, non-employee directors were entitled to defer all or a portion of their cash and equity compensation. Deferred cash payments were credited with interest at a rate equal to the five year U.S. treasury rate, plus 2%. Under the “Deferred Compensation Plan for Non-Employee Directors,” the payment of director fees may be deferred for up to eight years, and directors may elect to receive their deferred fees in a lump sum or in equal annual installments over a period not to exceed eight years. In the event of the director’s departure either before or after the commencement of a deferral period, such director’s deferred fees will be paid in a lump sum payment. Under the terms of the plan, all deferred equity will be distributed to the director upon his or her departure from the Board.

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

Equity Ownership Guidelines

Each member of the Board of Directors is expected to maintain an equity investment in the Company equal to at least three times the annual cash retainer, which must be achieved within five years of the director’s initial election to the Board. The holdings that may be counted toward achieving the equity investment guidelines include outstanding stock awards or units, shares obtained through stock option exercise, shares owned jointly with or separately by the director’s spouse and shares purchased on the open market. Outstanding stock options do not count toward achieving the equity investment guidelines. As of March 11, 2013, all members of the Board of Directors have met or, within the applicable period, are expected to meet, these share ownership guidelines.

 

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CORPORATE GOVERNANCE

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

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

Board Leadership

Our Corporate Governance Guidelines contemplate that the independent directors will annually designate one of the independent directors to serve as Lead Director for a one year term. While the Lead Director will be designated annually by the independent directors, in order to provide consistency and continuity, it is generally expected that he or she will serve for more than one year. As noted above, Mr. Postl currently serves as Lead Director. The Lead Director works with the Chairman and Chief Executive Officer to ensure that the Board of Directors discharges its responsibilities, has structures and procedures in place to enable it to function independently of management and clearly understands the respective roles and responsibilities of the Board of Directors and management. In addition, the Lead Director’s duties include convening and chairing regular executive session meetings of the non-management directors and, as appropriate, providing prompt feedback to the Chairman and Chief Executive Officer; coordinating and developing the agenda for executive sessions of the independent directors; convening meetings of the independent directors if necessary; coordinating feedback to the Chairman and Chief Executive Officer on behalf of the independent directors regarding business issues and management; providing final approval, after consultation with the Chairman and Chief Executive Officer, as to the agendas for meetings of the Board of Directors and informational needs associated with those agendas and presentations; performing such other duties as may be necessary for the Board of Directors to fulfill its responsibilities or as may be requested by the Board of Directors as a whole, by the non-management directors, or by the Chairman of the Board; in the absence of the Chairman of the Board, acting as chair of meetings of the Board of Directors; serving as the designated spokesperson for the Board of Directors when it is appropriate for the Board of Directors to comment publicly on any matter; and being available for consultation and direct communication if requested by the Company’s major shareholders. The Board of Directors believes that having a combined Chairman and Chief Executive Officer and an independent Lead Director having significant and well-defined responsibilities as described above enhances the Chairman and Chief Executive Officer’s ability to provide insight and direction on important strategic initiatives to both management and the independent directors and, at the same time, ensures that the appropriate level of independent oversight is applied to all decisions of the Board of Directors, and accordingly facilitates the overall functioning of the Board of Directors.

Board Role in Risk Oversight

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

 

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

Available information about PulteGroup

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

 

   

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

 

   

Audit Committee Charter

 

   

Compensation and Management Development Committee Charter

 

   

Nominating and Governance Committee Charter

 

   

Finance and Investment Committee Charter

 

   

Code of Ethics (for Covered Senior Officers)

 

   

Code of Ethical Business Conduct

 

   

Corporate Governance Guidelines

 

   

By-laws

 

22


DIRECTOR NOMINATION RECOMMENDATIONS

The Nominating and Governance Committee does not have a single method for identifying director candidates but will consider candidates suggested by a wide range of sources, including candidates recommended by shareholders. The Committee reviews the qualifications of various persons to determine whether they might make good candidates for consideration for membership on the Board of Directors. The Committee will review all proposed nominees, including those proposed by shareholders, in accordance with its charter and PulteGroup’s Corporate Governance Guidelines. While the Committee has not established specific types of experience or skills for potential candidates, the Committee will review the person’s judgment, experience, qualifications, independence, understanding of PulteGroup’s business or other related industries, and such other factors as the Committee determines are relevant in light of the needs of the Board of Directors and PulteGroup. The Board of Directors also believes that diversity is an important goal, and looks for potential candidates who will help ensure that the Board of Directors has the benefit of a wide range of attributes, including cultural, gender, ethnic and age diversity. Although there is no specific policy on diversity, the Nominating and Governance Committee takes various considerations into account in its selection criteria for new directors, which considerations may include the achievement of diversity on the basis of gender, race, national origin, functional background, and executive or professional experience. The Committee will select qualified candidates and review its recommendations with the Board of Directors, which will decide whether to invite the candidate to be a nominee for election to the Board of Directors.

You may recommend a person to be nominated for director by writing to our Secretary by certified mail, return receipt requested, or by recognized overnight courier to Steven M. Cook, Senior Vice President, General Counsel and Secretary, PulteGroup, Inc., 100 Bloomfield Hills Parkway, Suite 300, Bloomfield Hills, Michigan 48304. Shareholders wishing to directly nominate a candidate for election as a director at next year’s annual meeting must deliver written notice to PulteGroup at the above address not later than 60 days prior to the date of next year’s annual meeting (unless public disclosure of the date of such meeting is made less than 70 days before such meeting, in which case notice must be received within 10 days following such public disclosure).

As further described in the Company’s By-laws, your recommendation must set forth:

 

   

the name and address of the proposed nominee;

 

   

the class or series and number of PulteGroup common shares which you own of record or beneficially and a representation that you intend to appear in person or by proxy at the meeting to nominate the proposed nominee;

 

   

a description of all arrangements or understandings between you and any other person (naming such person) pursuant to which the recommendation is being made by you;

 

   

any other information relating to the proposed nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act; and

 

   

a written consent of the proposed nominee to being named as a nominee and to serve as a director if elected.

 

23


COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

In recent years, the U.S. housing market experienced a significant decline in the demand for new homes as well as a sharp decline in overall residential real estate values. In response to these market conditions, we restructured our operations for profitability at low volumes, including making significant reductions in employee headcount and overhead costs, and managed our business to generate cash, including curtailing our investments in inventory. We used this positive cash flow to, among other things, increase our cash reserves as well as retire outstanding debt.

Over the past few years, the Company modified its executive compensation programs in response to these challenging conditions. In 2012, new home sales in the U.S. increased for the first time since 2005, rising 20% to 367,000 homes. However, this improvement was from a very low base, as U.S. home sales in 2011 were the lowest since 1962. Although current volume remains very low compared to historical levels, the improved environment and our restructuring actions contributed to our return to profitability in 2012. In light of this more stable environment, the Board and management focused on profitability and return measures beginning in 2010. Accordingly, the Compensation and Management Development Committee (the “Committee”) incorporated into the Company’s long-term incentive program, economic profit improvement and total shareholder return, relative to a peer group of companies in 2010 and 2011, and improvement in return on invested capital in 2012.

We expect that overall market conditions will continue to improve but that improvements will occur unevenly across our markets. Our strategy to enhance shareholder value is centered around the following operational objectives:

 

   

improving our inventory turns;

 

   

more effectively allocating the capital invested in our business using a risk-based portfolio approach;

 

   

enhancing revenues through more strategic pricing, including establishing clear product offerings for each of our brands based on systematic, consumer-driven input, optimizing our pricing through the expanded use of options and lot premiums, and lessening our reliance on “speculative” home sales;

 

   

reducing our house costs through common house plan management, value-engineering our house plans, working with suppliers to reduce costs; and

 

   

maintaining an efficient overhead structure.

Pay for Performance

Pay for performance is a significant element of the Company’s executive compensation program. The material elements of our executive compensation program consist of base salary, annual incentive, long-term incentive and equity grants, with a majority of the total target compensation of each named executive officer provided in the form of variable or performance-based compensation. In 2012, the Committee modified the form of long-term incentive awards by granting stock-settled performance-based awards and time-based restricted shares in lieu of a long-term incentive mix of stock options, time-based restricted shares and long-term cash incentive awards previously granted under the Company’s long-term incentive program. The Company does not offer a service-based defined benefit pension plan or other similar benefits to its employees.

 

24


Key Executive Compensation Decisions and Actions

The Committee, with advice from its independent compensation consultant, engages in an ongoing review of the Company’s executive compensation program to ensure that the executive compensation program supports the Committee’s executive compensation philosophy. In connection with this ongoing review, the Committee continues to revise the executive compensation program to implement and maintain competitive market practices with respect to executive compensation. These practices include the following, each of which the Committee believes reinforces our executive compensation philosophy and objectives:

 

   

Emphasis on Future Pay Opportunity Versus Current Pay. The Committee seeks to provide an appropriate mix of compensation elements, striking a balance between short-term versus long-term compensation and cash versus equity-based compensation. The Committee believes that equity-based compensation aligns the interests of the named executive officers with those of our shareholders and encourages the named executive officers to continue to deliver results over the long-term. The Committee believes that the compensation awarded to the named executive officers should be at-risk by being based on the Company’s operating and stock price performance. Accordingly, beginning in 2012, the Committee replaced the performance-based long-term cash incentive awards granted under the Company’s long-term incentive program with performance-based awards that will be settled in PulteGroup shares in accordance with the terms of the applicable award agreements. In addition, the Committee eliminated the stock option grant that would have been made in February 2012 as part of the Company’s annual equity award.

 

   

Adoption of an Executive Severance Policy and Retirement Policy. Effective February 6, 2013, the Committee adopted the PulteGroup, Inc. Executive Severance Policy and the PulteGroup, Inc. Retirement Policy. The Executive Severance Policy provides for severance benefits ranging from one times base salary to two times base salary, depending on the length of an executive’s service with the Company and the executive’s position at the time of a qualifying termination of employment. The Retirement Policy clarifies the definition of retirement for purposes of determining the treatment of equity and long-term incentive awards following a qualifying retirement and also sets forth guidelines for determining the treatment of such awards following a qualifying retirement. The Committee believes that both of these policies help the Company accomplish its compensation philosophy of attracting and retaining exemplary talent and reduce the need to negotiate individual severance arrangements with new hires and departing executives.

 

   

Share Ownership Guidelines. To align our executives’ interests with those of our shareholders and to assure that our executives own meaningful levels of PulteGroup common shares throughout their tenures with the Company, we require our executive officers to meet share ownership guidelines. The share ownership guidelines require, within a five-year period from date of hire, promotion or determination that a position is subject to Section 16 of the Exchange Act, the Chief Executive Officer to own PulteGroup common shares equal in value to six times his base salary and each of the other named executive officers to own PulteGroup common shares equal to at least one to three times his or her respective base salary, depending on the position.

 

   

Perquisite Policy. We do not provide tax gross-ups on executive perquisite expenses incurred after January 1, 2010, except for gross-ups relating to relocation expenses.

 

   

Clawback Policy. In 2009, the Committee determined that it was in the interests of its shareholders to implement a clawback policy with respect to the annual incentive program, long-term incentive program, and equity grants. See “Clawback Policy” for further information regarding the clawback policy.

 

25


   

Prohibition on Pledging and Hedging of PulteGroup Securities. To further enhance the linkage between executives’ long-term incentive compensation and shareholder value, PulteGroup’s insider trading policy prohibits directors and executive officers from engaging in hedging or monetization transactions and holding PulteGroup securities in a margin account or pledging PulteGroup securities as collateral for a loan. See “Equity Grants” for further information regarding the Company’s insider trading policy.

In its compensation review process, the Committee considers whether the Company’s executive compensation and benefits program serves the interests of the Company’s shareholders. In that respect, as part of its on-going review of the Company’s executive compensation program, the Compensation Committee considered the input it has received from various shareholders, including the affirmative shareholder “say on pay” vote at the Company’s prior annual meeting of shareholders. In connection with this review, while the Committee determined that the Company’s executive compensation philosophy, compensation objectives, and compensation elements continued to be appropriate, the Committee approved modifications to the Company’s compensation peer group (as described below under “Market Comparisons”) to address the decrease in the size of the peer group over the past several years due to the consolidation of the home-building industry. The new peer group includes companies operating in comparable industries and of comparable size to us in terms of revenues and market capitalization. This new peer group will be used in setting 2013 compensation levels.

Named Executive Officers

For 2012, our named executive officers are Richard J. Dugas, Jr., Chairman of the Board, President and Chief Executive Officer, Robert T. O’Shaughnessy, Executive Vice President and Chief Financial Officer, James R. Ellinghausen, Executive Vice President, Human Resources, Harmon D. Smith, Executive Vice President-Homebuilding Operations and Area President-Texas, John J. Chadwick, Area President-Southwest and John B. Bertero III, the Company’s former Area President-East. Mr. Bertero separated from the Company, effective November 30, 2012. Please see the “Separation Agreement with John B. Bertero III” section of this Compensation Discussion and Analysis for a description of benefits paid to Mr. Bertero in connection with his departure from the Company.

Establishing and Evaluating Executive Compensation

Executive Compensation Philosophy

Our overall compensation philosophy applicable to named executive officers is to provide a compensation program that is intended to attract and retain qualified executives for PulteGroup through fluctuating business cycles, provide them with incentives to achieve our strategic, operational, and financial goals, increase shareholder value, and reward long-term financial success. The Committee also intends to motivate the named executive officers to achieve other non-financial objectives, including customer satisfaction, people development, and building and maintaining a strong culture within the organization.

Key principles of our executive compensation philosophy include:

 

   

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

 

   

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

 

   

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

 

   

requiring our executives to own significant levels of PulteGroup shares;

 

26


   

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

 

   

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

While our executive compensation philosophy and decisions with respect to compensation do not differ materially as applied to each of our named executive officers, the Committee believes that, given the contributions of Mr. Dugas to our overall strategy, as well as the requirements and responsibilities of his position as Chairman of the Board and leader of the Company, the total compensation levels for Mr. Dugas should be higher than the total compensation levels of the other named executive officers.

The Compensation and Management Development Committee

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

 

   

to establish compensation-related performance objectives under the annual incentive program and long-term incentive program that support our strategic plan;

 

   

to establish individual performance goals and objectives for the Chief Executive Officer and other named executive officers;

 

   

to evaluate the job performance of the Chief Executive Officer and the other named executive officers in light of those goals and objectives;

 

   

to annually review and approve compensation levels for the Company’s Chief Executive Officer and other named executive officers. The Committee seeks input from the independent members of PulteGroup’s Board of Directors in establishing compensation levels for the Company’s named executive officers (including the Chief Executive Officer);

 

   

to administer PulteGroup’s equity compensation and shareholder-approved incentive compensation plans;

 

   

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

 

   

to review succession planning, leadership development programs and bench strength for all other senior executive positions; and

 

   

to annually review the potential risks associated with the Company’s compensation program.

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

The Committee is currently comprised of Mr. Bryce Blair, Ms. Cheryl W. Grisé, Mr. Patrick O’Leary, Mr. James J. Postl and Mr. Bernard Reznicek. Mr. Reznicek served as the Committee Chairman until May 2012 when Mr. O’Leary assumed Committee Chairmanship. Each member of the Committee qualifies as an independent director under NYSE listing standards and our Corporate Governance Guidelines.

 

27


Independent Compensation Consultant

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

 

   

participates in the design of the Company’s executive compensation program to help the Committee evaluate the linkage between pay and performance;

 

   

assists the Committee in developing a compensation peer group to be used for evaluating compensation decisions;

 

   

provides and reviews market data and advises the Committee on setting executive compensation and the competitiveness and reasonableness of the Company’s executive compensation program;

 

   

reviews and advises the Committee regarding the elements of the Company’s executive compensation program, equity grant and dilution levels, each as relative to the Company’s peers;

 

   

reviews and advises the Committee regarding individual executive pay decisions;

 

   

reviews and advises the Committee with respect to new compensation plans and programs, such as the Executive Severance Policy and Retirement Policy;

 

   

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

 

   

reviews and advises the Committee regarding the Company’s compensation risk assessment procedures; and

 

   

reviews and advises the Nominating and Governance Committee regarding Director compensation.

Pearl Meyer does not provide any other services to the Company.

Role of Executive Officers

As noted above, the Committee is responsible for all compensation decisions for our senior executives (which include the named executive officers). Mr. James R. Ellinghausen, the Company’s Executive Vice President, Human Resources, works with Mr. O’Leary to establish meeting agendas and to determine whether any members of PulteGroup’s management or outside advisors should attend meetings. Our Chairman of the Board, President and Chief Executive Officer, Mr. Richard J. Dugas, Jr., annually reviews the performance of each member of senior management (other than Mr. Dugas’ performance). Recommendations based on these reviews, including salary adjustments, annual bonuses, and equity grants, are presented to the Committee. Decisions regarding salary adjustments, annual bonuses, and equity grants for Mr. Dugas are made by the Committee. All decisions for 2012 made with respect to the named executive officers other than Mr. Dugas were made after deliberation with Mr. Dugas. In addition, Messrs. Dugas and Ellinghausen assisted the Committee in determining Mr. Bertero’s separation benefits. Please see the “Potential Payments Upon Termination or Change in Control” section of this Proxy Statement for a description of benefits to be paid to Mr. Bertero in connection with his departure from the Company.

At various times during the year at the request of the Committee, Robert T. O’Shaughnessy, the Executive Vice President and Chief Financial Officer of the Company, attended Committee meetings, or portions of Committee meetings, to provide the Committee with information regarding the Company’s operational performance, financial performance, or other topics requested by the Committee to assist the Committee in making its compensation decisions.

 

28


Key Factors in Setting 2012 Compensation

In establishing and evaluating the Company’s 2012 executive compensation program, the Committee, in consultation with Mr. Dugas, as applicable, considered the following key factors:

 

   

overall Company performance and specific financial results relative to incentive performance goals established by the Committee in February 2012;

 

   

competitive pay practices (evaluated based on market comparisons and recommendations of Pearl Meyer);

 

   

individual performance of each of our named executive officers;

 

   

historical equity grants and the current value of each of our named executive officer’s equity holdings;

 

   

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

 

   

our ability to retain and motivate key talent.

Market Comparisons

The Committee does not believe that it is appropriate to establish compensation levels based only on market practices. The Committee believes that compensation decisions are complex and require a deliberate review of Company performance and peer compensation levels, as well as the overall business environment. While the Committee factors peer compensation levels and practices into setting compensation levels, this peer information is one of the many factors that the Committee considers in determining compensation levels. For each element of compensation, the Committee, based on the advice of its consultant, uses a guideline range of the 50th to 75th percentile of the market data (i.e., peer group and survey data) to establish target compensation levels. Additionally, at various times during the year, the Committee reviews market data to assess the reasonableness and competitiveness of the Company’s executive compensation program.

The compensation peer group used for evaluating 2012 compensation decisions consisted of the publicly-traded homebuilding companies set forth below, which was the same peer group that the Committee used to evaluate 2011 compensation decisions. The companies included in the 2012 compensation peer group were:

 

D.R. Horton, Inc.

  NVR, Inc.

KB Home

  The Ryland Group, Inc.

Lennar Corporation

  Toll Brothers, Inc.

The Committee considers factors such as the size of the Company relative to the compensation peer group, management ownership and financial performance in evaluating market data.

In addition to reviewing compensation practices among the compensation peer group, the Committee believes it is important to review compensation practices within general industry. The Company participates in or purchases a number of compensation surveys. The Committee reviews a blend of general industry and peer group survey data in establishing target compensation levels and to evaluate whether the Company’s compensation policies are in line with market data. The 2012 survey data provided to the Committee by Pearl Meyer was compiled from the following general industry compensation surveys: Mercer Human Resource Consulting’s US Mercer Benchmark Database (MBD) Executive (which has approximately 2,500 participating companies); TowersWatson General Industry

 

29


Executive Database (which has approximately 450 participating companies); and TowersWatson Top Management Compensation (which has approximately 550 participating companies). For the Area Presidents, Pearl Meyer also utilized survey data from the ACS Homebuilders survey (which has 11 participating companies). To assist the Committee in its review of the general industry survey data, Pearl Meyer extracts compensation information from the surveys with respect to companies with annual revenues ranging from $3 billion to $6 billion for Named Executive Officers holding corporate-wide positions and $800 million for the Area Presidents. The Committee believes that the compensation practices at companies of this size are most relevant to the Committee’s decision-making process.

In light of the continued consolidation of the home-building industry over the past several years, the Committee felt it appropriate to perform a holistic review of the Company’s historical peer group with the assistance of Pearl Meyer. Based on this review, in November 2012, the Committee approved changes to the Company’s current peer group selection criteria to include (i) companies within, or operating in an industry similar to, the home-building industry and (ii) companies of similar size in terms of revenue or market capitalization (1/2 to 2 times PulteGroup’s revenue and market capitalization). In evaluating companies to include in the Company’s peer group, the Committee also reviewed the say-on-pay history for each of the companies to understand the alignment of the executive compensation programs at those companies with the interests and views of the shareholders of such companies. Based on this review, the Committee approved the following peer group to be used for evaluating 2013 compensation decisions:

 

D.R. Horton, Inc.

  Mohawk Industries, Inc.

KB Home

  NVR, Inc.

Lennar Corporation

  Owens Corning

Masco Corporation

  The Ryland Group, Inc.

M.D.C. Holdings, Inc.

  Toll Brothers, Inc.

Meritage Homes Corporation

  USG Corporation

Use of Tally Sheets

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

 

30


Executive Compensation Program Elements

The Committee has designed the elements of the compensation program for the named executive officers to advance the operational objectives and the long-term strategies of the Company. The following chart sets forth various compensation elements under the Company’s 2012 compensation program, each of which is described in detail in this Compensation Discussion and Analysis, and the purpose of each element.

 

Program Element    Purpose

Annual Base Salary

  

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

Annual Incentive Program

  

•    Provides annual incentive opportunities that are competitive with market practices in order to attract, motivate and retain top executive talent.

 

•    Rewards executives for annual performance results relative to pre-established goals that are deemed critical to the success of the Company.

 

•    Aligns interests of executives with those of our shareholders.

Long-Term Incentive Program and Equity-Based Awards

 

•     Stock-Settled Performance-Based Awards—Long-Term Incentive Awards

 

•     Restricted Shares with 3-year cliff vesting

  

•    Provides long-term incentive opportunities and equity grants that are competitive with market practices in order to attract, motivate and retain top executive talent.

 

•    Focuses executives on long-term performance of the Company.

 

•    Directly aligns the interests of executives with those of our shareholders.

 

•    Motivates and rewards executives for long-term performance results relative to the Company’s peer group and pre-established goals that are deemed critical to the success of the Company.

 

•    Retains top executive talent over vesting and performance period.

Non-Qualified Deferred Compensation   

•    Provides a vehicle for deferred compensation in addition to our 401(k) plan that allows participants to defer a portion of their incentive income that earns interest until the amount is distributed at future date(s) specified by the participant (e.g., the applicable 2012 interest rate was 2.878% under the Company’s Non-Qualified Deferral Program).

Perquisites

 

•     Financial & Tax Planning Reimbursements

 

•     Health Examination Reimbursements

 

•     Vehicle Reimbursement Program

  

•    Provides a limited number of perquisites that are competitive with market practices.

 

•    In the case of Health Examination Reimbursements, attempts to minimize disruptions to shareholders by encouraging executives to be proactive about their health.

 

•    In the case of the Vehicle Reimbursement Program, facilitates the performance of the Area President’s duties by sharing with the executive the costs of a vehicle to be used for both personal and business travel.

Base Salary

The Committee determines the appropriateness of executives’ base salaries by considering the responsibilities of their positions, their individual performance and tenure, internal equity, comparison to the base salary levels of executives in the compensation peer group and the general industry compensation surveys and the recommendations of Pearl Meyer. Base salary increases are considered annually and are based upon both individual and Company performance in the prior year.

 

31


Other than in connection with the promotions of Messrs. Smith and Chadwick, the Committee elected not to increase the base salary levels from the levels set in 2011 for the named executive officers at that time. In connection with Mr. Smith’s promotion to Executive Vice President—Homebuilding Operations and Area President—Texas, effective May 21, 2012, Mr. Smith’s annual base salary was increased from $565,000 to $625,000. In connection with Mr. Chadwick’s promotion to Area President—Southwest, effective January 28, 2012, Mr. Chadwick’s annual base salary was increased from $400,000 to $450,000. The changes in the base salary levels for each of Messrs. Smith and Chadwick were made after considering the market data discussed above and the Company’s historical pay practices with respect to similarly situated executive officers.

Annual Incentive Compensation

Under the shareholder-approved PulteGroup, Inc. 2008 Senior Management Incentive Plan (the “2008 Incentive Plan”), the Committee provides both annual and long-term incentives. The Committee adopted the 2012 Annual Incentive Program (the “Annual Program”) under the 2008 Incentive Plan. Awards for named executive officers who hold corporate-wide positions are based entirely on corporate performance, while awards for the Area Presidents are based on their respective Area’s performance. The Committee believes that this design element appropriately ties incentive compensation to the performance of the named executive officer’s primary area of responsibility.

Corporate Performance

The payment of awards under the 2012 Annual Program applicable to the named executive officers other than the Area Presidents (Messrs. Smith, Chadwick and Bertero) was subject to the attainment of specific performance goals relating to consolidated pre-tax income, adjusted gross margin, selling, general and administrative (“SG&A”) expenses and inventory turns, with each performance goal weighted equally. The table below indicates the performance metrics and potential payouts with respect to the Company’s achievement of the 2012 Annual Program goals. The Committee believes that these performance metrics were meaningful measures of the Company’s 2012 performance because these metrics increase the focus of participants on Company profitability and are tied to the Company’s strategy with respect to shareholder value creation. The Committee established the payout formula to encourage strong, focused performance. Given the economic and market conditions at the time the targets were set, the target payout level was designed to be achievable with strong management performance, while payout at the maximum level was designed to be very difficult to achieve.

 

            2012 Goals ($ in 000s)(1)                       
Performance Measures   Weighting    

Threshold
Payout

(50%)

   

Target

Payout

(100%)

   

Maximum
Payout

(200%)

    Performance
Results(2)
    Achieved
Payout
    Weighted
Payout
 

Pre-Tax Income (000s) (2)

    25   $ 40,000      $ 100,000      $ 220,000      $ 273,263        200     50.0

Adjusted Gross Margin (3)

    25     18.3     19.3     21.5     20.9     173.0     43.3

SG&A (as a % of Revenue) (4)

    25     12.5     11.4     10.5     11.3     111.0     27.8

Inventory Turns (5)

    25     0.66        0.71        0.84        0.78        154.0     38.5
                                      Total % of Target:        159.5

 

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

 

(2) Pre-tax income represents Income (Loss) Before Income Taxes as reported in the Company’s Annual Report, as adjusted to exclude the impact of certain items, including: land-related adjustments, gains on land sales, gains and losses on debt retirement, and adjustments to mortgage repurchase reserves.

 

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(3) Gross margin percentage represents the quotient of Home Sale Gross Margin excluding Land and Community Valuation Adjustments and Capitalized Interest Amortization divided by Home Sale Revenues, each as reported in the Company’s Annual Report.

 

(4) Selling, general, and administrative percentage represents the quotient of Selling, General, and Administrative Expenses divided by Home Sale Revenues, each as reported in the Company’s Annual Report.

 

(5) Inventory turns represents the quotient of the trailing 12-month sum of Home Sale Cost of Revenues as reported in the Company’s Annual Report (excluding interest, land impairments, commissions, closing costs, and certain other items) divided by the trailing 13-month average of the sum of (1) House and Land Inventory, (2) Land Held for Sale, and (3) Land, Not Owned, Under Option Agreements, each as reported in the Company’s Annual Report (excluding capitalized interest and certain other items).

Pursuant to the terms of the Annual Program, each performance goal is measured independently of the other performance goals and payout is determined based on the weighted average result of all four performance goals. For 2012, each goal had a 25% weighting in the payout calculation. As shown in the table above, the Company’s performance exceeded target performance with respect to each goal, resulting in each participating named executive officer receiving a payout above the target award level. Pursuant to the terms of the 2008 Incentive Plan, the Committee has the discretion to pay the awards in cash, equity or both. The Committee determined to pay the entire award in cash.

The table below indicates the award opportunities established by the Committee and the cash payout under the Annual Program applicable to the named executive officers who held corporate-wide positions, other than Mr. Smith who is reported in the table under “Business Unit Performance” below. The Committee determined the target payout level for each of the named executive officers based on each named executive officer’s position within the Company, each named executive officer’s historical pay levels, the incentive pay for executives at companies in our compensation peer group and the general industry compensation surveys and the recommendations of Pearl Meyer. In setting the 2012 target award opportunities, the Committee did not change the target award percentage opportunities compared to the 2011 targets for the named executive officers holding corporate-wide positions, except that Mr. Dugas’ target award under the Annual Program was reduced from 200% to 175% of his base salary. Mr. Dugas’ target incentive award was reduced to rebalance the total mix of compensation awarded to Mr. Dugas, which resulted in a reduction in his Annual Program award opportunity and an increase in his LTI Program award opportunity as compared to 2011.

 

Executive   Base Salary
2012
    Target
as
% of
Salary
    Threshold(1)     Target     Maximum     Total
Payout(2)
 

Richard J. Dugas, Jr.

  $ 1,200,000        175%      $ 262,500      $ 2,100,000      $ 4,200,000      $ 3,349,500   

Robert T. O’Shaughnessy

  $ 700,000        100%      $ 87,500      $ 700,000      $ 1,400,000      $ 1,116,500   

James R. Ellinghausen

  $ 525,000        100%      $ 65,625      $ 525,000      $ 1,050,000      $ 837,400   

 

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

 

(2) Pursuant to the terms of the 2008 Incentive Plan, the Committee has the discretion to pay the awards in cash, restricted shares or both. The Committee determined to pay the entire award in cash.

Business Unit Performance

The Committee reviewed the design of the field leaders incentive plan to ensure that the plan measures encouraged strong, focused performance by our Area Presidents. The Area President’s 2012 Annual Program awards were determined based on each Area President’s respective Area’s pre-tax income, adjusted gross margin, SG&A expenses, and inventory turns, with each performance goal weighted equally.

 

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The table below indicates the award opportunities established by the Committee and the cash payouts with respect to Area performance. The Committee determined the target payout level for each of the named executive officers based on each named executive officer’s position within the Company, each named executive officer’s historical pay levels, the incentive pay for executives at companies in our compensation peer group and the general industry compensation surveys and the recommendations of Pearl Meyer. In setting the 2012 target award opportunities in February 2012 for the Area Presidents, the Committee did not change the target award percentage opportunities compared to the 2011 targets. In connection with Mr. Smith’s promotion to Executive Vice President—Homebuilding Operations and Area President—Texas, effective May 21, 2012, Mr. Smith’s award opportunity was adjusted to reflect the changes in Mr. Smith’s responsibilities and increased annual base salary. Accordingly, 38% of Mr. Smith’s 2012 annual incentive award is determined solely on performance of the Gulf Coast Area during the first 20 weeks of 2012 using a target award of $500,000, and 62% of Mr. Smith’s 2012 annual incentive award is determined based on an equal weighting of Gulf Coast Area and Company performance using a target award of $625,000.

 

Executive   Base Salary
2012
    Target
as
% of
Salary
    Threshold     Target     Maximum    

Performance

Result(2)

   

Total

Payout(3)

 

Harmon D. Smith

  $ 625,000(1)        100%      $ 78,125      $ 625,000      $ 1,250,000        168%      $ 953,800(4)   

John J. Chadwick

  $ 450,000            100%      $ 56,250      $ 450,000      $ 900,000        195.8%      $ 881,100       

John B. Bertero III (5)

  $ 550,000            91%      $ 62,500      $ 500,000      $ 1,000,000        143.8%      $ 658,101       

 

(1) In connection with Mr. Smith’s mid-year promotion, 38% of Mr. Smith’s 2012 annual incentive award is determined solely on performance of the Gulf Coast Area during the first 20 weeks of 2012 using a target award of $500,000, and 62% of Mr. Smith’s 2012 annual incentive award is determined based on an equal weighting of Gulf Coast Area and Company performance using a target award of $625,000. Mr. Smith received a payout of $309,100 with respect to his corporate performance goals.

 

(2) For Mr. Smith, the payout represents weighted average performance results for six Business Units and corporate-wide performance. For Mr. Chadwick, the payout represents weighted average performance results of three Business Units. For Mr. Bertero, the payout represents weighted average performance results for eight Business Units.

 

(3) Pursuant to the terms of the 2008 Incentive Plan, the Committee has the direction to pay the awards in cash, restricted shares or both. The Committee determined to pay the entire award in cash.

 

(4) Includes $309,100 paid to Mr. Smith based on the achievement of the corporate performance goals discussed above.

 

(5) In connection with Mr. Bertero’s separation from the Company, his award under the Annual Program was prorated for the period in 2012 during which he performed services for the Company.

Long-Term Incentive Compensation

In order to provide management with incentives to achieve our long-term goals, in connection with the adoption of the 2008 Incentive Plan, the Committee adopted the Long-Term Incentive Program (the “LTI Program”). During 2012, each named executive officer was granted an aggregate award opportunity in the form of stock-settled performance-based awards under the LTI Program for the 2012-2014 performance period. During the fiscal year ended December 31, 2012, the 2012-2014, 2011-2013 and 2010-2012 performance periods were outstanding under the LTI Program. Based on their employment commencement and promotion dates, Messrs. O’Shaughnessy, Smith, Chadwick and Bertero did not participate in the 2010-2012 LTI Program. The Committee designed the LTI Program to have overlapping performance periods to address the cyclical nature of the homebuilding industry. These overlapping performance periods provide the Committee with the flexibility to address circumstances within our industry as well as the general economic and market conditions at the time the targets are set. For performance periods commencing after January 1, 2012, the Committee has replaced the long-term cash incentive awards previously granted under the LTI Program with

 

34


performance awards that will be settled in PulteGroup shares in accordance with the terms of the applicable award agreements. The Committee believes that the replacement of long-term cash incentive awards under the LTI Program with stock-settled performance awards further aligns the interests of the named executive officers with the interests of the Company’s shareholders.

2012-2014 LTI Program

For the 2012-2014 LTI Program, the Committee selected return on invested capital (“ROIC”) improvement as the primary performance metric. ROIC improvement was deemed by the Committee to be an effective long-term measure that further aligns the executives’ interests with the interests of shareholders. For purposes of the 2012-2014 LTI Program, ROIC is defined as (i) consolidated earnings before interest, taxes, depreciation and amortization (adjusted to exclude the expense related to performance awards granted after December 1, 2011, mortgage repurchase reserve adjustments related to mortgage loan originations prior to January 1, 2012, gain or loss on debt retirements, land-related charges and land sale gains related to land acquired prior to January 1, 2012, intangible impairments and changes in U.S. generally accepted accounting principles), divided by (ii) consolidated shareholders’ equity plus consolidated debt (each as adjusted to exclude consolidated cash, income tax asset and liability accounts, intangible assets, financial services debt and changes in U.S. generally accepted accounting principles).

By utilizing an improvement measure, the Committee is able to create meaningful performance targets because the three-year goals would continually be based on improvement relative to prior performance rather than on an absolute basis. Consistent with the design of the 2011-2013 LTI Program, the Committee included an additional performance metric requiring the Committee to either increase or decrease the award payouts by an amount of up to 20% based on the Company’s Total Shareholder Return (“TSR”) percentile rank relative to a TSR comparator group. The companies used to evaluate TSR consisted of the same companies that were included in the Company’s 2012 compensation peer group (D.R. Horton, Inc., KB Home, Lennar Corporation, NVR, Inc., The Ryland Group, Inc. and Toll Brothers, Inc.).

The table below shows the award opportunities established by the Committee relating to the 2012-2014 LTI Program. Other than with respect to Messrs. Dugas, Smith and Bertero, the Committee did not increase the three-year aggregate target award percentage opportunities under the 2012-2014 LTI Program compared to the three-year aggregate target award percentage opportunities set for participating named executive officers for the 2011-2013 LTI Program. Mr. Dugas’ target award opportunity under the LTI Program was increased from 167% of base salary to 188% of base salary to reflect a rebalance of his total compensation to focus a larger percentage on long-term incentives rather than annual incentives. Mr. Smith’s target award opportunity under the LTI Program was increased from 44% of base salary to 53% of base salary, while Mr. Chadwick’s target award opportunity under the LTI Program was increased from 53% of base salary to 63% of base salary. In the case of Messrs. Smith and Chadwick, their target award opportunities under the LTI Program were determined based on the Company’s historical pay practices with respect to similarly situated executive officers. Actual settlement of the award will be determined after the end of the three-year performance period based on ROIC improvement during the performance period relative to 2011. Under the award agreement, the 2012-2014 LTI award will be settled in PulteGroup shares, except that the award will be settled in a combination of PulteGroup shares and cash if (i) the fair market value of a PulteGroup share is less than $5.00 on December 31, 2014 (or the date of termination of employment due to death or disability) or (ii) the Company does not have a sufficient number of available shares under the Company’s stock incentive plan in effect at the time of the settlement of the award. Given the economic and market conditions at the time the targets were set, the target payout level was designed to be achievable with strong management performance, while the maximum level was designed to be difficult to achieve.

 

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Award Opportunity Under 2012-2014 LTI Program

 

Executive   Base
Salary as of
1/1/2012(1)
   

Target as

% of
Salary

    Threshold     Target     Maximum  

Richard J. Dugas, Jr.

  $ 1,200,000        188%      $ 1,125,000      $ 2,250,000      $ 4,500,000   

Robert T. O’Shaughnessy

  $ 700,000        111%      $ 387,500      $ 775,000      $ 1,550,000   

James R. Ellinghausen

  $ 525,000        133%      $ 350,000      $ 700,000      $ 1,400,000   

Harmon D. Smith

  $ 565,000        53%      $ 150,000      $ 300,000      $ 600,000   

John J. Chadwick

  $ 400,000        63%      $ 125,000      $ 250,000      $ 500,000   

John B. Bertero III (2)

  $ 550,000        50%      $ 137,500      $ 275,000      $ 550,000   

 

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

 

(2) Pursuant to the terms of his separation agreement and the Company’s LTI Program, Mr. Bertero is entitled to amounts, if any, for the 2012-2014 performance period based on the actual performance of the Company and prorated through his date of separation.

2011-2013 and 2010-2012 LTI Programs

The 2011-2013 LTI Program remains outstanding and will be settled following the completion of the three-year performance period, depending upon the Company’s Economic Profit improvement and total shareholder return relative to the companies included in the 2012 compensation peer group.

During 2012, the 2010-2012 LTI Program concluded and for each of the participating named executive officers, payout under the 2010-2012 LTI Program was based on Economic Profit improvement and total shareholder return relative to the companies included in the 2012 compensation peer group. Messrs. O’Shaughnessy, Smith, Chadwick and Bertero did not participate in the 2010-2012 LTI Program.

The table below sets forth the performance metrics for the 2010-2012 LTI Program. The Committee believed that Economic Profit improvement was an effective measure to align the executives’ interests with shareholders’ interests given the economic and market conditions at the time the award was granted.

 

      2010—2012 LTI  Program Performance Goals (in 000s)
Performance Measures   

      Threshold      

Payout

(50%)

         Target      
Payout
(100%)
  

      Maximum      
Payout

(200%)

Economic Profit Improvement (1)

   $1,450,000    $1,490,000    $1,570,000

 

(1) Economic Profit Improvement represents the year over year change in earnings before interest and taxes, as adjusted to include an estimate of the Company’s cost of capital. In order to compare similar performance year over year, Economic Profit is adjusted to exclude the impact of certain items, including; goodwill impairments; land-related adjustments; gains on land sales; gains and losses on debt retirement; adjustments to mortgage repurchase reserves; and adjustments to certain restructuring and other reserves.

Based on the Company’s Economic Profit improvement performance over the 2010-2012 performance period, none of the named executive officers received a payout with respect to the 2010-2012 LTI Program.

 

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Equity Grants

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

 

   

support a pay-for-performance culture, as compensation is only recognized by executives to the extent that value is created for shareholders;

 

   

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

 

   

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

 

   

encourage executive retention, particularly through fluctuating business cycles.

The Company’s philosophy is to award equity grants to our named executive officers in amounts reflecting market data and the participant’s position, ability to influence our overall performance and individual performance based on a review of our named executive officers’ performance during the prior year against pre-determined objectives such as operational efficiency, employee engagement, and retention and development of key management talent. In addition, the Committee considers historical grant practices, the current value of each executive’s unvested equity holdings, market compensation levels, and executive ownership levels in determining grants for individual executives. To further enhance the linkage between executives’ long-term incentive compensation and shareholder value, PulteGroup’s insider trading policy prohibits directors and executive officers from engaging in hedging or monetization transactions, such as zero-cost collars and forward sale contracts, with respect to their PulteGroup security holdings. Additionally, under PulteGroup’s insider trading policy, directors and executive officers are prohibited from holding PulteGroup securities in a margin account or pledging PulteGroup securities as collateral for a loan, as such arrangements could result under some circumstances in a margin sale or foreclosure sale occurring at a time when the director or executive officer is aware of material nonpublic information or otherwise is not permitted to trade in PulteGroup securities.

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

In determining the annual equity grants for 2012 performance, the Committee considered the following: (i) the Company’s historical year-over-year compensation practices, including historical grant levels; (ii) total compensation earned by the named executive officers; (iii) current equity ownership of each of the named executive officers; (iv) a peer group analysis conducted by Pearl Meyer of the compensation of executive officers holding comparable positions at the companies within the compensation peer group; and (v) PulteGroup’s objective to provide greater incentive based on long-term Company performance. In connection with the Committee’s review of the Company’s executive compensation program for 2012, the Committee approved the replacement of stock options and long-term cash incentive awards with stock-settled performance awards and time-based restricted share awards.

 

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As set forth in the table below, in February 2013, the Committee granted the following awards in recognition of each named executive officer’s performance in 2012.

 

    

Time-Based

Restricted Shares(1)

 
Executive   #     Value(2)  

Richard J. Dugas, Jr.

    114,069      $ 2,250,011   

Robert T. O’Shaughnessy

    39,291      $ 775,015   

James R. Ellinghausen

    35,488      $ 700,001   

Harmon D. Smith

    25,349      $ 500,009   

John J. Chadwick

    12,675      $ 250,014   

 

(1) These equity awards were granted in 2013 and, accordingly, are excluded from the 2012 Summary Compensation Table.

 

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

On December 5, 2011, the Committee granted each named executive officer other than Messrs. Dugas and Bertero performance-based equity awards representing the right to receive the Company’s common shares upon satisfaction of certain performance-based milestones. During 2012, 25% of the shares subject to such awards vested based on the Company’s achievement of a quarterly gross margin goal equal to or greater than 20%. The shares earned will be distributed on the second anniversary of the grant date, subject to the executive’s continued employment with the Company through such date.

Executive Severance Policy and Separation Arrangements

Effective February 6, 2013, the Committee adopted the PulteGroup, Inc. Executive Severance Policy which provides for severance benefits ranging from one times base salary to two times base salary, depending on the length of service with the Company and the executive’s position at the time of a qualifying termination of employment. The Committee believes that the policy helps the Company accomplish its compensation philosophy of attracting and retaining exemplary talent and reduces the need to negotiate individual severance arrangements with departing executives.

While the policy reduces the need to negotiate individual severance provisions, the Committee recognizes that under certain circumstances individual severance arrangements may be desirable or beneficial to the Company. Pursuant to the Company’s Executive Severance Policy, adopted March 17, 2011, the Company is prohibited from entering into a severance agreement with a senior executive of the Company without shareholder approval if such agreement would provide for specified benefits exceeding 2.99 times the sum of (a) the senior executive’s annual base salary as in effect immediately prior to termination of employment and (b) the senior executive’s target annual bonus in the fiscal year in which the termination of employment occurs. Benefits excluded from this policy are (i) the value of any accelerated vesting of any outstanding equity-based award provided under plans, programs or arrangements of the Company applicable to one or more groups of employees in addition to the Company’s senior executives, (ii) a pro-rata portion of the value of any accelerated vesting of any outstanding long-term cash-based incentive award provided under plans, programs or arrangements of the Company applicable to one or more groups of employees in addition to the Company’s senior executives, (iii) compensation and benefits for services rendered through the date of termination of employment, (iv) any post-termination retirement and other benefits, special benefits or perquisites provided under plans, programs or arrangements of the Company applicable to one or more groups of employees in addition to the Company’s senior executives and (v) payments that are required by the Company’s bylaws regarding indemnification and/or a settlement of any claim made against the Company. The policy is available for viewing on our website at www.pultegroupinc.com.

 

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In connection with Mr. Bertero’s November 2012 separation from the Company, Mr. Bertero and the Company entered into a separation agreement on November 30, 2012. The Committee, working with Messrs. Dugas and Ellinghausen as well as Pearl Meyer, evaluated the level of separation benefits to be paid to Mr. Bertero by reviewing peer group data. Please see the “Potential Payments Upon Termination or Change in Control” section of this Proxy Statement for a description of the benefits to be paid to Mr. Bertero in connection with his departure from the Company.

Benefits

Named executive officers participate in employee benefit plans generally available to all employees on the same terms as similarly-situated employees. In addition, each of the named executive officers were eligible to participate in the Health Examination Reimbursement Plan and the Financial Counseling Reimbursement Plan. The named executive officers, as well as other PulteGroup executives, may also participate in the Company’s Non-Qualified Deferral Program, under which they may elect to defer the receipt of their annual and/or long-term incentive cash awards. This plan is discussed further under the section “2012 Non-Qualified Deferred Compensation Table.” We do not have a defined benefit pension plan.

Compensation Mix

As noted in the Executive Summary of this Compensation Discussion and Analysis, the Committee places significant emphasis on variable, performance-based compensation. The Committee also retains flexibility in determining the allocation between annual and long-term incentive compensation.

 

LOGO

 

(1) For each of our named executive officers who held corporate-wide positions, the annual incentive award opportunity under the Annual Program as determined by the Committee was based on consolidated pre-tax income, adjusted gross margins, SG&A expenses and inventory turns, while the annual incentive award for Area Presidents was based on the weighted average results of such performance measures for each Area President’s business units.

 

(2)

For the fiscal year ended December 31, 2012, the 2012-2014, 2011-2013 and 2010-2012 performance periods were outstanding under the LTI Program. During 2012, each named executive officer was granted an aggregate award

 

39


  opportunity under the LTI Program for the 2012-2014 performance period. Under the 2012-2014 LTI Program, participants are eligible to earn an award based on cumulative ROIC improvement over 2011 ROIC that is modified by the Company’s TSR performance relative to the 2012 compensation peer group.

Clawback Policy

At its December 2009 meeting, the Committee approved a clawback policy with respect to the Annual Program, LTI Program, and equity grants. Under the policy, in the event any named executive officer engages in “detrimental conduct” (as defined in the policy), the Committee may require that such named executive officer (i) reimburse the Company for all or any portion of any bonus, incentive payment, equity-based award, or other compensation received by such named executive officer within the 36 months following such detrimental conduct and (ii) remit to the Company any profits realized from the sale of Company securities within the 36 months following such detrimental conduct.

Share Ownership Guidelines

To align our executives’ interests with those of our shareholders and to assure that our executives own meaningful levels of PulteGroup common shares throughout their tenures with the Company, our executive officers are subject to share ownership guidelines adopted by the Committee. The share ownership guidelines require, within a five-year period from date of hire, promotion or determination that a position is subject to Section 16 of the Exchange Act, the Chief Executive Officer to own PulteGroup common shares equal in value to at least six times his base salary and each of the other named executive officers to own PulteGroup common shares equal to at least three times (in the case of Messrs. O’Shaughnessy, Ellinghausen and Smith), and at least one time (in the case of the Area Presidents), his or her respective base salary. Included in the definition of share ownership are restricted shares and restricted stock units, any PulteGroup common shares owned outright (including the value of restricted shares that have vested at the higher of the current market price or the share price on the date of vesting), common shares in any PulteGroup benefit plan, and the intrinsic value of vested in-the-money stock options. Unvested and/or underwater stock options do not count towards meeting share ownership guidelines. As of March 11, 2013, all of the named executive officers have met or, within the applicable period, are expected to meet the share ownership guidelines.

Compliance with Internal Revenue Code Section 162(m)

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally disallows a tax deduction to public companies for compensation over $1 million paid to any “covered employee” under Section 162(m), and provides that qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met. The Committee structures compensation to take advantage of the performance-based compensation exemption under Section 162(m) to the extent practicable. Because the Committee also recognizes the need to retain flexibility to make compensation decisions that may not meet Section 162(m) standards when necessary to enable PulteGroup to continue to attract, retain, and motivate highly-qualified executives, it reserves the authority to approve potentially non-deductible compensation in appropriate circumstances. Due to the ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations and guidance issued thereunder, no assurance can be given, notwithstanding our efforts, that compensation intended by us to satisfy the requirements for deductibility under Section 162(m) does, in fact, do so.

 

40


2013 Compensation Decisions

At its February 2013 meeting, the Committee took the following actions with respect to 2013 compensation matters:

 

   

Base Salary. The Committee approved 2013 salary amounts, which did not increase from the base salary levels set in 2012 for the named executive officers.

 

   

Annual Program. For the named executive officers other than Messrs. Smith and Chadwick, the Committee approved the corporate-wide performance metrics consisting of consolidated pre-tax income (25% weighting in payout calculation), adjusted gross margin (30% weighting in payout calculation), selling, general and administrative (“SG&A”) expenses as a percent of adjusted gross margin (20% weighting in payout calculation) and inventory turns (25% weighting in payout calculation). For Mr. Smith, the annual program performance goals are based 50% on the consolidated performance goals discussed in the previous sentence and 50% on the performance goals with respect to Mr. Smith’s business unit’s pre-tax income, adjusted gross margin, SG&A expenses as a percent of adjusted gross margin and inventory turns, each of which business unit objectives is given the same weight as the corresponding consolidated performance objectives described in the preceding sentence. For Mr. Chadwick, the annual program performance goals are based on Mr. Chadwick’s business unit’s pre-tax income (25% weighting in payout calculation), adjusted gross margin (30% weighting in payout calculation), SG&A expenses as a percent of adjusted gross margin (20% weighting in payout calculation) and inventory turns (25% weighting in payout calculation). The target award opportunities for the named executive officers did not change.

 

   

Long-Term Incentive Awards. The Committee approved the grant of performance-based awards that will be settled in PulteGroup shares in accordance with the terms of the applicable award agreements and time-based restricted share awards for the Company’s 2013 LTI Program. The Committee approved improvement in return on invested capital as the performance metric for the performance-based equity award, and a potential upward or downward adjustment to the payout based on total shareholder return. The target award opportunities for the 2013-2015 LTI Program did not change from the 2012-2014 LTI Program target award opportunities.

 

   

Retirement Policy. The Committee adopted the PulteGroup, Inc. Retirement Policy which clarifies the definition of a qualifying retirement for purposes of determining the treatment of equity and long-term incentive awards. The policy also sets forth guidelines for determining the treatment of such awards following a qualifying retirement. Under such guidelines, upon a qualifying retirement, 50% of any time-based outstanding restricted shares will vest and the remaining shares subject to such awards will continue to vest in accordance with the original vesting schedule set forth in the underlying award agreements, assuming that the employee had remained employed with the Company through each vesting date. The policy also provides that an employee who experiences a qualifying retirement will be eligible to receive a prorated portion of any outstanding long-term incentive award, based on actual performance during the performance period.

 

   

Executive Severance Policy. The Committee adopted the PulteGroup, Inc. Executive Severance Policy, which provides for severance benefits ranging from one times base salary to two times base salary, depending on the length of service with the Company and the executive’s position at the time of a qualifying termination of employment.

 

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Compensation and Management Development Committee Report

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

Patrick J. O’Leary, Chair

Bryce Blair

Cheryl W. Grisé

James J. Postl

Bernard W. Reznicek

 

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2012 EXECUTIVE COMPENSATION

2012 Summary Compensation Table

The following table sets forth information concerning the compensation of our Chief Executive Officer, our Chief Financial Officer, our other three most highly compensated executive officers who served in such capacities as of December 31, 2012 and our former Area President-East (collectively, the “named executive officers”). The increase in the named executive officers’ 2012 total compensation as reflected in this table is primarily due to the Company’s operational improvement during 2012 and the 2012 replacement of cash awards previously granted under the LTI Program with stock-settled performance awards. Unlike the cash awards previously granted, the grant date fair values of the stock-settled performance awards are reported in the year of grant rather than after the completion of the three-year performance period that commenced during 2012. These stock-settled awards are subject to performance measures that could result in a final payout significantly different than the amount included below, including no payout. As noted in the Compensation Discussion and Analysis as well as footnote 2 to this table, none of the named executive officers received any cash payment with respect to the LTI Program that concluded during 2012.

 

Name and Principal
Position

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

Richard J. Dugas, Jr.

Chairman, President & CEO

    2012      $ 1,200,000      $      $ 4,500,009      $      $ 3,349,500      $ 9,495      $ 9,059,004   
    2011      $ 1,200,000      $      $ 1,087,100      $ 729,878      $ 1,840,583      $ 8,186      $ 4,865,747   
    2010      $ 1,200,000      $      $ 1,602,300      $ 2,120,731      $ 1,694,667      $ 17,936      $ 6,635,634   

Robert T. O’Shaughnessy (4)

EVP & CFO

    2012      $ 700,000      $      $ 1,550,008      $      $ 1,116,500      $ 336      $ 3,366,844   
    2011      $ 414,615      $ 590,000      $ 570,007      $ 458,720      $ 46,000      $ 228      $ 2,079,570   

James R. Ellinghausen

EVP – HR

    2012      $ 525,000      $      $ 1,400,002      $      $ 837,400      $ 3,827      $ 2,766,229   
    2011      $ 517,309      $      $ 582,375      $ 165,881      $ 426,258      $ 1,735      $ 1,693,558   
    2010      $ 475,000      $ 100,000      $ 858,375      $ 481,984      $ 421,167      $ 3,216      $ 2,339,742   

Harmon D. Smith (4)

EVP – Homebuilding Operations and Area President – Texas

    2012      $ 601,923      $      $ 600,005      $      $ 953,800      $ 7,746      $ 2,163,475   
    2011      $ 565,000      $      $ 201,890      $      $ 330,000      $ 441      $ 1,097,331   
               

John J. Chadwick (4)

Area President – Southwest

    2012      $ 444,231      $      $ 500,004      $      $ 881,100      $ 7,239      $ 1,832,574   

John B. Bertero III (4)(5)

Former Area President-East

    2012      $ 507,692      $      $ 550,009      $      $ 658,101      $ 1,627,630      $ 3,343,432   
    2011      $ 550,000      $      $ 201,890      $      $ 375,000      $ 429      $ 1,127,319   

 

(1) The amounts reported in this column for 2012 are awards granted pursuant to the Company’s Stock Incentive Plans and are valued based on the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“FASB ASC Topic 718”). Assumptions used in the calculation of these amounts are included in note 9 to the Company’s audited financial statements included in our Annual Report for the fiscal year ended December 31, 2012. The amounts included in the Stock Awards column for the stock-settled performance-based awards granted during 2012 are calculated based on the probable satisfaction of the performance conditions for such awards. Assuming the highest level of performance is achieved for these performance-based awards, the maximum value of these awards at the grant date would be as follows: Mr. Dugas—$4,500,000; Mr. O’Shaughnessy—$1,550,000; Mr. Ellinghausen—$1,400,000; Mr. Smith—$600,000; Mr. Chadwick—$500,000; and Mr. Bertero—$550,000.

 

(2) For 2012, the amounts reflect the actual payout received under the Annual Program by each named executive officer. As discussed previously, there was no payout under the LTI Program with respect to the 2010-2012 performance period.

 

(3) The following table contains information regarding the compensation and benefits included in “All Other Compensation.”

 

Name   Perquisites & Other
Personal Benefits
(A)
    Tax
Reimbursements
(B)
    Post-Separation
Compensation
(C)
    TOTAL
All Other
Compensation
 

Richard J. Dugas, Jr.

  $ 9,495                    $ 9,495   

Robert T. O’Shaughnessy

  $ 336                    $ 336   

James R. Ellinghausen

  $ 3,827                    $ 3,827   

Harmon D. Smith

  $ 7,746                    $ 7,746   

John J. Chadwick

  $ 7,239                    $ 7,239   

John B. Bertero III

  $ 6,465      $ 2,354      $ 1,618,811      $ 1,627,630   

 

43


  (A) Amounts in this column include the incremental cost or valuation of financial planning services for Messrs. Dugas and Ellinghausen, the cost of a Company-paid physical, life insurance premiums for each of the named executive officers and amounts paid to Messrs. Smith, Chadwick and Bertero under the Company’s vehicle reimbursement program.

 

  (B) Represents Section 409A tax reimbursements paid in 2013 with respect to an inadvertent distribution in 2012 of a portion of Mr. Bertero’s balance under the Centex Corporation Supplemental Executive Retirement Plan.

 

  (C) These amounts represent post-separation payments ($1,563,000), COBRA or health insurance premium reimbursements, including estimates for future premiums ($32,542) and unused vacation ($23,269) paid to Mr. Bertero in connection with his separation from the Company in 2012. Please see the “Potential Payments Upon Termination or Change in Control” section of this Proxy Statement for further information regarding the amount of compensation received or to be received by Mr. Bertero in connection with his retirement from the Company.

 

(4) Messrs. O’Shaughnessy, Smith and Bertero were not named executive officers in 2010 and Mr. Chadwick was not a named executive officer in 2011 or 2010.

 

(5) Effective November 2012, Mr. Bertero separated from the Company.

Alternative Summary Compensation Table for Mr. Richard J. Dugas, Jr.

The Company is presenting the following alternative summary compensation table to illustrate how the Committee views executive compensation in its decision-making process. SEC disclosure rules require the 2012 Summary Compensation Table to include equity awards granted during 2012, regardless of whether such awards are subject to performance-based vesting conditions or whether such awards are granted in recognition of 2012 performance. For purposes of this alternative summary compensation table, we have included the February 2013 restricted stock grant as 2012 compensation and have excluded the stock-settled performance awards granted under the 2012 LTI Program from this table, which resulted in the stock awards reported in the alternative summary compensation table being $2.5 million less than the value of the stock awards reported in the 2012 Summary Compensation Table.

As part of its pay for performance philosophy, the Committee believes that all time-based incentive compensation paid to the named executive officers should be determined in February after a review of the Company’s financial statements for a full year in order to ensure that actual pay is consistent with the Committee’s view of the Company’s and individual’s performance for such year. Therefore, the 2013 restricted stock awards represent awards granted with respect to 2012 performance and are included in the alternative summary compensation table as 2012 compensation even though SEC disclosure rules would require such awards to be included as 2013 compensation. In addition, similar to the Company’s historical treatment of the cash-based awards granted under the LTI Program, the stock-settled performance awards granted to Mr. Dugas under the 2012 LTI Program are excluded from this alternative summary compensation table and, instead, will be included in the table for the year in which the applicable performance conditions have been satisfied. The increase in Mr. Dugas’ 2012 total compensation as reflected in this table is primarily due to his successful efforts in leading the Company’s operational improvements during 2011 and 2012 by implementing strategies to capture greater operating efficiencies and improving margins, reducing SG&A costs and improving inventory turns.

 

     Year      Salary
($)
     Stock
Awards
($)
     Option
Awards
($)
     Non-Equity
Incentive Plan
Compensation
($)
     Total
($)
 

Richard J. Dugas Jr.

     2012       $ 1,200,000       $ 2,250,011       $ 0       $ 3,349,500       $ 6,799,511   

Chairman, President & CEO

     2011       $ 1,200,000       $ 2,250,009       $ 0       $ 1,840,583       $ 5,290,592   
     2010       $ 1,200,000       $ 1,087,100       $ 729,897       $ 1,694,667       $ 4,711,664   

While the Committee has rewarded the named executive officers for the accomplishment of important objectives for the Company and our stakeholders, the compensation paid to our named executive officers has fluctuated with changes in the Company’s stock price. With respect to the compensation of our Chairman of the Board, President and Chief Executive Officer, there has been a strong correlation between Mr. Dugas’ compensation and the market price of the Company’s common shares.

 

44


CEO Total Compensation v. Company Share Price (FY 2007 – FY 2012)

 

LOGO

Footnotes to the Alternative Summary Compensation Table and CEO Total Compensation v. Company Share Price Chart

 

(1) Equity awards have been valued pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“FASB ASC Topic 718”). The amount reported in this column for 2012 excludes the grant date fair value of the stock-settled performance awards that were granted in 2012 in lieu of cash-based awards under the LTI Program. Such awards will be reported in the Alternative Summary Compensation Table after the conclusion of the applicable performance period.

 

(2) Represents amounts earned during the applicable year under the Company’s annual incentive program and long-term incentive program. For 2012 and consistent with the award payouts to other participants, Mr. Dugas’ earned a payout of 159.5% of the Annual Program target and did not receive a LTI Program payout under the 2010-2012 performance period.

 

(3) Total direct compensation reflects base salary, annual incentive program payouts, amounts paid under the 2000 Long-Term Incentive Plan, amounts earned under the LTI Program and time-based equity grants awarded for that year’s performance (e.g., February 2013 time-based equity awards are viewed as part of 2012 compensation but will be reported as 2013 compensation in the 2013 Summary Compensation Table).

 

(4) Mr. Dugas’ 2009 equity awards include $1,694,000 of additional equity awards received in connection with the completion of the Centex acquisition and his promotion to the position of Chairman of the Board.

 

(5) Share price reflects the closing price of PulteGroup’s common shares traded on the NYSE on the last trading date of each reported fiscal year.

 

45


2012 Grants of Plan-Based Awards Table

The following table sets forth information concerning award opportunities under our LTI Program and grants under the 2004 Stock Incentive Plan to the named executive officers during the fiscal year ended December 31, 2012, as well as estimated possible payouts under the Annual Program.

 

Name         

Estimated Possible Payouts

Under Non-Equity Incentive Plan Awards(1)

   

Estimated Possible Payouts

Under Equity Incentive Plan Awards(3)

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

Richard J. Dugas, Jr.

          $ 262,500          $ 2,100,000          $ 4,200,000                                               
      2/9/2012                              $ 1,125,000      $ 2,250,000      $ 4,500,000              $ 2,250,000   
      2/9/2012                                                        254,382      $ 2,250,009   

Robert T. O’Shaughnessy

          $ 87,500          $ 700,000          $ 1,400,000                                               
      2/9/2012                              $ 387,500      $ 775,000      $ 1,550,000              $ 775,000   
      2/9/2012                                                        87,621      $ 775,008   

James R. Ellinghausen

          $ 65,625          $ 525,000          $ 1,050,000                                               
      2/9/2012                              $ 350,000      $ 700,000      $ 1,400,000              $ 700,000   
      2/9/2012                                                        79,141      $ 700,002   

Harmon D. Smith

          $ 78,125(2)      $ 625,000(2)      $ 1,250,000(2)                                           
      2/9/2012                              $ 150,000      $ 300,000      $ 600,000              $ 300,000   
      2/9/2012                                                        33,918      $ 300,005   

John J. Chadwick

          $ 58,250          $ 450,000          $ 900,000                                               
                                    $ 125,000      $ 250,000      $ 500,000              $ 250,000   
                                                              28,265      $ 250,004   

John B. Bertero III

          $ 62,500          $ 500,000          $ 1,000,000                                               
      2/9/2012                              $ 137,500      $ 275,000      $ 550,000              $ 275,000   
      2/9/2012                                                        31,092      $ 275,009   

 

(1) Consists of award opportunities under the Annual Program. For each of our named executive officers other than the Area Presidents, the performance goals under the Annual Program were consolidated pre-tax income (as adjusted), gross margins, SG&A expenses and inventory turns, each weighted equally. The annual incentive awards for the Area Presidents are determined based on pre-tax income (as adjusted), gross margins, SG&A expenses and inventory turns, for each of their respective Areas, with each performance goal weighted equally. In connection with Mr. Bertero’s separation from the Company, his award under the Annual Program was prorated for the period in 2012 during which he performed services for the Company.

 

(2) In connection with Mr. Smith’s mid-year promotion, 38% of Mr. Smith’s 2012 annual incentive award is determined solely on performance of the Gulf Coast Area during the first 20 weeks of 2012 using a target award of $500,000, and 62% of Mr. Smith’s 2012 annual incentive award is determined based on an equal weighting of Gulf Coast Area and Company performance using a target award of $625,000

 

(3) Represents the award opportunities under the LTI Program relating to the Company’s performance for the 2012-2014 performance period. Payment of the award depends on improvement in ROIC over a three-year period and the Company’s TSR performance compared to the 2012 compensation peer group. The award will be settled in PulteGroup shares in accordance with the terms of the underlying award agreements. Please see “Compensation Discussion and Analysis” for further information regarding the award.

 

(4) Consists of restricted share awards under the 2004 Stock Incentive Plan, which are scheduled to vest on the third anniversary of the grant date. During the restriction period, the named executive officers are entitled to receive dividends and vote the restricted shares. These restricted share grants are subject to only time-based vesting and, accordingly, do not include a performance-based vesting requirement.

 

(5) The amounts reported in this column are valued based on the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 and, in the case of the stock-settled performance-based awards, are valued based upon the probable outcome of the applicable performance conditions. Assumptions used in the calculation of these amounts are included in note 9 to the Company’s audited financial statements included in our Annual Report for the fiscal year ended December 31, 2012.

 

46


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

Employment Arrangements

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

Equity Awards

Time-based restricted share grants generally cliff vest three years from the anniversary of the grant date. On February 9, 2012, the Committee granted each named executive officer a stock-settled performance-based award under the Company’s LTI Program. These stock-settled performance-based awards replaced the Company’s cash incentive award that was historically granted under the LTI Program. Actual settlement of the stock-settled performance-based award will be determined after the end of the three-year performance period based on the average of ROIC improvement for each year during the performance period relative to 2011. Under the award agreement, the 2012-2014 LTI Program will be settled in PulteGroup shares, except that the award will be settled in a combination of PulteGroup shares and cash if (i) the fair market value of a PulteGroup share is less than $5.00 on December 31, 2014 (or the date of termination of employment due to death or disability) or (ii) the Company does not have a sufficient number of available shares under the Company’s stock incentive plan in effect at the time of the settlement of the award.

 

47


2012 Outstanding Equity Awards at Fiscal Year-End Table

The following table provides information regarding outstanding option awards and unvested stock awards held by each of the named executive officers at December 31, 2012.

 

     Option Awards     Stock Awards  
Name  

Number of

Securities

Underlying

Unexercised

Options

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options

Unexercisable

   

Equity
Incentive
Plan
Awards:

Number of
Securities
Underlying
Unexercised
Unearned
Options

 

Option

Exercise

Price

($)

   

Option

Expiration

Date

   

Number of

Shares or

Units of

Stock That

Have Not

Vested

(#)

   

Market Value

of Shares or

Units of

Stock That

Have Not

Vested

($)(12)

   

Equity
Incentive
Plan

Awards:
Number

of

Unearned
Shares,

Units or
Other

Rights

That

Have Not
Vested

(#)

   

Equity
Incentive
Plan
Awards:

Market or
Payout
Value of
Unearned
Shares,
Units or
Other

Rights

That Have
Not

Vested

($)(12)

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

Richard J. Dugas, Jr.

           165,000(1)          $ 7.765        02/10/2021        534,382(5)      $ 9,704,377                   
      165,000        165,000(2)          $ 11.445        02/11/2020                        247,797(10)      $ 4,500,000   
      187,500        62,500(3)          $ 12.335        08/18/2019                                   
      360,000                 $ 11.355        12/9/2018                                   
      500,000                 $ 10.930        12/6/2017                                   
      400,000                 $ 34.235        12/7/2016                                   
      400,000                 $ 40.405        12/8/2015                                   
      400,000                 $ 28.363        12/9/2014                                   
      400,000                 $ 21.635        12/11/2013                                   

Robert T. O’Shaughnessy

           100,000(4)          $ 8.200        06/1/2021        182,134(6)      $ 3,307,554        75,000(11)      $ 1,362,000   
                                                          85,352(10)      $ 1,550,000   

James R. Ellinghausen

           37,500(1)          $ 7.765        02/10/2021        254,141(7)      $ 4,615,201        75,000(11)      $ 1,362,000   
      37,500        37,500(2)          $ 11.445        02/11/2020                        77,092(10)      $ 1,400,000   
      112,500        37,500(3)          $ 12.335        08/18/2019                                   
      100,000                 $ 11.355        12/9/2018                                   
      100,000                 $ 10.930        12/6/2017                                   
      75,000                 $ 34.235        12/7/2016                                   
      70,000                 $ 40.405        12/8/2015                                   
      40,000                 $ 36.058        3/28/2015                                   

Harmon D. Smith

    12,500        12,500(2)          $ 11.445        02/11/2020        110,918(8)      $ 2,014,271        75,000(11)      $ 1,362,000   
      30,000        10,000(3)          $ 12.335        08/18/2019                        33,039(10)      $ 600,000   
      39,000                 $ 11.355        12/9/2018                                   
      50,000                 $ 10.930        12/6/2017                                   
      25,000                 $ 34.235        12/7/2016                                   
      20,000                 $ 40.405        12/8/2015                                   
      8,000                 $ 28.363        12/9/2014                                   
      12,000                 $ 21.635        12/11/2013                                   

 

48


     Option Awards     Stock Awards  
Name  

Number of

Securities

Underlying

Unexercised

Options

Exercisable

   

Number of

Securities

Underlying

Unexercised

Options

Unexercisable

   

Equity
Incentive
Plan
Awards:

Number of
Securities
Underlying
Unexercised
Unearned
Options

 

Option

Exercise

Price

($)

   

Option

Expiration

Date

   

Number of

Shares or

Units of

Stock That

Have Not

Vested

(#)

   

Market Value

of Shares or

Units of

Stock That

Have Not

Vested

($)(12)

   

Equity
Incentive
Plan

Awards:
Number

of

Unearned
Shares,

Units or
Other

Rights

That

Have Not
Vested

(#)

   

Equity
Incentive
Plan
Awards:

Market or
Payout
Value of
Unearned
Shares,
Units or
Other

Rights

That Have
Not

Vested

($)(12)

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

John J. Chadwick

    12,500        12,500(2)          $ 11.445        02/11/2020        100,265(9)      $ 1,820,812        75,000(11)      $ 1,362,000   
      30,000        10,000(3)          $ 12.335        08/18/2019                        27,533(10)      $ 500,000   
      39,000                 $ 11.355        12/9/2018                                   
      35,000                 $ 10.930        12/6/2017                                   
      30,000                 $ 34.235        12/7/2016                                   
      20,000                 $ 40.405        12/8/2015                                   
      16,000                 $ 28.363        12/9/2014                                   
      40,000                 $ 21.635        12/11/2013                                   

John B. Bertero III

                                                             

 

(1) These options were awarded on February 10, 2011 and vest over four years as follows: 50% vest on the second anniversary of the grant date; 25% vest on the third anniversary of the grant date and 25% vest on the fourth anniversary of the grant date.

 

(2) These options were awarded on February 11, 2010 and vest over four years as follows: 50% vest on the second anniversary of the grant date; 25% vest on the third anniversary of the grant date and 25% vest on the fourth anniversary of the grant date.

 

(3) These options were awarded on August 18, 2009 and vest over four years as follows: 50% vest on the second anniversary of the grant date; 25% vest on the third anniversary of the grant date and 25% vest on the fourth anniversary of the grant date.

 

(4) These options were awarded on June 1, 2011 and vest over four years as follows: 50% vest on the second anniversary of the grant date; 25% vest on the third anniversary of the grant date and 25% vest on the fourth anniversary of the grant date.

 

(5) This amount includes 140,000 restricted shares that vested on February 11, 2013, 140,000 restricted shares that are scheduled to vest on February 10, 2014, and 254,382 restricted shares that are scheduled to vest on February 9, 2015.

 

(6) This amount includes 25,000 restricted shares that are scheduled to vest on December 5, 2013, 69,513 restricted shares that are scheduled to vest on June 1, 2014, and 87,621 restricted shares that are scheduled to vest on February 9, 2015.

 

(7) This amount includes 75,000 restricted shares that vested on February 11, 2013, 25,000 restricted shares that are scheduled to vest on December 5, 2013, 75,000 restricted shares that are scheduled to vest on February 10, 2014, and 79,141 restricted shares that are scheduled to vest on February 9, 2015.

 

(8) This amount includes 26,000 restricted shares that vested on February 11, 2013, 25,000 restricted shares that are scheduled to vest on December 5, 2013, 26,000 restricted shares that are scheduled to vest on February 10, 2014, and 33,918 restricted shares that are scheduled to vest on February 9, 2015.

 

(9) This amount includes 20,000 restricted shares that vested on February 11, 2013, 15,000 restricted shares that are scheduled to vest on September 10, 2013, 25,000 restricted shares that are scheduled to vest on December 5, 2013, 12,000 restricted shares that are scheduled to vest on February 10, 2014, and 28,265 restricted shares that are scheduled to vest on February 9, 2015.

 

(10) Represents stock-settled performance awards granted under the LTI Program that will vest on December 31, 2014, following the completion of the 2012-2014 performance period. The award will be settled based on the Company’s ROIC improvement and TSR performance relative to a peer group over the three-year performance period.

 

(11)

Represents performance-based equity awards granted in December 2011, with settlement of the award determined based upon achievement of certain performance goals relating to gross margins and inventory turns. The performance period with respect to this

 

49


  award commenced on the December 5, 2011 grant date and ends on the earlier to occur of (i) the last day of the quarter in which the applicable performance measure is satisfied and (ii) the five-year anniversary of the grant date. Shares earned under the award will not be distributed earlier than the second anniversary of the grant date.

 

(12) Reflects the value using the closing share price at the 2012 fiscal year end of $18.16.

2012 Option Exercises and Stock Vested Table

The following table provides information regarding the exercise of stock options and the vesting of stock awards for each of the named executive officers during 2012.

 

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

Richard J. Dugas, Jr.

    360,000      $ 975,900        120,000      $ 1,088,400(1)   

Robert T. O’Shaughnessy

         $             $   

James R. Ellinghausen

         $        50,000      $ 453,500(1)   

Harmon D. Smith

    6,000      $ 11,205             $   

John J. Chadwick

    12,000      $ 22,170        7,500      $ 110,625(2)   

John B. Bertero III

         $        7,796      $ 68,995(3)   

 

(1) Value realized reflects number of shares that vested multiplied by the closing price of $9.07 per share on February 9, 2012.

 

(2) Value realized reflects number of shares that vested multiplied by the closing price of $14.75 per share on September 7, 2012.

 

(3) Value realized reflects number of shares that vested multiplied by the closing price of $8.85 per share on March 30, 2012.

2012 Non-Qualified Deferred Compensation Table

The following table provides information regarding the Company’s Non-Qualified Deferral Program and the Centex Corporation Supplemental Executive Retirement Plan.

 

Name(1)  

Executive

Contributions in

Last FY

   

Registrant

Contributions in

Last FY

   

Aggregate

Earnings in
Last FY

   

Aggregate

Withdrawals /

Distributions
(2)

   

Aggregate

Balance at Last

FYE

 

Richard J. Dugas, Jr.

  $  —      $  —      $ 22,426      $      $ 801,708   

Robert T. O’Shaughnessy

  $      $      $      $      $   

James R. Ellinghausen

  $      $      $ 5,430      $      $ 194,117   

Harmon D. Smith

  $      $      $ 26,556      $      $ 944,386   

John J. Chadwick

  $      $      $      $      $   

John B. Bertero III

  $      $      $ 1,008      $ 6,872      $ 32,858   

 

(1) Messrs. Dugas, Ellinghausen and Smith have outstanding account balances under the Company’s Non-Qualified Deferral Program.

 

(2) This amount was distributed from the Centex Corporation Supplemental Executive Retirement Plan following Mr. Bertero’s separation from service.

 

50


Non-Qualified Deferral Program

Pursuant to the Company’s Non-Qualified Deferral Program, certain executives, including each of our named executive officers, may defer awards earned under the Senior Management Annual Incentive Plan. Deferral elections are made by executives prior to the beginning of the performance period in which awards are earned. Executives may elect to defer from 5% to a maximum of 90% of their incentive pay, with a minimum deferral amount of $10,000. The executive selects a deferral period that may range from two to twenty years. Payout period elections are restricted to either a lump-sum or annual installments over a period of up to ten years. In the event of death, permanent disability or termination from employment, any remaining deferral period is overridden with the payouts to occur as either a lump-sum or in two or three annual installments. Unfunded deferral accounts are credited with interest on a monthly basis. The annual interest rate is determined each January 1 for a period of one calendar year and is equal to the applicable yield on the five-year U.S. Treasury Note as of the first business day of January, plus 2%. The interest crediting rate for 2012 was 2.878%.

Centex Corporation Supplemental Executive Retirement Plan

The Company maintains the Centex Corporation Supplemental Executive Retirement Plan, or SERP, a legacy plan of Centex. The accounts are unfunded and accrue interest at a rate equal to 80% of the applicable Bank of America Prime Rate during the period. The accounts accrued interest at a rate of 2.6% in 2012. The aggregate SERP liability as of December 31, 2012 was $40,286. Benefits under the SERP are payable upon the participant’s termination of employment or disability in a lump sum. The Company has suspended this plan and no longer makes contributions to it.

Potential Payments Upon Termination or Change in Control

During 2012, the Company did not have any individual employment contracts or change in control agreements with our named executive officers that provided for severance or other benefits following a termination of employment, other than the separation agreement entered into with Mr. Bertero during 2012 and certain benefits provided pursuant to the terms of Mr. O’Shaughnessy’s 2011 offer of employment. In accordance with past practices, in connection with a termination of employment on December 31, 2012, any severance or other post-termination benefits would have been determined by the Committee at the time of termination. In 2013, the Committee approved an Executive Severance Policy that provides for cash severance benefits ranging from one times base salary to two times base salary, depending on the length of service with the Company and the executive’s position at the time of a qualifying termination of employment. In 2013, the Committee also adopted a Retirement Policy which clarifies the definition of retirement for purposes of determining the treatment of equity and long-term incentive awards following a qualifying retirement and also sets forth guidelines for determining the treatment of such awards following a qualifying retirement. The Committee believes that both of these policies help the Company accomplish its compensation philosophy of attracting and retaining exemplary talent and reduce the need to negotiate individual severance arrangements with new hires and departing executives.

As noted earlier, in connection with Mr. Bertero’s November 2012 separation from the Company, Mr. Bertero and the Company entered into a separation agreement on November 30, 2012. Pursuant to the terms of the separation agreement, in exchange for Mr. Bertero signing a general release of claims in favor of the Company, Mr. Bertero received (i) separation pay in the amount of $1,563,000 and (ii) his 2012 annual bonus, determined based on the actual performance of the Company for 2012 and prorated through his date of separation. Mr. Bertero will also receive, in accordance with the terms of the LTI Program under the 2008 Senior Management Incentive Plan, amounts, if any, for the 2011-2013 and 2012-2014 performance periods based on the actual performance of the Company and prorated through his date of separation. In addition to the foregoing, the Company paid Mr. Bertero the

 

51


amount of $32,542 as an allowance for COBRA premiums relating to medical, dental and vision benefits sponsored by the Company. The separation agreement also contains various covenants, including covenants relating to non-competition, non-solicitation and cooperation.

Our 2004 Stock Incentive Plan and LTI Programs under the 2008 Senior Management Incentive Plan provide for the payment of awards following a change in control and certain terminations of employment. In general, our 2004 Stock Incentive Plan and LTI Program define a change in control as follows:

 

   

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

 

   

individuals who constitute the Board or future directors approved by the Board cease for any reason to constitute at least a majority of such Board;

 

   

subject to certain exceptions contained in the plans, the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company; or

 

   

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

The tables below reflect the amount of compensation to be received by each of the named executive officers in the event of a change in control and certain terminations of each executive’s employment. The amounts shown assume that such change in control or termination was effective as of December 31, 2012, and thus includes amounts earned through such time and are estimates of the amounts which would be received by the executives upon a change in control or their termination. The calculations in the tables below are based on our closing stock price on December 31, 2012 of $18.16 per share. The actual amounts to be received by the executives can only be determined at the time of such change in control or separation from the Company.

Involuntary Termination without Cause

 

     Acceleration of
Long-Term
Incentive
Awards(2)
     Acceleration of
Unvested “In
the Money”
Stock
Options(2)
     Acceleration of
Outstanding
Restricted
Shares and
Performance
Shares(2)
     Total Benefits  

Richard J. Dugas, Jr. (1)

   $ 3,850,475       $ 0       $ 9,704,377       $ 13,554,852   

Robert T. O’Shaughnessy (1)

   $ 1,339,318       $ 0       $ 3,307,553       $ 4,646,871   

James R. Ellinghausen (1)

   $ 1,083,800       $ 0       $ 4,615,201       $ 5,699,001   

Harmon D. Smith

   $ 493,833       $ 142,188       $ 2,014,271       $ 2,650,292   

John J. Chadwick

   $ 312,433       $ 142,188       $ 1,820,813       $ 2,275,434   

Termination due to Death or Disability

 

     Acceleration of
Long-Term
Incentive
Awards(2)
     Acceleration of
Unvested “In the
Money” Stock
Options(2)
     Acceleration of
Outstanding
Restricted Shares
and Performance
Shares(2)
     Total Accelerated Long-
Term Awards
 

Richard J. Dugas, Jr.

   $ 2,085,310       $ 3,187,213       $ 9,704,377       $ 14,976,900   

Robert T. O’Shaughnessy

   $ 725,685       $ 996,000       $ 2,944,502       $ 4,666,187   

James R. Ellinghausen

   $ 583,919       $ 860,063       $ 4,252,150       $ 5,696,132   

Harmon D. Smith

   $ 266,926       $ 142,188       $ 1,651,220       $ 2,060,334   

John J. Chadwick

   $ 228,948       $ 142,188       $ 1,457,762       $ 1,828,898   

 

52


Change In Control

 

     Acceleration of
Long-Term
Incentive
Awards(2)
     Acceleration of
Unvested “In the
Money” Stock
Options(2)
     Acceleration of
Outstanding
Restricted Shares
and Performance
Shares(2)
     Total Accelerated Long-
Term Awards
 

Richard J. Dugas, Jr.

   $ 5,833,942       $ 3,187,213       $ 9,704,377       $ 18,725,532   

Robert T. O’Shaughnessy

   $ 2,016,880       $ 996,000       $ 4,669,553       $ 7,682,433   

James R. Ellinghausen

   $ 1,750,160       $ 860,063       $ 5,977,201       $ 8,587,424   

Harmon D. Smith

   $ 766,743       $ 142,188       $ 3,376,271       $ 4,285,202   

John J. Chadwick

   $ 645,462       $ 142,188       $ 3,182,813       $ 3,970,463   

 

(1) Based on age and years of service, these executives are not eligible to receive “rule of 70” treatment with respect to the continued vesting of their outstanding options.

 

(2) Amounts in these columns reflect the long-term incentive awards and equity-based awards to be received upon a termination or a change in control calculated in accordance with the 2004 Stock Incentive Plan and long term award agreements. In the case of stock grants, the equity value represents the value of the shares (determined by multiplying the closing price of $18.16 per share on December 31, 2012 by the number of unvested shares of restricted stock that would vest upon a change in control or following a qualifying termination of employment, death or disability). In the case of option awards, the equity value was determined by multiplying (i) the spread between the exercise price and the closing price of $18.16 per share on December 31, 2012 and (ii) the number of unvested option shares that would vest upon a change in control or following a qualifying termination of employment, death, or disability. The calculation with respect to unvested long-term incentive awards and equity-based awards reflects the following additional assumptions under the 2004 Stock Incentive Plan and long term award agreements:

 

Event   Unvested Stock
Options
 

Unvested

Restricted Stock

(Other than
December 2011
Performance Awards)

  December 2011
Performance Awards
 

2010 – 2012 and

2011 – 2013

Long Term Awards

  2012 – 2014
Long Term Awards
Voluntary Termination
of Employment (Other than for Good Reason Following a Change in Control or Retirement)
  Forfeit   Forfeit   Forfeit   Forfeit   Forfeit
Involuntary Termination of Employment (Other than for Cause)   Forfeit; unless age and the executive’s 12-months period of full time service exceeds 70 (“rule of 70”), in which case options continue to vest  

Forfeit, unless Committee exercises discretion pursuant to the 2004 Stock Incentive Plan to provide for acceleration. For purposes of quantifying potential payments that may be received upon a termination of employment, we have assumed that the Committee exercised discretion to provide for acceleration upon a termination of employment as of December 31, 2012

 

Mr. O’Shaughnessy’s new hire restricted shares would be settled in cash, upon a termination of employment without cause

  Prorated, based on actual Company performance and service through termination date.   Prorated, based on
actual Company
performance and
service through
termination date.
  Prorated, based on
actual Company
performance and
service through
termination date.

 

53


Event   Unvested Stock
Options
 

Unvested

Restricted Stock

(Other than
December 2011
Performance Awards)

  December 2011
Performance Awards
 

2010 – 2012 and

2011 – 2013

Long Term Awards

  2012 – 2014
Long Term Awards
Retirement (with
consent of Company and execution of a non-competition, non-solicitation and confidentiality agreement)
  Forfeit; unless age and the executive’s 12-months period of full time service exceeds 70, in which case options continue to vest   Accelerate   Forfeit   Forfeit   Forfeit
Death or Termination due to Disability   Accelerate   Accelerate   Prorated, based on actual Company performance and service through termination date   Prorated, based on
target performance and
service through
termination date
  Prorated, based on
target performance and
service through
termination date
Change in Control   Accelerate   Accelerate   Full vesting with award settled upon the earlier to occur of (i) five year anniversary of the date of grant or (ii) termination of employment due to death, disability or by the Company without cause   Prorated, based on
target performance and
service through
change in control
  If executive remains
employed with the
Company following the
change in control,
award will be settled at
the greater of (i) target
and (ii) actual
performance
Termination of Employment by the Company without
Cause or by the Executive for Good Reason following a Change in Control
  See above for treatment upon qualifying termination – awards accelerated upon a change in control   See above for treatment upon qualifying termination – awards accelerated upon a change in control   Accelerated payout of award that vested in connection with a change in control upon a termination without cause   Prorated, based on
target performance and
service through
termination date
  Target payout

Risk Management and Compensation

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

At its February 6, 2013 meeting, the Compensation and Management Development Committee, in consultation with Pearl Meyer, reviewed each compensation element, the group of employees eligible to receive each compensation element, the current performance measures and payout ranges, the potential risks posed by each compensation element as well as the processes used to mitigate any such risks. The Compensation and Management Development Committee determined that any risks associated with the Company’s executive and broad-based compensation plans were appropriately mitigated. For example, the maximum payouts under our executive and broad-based annual incentive plans are capped at or below 200% of target. In addition, the Company uses multiple performance metrics with respect to corporate performance under the Annual Program (e.g., consolidated pre-tax income, gross margins,

 

54


SG&A expenses and inventory turns) and the 2011—2013 and 2012—2014 performance periods under the LTI Program (e.g., economic profit improvement (2011-2013 performance period), ROIC improvement (2012-2014 performance period) and total shareholder return), each of which is subject to the scrutiny of our internal control system as well as the Company’s annual audit. The Compensation and Management Development Committee also believes that equity-based, long-term incentive awards which vest over a period of years aligns the interests of our executives and employees with those of our shareholders in support of the long-term health of the Company. To that end, in 2012, the Company granted an stock-settled performance award to replace the cash-based award previously granted under the LTI program. Finally, the Compensation and Management Development Committee believes that its overall review of the competitiveness and reasonableness of the Company’s compensation programs against market data serves as another mechanism to evaluate the compensation program and to identify any risks.

Effective January 1, 2010, the Compensation and Management Development Committee adopted a clawback policy. Under the policy, in the event any named executive officer engages in “detrimental conduct” (as defined in the policy), the Committee may require that such named executive officer (i) reimburse the Company for all or any portion of any bonus, incentive payment, equity-based award or other compensation received by such named executive officer within the 36 months following such detrimental conduct and (ii) remit to the Company any profits realized from the sale of Company securities within the 36 months following such detrimental conduct. The purpose of this policy is to discourage inappropriate and excessive risks, as executives will be held accountable for conduct which is harmful to the Company.

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

 

55


EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2012 with respect to our common shares that may be issued under our existing equity compensation plans:

 

Plan Category

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

Equity compensation plans approved

by shareholders

     16,156,220 (1)    $ 21.536         6,725,123 (2) 

Equity compensation plans not approved

by shareholders

                      
  

 

 

   

 

 

    

 

 

 

Total

     16,156,220 (1)    $ 21.536         6,725,123 (2) 
  

 

 

   

 

 

    

 

 

 

Notes:

 

(1) Does not include options to purchase 991,513 shares having a weighted average exercise price of $36.18562, which were granted in substitution for options to purchase shares of Centex Corporation in connection with PulteGroup’s 2009 acquisition of Centex.

 

(2) Of this number, up to 6,725,123 shares remain available for “full value awards,” including restricted shares, restricted stock units, and performance shares. If shareholders approve the 2013 Stock Incentive Plan contemplated by Proposal Five, these shares will cease to be available for issuance under the 2004 Stock Incentive Plan.

 

56


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We or one of our subsidiaries may occasionally enter into transactions with a “related party.” Related parties include our executive officers, directors, nominees for director, 5% or more beneficial owners of our common shares, and immediate family members of these persons. We refer to transactions involving amounts in excess of $100,000 and in which the related party has a direct or indirect material interest as an “interested transaction.” Each interested transaction must be approved or ratified by the Nominating and Governance Committee of the Board of Directors in accordance with our written Related Party Transaction Policies and Procedures. The Nominating and Governance Committee will consider, among other factors it deems appropriate, whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances as well as the extent of the related party’s interest in the transaction. There were no interested transactions during the year ended December 31, 2012.

Our Related Party Transaction Policies and Procedures provide that the Nominating and Governance Committee has determined that the following types of transactions are pre-approved or ratified, as applicable, by the Nominating and Governance Committee, even if such transactions involve amounts in excess of $100,000:

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

Our Related Party Transaction Policies and Procedures were adopted on February 1, 2007.

 

57


REPORT OF THE AUDIT COMMITTEE

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

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

During the last year, the Audit Committee met and held discussions with management and Ernst & Young LLP. The Audit Committee reviewed and discussed with PulteGroup management and Ernst & Young LLP the audited financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The Audit Committee also discussed with Ernst & Young LLP the matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board, as well as by SEC regulations.

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

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

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Members of the Audit Committee

Brian P. Anderson, Chair

Thomas J. Folliard

Debra J. Kelly-Ennis

David N. McCammon

Bernard W. Reznicek

 

58


Audit and Non-Audit Fees

The following table presents fees for professional audit services rendered by Ernst & Young LLP for the audit of the Company’s annual financial statements for the years ended December 31, 2012 and 2011, and fees billed for other services rendered by Ernst & Young LLP during those periods.

 

     2012      2011  

Audit Fees (1)

   $ 1,484,618       $ 1,803,136   

Audit-Related Fees (2)

     52,000         54,100   

Tax Fees (3)

     110,502         80,756   

All Other Fees (4)

               
  

 

 

    

 

 

 
   $ 1,647,120       $ 1,937,992   
  

 

 

    

 

 

 

Notes:

 

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

 

(2) Audit-related services consisted principally of audits of employee benefit plans.

 

(3) Tax services consisted principally of assistance with tax compliance, the preparation of tax returns and tax consultation, planning and implementation services.

 

(4) The Company did not engage Ernst & Young LLP to perform any other services during the years ended December 31, 2012 and 2011.

Audit Committee Preapproval Policies

The Audit Committee has adopted strict guidelines and procedures on the use of Ernst & Young LLP to provide any services, including a requirement that the Audit Committee approve in advance any services to be provided by Ernst & Young LLP. The Audit Committee approves the annual audit services and fees at its meeting in May when it reviews the Ernst & Young LLP audit plan for the current year. In 2012 and 2011, the Audit Committee preapproved the use of Ernst & Young LLP for certain routine accounting and tax consultation matters, provided that the fees for any individual consultation are not expected to exceed $25,000. Prior to the commencement of any other audit-related, tax or other service, the Audit Committee reviews each individual arrangement, including the nature of the services to be provided and the estimate of the fees to be incurred, prior to engaging Ernst & Young LLP to perform the service. All engagements are approved at regularly scheduled meetings of the Audit Committee.

 

59


ADDITIONAL PROPOSALS REQUIRING YOUR VOTE

PROPOSAL TWO

RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP

AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has appointed Ernst & Young LLP as PulteGroup’s independent registered public accounting firm for 2013, and the Board of Directors and the Audit Committee recommend that the shareholders ratify this appointment.

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

Amounts paid by us to Ernst & Young LLP for audit and non-audit services rendered in 2012 and 2011 are disclosed elsewhere in this Proxy Statement.

Ernst & Young LLP served as our independent registered public accounting firm during 2012 and has served as our independent public accountants for many years. Representatives of Ernst & Young LLP are expected to attend the annual meeting and will be available to respond to appropriate questions, and to make a statement if they wish to do so.

The Board of Directors and the Audit Committee recommend that shareholders vote “FOR” ratification of the appointment of Ernst & Young LLP as PulteGroup’s independent registered public accounting firm for 2013.

PROPOSAL THREE

ADVISORY VOTE ON EXECUTIVE COMPENSATION

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

The Company asks that you indicate your approval of the compensation paid to our named executive officers as described on pages 24 through 56 of this Proxy Statement. Because your vote is advisory, it will not be binding on the Board of Directors. However, the Board of Directors and the Compensation and Management Development Committee will review the voting results and take them into consideration when making future decisions regarding executive compensation.

As described in the Compensation Discussion and Analysis, our overall compensation philosophy applicable to executive officers is to provide a compensation program that is intended to attract and retain qualified executives for PulteGroup through fluctuating business cycles, provide them with incentive to achieve our strategic, operational, and financial goals, increase shareholder value, and reward long-term financial success. The Compensation and Management Development Committee of the Board of Directors also intends to motivate the named executive officers to achieve other non-financial objectives, including customer satisfaction, people development, and building and maintaining a strong culture within the organization.

 

60


Key principles of our executive compensation philosophy include:

 

   

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

 

   

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

 

   

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

 

   

requiring our executives to own significant levels of PulteGroup shares;

 

   

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

 

   

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

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

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

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

PROPOSAL FOUR

APPROVAL OF THE PULTEGROUP, INC. 2013 SENIOR MANAGEMENT INCENTIVE PLAN

The Board of Directors proposes that the shareholders approve the PulteGroup, Inc. 2013 Senior Management Incentive Plan (the “Incentive Plan”). The Board of Directors adopted the Incentive Plan, subject to shareholder approval.

The Incentive Plan is designed to retain and motivate officers of PulteGroup and its subsidiaries who are designated by the Compensation and Management Development Committee of the Board of Directors (the “Committee”) to participate in the Incentive Plan for a specified performance period (a “Performance Period”) by providing them with the opportunity to earn incentive payments based upon the extent to which specified performance goals have been achieved or exceeded for that Performance Period. The Incentive Plan replaces the PulteGroup, Inc. 2008 Senior Management Incentive Plan, which terminated on December 31, 2012 with respect to the grant of new incentive awards after such date.

 

61


The Incentive Plan is intended to comply with section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Although the Company’s payments of performance compensation awards to officers under the Incentive Plan are generally intended to be tax deductible, certain payments may not be exempt from the deduction limit of section 162(m) and, accordingly, may not be fully deductible by the Company.

The following is a summary of the principal features of the Incentive Plan. This summary is qualified in its entirety by reference to the full text of the Incentive Plan, which is set forth in Appendix I to this Proxy Statement.

All officers of PulteGroup and its subsidiaries (approximately 250 persons) are eligible to be selected for participation in the Incentive Plan. The Committee will select the officers who will participate in the Incentive Plan for a specified Performance Period, and will do so not later than 90 days after the beginning of the Performance Period or, if earlier, the date on which 25% of the Performance Period has been completed (the “Applicable Period”).

Under the Incentive Plan, payment of awards to participating officers is subject to the attainment of specific performance goals established by the Committee for each Performance Period, and other terms and conditions that may be established by the Committee during the Applicable Period. A participant may receive an award under the Incentive Plan based upon the achievement of an objective performance goal or goals using one or more of the following objective corporate-wide or subsidiary, division, operating unit or individual measures: earnings; earnings per share; earnings before interest and taxes (“EBIT”); earnings before interest, taxes, depreciation and amortization (“EBITDA”); financial return ratios; return on equity; return on assets; return on invested capital; total shareholder return; net income; pre-tax income; operating income; revenues; profit margin; cash flow(s); expense management; economic profit; customer satisfaction; mortgage capture rates; productivity (e.g., asset turns); efficiency; employee retention; succession management; management of service and warranty costs; management of the cost of insurance claims; achievement of energy performance goals; measurable marketing effectiveness; or achievement of diversity goals. Each such goal may be expressed on an absolute or relative basis, may include comparisons based on current internal targets, the past performance of the Company (including the performance of one or more subsidiaries, divisions or operating units) or the past or current performance of other companies (or a combination of such past and current performance) and may include or exclude objectively determinable components of any performance goal, including, without limitation, special charges such as restructuring or impairment charges, gains on land sales below original basis, non-cash amortization, or tax refunds or payments. In the case of earnings-based measures, in addition to the ratios specifically enumerated above, performance goals may include comparisons relating to capital (including, but not limited to, the cost of capital), shareholders’ equity, shares outstanding, assets or net assets, or any combination thereof. With respect to participants who are not “covered employees” within the meaning of Section 162(m) of the Code and who, in the Committee’s judgment, are not likely to be covered employees at any time during the applicable Performance Period or during any period in which an individual award opportunity may be paid following a Performance Period, the performance goals established for the Performance Period may consist of any objective or subjective corporate-wide or subsidiary, division, operating unit or individual measures, whether or not listed in the Incentive Plan.

Upon attainment of the relevant performance goals, a participant will be eligible to receive an award determined pursuant to an objective formula or standard established at the same time the performance goals were established, unless the award is subject to other terms and conditions established by the Committee, including, as a condition to vesting, the continued employment of the participant for a specified period of time subsequent to the end of a Performance Period. The formula or standard may be based on an employee’s base salary at the time or immediately before the performance goals for such Performance Period were established or on other fixed and determinable measures. The award

 

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may be paid in cash or in our common shares or a combination thereof after the end of the applicable Performance Period as determined by the Committee. Determination of the performance compensation to be awarded to each participant is to be made as of the last day of each Performance Period following a certification by the Committee that the applicable performance goals were satisfied.

In all cases the Committee has the sole and absolute discretion to reduce the amount of any payment under the Incentive Plan that would otherwise be made to any participant or to decide that no payment shall be made. No participant will receive a payment under the Incentive Plan with respect to any Performance Period in excess of $15 million, which maximum amount will be prorated with respect to Performance Periods that are less than one year in duration. Additionally, awards granted under the Incentive Plan are subject to forfeiture and recovery by the Company pursuant to any clawback or recoupment policy which the Company may adopt from time to time, including any policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act or as otherwise required by law.

The Committee may delegate its responsibilities under the Incentive Plan to the Chief Executive Officer or such other executive officer of PulteGroup as it deems appropriate, except that the Committee may not delegate its responsibilities with respect to incentive payments payable to “covered employees” within the meaning of Section 162(m) of the Code.

The Committee adopted the 2013 Annual Incentive Program (the “Annual Program”) under the Incentive Plan. Under the Annual Program, individual award opportunities were granted to participants, including the named executive officers, based on the attainment of performance goals for the Company’s fiscal year ending on December 31, 2013. For each of our named executive officers, other than Messrs. Smith and Chadwick, the performance goals are based on performance objectives with respect to consolidated pre-tax income (25% weighting in payout calculation), adjusted gross margin (30% weighting in payout calculation), selling, general and administrative (“SG&A”) expenses as a percent of adjusted gross margin (20% weighting in payout calculation) and inventory turns (25% weighting in payout calculation). For Mr. Smith, the performance goals are based 50% on the consolidated performance goals discussed in the previous sentence and 50% on the performance goals with respect to Mr. Smith’s business unit’s pre-tax income, adjusted gross margin, SG&A expenses as a percent of adjusted gross margin and inventory turns, each of which business unit objectives is given the same weight as the corresponding consolidated performance objectives described in the preceding sentence. For Mr. Chadwick, the performance goals are based on Mr. Chadwick’s business unit’s pre-tax income (25% weighting in payout calculation), adjusted gross margin (30% weighting in payout calculation), SG&A expenses as a percent of adjusted gross margin (20% weighting in payout calculation) and inventory turns (25% weighting in payout calculation). See the Compensation Discussion and Analysis section above for a description of how the various performance objectives are calculated. Under the terms of the Company’s executive severance policy, executives will be entitled to receive a prorated bonus, based on actual performance, for a termination of employment by the Company without cause or by the Executive for good reason, in each case, prior to December 31, 2013 and in accordance with the terms of the Company’s executive severance policy.

The Committee also adopted the 2013-2015 Long-Term Incentive Program (the “LTI Program”) under the Incentive Plan. Under the LTI Program, individual award opportunities were granted to participants, including the named executive officers, based on the attainment of performance goals for the applicable performance period. For the 2013-2015 LTI Program, the Compensation Committee selected return on invested capital (“ROIC”) improvement as the primary performance metric, with total shareholder return as an additional performance metric requiring the Compensation Committee to either increase or decrease the award payouts by an amount of up to 20% based on the Company’s total shareholder return percentile rank relative to a comparator group. The companies used to evaluate total shareholder return are: D.R. Horton, Inc., KB Home, Lennar Corporation, Masco

 

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Corporation, M.D.C. Holdings, Inc., Meritage Homes Corporation, Mohawk Industries, Inc., NVR, Inc., Owens Corning, The Ryland Group, Inc., Toll Brothers, Inc. and USG Corporation; provided, that if any such company ceases to be publicly-traded after the grant date, such company shall be excluded for purposes of determining the Company’s total shareholder return performance relative to the comparator group. The award will vest on December 31, 2015; provided that the award will vest earlier and become payable at the target award level in the event that, prior to December 31, 2015, there is a change in control of the Company and the participant’s employment is terminated following such change in control by the Company without cause or by the participant for good reason. Also, under the LTI Program, the participant is entitled to (i) a prorated award based on the attainment of the financial performance measures during the performance period in the event that, prior to December 31, 2015, the participant is terminated by the Company without cause or (ii) a prorated target award if the participant’s employment is terminated due to the participant’s death or disability. In the event a change in control occurs during the performance period and the participant remains employed with the Company through the vesting date, the amount of the award payable to the participant shall equal the greater of (A) the target award and (B) the award payable based on actual performance during the performance period.

The following table shows the minimum and maximum amounts that could be awarded to the following persons and groups pursuant to the Incentive Plan under both the Annual Program and the LTI Program based on the attainment of performance goals for the Company’s fiscal year ending on December 31, 2013. The amounts included for the LTI consist of the maximum amount payable for the 2013-2015 Performance Period. Amounts payable, if any, under the LTI, will be paid following the end of the three-year performance period ending on December 31, 2015. The precise amounts that will be payable with respect to performance during such fiscal year are not determinable until after such date.

NEW PLAN BENEFITS

PULTEGROUP, INC. 2013 SENIOR MANAGEMENT INCENTIVE PLAN

 

Plan Participant

  Dollar Value ($)  

Richard J. Dugas, Jr.

Chairman, President & CEO

  $ 0 to $8,700,000   

Robert T. O’Shaughnessy

 

EVP & CFO

  $ 0 to $2,950,000   

James R. Ellinghausen

 

EVP – HR

  $ 0 to $2,450,000   

Harmon D. Smith

 

EVP – Homebuilding Operations and Area President – Texas

  $ 0 to $2,250,000   

John J. Chadwick

 

Area President – Southwest

  $ 0 to $1,400,000   

Executive Officer Group (11), including the above

  $ 0 to $25,585,000   

Non-Executive Director Group

  $ 0   

Non-Executive Officer Employee Group (six)

  $ 0 to $4,781,000   

If the Incentive Plan is approved by our shareholders, it will remain in effect until December 31, 2017, unless terminated earlier by the Board of Directors. If the Incentive Plan is not approved by our shareholders, no compensation will be paid pursuant to the Incentive Plan to any “covered employees” within the meaning of Section 162(m) of the Code. The actual amount of compensation that will be paid under the Incentive Plan if the approval of our shareholders is obtained cannot be determined at this time.

The Board of Directors recommends that shareholders vote “FOR” the proposal to adopt the Incentive Plan.

 

 

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PROPOSAL FIVE

APPROVAL OF THE PULTEGROUP, INC. 2013 STOCK INCENTIVE PLAN

At the annual meeting, our shareholders will be asked to approve the PulteGroup, Inc. 2013 Stock Incentive Plan (the “2013 Plan”). The 2013 Plan was approved by the Board on February 6, 2013, subject to shareholder approval. Shareholder approval of the 2013 Plan will provide the Company with flexibility to grant awards from a pool of shares available under the 2013 Plan for purposes of retaining, motivating and rewarding participants in the 2013 Plan.

The purposes of the 2013 Plan are to:

 

   

align the interests of our shareholders and recipients of awards under the 2013 Plan by increasing the proprietary interest of such recipients in the Company’s growth and success;

 

   

advance the interests of the Company by attracting and retaining officers, other employees, non-employee directors, consultants, independent contractors and agents; and

 

   

motivate such persons to act in the long-term best interests of the Company and its shareholders.

Under the 2013 Plan, the Company may grant:

 

   

non-qualified stock options;

 

   

incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”));

 

   

stock appreciation rights (“SARs”);

 

   

restricted stock, restricted stock units and unrestricted stock (“Stock Awards”); and

 

   

performance awards.

As of March 11, 2013, approximately 250 employees and nine non-employee directors would be eligible to participate in the 2013 Plan; however, participation in our prior stock incentive plan, the PulteGroup, Inc. 2004 Stock Incentive Plan (the “Prior Plan”), has historically been limited to non-employee directors and certain senior-level employees, which, as of March 11, 2013, included approximately 90 employees and nine non-employee directors.

Plan Highlights

Some of the key features of the 2013 Plan are as follows:

 

   

The 2013 Plan will be administered by a committee of the Board or a subcommittee thereof, comprised entirely of independent directors;

 

   

Options and SARs granted under the 2013 Plan may not be repriced without shareholder approval;

 

   

Under the 2013 Plan, the maximum number of common shares available for awards is 20,000,000, which includes the number of common shares that remained available for future grants under the Prior Plan as of December 31, 2012 (for the sake of clarity, no additional awards will be made under the Prior Plan);

 

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Except with respect to substitute awards granted in connection with a corporate transaction, the purchase price of options and the base price for SARs granted under the 2013 Plan may not be less than the fair market value of a common share on the date of grant; and

 

   

Awards granted under the 2013 Plan will be subject to our clawback policy, as in effect from time to time.

Description of the 2013 Plan

The following description is qualified in its entirety by reference to the plan document, a copy of which is attached to this Proxy Statement as Appendix II and incorporated herein by reference.

Administration

The 2013 Plan will be administered by a committee designated by the Board of Directors (the “Plan Committee”) or a subcommittee thereof, consisting of two or more members of the Board, each of whom may be (i) a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act of 1934, (ii) an “outside director” within the meaning of Section 162(m) of the Code, and (iii) “independent” within the meaning of the rules of the NYSE.

Subject to the express provisions of the 2013 Plan, the Plan Committee will have the authority to select eligible persons to receive awards and determine all of the terms and conditions of each award. All awards will be evidenced by an agreement. The Plan Committee will also have authority to establish rules and regulations for administering the 2013 Plan and to decide questions of interpretation or application of any provision of the 2013 Plan. The Plan Committee may, subject to Section 162(m) of the Code, take any action such that (i) any outstanding options and SARs will become exercisable in part or in full, (ii) all or a portion of a restriction period applicable to any Stock Award will lapse (iii) all or a portion of any performance period applicable to any Stock Award or performance award will lapse, and (iv) any performance measures applicable to any outstanding award will be deemed satisfied at the target or any other level.

The Plan Committee may delegate some or all of its power and authority under the 2013 Plan to the Board, the President and Chief Executive Officer or such other executive officer of the Company as the Plan Committee deems appropriate, except that (i) it may not delegate its power and authority to the Board, the Chairman, President and Chief Executive Officer or any other executive officer with regard to awards to persons who are “covered employees” within the meaning of Section 162(m) of the Code or are likely to become such while an award is outstanding, and (ii) it may not delegate its power and authority to the Chairman, President and Chief Executive Officer or any other executive officer with regard to awards to persons subject to Section 16 of the Exchange Act.

Available Shares

Under the 2013 Plan, 20,000,000 common shares will initially be available for all awards, subject to adjustment in the event of a stock split, stock dividend, recapitalization, reorganization, merger, spin-off or other similar change or event (reduced by the number of common shares subject to awards granted under the Prior Plan after December 31, 2012). No more than 20,000,000 common shares in the aggregate may be issued under the 2013 Plan in connection with incentive stock options. The number of common shares that remain available for future grants will be reduced by the sum of the aggregate number of shares which become subject to outstanding options, outstanding free-standing SARs, outstanding Stock Awards and outstanding performance awards denominated in common shares. Common shares subject to an outstanding option, free-standing SAR or Stock Award granted under either the 2013 Plan or the Prior Plan that are not issued or delivered by reason of (i) the expiration, termination, cancellation or forfeiture of such award (excluding common shares subject to an option

 

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cancelled upon settlement of a related tandem SAR or subject to a tandem SAR cancelled upon exercise of a related option), or (ii) the settlement of such award in cash, will again be available under the 2013 Plan; provided, however, that common shares subject to an award under the 2013 Plan will not again be available for issuance under the 2013 Plan if such shares are (a) shares that were subject to an option or SAR and were not issued or delivered upon the net settlement or net exercise of such option or SAR, (b) shares delivered to or withheld by the Company to pay the purchase price or withholding taxes relating to an outstanding option or SAR or (c) shares repurchased by the Company on the open market with the proceeds of an option exercise. Shares delivered to or withheld by the Company to pay withholding taxes for Stock Awards or performance awards will again be available for issuance under the 2013 Plan.

To the extent necessary for an award to be qualified performance-based compensation under Section 162(m) of the Code, (i) the maximum number of common shares with respect to which options or SARs or a combination thereof that may be granted during any fiscal year to any person will be 1,000,000, subject to adjustment in the event of a stock split, stock dividend, recapitalization, reorganization, merger, spin-off or other similar change or event, (ii) the maximum number of common shares with respect to which Stock Awards or performance awards denominated in common shares that may be earned by any person for each 12-month period during a performance period will be 500,000, subject to adjustment in the event of a stock split, stock dividend, recapitalization, reorganization, merger, spin-off or other similar change or event, and (iii) the maximum amount that may be earned by any person for each 12-month period during a performance period with respect to performance awards denominated in cash will be $15,000,000. The aggregate grant date fair value of common shares that may be granted during any fiscal year of the Company to any non-employee director will not exceed $300,000. On March 28, 2013 the closing sales price per common share as reported on the NYSE was $20.24.

Change in Control

Unless otherwise provided in an award agreement, in the event of a change in control of the Company, the Board (as constituted prior to such change in control) may, in its discretion, provide that (i) some or all outstanding options and SARs will become exercisable in full or in part, either immediately or upon a subsequent termination of employment, (ii) the restriction period applicable to some or all outstanding Stock Awards will lapse in full or in part, either immediately or upon a subsequent termination of employment, (iii) the performance period applicable to some or all outstanding awards will lapse in full or in part, and (iv) the performance measures applicable to some or all outstanding awards will be deemed satisfied at the target or any other level. In addition, in the event of a change in control, the Board may, in its discretion, require that shares of stock of the company resulting from such change in control, or the parent thereof, be substituted for some or all of the common shares subject to outstanding awards as determined by the Board, and/or require outstanding awards to be surrendered to the Company in exchange for a payment of cash, shares of capital stock in the company resulting from the change in control, or the parent thereof, or a combination of cash and shares.

Under the terms of the 2013 Plan, a change in control is generally defined as (i) certain acquisitions of 40% or more of the then outstanding common shares, (ii) a change in our Board resulting in the incumbent directors ceasing to constitute at least a majority of our Board, (iii) the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (unless, among other conditions, the Company’s shareholders receive more than 60% of the stock of the resulting company) or (iv) the consummation of a liquidation or dissolution of the Company.

 

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Effective Date, Termination and Amendment

If approved by our shareholders at the annual meeting, the 2013 Plan will become effective as of February 6, 2013, which is the date of the Board’s approval of the 2013 Plan, and will terminate as of the first annual meeting of the Company’s shareholders to occur on or after the tenth anniversary of the effective date, unless earlier terminated by the Board. The Board may amend the 2013 Plan at any time, subject to shareholder approval if (i) required by applicable law, rule or regulation, including Section 162(m) of the Code, or any rule of the NYSE, or (ii) the Board seeks to modify the option and SAR repricing provisions in the 2013 Plan. No amendment may impair the rights of a holder of an outstanding award without the consent of such holder.

Stock Options and SARs

The 2013 Plan provides for the grant of non-qualified stock options, incentive stock options and SARs. The Plan Committee will determine the conditions to the exercisability of each option and SAR.

Each option will be exercisable for no more than ten (10) years after its date of grant, unless the option is an incentive stock option and the optionee owns greater than ten percent (10%) of the voting power of all shares of capital stock of the Company (a “ten percent holder”), in which case the option will be exercisable for no more than five years after its date of grant. Except in the case of substitute awards granted in connection with a corporate transaction, the purchase price of an option will not be less than 100% of the fair market value of a common share on the date of grant, unless the option is an incentive stock option and the optionee is a ten percent holder, in which case the option purchase price will be the price required by the Code, currently 110% of fair market value.

Each SAR will be exercisable for no more than ten (10) years after its date of grant. Except in the case of substitute awards granted in connection with a corporate transaction, the base price of an SAR will not be less than 100% of the fair market value of a common share on the date of grant, provided that the base price of an SAR granted in tandem with an option (a “tandem SAR”) will be the purchase price of the related option. An SAR entitles the holder to receive upon exercise (subject to withholding taxes) common shares (which may be restricted stock), with a value equal to the difference between the fair market value of the common shares on the exercise date and the base price of the SAR.

All of the terms relating to the exercise, cancellation or other disposition of options and SARs following the termination of employment or service, whether by reason of disability, retirement, death or any other reason, will be determined by the Plan Committee.

Subject to the adjustment provisions set forth in the 2013 Plan, the Plan Committee will not without the approval of the shareholders of the Company (i) reduce the purchase price or base price of any previously granted option or SAR, (ii) cancel any previously granted option or SAR in exchange for another option or SAR with a lower purchase price or base price or (iii) cancel any previously granted option or SAR in exchange for cash or another award if the purchase price of such option or the base price of such SAR exceeds the fair market value of a common share on the date of such cancellation, in each case other than in connection with a change in control.

Stock Awards

The 2013 Plan provides for the grant of Stock Awards. The Plan Committee may grant a Stock Award either as a restricted stock award, restricted stock unit award or unrestricted stock award. Except as otherwise determined by the Plan Committee, restricted stock awards or restricted stock unit awards will be non-transferable and subject to forfeiture if the holder does not remain continuously in the employment or service of the Company during the restriction period or if specified performance measures (if any) are not attained during the performance period.

 

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Unless otherwise set forth in a restricted stock award agreement, the holder of shares of restricted stock awarded will have rights as a shareholder of the Company, including the right to vote and receive dividends with respect to the shares of restricted stock; provided, however, that (i) distributions other than regular cash dividends, and (ii) regular cash dividends with respect to common shares that are subject to performance-based vesting conditions, in each case, will be deposited with the Company and will be subject to the same restrictions as the restricted stock.

The agreement awarding restricted stock units will specify (i) whether such award may be settled in common shares, cash or a combination thereof, and (ii) whether the holder will be entitled to receive on a current or deferred basis, dividend equivalents, with respect to such award. Any dividend equivalents with respect to restricted stock units that are subject to performance-based vesting conditions will be subject to the same restrictions as such restricted stock units. Prior to settlement of a restricted stock unit, the holder of a restricted stock unit will have no rights as a shareholder of the Company.

All of the terms relating to the satisfaction of performance measures and the termination of a restriction period, or the forfeiture and cancellation of a restricted stock award or restricted stock unit award upon a termination of employment or service, whether by reason of disability, retirement, death or any other reason, will be determined by the Plan Committee.

Unrestricted stock awards will not be subject to any restriction period or performance measures; provided, however, that unrestricted stock awards will be limited to (i) awards to non-employee directors, (ii) awards to newly hired employees, (iii) awards made in lieu of a cash bonus or (iv) awards granted under the 2013 Plan with respect to the number of common shares which, in the aggregate, does not exceed five percent (5%) of the total number of shares available for awards under the 2013 Plan.

Performance Awards

The 2013 Plan also provides for the grant of performance awards. The agreement relating to a performance award will specify whether such award may be settled in common shares (including shares of restricted stock), cash or a combination thereof. The agreement relating to a performance award will provide, in the manner determined by the Plan Committee, for the vesting of such performance award if the specified performance measures are satisfied or met during the specified performance period. Any dividend or dividend equivalents with respect to a performance award that are subject to performance-based vesting conditions will be subject to the same restrictions as such performance award. Prior to the settlement of a performance award in common shares, the holder of such award will have no rights as a shareholder of the Company with respect to such shares. All of the terms relating to the satisfaction of performance measures and the termination of a performance period, or the forfeiture and cancellation of a performance award upon a termination of employment or service, whether by reason of disability, retirement, death or any other reason, will be determined by the Plan Committee.

Performance Measures

Under the 2013 Plan, the vesting, exercisability or payment of certain awards may be made subject to the satisfaction of performance measures. The performance goals applicable to a particular award will be determined by the Plan Committee at the time of grant. To the extent an award is intended to qualify for the performance-based exemption from the $1 million deduction limit under Section 162(m) of the Code, as described below, the performance measures will be one or more of the following corporate-wide or subsidiary, division, operating unit or individual measures: earnings; earnings per share; earnings before interest and taxes (“EBIT”); earnings before interest, taxes, depreciation and amortization (“EBITDA”); financial return ratios; return on equity; return on assets; return on invested

 

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capital; total shareholder return; net income; pre-tax income; operating income; revenues; profit margin; cash flow(s); expense management; economic profit; customer satisfaction; mortgage capture rates; productivity (e.g., asset turns); efficiency; employee retention; succession management; management of service and warranty costs; management of the cost of insurance claims; achievement of energy performance goals; measurable marketing effectiveness; or achievement of diversity goals. Each such goal may be expressed on an absolute or relative basis, may include comparisons based on current internal targets, the past performance of the Company (including the performance of one or more subsidiaries, divisions or operating units) or the past or current performance of other companies (or a combination of such past and current performance) and may include or exclude objectively determinable components of any performance goal, including, without limitation, special charges such as restructuring or impairment charges, gains on land sales below original basis, non-cash amortization, or tax refunds or payments. In the case of earnings-based measures, in addition to the ratios specifically enumerated above, performance goals may include comparisons relating to capital (including, but not limited to, the cost of capital), shareholders’ equity, shares outstanding, assets or net assets, or any combination thereof. The applicable performance measures may be applied on a pre- or post-tax basis. In the sole discretion of the Plan Committee, but subject to Section 162(m) of the Code, the Plan Committee may amend or adjust the performance measures or other terms and conditions of an outstanding award in recognition of unusual, nonrecurring or one-time events affecting the Company or its financial statements or changes in law or accounting principles.

Clawback of Awards

Awards granted under the 2013 Plan and any cash payment or common shares delivered pursuant to an award are subject to forfeiture and recovery by the Company pursuant to any clawback or recoupment policy which the Company may adopt from time to time, including any policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act or as otherwise required by law.

New Plan Benefits.

The number of stock options and other forms of awards that will be granted under the 2013 Plan is not currently determinable.

U.S. Federal Income Tax Consequences

The following is a brief summary of certain United States federal income tax consequences generally arising with respect to awards under the 2013 Plan. This discussion does not address all aspects of the United States federal income tax consequences of participating in the 2013 Plan that may be relevant to participants in light of their personal investment or tax circumstances and does not discuss any state, local or non-United States tax consequences of participating in the 2013 Plan. Each participant is advised to consult his or her personal tax advisor concerning the application of the United States federal income tax laws to such participant’s particular situation, as well as the applicability and effect of any state, local or non-United States tax laws before taking any actions with respect to any awards.

Section 162(m) of the Code

Section 162(m) of the Code generally limits to $1 million the amount that a publicly held corporation is allowed each year to deduct for the compensation paid to the corporation’s chief executive officer and the corporation’s three most highly compensated executive officers other than the chief executive officer and the chief financial officer. However, “qualified performance-based compensation” is not subject to the $1 million deduction limit. To qualify as qualified performance-based compensation, the following requirements must be satisfied: (i) the performance goals are determined by a committee

 

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consisting solely of two or more “outside directors,” (ii) the material terms under which the compensation is to be paid, including the performance goals, are approved by the corporation’s shareholders, and (iii) the committee certifies that the applicable performance goals are satisfied before payment of any qualified performance-based compensation is made. The Plan Committee currently consists solely of “outside directors” for purposes of Section 162(m) of the Code. As a result, certain compensation under the 2013 Plan, such as that payable with respect to options and SARs, is not expected to be subject to the $1 million deduction limit, but other compensation payable under the 2013 Plan, such as any Stock Award that is not subject to Section 162(m) performance measures, would be subject to such limit.

Stock Options

A participant will not recognize taxable income at the time an option is granted and the Company will not be entitled to a tax deduction at that time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) upon exercise of a non-qualified stock option equal to the excess of the fair market value of the shares purchased over their purchase price, and the Company will be entitled to a corresponding deduction. A participant will not recognize income (except for purposes of the alternative minimum tax) upon exercise of an incentive stock option. If the shares acquired by exercise of an incentive stock option are held for at least two years from the date the option was granted and one year from the date it was exercised, any gain or loss arising from a subsequent disposition of those shares will be taxed as long-term capital gain or loss, and the Company will not be entitled to any deduction. If, however, such shares are disposed of within the above-described period, then in the year of that disposition the participant will recognize compensation taxable as ordinary income equal to the excess of the lesser of (1) the amount realized upon that disposition, and (2) the excess of the fair market value of those shares on the date of exercise over the purchase price, and the Company will be entitled to a corresponding deduction.

SARs

A participant will not recognize taxable income at the time SARs are granted and the Company will not be entitled to a tax deduction at that time. Upon exercise, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) in an amount equal to the fair market value of any shares delivered and the amount of cash paid by the Company. This amount is deductible by the Company as compensation expense.

Stock Awards

A participant will not recognize taxable income at the time restricted stock is granted and the Company will not be entitled to a tax deduction at that time, unless the participant makes an election to be taxed at that time. If such election is made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time of the grant in an amount equal to the excess of the fair market value for the shares at such time over the amount, if any, paid for those shares. If such election is not made, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an employee) at the time the restrictions lapse in an amount equal to the excess of the fair market value of the shares at such time over the amount, if any, paid for those shares. The amount of ordinary income recognized by making the above-described election or upon the lapse of restrictions is deductible by the Company as compensation expense, except to the extent the deduction limits of Section 162(m) of the Code apply. In addition, a participant receiving dividends with respect to restricted stock for which the above-described election has not been made and prior to the time the restrictions lapse will recognize compensation taxable as ordinary income (and subject to income tax withholding in respect of an

 

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employee), rather than dividend income, in an amount equal to the dividends paid and the Company will be entitled to a corresponding deduction, except to the