DEF 14A 1 nvrdef14a.htm DEF 14A Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.     )
 
Filed by the Registrant   ☒                               Filed by a Party other than the Registrant   ☐
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Preliminary Proxy Statement
 
 
 
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 
 
 
Definitive Proxy Statement
 
 
 
Definitive Additional Materials
 
 
 
Soliciting Material under Rule 14a-12
NVR, INC.
(Name of registrant as specified in its charter)
(Name of person(s) filing proxy statement, if other than the registrant)
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
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nvrlogomaroon.jpg
NVR, INC.
11700 Plaza America Drive
Reston, VA  20190
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on Wednesday, May 2, 2018
11:00 A.M. Eastern Time
NVR, Inc. will hold its Annual Meeting of Shareholders at 11:00 A.M. (Eastern Time) on Wednesday, May 2, 2018.  We will hold the meeting at our corporate headquarters located at 11700 Plaza America Drive, Suite 500, Reston, Virginia, 20190.
We are holding the meeting for the following purposes:
1.
To elect twelve directors from the nominees named in the attached Proxy Statement;
2.
To ratify the appointment of the accounting firm of KPMG LLP as our independent auditor for the year ending December 31, 2018;
3.
To vote on an advisory resolution regarding the approval of compensation paid to certain executive officers;
4.
To approve the NVR, Inc. 2018 Equity Incentive Plan; and
5.
To transact other business that may properly come before the Annual Meeting or any adjournment or postponement of the Annual Meeting.
The above items are fully described in the attached Proxy Statement.  We have not received notice of any other matters that may properly be presented at the meeting.
Only shareholders of record at the close of business on March 2, 2018 will be entitled to vote at the meeting.  Whether or not you plan to attend the meeting, you are urged to date and sign the enclosed proxy card and return it promptly in the accompanying envelope. You are invited to attend the meeting in person.  If you do attend the meeting, you may withdraw your proxy and vote in person.

 
 
By Order of the Board of Directors,
 
 
nvrdef14a_image2a02.jpg
 
 
James M. Sack
 
 
Secretary and General Counsel
 
 
March 20, 2018




Table of Contents
 
 
 
 
 
Page
I.
 
 
 
 
 
 
 
II.
 
 
 
 
 
 
 
 
 
 
III.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IV.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
V.
 
 
 
 
 
 
 
VI.
 
 
 
 
 
 
 
VII.
 
 
 
 
 
 
 
VIII.
 
 
 
 
 
 
 
 
 
 
 





NVR, INC.
11700 Plaza America Drive
Suite 500
Reston, VA  20190
Proxy Statement
This Proxy Statement, proxy card and the Annual Report for the year ended December 31, 2017 are being mailed to our shareholders on or about March 20, 2018 in connection with the solicitation on behalf of the Board of Directors (the “Board”) of NVR, Inc., a Virginia corporation, of proxies for use at our Annual Meeting of Shareholders.  The Annual Meeting will be held on Wednesday, May 2, 2018, at our corporate headquarters located at 11700 Plaza America Drive, Suite 500, Reston, Virginia 20190, at 11:00 A.M., Eastern Time, and at any and all postponements and adjournments thereof.  Shareholders should contact NVR’s Investor Relations Department at the same address to obtain directions to be able to attend the Annual Meeting in person.
We bear the cost of proxy solicitation, including expenses in connection with preparing, assembling and mailing the proxy solicitation materials and all papers accompanying them.  We may reimburse brokers or persons holding shares in their names or in the names of their nominees for their expenses in sending proxies and proxy materials to beneficial owners.  In addition to solicitation by mail, certain of our officers, directors and regular employees, who will receive no extra compensation for their services, may solicit proxies by telephone, facsimile transmission, internet or personally.  We have retained Georgeson Inc. to assist in the solicitation of brokers, bank nominees and institutional holders for a fee of approximately $5,500 plus out-of-pocket expenses.
All voting rights are vested exclusively in the holders of our common stock, par value $.01 per share (the “Common Stock”).  Only shareholders of record as of the close of business on March 2, 2018 (the “Record Date”) are entitled to receive notice of and to vote at the Annual Meeting.  Shareholders include holders (the “Participants”) owning stock in our Profit Sharing Trust Plan and Employee Stock Ownership Plan (together, the “Plans”).
The accompanying proxy card should be used to instruct the persons named as proxies to vote the shareholder’s shares in accordance with the shareholder’s directions.  The persons named in the accompanying proxy card will vote shares of Common Stock represented by all valid proxies in accordance with the instructions contained thereon.  In the absence of instructions, shares represented by properly executed proxies will be voted:
FOR the election of the twelve director nominees named in this Proxy Statement;
FOR the ratification of the appointment of KPMG LLP as our independent auditor for 2018;
FOR the approval of the compensation paid to certain executive officers;
FOR the adoption of the NVR, Inc. 2018 Equity Incentive Plan; and
in the discretion of the named proxies with respect to any other matters presented at the Annual Meeting.
If a shareholder holds shares in a brokerage account or through a broker, bank, trust or other nominee, the rules of the New York Stock Exchange (the “NYSE”) prohibit the nominee from voting the shareholder’s shares on any proposal to be voted on at the Annual Meeting, other than ratification of the appointment of KPMG LLP as our independent auditor, unless the nominee has received an instruction from the shareholder regarding how the shares should be voted.  Any shares for which an instruction has not been received will result in a “broker non-vote” on the proposal for which no instruction was provided.  
For a quorum to exist at the Annual Meeting, holders of shares representing a majority of the votes entitled to be cast on each matter must be present in person or by proxy.  Shares voted “abstain” or represented by a broker non-vote on a matter will be considered present at the Annual Meeting for the purpose of establishing a quorum.  For a director to be deemed elected, the director must receive a majority of votes cast “for” and “against” the director's election. Similarly, for the proposals to ratify the appointment of the independent auditor and to approve the compensation of certain executive officers to be deemed approved, the proposal must receive a majority of votes cast “for” and “against” the proposal.  For these proposals, therefore, abstentions and broker non-votes will have no effect on the result of the vote.  The proposal to approve the 2018 Equity Incentive Plan will be deemed approved if a majority of the votes cast are cast "for" the proposal.  Under the rules of the NYSE, abstentions will be considered votes cast for purposes of this proposal.  Accordingly, abstentions will have the effect of a vote "against" the proposal for purposes of the rules of the NYSE, and broker non-votes will have no effect on the result of the vote.
We strongly encourage all of our shareholders who hold shares of Common Stock in a brokerage account or through any other nominee to provide voting instructions to their broker, bank, trustee or other nominee to ensure that their shares are voted at the Annual Meeting.

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Any shareholder may revoke his or her proxy at any time prior to its use by (1) providing our Secretary, at 11700 Plaza America Drive, Suite 500, Reston, Virginia 20190, written notice of revocation, (2) duly executing a proxy card bearing a later date than the date of the previously duly executed proxy card, or (3) attending the Annual Meeting and voting in person (attendance at the Annual Meeting alone will not act to revoke a prior proxy card).  Execution of the enclosed proxy card will not affect your right to vote in person if you should later decide to attend the Annual Meeting.
The proxy card also should be used by Participants to instruct the trustee of the Plans how to vote shares of Common Stock held on their behalf.  The trustee is required under the trust agreement to establish procedures to ensure that the instructions received from Participants are held in confidence and not divulged, released or otherwise utilized in a manner that might influence the Participants’ free exercise of their voting rights.  Proxy cards representing shares held by Participants must be returned to the tabulator by April 27, 2018 using the enclosed return envelope and should not be returned to NVR.  If shares are owned through the Plans and the Participant does not submit voting instructions by April 27, 2018, the trustee of the Plans will vote such shares in the same proportion as the voting instructions received from other Participants.  Participants who wish to revoke a proxy will need to contact the trustee and follow its instructions.
As of the Record Date, we had a total of 3,664,971 shares of Common Stock outstanding, each share of which is entitled to one vote. The presence, either in person or by proxy, of persons entitled to vote a majority of the outstanding Common Stock is necessary to constitute a quorum for the transaction of business at the Annual Meeting.  Under our Restated Articles of Incorporation and Bylaws, holders of Common Stock are not entitled to vote such shares on a cumulative basis, including with respect to the voting for directors.
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to Be Held on May 2, 2018:
This Proxy Statement and our Annual Report for the year ended December 31, 2017 are available at www.edocumentview.com/nvr.

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Election of Directors
(Proposal No. 1)
Director Nominees
Our Restated Articles of Incorporation state that the number of directors on our Board will be no less than seven and no more than thirteen, as established from time to time by Board resolution.  Our Board has set the size of the Board at twelve members beginning with the Board term commencing at the Annual Meeting.  The following persons have been nominated by the Board to be elected to hold office for a one-year term ending at the 2019 Annual Meeting and until their successors are duly elected and qualified:
 
Name
 
Age
 
Year First
Elected or
Appointed
 
Independent
 
Other Public Company Boards
Dwight C. Schar
 
76
 
1993
 
No
 
0
C. E. Andrews
 
66
 
2008
 
Yes
 
2
Timothy M. Donahue
 
69
 
2006
 
Yes
 
0
Thomas D. Eckert
 
70
 
2011
 
Yes
 
2
Alfred E. Festa
 
58
 
2008
 
Yes
 
1
Ed Grier
 
63
 
2013
 
Yes
 
1
Manuel H. Johnson
 
69
 
1993
 
Yes
 
1
Mel Martinez
 
71
 
2012
 
Yes
 
1
William A. Moran
 
71
 
1993
 
No
 
0
David A. Preiser
 
60
 
1993
 
Yes
 
1
W. Grady Rosier
 
69
 
2008
 
Yes
 
1
Susan Williamson Ross
 
56
 
2016
 
Yes
 
0
 
All of the director nominees are current directors standing for re-election. Each nominee has consented to serve as one of our directors if elected.  Our Board does not contemplate that any of its proposed nominees listed above will be unwilling to serve or become unavailable for any reason, but if any such circumstance should occur before the Annual Meeting, proxies may be voted for another nominee selected by the Board.
Biographical Information for Our Director Nominees
The biographies below describe the skills, attributes and experience of the nominees who were considered by the Board and Nominating and Corporate Governance Committee (the "Nominating Committee").
Dwight C. Schar has been Chairman of the Board since September 30, 1993.  Effective February 4, 2009, Mr. Schar relinquished his executive officer title with NVR, but remains the Chairman of the Board.  Mr. Schar also served as the President and Chief Executive Officer of NVR from September 30, 1993 through June 30, 2005.  
The Board believes that Mr. Schar is highly qualified to serve on the Board, based on his founding status with NVR, his lengthy homebuilding industry and real estate experience, his executive leadership experience, his brand marketing expertise, his mergers and acquisitions experience, his turn-around/restructuring experience, and his public board experience.
C. E. Andrews has been a director since May 6, 2008.  Mr. Andrews served as Chief Executive Officer and a member of the board of directors of MorganFranklin Consulting, LLC from May 2013 through March 2017 and continues as a member of the board of directors.  From June 2009 until February 2012, Mr. Andrews was the president of RSM McGladrey Business Services, Inc.  Prior to that, Mr. Andrews served as the president of SLM Corporation (“Sallie Mae”).  He joined Sallie Mae in 2003 as the executive vice president of accounting and risk management, and held the title of chief financial officer from 2006 to 2007.  Prior to joining Sallie Mae, Mr. Andrews spent approximately 30 years at Arthur Andersen.  He served as managing partner for Arthur Andersen’s mid-Atlantic region, and was promoted to global managing partner for audit and advisory services in 2002.  Mr. Andrews serves on the following public company boards: Marriott Vacations Worldwide Corporation and Washington Mutual Investors Fund.   Within the past five years, Mr. Andrews previously served on the following public company board: WashingtonFirst Bankshares, Inc.

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The Board believes that Mr. Andrews is highly qualified to serve on our Board based on his executive leadership experience, his financial and accounting expertise, his restructuring experience and his public company board experience.
Timothy M. Donahue has been a director since January 1, 2006.  Prior to his retirement, Mr. Donahue was Executive Chairman of Sprint Nextel Corporation from August 2005 to December 2006.  He previously served as president and chief executive officer of Nextel Communications, Inc.  He began his career with Nextel in January 1996 as president and chief operating officer.  Before joining Nextel, Mr. Donahue served as northeast regional president for AT&T Wireless Services operations from 1991 to 1996.  Prior to that, he served as president for McCaw Cellular's paging division in 1986 and was named McCaw's president for the U.S. central region in 1989.  Within the past five years, Mr. Donahue previously served on the following public company boards: The ADT Corporation, Eastman Kodak and Covidien Limited.
The Board believes that Mr. Donahue is highly qualified to serve on our Board based on his executive leadership experience, his mergers and acquisitions experience, his turn-around experience, his public company board experience, and his brand marketing expertise.
Thomas D. Eckert has been a director since December 1, 2011.  Mr. Eckert was Chairman of Capital Automotive Real Estate Services, Inc. (“Capital Automotive”) until October 2014.  He was one of the founders of Capital Automotive in October 1997 and led its initial public offering in 1998.  Capital Automotive went private in 2005.  Mr. Eckert serves on the following public company boards: Chesapeake Lodging Trust and Gramercy Property Trust. Within the past five years, Mr. Eckert previously served on the following public company boards: Munder Funds (and its successor, Victory Funds) and Dupont-Fabros Technologies, Inc.
The Board believes that Mr. Eckert is highly qualified to serve on our Board based on his executive leadership experience, his homebuilding and real estate experience, his public company board experience, and his mergers and acquisitions experience.
Alfred E. Festa has been a director since December 1, 2008.  Mr. Festa is Chairman and Chief Executive Officer of W. R. Grace & Co (“Grace”). He joined Grace as President and Chief Operating Officer in November 2003, assumed the Chief Executive Officer role in June 2005, and became Chairman of the Board of Grace on January 1, 2008.  From November 2002 until November 2003, Mr. Festa was a partner in Morgenthaler Private Equity Partners (“Morgenthaler”), a venture/buyout firm focused on mid-market industrial build-ups. Mr. Festa serves on the following public company board: W. R. Grace & Co.  
The Board believes that Mr. Festa is highly qualified to serve on our Board based on his executive leadership experience, his public company board experience, his financial expertise, his brand marketing expertise, his mergers and acquisitions experience, and his restructuring experience.
Ed Grier has been a director since May 7, 2013.  Mr. Grier has been the Dean of the Virginia Commonwealth University (“VCU”) School of Business since March 2010.  Prior to joining VCU, Mr. Grier spent approximately 29 years with the Walt Disney Company beginning in 1981.  He served as the President of the Disneyland Resort from 2006 until 2010.  Mr. Grier held various senior financial and operational roles during his career with Disney.  Mr. Grier serves on the following public company board: Capital Senior Living Corporation.  
The Board believes that Mr. Grier is highly qualified to serve on our Board based on his executive leadership experience, his financial expertise, and his brand marketing expertise.
Manuel H. Johnson has been a director since September 30, 1993.  Dr. Johnson has been co-chairman and senior partner in Johnson Smick International, Inc., an international financial policy-consulting firm, since 1990.  From August 1, 1997 until December 2003, Dr. Johnson was the chairman of the board of trustees and president of the Financial Accounting Foundation, which oversees the Financial Accounting Standards Board.  Also during 1997, Dr. Johnson was named a member of the Independence Standards Board (which was dissolved on July 31, 2001), formed jointly by the SEC and the American Institute of Certified Public Accountants. Dr. Johnson is a founder and co-chairman of the Group of Seven Council, an international commission supporting economic cooperation among the major industrial nations.  Dr. Johnson serves on the following public company boards: Morgan Stanley Funds.  
The Board believes that Dr. Johnson is highly qualified to serve on our Board based on his executive leadership experience, his financial expertise, his governmental and financial regulatory expertise, and his public company board experience.
Mel Martinez has been a director since December 1, 2012.  Mr. Martinez has been Chairman of the South East and Latin America for JPMorgan Chase & Co. since August 2010.  Prior to joining JPMorgan, Mr. Martinez was a partner in the law firm DLA Piper from September 2009 to July 2010.  Mr. Martinez served as a United States Senator from Florida from January 2005 to September 2009.  Prior to his election, Mr. Martinez served as the Secretary of the United States Department of

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Housing and Urban Development (“HUD”) from January 2001 to January 2004.  Mr. Martinez serves on the following public company board: Marriott Vacations Worldwide Corporation.  
The Board believes that Mr. Martinez is highly qualified to serve on our Board based on his executive leadership experience, his housing industry experience, his government and housing regulatory expertise, and his public company board experience.
William A. Moran has been a director since September 30, 1993.  Mr. Moran has been the chairman of Elm Street Development, Inc. (“Elm Street”) since 1996.  Mr. Moran is also a director and owner of Legend Management Group, which builds and owns apartment projects in the Washington, DC metro area.  Until January 1, 2010, Mr. Moran was a director of Craftmark, Inc., a homebuilder in Virginia, Maryland, Pennsylvania and Delaware, and Craftstar, Inc., which develops, invests in and periodically sells apartments, condominiums, single family homes and townhomes in Virginia and Maryland.  
The Board believes that Mr. Moran is highly qualified to serve on our Board based on his executive leadership experience, his lengthy homebuilding, real estate and land development experience, his public company board experience, and his turn-around/restructuring experience.
David A. Preiser has been a director since September 30, 1993.  Mr. Preiser has been Co-President of the investment banking firm of Houlihan Lokey, Inc. since 2013 and a member of its board of directors since 2001.  Since January 1, 2005, Mr. Preiser has served as Chairman of Houlihan Lokey– Europe, pursuant to which he leads Houlihan Lokey’s European investment banking activities, including Houlihan Lokey’s European restructuring business.  Mr. Preiser is also active in Houlihan Lokey’s investment banking and restructuring activities in the United States.  Since 1990, Mr. Preiser had been active in coordinating Houlihan Lokey's real estate and financial restructuring activities as a senior managing director.  Mr. Preiser serves on the following public company board: Houlihan Lokey, Inc.
The Board believes that Mr. Preiser is highly qualified to serve on our Board based on his executive leadership experience, his financial expertise, his knowledge of capital markets, his mergers and acquisitions experience, his public company board experience, and his turn-around/restructuring experience.
W. Grady Rosier has been a director since December 1, 2008.  Mr. Rosier has been the President and CEO of McLane Company, Inc. (“McLane”), a supply chain services company, since 1995.  Prior to 1995, Mr. Rosier held various senior management roles since joining McLane in 1984.  Mr. Rosier serves on the following public company board: NuStar Energy L.P.  
The Board believes that Mr. Rosier is highly qualified to serve on our Board based on his executive leadership experience and his public company board experience.
Susan Williamson Ross has been a director since July 28, 2016.  Ms. Ross has been the President of the privately-held majority investor in Clark Construction Group, Shirley Contracting and several other construction, development and real estate businesses since January 2016.  She has been employed by Clark Construction Group since December 1986 in various positions, including Chief Administrative Officer since July 2004 and Executive Vice President since January 2008.
The Board believes that Ms. Ross is highly qualified to serve on our Board based on her executive leadership experience, and her construction, development and real estate experience.
Paul W. Whetsell has been a director since March 1, 2007. Mr. Whetsell's term expires at the 2018 Annual Meeting, and he is not standing for reelection.
Majority Vote Standard
Pursuant to our Corporate Governance Guidelines, the Board expects a director to tender his or her resignation if he or she fails to receive the required number of votes for re-election.  Under the Guidelines, the Board shall nominate for re-election as a director only candidates who agree to tender their resignation if they fail to receive the required number of votes for re-election.  In addition, the Board shall fill director vacancies and new directorships only with candidates who agree to tender their resignation if they fail to receive the required number of votes for re-election.
If a director fails to be re-elected by a majority of votes cast, the Nominating Committee shall promptly consider the resignation offer of any such director and recommend to the Board whether to accept the tendered resignation or reject it.  The Board shall take action with respect to the Nominating Committee's recommendation no later than 90 days following the submission of any such resignation offer.  Following the Board's action regarding the Nominating Committee's recommendation, we will promptly file a Current Report on Form 8-K with the Securities and Exchange Commission (the

5



“SEC”) which shall detail the Board's decision regarding a tendered resignation.  This report shall include an explanation of the process by which the Board's decision was reached and the reasons for the Board's decision.
To the extent that one or more directors’ resignations are accepted by the Board, the Nominating Committee will recommend to the Board whether to fill the vacancy or vacancies or to reduce the size of the Board.
The Board expects that any director who tenders his or her resignation pursuant to this policy will not participate in the Nominating Committee recommendation or Board action regarding whether to accept or reject the tendered resignation.  If, however, a majority of the members of the Nominating Committee fails to receive the required number of votes for re-election in the election, the independent directors who did not fail to receive the required number of votes for re-election shall form a committee amongst themselves for the purposes of evaluating the tendered resignations and recommending to the Board whether to accept or reject them.
Required Vote
Each director shall be elected by a majority of the votes cast in the election at the Annual Meeting, assuming that a quorum is present.  A majority of the votes cast means that the number of shares voted "for" a director must exceed the number of shares voted "against" that director.  Unless marked otherwise, proxies received will be voted FOR the election of the twelve nominees designated above.  Shareholders may abstain from voting for any particular nominee by so indicating in the space provided on the accompanying proxy card.  An abstention will not be counted as a vote cast “for” or “against” a director’s election.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING “FOR” ALL OF THE FOREGOING NOMINEES AS DIRECTORS OF NVR.
______________________________________________________________________________________________________ 

CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
We are committed to having sound corporate governance principles and practices.  Having and acting on that commitment is essential to running our business efficiently and to maintaining our integrity in the marketplace.  Our primary corporate governance documents, including our Corporate Governance Guidelines, Code of Ethics and all of our Board Committee Charters, are available to the public on our website at www.nvrinc.com.
The following are highlights of our Corporate Governance practices:
Separate Chairman of the Board and Chief Executive Officer positions
Annual elections for directors
Majority voting standard for uncontested elections
11 of 13 directors are independent
No management directors
Independent lead director
Shareholder proxy access
Annual board and committee evaluations
Robust NVR stock ownership requirements for named executive officers and directors
Prohibition against short sales, hedging or pledging of NVR stock by named executive officers and directors
No poison pill or other anti-takeover provisions

6



Board Leadership Structure, Committee Composition and Role in Risk Oversight
Board Leadership Structure
Mr. Schar, our Chairman of the Board (“Chairman”), leads our Board, which meets at least quarterly.  In addition, our Board has named an independent lead director to chair meetings of our independent directors.  Our independent lead director position rotates annually among the chairs of the Audit, Compensation, and Nominating Committees.  The independent lead director chairs meetings held by the independent directors.  Mr. Eckert, the Chairman of our standing Compensation Committee (the "Compensation Committee"), is serving as our independent lead director until the 2018 Annual Meeting.  Our Board is comprised solely of non-management directors.  Information regarding how to communicate with the Board, the independent lead director and the non-management or independent directors as a group is available on our website at www.nvrinc.com.
We have separated the roles of the Chairman and the Chief Executive Officer (“CEO”).  Mr. Schar serves as the Chairman, and Paul C. Saville serves as CEO.  While the Board retains the discretion to combine the roles of Chairman and CEO at any time, we expect that the roles of Chairman and CEO will remain separated for the foreseeable future.
Director Attendance
During 2017, the Board met five times.  
Our Board requires that our directors attend each Board and committee meeting in person, unless personal circumstances affecting a director make such attendance impractical or inappropriate.  Each of our Board members attended 100% of the Board meetings and the meetings of committees of which he or she was a member during 2017.  
Our Board also requires that all current directors and all nominees for election to our Board attend in person our annual meetings of shareholders, unless personal circumstances affecting such director or director nominee make such attendance impractical or inappropriate. Each of our then-serving directors attended the 2017 Annual Meeting of Shareholders.  
Executive Sessions of the Board
Our directors met twice during 2017 in executive session without the presence of management.  Mr. Schar chaired the meetings.
Our independent directors met once during 2017 in executive session without the presence of the non-independent directors or management.  Mr. Eckert, our independent lead director in 2017, chaired the meeting of the independent directors.
Our standing Audit Committee (the "Audit Committee") meets in executive sessions at each Audit Committee meeting, separately with (1) our external auditor, (2) the Vice President of Internal Audit and Corporate Governance and (3) the Chief Financial Officer and Chief Accounting Officer.  Mr. Johnson, the Chairman of the Audit Committee, chairs these executive sessions.
Board Role in Risk Oversight
Our Board oversees our business risks and operational performance through regularly scheduled Board and Committee meetings, as well as through frequent and informal communications between management and the Board.  Further, our Bylaws and each of the various Board Committee Charters provide additional detail regarding the areas, duties and functions for which the Board or a Board Committee provides specific oversight of specified areas of risk.
That oversight includes a variety of operational and regulatory matters, including, among other things:
Approval of the annual business plan and the periodic review of our actual performance in comparison to the approved plan;
Review and analysis of our operational and financial performance compared to our peer group;
Review of our five year business plan;
Approval of short-term and long-term management incentive compensation plans;
Review of management succession planning throughout our organization for key management positions;
Oversight of our processes and systems to collect and store confidential information;
Review of our response to new laws, rules or regulations; and
Direct oversight of our internal audit function and our whistleblower hotline.  

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Below is a discussion of how the Board oversees certain of our more significant business risks.
Land Acquisition
We believe our continued success is contingent upon our ability to control an adequate supply of finished lots on which to build.  We expend substantial monetary resources to place deposits under lot acquisition contracts, typically ranging up to 10% of the aggregate purchase price of the finished lots.  The lot acquisition policy under which management operates is a Board-approved policy that requires Board approval of:
Lot purchase contracts above certain parameters, measured by the aggregate size of the deposit or investment;  
Contracts to acquire raw land above certain parameters, measured by aggregate size of the investment;
Joint venture investments above certain parameters, measured by aggregate size of the investment; and  
Related-party lot purchase contracts (see Transactions with Related Persons below).
Liquidity
Being in a cyclical industry, it is imperative that we focus on our liquidity needs throughout the various stages of the cycle, while maintaining an efficient capital structure.  The Board’s role in ensuring that management prudently manages our cash includes the following:
A Board-approved investment policy that specifies the types of investments allowed for our excess cash;
Pre-approval of stock repurchases and debt repurchases;
Pre-approval of capital transactions for the issuance of debt or equity; and
Board reviews our short-term and long-term cash needs in connection with its reviews of our quarterly forecasts and our annual and five year business plans.
Financial Reporting, Internal Control and Regulatory Matters
Our Audit Committee takes a lead role in overseeing risks as enumerated within its Charter:
Our Internal Audit function performs a primary role in risk management.  Our Vice President of Internal Audit and Corporate Governance reports directly to the Audit Committee, and the Audit Committee formally approves the annual internal audit budget and staffing.
The Audit Committee approves the annual internal audit plan, which is prepared using a comprehensive risk-based approach.
On a quarterly basis, Internal Audit Senior Management and our external auditor each have a private session with the Audit Committee without the presence of management.
Management reports to the Audit Committee the occurrence of governmental regulatory reviews or audits conducted on our operations, including mortgage regulatory matters and SEC comment letters.  The Audit Committee also obtains a report from management at the conclusion of any such review.
The Audit Committee monitors compliance with our Code of Ethics and our Standards of Business Conduct. 
Board Independence
Our Board has established director independence standards to assist us in determining director independence, which standards meet the independence requirements of the NYSE corporate governance listing standards.  Our independence standards are included within our Corporate Governance Guidelines, which are available on our website at www.nvrinc.com.  Our Board considers all relevant facts and circumstances in making an independence determination.  As required by the rules of the NYSE, for a director to be considered "independent" under our independence standards, our Board must affirmatively determine that the director has no material relationship with us (other than as a director), directly or indirectly.
Our Board has affirmatively determined that our directors, other than Mr. Schar and Mr. Moran, are independent pursuant to our independence standards.  Mr. Schar, our former Executive Chairman, and Mr. Moran, who controls a company from which we acquire a small portion of our finished lots upon which to build our homes, have been determined by our Board not to be “independent.”

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When our Board analyzed the independence of its members, it considered relevant transactions, relationships and arrangements, including those specified in the NYSE listing standards and our independence guidelines.  The Board considered that certain directors serve as directors or employees of other companies with which we engage in ordinary course of business transactions.  In accordance with our independence standards, none of these relationships constitute material relationships (in all instances, the payments to each other company totaled less than $2,500) that would impair the independence of these directors.  
Board Committees
Our Board has a standing Audit Committee, Compensation Committee, Nominating Committee, and Executive Committee (the "Executive Committee"). The members of the Audit Committee, Compensation Committee and Nominating Committee are independent under the applicable rules of the NYSE and the SEC. Each committee operates pursuant to a written charter adopted by our Board, which is available at www.nvrinc.com. The members of the committees are shown in the table below.
 
Name
 
Audit Committee
 
Compensation Committee
 
Nominating and Corporate Governance Committee
 
Executive Committee
Dwight C. Schar
 
 
 
 
 
 
 
Chair
C. E. Andrews
 
Member
 
 
 
 
 
 
Timothy M. Donahue
 
 
 
 
 
Member
 
Member
Thomas D. Eckert (L)
 
 
 
Chair
 
 
 
 
Alfred E. Festa
 
Member
 
 
 
Member
 
 
Ed Grier
 
Member
 
 
 
 
 
 
Manuel H. Johnson
 
Chair
 
 
 
 
 
Member
Mel Martinez
 
 
 
 
 
Member
 
 
William A. Moran
 
 
 
 
 
 
 
Member
David A. Preiser
 
 
 
Member
 
Chair
 
 
W. Grady Rosier
 
 
 
Member
 
 
 
 
Susan Williamson Ross
 
 
 
 
 
Member
 
 
Paul W. Whetsell
 
 
 
Member
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Meetings in 2017
 
5
 
5
 
2
 
0
 
 
 
 
 
 
 
 
 
(L) - Independent lead director
 
 
 
 
 
 
Audit Committee
All members of the Audit Committee are financially literate and are able to read and understand fundamental financial statements, including a balance sheet, income statement and cash flow statement.  Our Board has determined that Manuel H. Johnson and C.E. Andrews qualify as audit committee financial experts as defined within Item 407(d)(5) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act").  All members of the Audit Committee satisfy the independence standards specified in Rule 10A-3(b)(1) under the Exchange Act.
The Audit Committee assists our Board in oversight and montoring of:
The integrity of our accounting and financial reporting processes;
Our compliance with legal and regulatory requirements;
Our independent external auditor’s qualifications and independence; and
The performance of our internal audit function and our independent external auditors.
The Audit Committee performs the following functions:
Appoints, evaluates and determines the compensation of our independent external auditor;
Discusses the scope and results of the audit with our independent external auditor and reviews our interim and year end operating results with management and our independent external auditor;

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Oversees our internal audit department;
Maintains written procedures for the receipt, retention and treatment of complaints on accounting, internal accounting controls or auditing matters, as well as for the confidential, anonymous submissions by our employees of concerns regarding questionable accounting or auditing matters;
Reviews substantiated complaints received from internal and external sources regarding accounting, internal accounting controls or auditing matters;
Reviews reports from management regarding significant accounting, internal accounting controls, auditing, legal and regulatory matters;
Functions as a qualified legal compliance committee under Part 205 of the rules of the SEC; and
Prepares the Audit Committee Report for inclusion in our proxy statement.
The Audit Committee has the authority and available funding to engage any independent legal counsel and any accounting or other expert advisors, as our Audit Committee deems necessary to carry out its duties.
Compensation Committee
The Compensation Committee performs the following functions:
Reviews and determines all compensation of our CEO and, based in part on the recommendation of the CEO, of all of our other executive officers;
Obtains advice and assistance from compensation consultants that it determines to be necessary to carry out its duties;  
Periodically reviews and makes recommendations to the Board with respect to the compensation of our directors;
Administers and interprets incentive compensation and equity plans for our employees (except as otherwise described below);
Assists in preparing the Compensation Discussion and Analysis and prepares our Compensation Committee Report for inclusion in our annual meeting proxy statement in accordance with applicable rules and regulations of the SEC;
Makes recommendations to our Board about succession planning for our CEO, and in conjunction with the CEO, also considers succession planning for other key positions; and
Reviews and approves any employment agreements, or amendments thereto, with our CEO and other applicable executive officers.
The Compensation Committee may delegate to a senior executive officer of NVR the authority to grant equity awards to employees other than executive officers, within limits prescribed by the full Board.  The Compensation Committee, by resolution, delegated authority to Mr. Saville, acting jointly with the Senior Vice President of Human Resources, to grant equity awards to new and existing employees, other than executive officers, during 2017.  The Senior Vice President of Human Resources is required to report any equity awards granted pursuant to this delegated authority to the Compensation Committee at its next scheduled meeting after the delegated authority is exercised.
The Compensation Committee may delegate its authority to one or more members of the Compensation Committee.  Any person to whom authority is delegated must report any actions taken by him or her to the full Compensation Committee at its next regularly scheduled meeting.  During 2017, the Compensation Committee did not delegate any of its authority to any individual member.
Compensation Consultants
For a description of the role of the compensation consultant during 2017, see Compensation Discussion and Analysis - Compensation Determination Process below.
Compensation Committee Interlocks and Insider Participation
Messrs. Eckert, Preiser, Rosier and Whetsell were members of the Compensation Committee during 2017. During 2017, none of our executive officers has served as a member of the board of directors or compensation committee of any entity that had one or more executive officers serving as a member of our Board or our Compensation Committee. Thus, there were no interlocks with other companies within the meaning of Item 407(e)(4) of SEC Regulation S-K during 2017.

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Nominating and Corporate Governance Committee
The Nominating Committee performs the following functions:
Identifies individuals qualified to become Board members;
Recommends that our Board select the director nominees for the next annual meeting of shareholders;
Recommends Board committee structure and makeup, including diversity of our members;
Oversees and makes recommendations regarding corporate governance matters, including our Corporate Governance Guidelines; and
Manages the Board’s annual evaluation process.
The Nominating Committee also has the sole authority and appropriate funding to obtain advice and assistance from executive search firms, and internal or outside legal, accounting or other expert advisors that it determines necessary to carry out its duties.
Criteria for Nomination to the Board of Directors
The Nominating Committee will consider shareholder nominees as described in our Policies and Procedures for the Consideration of Board of Director Candidates, which is available at www.nvrinc.com.  These policies and procedures include minimum qualifications for director nominees and the process for identifying and evaluating director nominees, including nominees submitted by our security holders.  The Nominating Committee has a stated goal of identifying well-qualified director candidates that would enhance the Board’s diversity.  In searching for potential director candidates, the Nominating Committee first seeks the most qualified candidates with a record of success.  The Nominating Committee searches for candidates that contribute to a diversity of views, backgrounds, experience and skills on the Board, including but not limited to, executive leadership experience, financial expertise, homebuilding/construction/real estate experience, public board experience, brand marketing expertise, mergers and acquisitions expertise, turn-around/restructuring experience, and government/regulatory expertise.
Proxy Access
Our Bylaws allow eligible shareholders to propose director nominees for inclusion in the proxy statement in addition to the nominees proposed by the Board.  The proxy access bylaw permits shareholders owning 3% or more of our common stock for at least three years, to nominate up to 20% of our Board.  The number of shareholders who may aggregate their shares to meet the 3% ownership threshold is limited to 20.  The shareholder(s) and nominees(s) must also satisfy the other requirements in our Bylaws.  
Executive Committee
The Executive Committee was established pursuant to our Bylaws to have such powers, authority and responsibilities as may be determined by a majority of our Board.  The Executive Committee has never met, nor has our Board ever delegated any powers, authority or responsibilities to the Executive Committee.  Our Board intends to continue the practice of considering corporate matters outside the scope of our other existing Board committees at the full Board level.
Annual Board and Committee Evaluations
Annual Board Evaluations
The members of the Board conduct an annual evaluation to assess the Board's effectiveness and performance. The results are reviewed by the Board, which considers the results and any ways in which Board effectiveness may be enhanced.
Annual Committee Evaluations
The members of each committee conduct an annual evaluation to assess each committee's compliance with its charter, effectiveness and performance. The results are reviewed by the members of the applicable committee, which considers the results and any ways in which the committee's effectiveness may be enhanced.
Communications with the Board of Directors
Our Policies and Procedures Regarding Communications with the NVR, Inc. Board of Directors, the Independent Lead Director and the Non-Management Directors as a Group are available at www.nvrinc.com.

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Review, Approval or Ratification of Related Person Transactions
We have a policy that requires that all related person transactions be considered, reviewed and approved or ratified by the disinterested, independent members of our Board, regardless of the type of transaction or amount involved.  Under this policy, the related person must notify the Chief Financial Officer (“CFO”) of any proposed transaction with a related person.  The CFO must seek approval of the disinterested, independent members of the Board for any related person transaction.  The disinterested, independent directors must review the material facts before determining whether to approve or ratify the transaction. This requirement is set forth in Section 7.05 of our Bylaws (available on our website at www.nvrinc.com), Sections 1 and 4 of our Code of Ethics (available on our website at www.nvrinc.com), and our internal Standards of Business Conduct, Human Resources Policies and Procedures, and Financial Policies and Procedures.
Transactions with Related Persons
During the year ended December 31, 2017, we entered into new forward lot purchase agreements to purchase finished building lots for a total purchase price of approximately $66,591,000 with Elm Street Development, Inc. (“Elm Street”), which is controlled by one of our directors, Mr. Moran.  During 2017, we also purchased 282 developed lots at market prices from Elm Street for approximately $37,072,000.  The 282 developed lots purchased from Elm Street is less than 2% of the over 16,000 lots we purchased during 2017. We also continue to control a parcel of raw land expected to yield approximately 2,400 finished lots through a joint venture entered into with Elm Street during 2009.  We made an additional investment of $2,900,000 in the joint venture during 2017.  The independent members of our Board approved these transactions.


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Security Ownership of Certain Beneficial Owners and Management
The following tables set forth certain information as to the beneficial ownership of Common Stock by each person known by us to be the beneficial owner of more than 5% of the outstanding Common Stock as of the dates indicated, and by each director, director nominee and named executive officer and by all directors and executive officers as a group as of March 2, 2018.  Except as otherwise indicated, all shares are owned directly and the owner has sole voting and investment power with respect thereto.
Certain Beneficial Owners
 
Name and Address of Holder
 
Number of
Shares
 
 
Percent of
Class
BlackRock, Inc.
 
398,368

(1
)
 
10.9
%
55 East 52nd Street
 
 

 

 
 

New York, NY 10055
 
 

 

 
 

 
 
 
 
 
 
The Vanguard Group
 
332,461

(2
)
 
9.1
%
100 Vanguard Blvd.
 
 

 

 
 

Malvern, PA 19355
 
 

 

 
 

 
 
 
 
 
 
 
(1)
As reported within a Schedule 13G filed January 19, 2018, the entity has sole power to vote or direct the vote for 376,706 shares and the sole power to dispose or direct the disposition of 398,368 shares.
(2)
As reported within a Schedule 13G filed February 9, 2018, the entity has sole power to vote or direct the vote for 2,799 shares, shared power to vote or direct the vote for 784 shares, sole power to dispose or direct the disposition of 329,121 shares and shared power to dispose or direct the disposition of 3,340 shares.
Directors and Management
 
Name
 
Number of
Shares
 
 
 
Percent of
Class
Dwight C. Schar
 
107,015

 
(1)
 
2.9
%
C. E. Andrews
 
2,438

 
(2)
 
*

Timothy M. Donahue
 
3,485

 
(3)
 
*

Thomas D. Eckert
 
4,515

 
(4)
 
*

Alfred E. Festa
 
2,121

 
(2)
 
*

Ed Grier
 
1,257

 
(5)
 
*

Manuel H. Johnson
 
3,664

 
(6)
 
*

Mel Martinez
 
1,903

 
(7)
 
*

William A. Moran
 
26,735

 
(8)
 
*

David A. Preiser
 
3,335

 
(3)
 
*

W. Grady Rosier
 
1,862

 
(8)
 
*

Susan Williamson Ross
 
30

 
 
 
 

Paul W. Whetsell
 
1,708

 
(8)
 
*

Paul C. Saville
 
208,746

 
(9)
 
5.6
%
Daniel D. Malzahn
 
31,325

 
(10)
 
*

Jeffrey D. Martchek
 
33,373

 
(11)
 
*

Robert W. Henley
 
21,231

 
(12)
 
*

Eugene J. Bredow
 
14,954

 
(13)
 
*

All directors, director nominees and executive officers as a group (19 persons)
 
469,701

 
 
 
12.0
%
 
 
 
 
 
 
 
* Less than 1%.
 
 
 
 
 
 
 

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(1)
Includes 39,174 vested options issued under equity incentive plans.
(2)
Includes 1,300 vested options issued under equity incentive plans.
(3)
Includes 3,064 vested options issued under equity incentive plans.
(4)
Includes 3,335 vested options issued under equity incentive plans.
(5)
Includes 1,124 vested options issued under equity incentive plans.
(6)
Includes 3,064 vested options issued under equity incentive plans and 200 shares held by a charitable foundation, of which Mr. Johnson is a trustee but in which he has no economic interest.
(7)
Includes 1,772 vested options issued under equity incentive plans.
(8)
Includes 650 vested options issued under equity incentive plans.
(9)
Includes 88,994 vested options issued under equity incentive plans, 3,239 vested shares held by the NVR, Inc. Employee Stock Ownership Plan in trust, 4,519 shares held as a discretionary investment in the NVR, Inc. Profit Sharing Plan and 105,883 vested shares held in a Deferred Compensation Rabbi Trust.  Excludes 777 shares held in a Deferred Compensation Plan which are not distributable until six months subsequent to separation of service.
(10)
Includes 27,220 vested options issued under equity incentive plans, 1,017 vested shares held by the NVR, Inc. Employee Stock Ownership Plan in trust and 363 shares held as a discretionary investment in the NVR, Inc. Profit Sharing Plan.
(11)
Includes 26,822 vested options issued under equity incentive plans, 2,239 vested shares held by the NVR, Inc. Employee Stock Ownership Plan in trust, 114 shares held as a discretionary investment in the NVR, Inc. Profit Sharing Plan and 598 vested shares held in a Deferred Compensation Rabbi Trust.
(12)
Includes 19,850 vested options issued under equity incentive plans, 1,133 vested shares held by the NVR, Inc. Employee Stock Ownership Plan in trust and 248 shares held as a discretionary investment in the NVR, Inc. Profit Sharing Plan.
(13)
Includes 13,950 vested options issued under equity incentive plans and 145 vested shares held by the NVR, Inc. Employee Stock Ownership Plan in trust.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers and persons who own more than 10% of our Common Stock to file reports of ownership and changes in ownership of such stock with the SEC and the national securities exchange upon which our shares are publicly traded.  Directors, executive officers and greater than 10% shareholders are required by SEC regulations to furnish us with copies of all such forms filed.  Based solely on a review of the copies of such reports furnished to us and written representations from our directors and executive officers, we believe that all Section 16(a) filing requirements applicable to our directors, executive officers and greater than 10% shareholders were timely met during 2017.


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THE FOLLOWING REPORT OF THE AUDIT COMMITTEE SHALL NOT BE DEEMED TO BE “SOLICITING MATERIAL” OR TO BE “FILED” WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.
Report of the Audit Committee
Our management has primary responsibility for preparing our financial statements and establishing financial reporting systems and internal controls.  Management also has the responsibility of reporting on the effectiveness of our internal control over financial reporting.  Our independent external auditor, KPMG LLP, is responsible for expressing opinions on the conformity of our audited financial statements with accounting principles generally accepted in the United States of America and on the effectiveness of our internal control over financial reporting.  In this context, the Audit Committee hereby reports as follows:
1.
The Audit Committee has reviewed and discussed the audited financial statements and management’s assessment of the effectiveness of our internal control over financial reporting with management, and reviewed and discussed KPMG LLP’s audit opinions with KPMG LLP;
2.
The Audit Committee has discussed with KPMG LLP the matters required to be discussed under the rules adopted by the Public Company Accounting Oversight Board (“PCAOB”);
3.
The Audit Committee has received the written disclosures and the letter from KPMG LLP required by the applicable requirements of the PCAOB regarding KPMG LLP’s communications with the Audit Committee concerning independence, and has discussed with KPMG LLP its independence; and
4.
Based on the reviews and discussions referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, for filing with the SEC.
The undersigned, constituting all of the members of the Audit Committee, have submitted this report to the Board of Directors.
Manuel H. Johnson (Chairman), C.E. Andrews, Alfred E. Festa and Ed Grier


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COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
This Compensation Discussion and Analysis describes our executive compensation philosophy and program for our named executive officers.  Our named executive officers for 2017 were:
Name
 
Title
Paul C. Saville
 
President and Chief Executive Officer
Daniel D. Malzahn
 
Senior Vice President, Chief Financial Officer and Treasurer
Jeffrey D. Martchek
 
President of Homebuilding Operations
Robert W. Henley
 
President, NVR Mortgage
Eugene J. Bredow
 
Vice President, Chief Accounting Officer and Controller
Our executive compensation program is designed to motivate and retain highly qualified and experienced executives, provide performance-based incentives and align our compensation with long-term creation of shareholder value.  The compensation program for our named executive officers includes three components:
Base salary;
Annual performance-based cash bonus, which is capped at 100% of base salary; and
Long-term equity-based compensation.
We awarded no new equity compensation to our named executive officers during 2017.  Compensation paid to our named executive officers for 2017 consisted, therefore, of salary and annual performance-based cash bonus.  
Performance Overview
Our 2017 financial results reflect the continued improvement in the housing market and our focus on increasing shareholder value (all comparisons are to our 2016 financial results):
Revenues increased 8%;
Gross margin increased to 19.2% in 2017 from 17.5% in 2016;
Pre-tax profit increased 28%;
New orders increased 13%; and
Our share price increased 110%.
In addition, we returned approximately $422 million of cash to our shareholders during 2017 through repurchases of approximately 167,000 shares of Common Stock, which represented 4.5% of our shares outstanding as of December 31, 2016.
Our business philosophy has been to develop and operate a business model to maximize shareholder value in a cyclical industry.  Our goal is to deliver industry leading rates of return and growth in earnings per share. We have led the homebuilding peer group in total shareholder return (“TSR”), return on capital and return on pre-tax revenue as demonstrated by the following financial returns:
 
 
Total Shareholder Return as of December 31, 2017
 
10 Years Ended December 31, 2017
 
1 Year
3 Years
10 Years
 
Average Annual
Return on
Capital
Average Annual
Return on Pre-Tax
Revenue
NVR
110%
175%
570%
 
15%
10%
Rank vs. Peers
1st
1st
1st
 
1st
1st


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On a 10-year basis, our TSR of 570% was the highest in the homebuilding peer group and far exceeded the TSR for the Dow Jones US Homebuilder Index of 198% as illustrated below.

chart-a44355fa59280bb2f2e.jpg
On a 3-year basis, our TSR of 175% was the highest in the homebuilding peer group and far exceeded the TSR for the Dow Jones US Homebuilder Index of 81% as illustrated below.
chart-590b4d6800c4d00564f.jpg

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Our TSR of 110% during 2017 was also the highest in the homebuilding peer group and far exceeded the TSR for the Dow Jones US Homebuilder Index of 76% as illustrated below.
chart-75d1530caa06fd512d4.jpg
We believe these superior results relative to our homebuilding peers are due to:
our business model and strategies, which are designed to limit risk and be successful in a cyclical industry; and
our highly skilled, long-tenured and motivated management team that has remained extremely disciplined in executing our more capital efficient business model.
Additionally, these key aspects of our strategy are well ingrained in our corporate culture, which includes:
strong alignment between management incentives (at all levels, not just named executive officers) and long-term shareholder returns;
stability and long-term retention of our management team; and
generation of cash flow through all points in the homebuilding cycle.
Compensation Policies and Practices
Our compensation program is designed to provide appropriate performance-based incentives to ensure alignment with our shareholders and to avoid compensation practices that do not promote the interests of our shareholders as enumerated in the lists of What We Do and What We Don't Do below.
What We Do
We tie pay to performance by making the majority of compensation “at risk” and linking it to shareholders’ interests.  
Our annual bonuses are performance-based and limited to a maximum of 100% of base salary.
The majority of our named executive officers’ compensation is in the form of long-term equity-based compensation.
We make periodic, not annual, grants of long-term equity-based compensation.  Our last periodic grant was made in 2014 following shareholder approval of the NVR, Inc. 2014 Equity Incentive Plan.  The vesting for 50% of our stock options granted in 2014 was subject to the attainment of a performance condition in addition to continued employment.
We have robust NVR share ownership requirements.

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Our equity agreements and employment agreements include double trigger change in control provisions for post-employment benefits and equity awards.
Our equity agreements have a clawback provision.
Our equity agreements and employment agreements have a non-competition provision.
We mitigate the potential dilutive effect of equity awards through our robust share repurchase program.
Our Compensation Committee utilizes an independent compensation consultant.
What We Don’t Do
We do not award any discretionary cash compensation.
We do not provide perquisites.
We do not permit short sales, hedging or pledging of NVR stock by named executive officers or directors.
We do not re-price stock options.
We do not grant stock options having an exercise price below 100% of fair market value.
We do not provide any excise tax gross-ups.
We do not provide defined benefit or supplemental executive retirement plans.
Our equity plans do not have evergreen provisions.
Say on Pay Results
In 2017, approximately 96% of the shares voted were cast in favor of the 2016 compensation of our named executive officers.  During each of the last five years, our say on pay vote has resulted in at least 96% of the shares voted being cast in favor of our compensation. While the vote is advisory in nature, the Compensation Committee views the vote as confirmation that our shareholders generally believe that the compensation of our named executive officers is appropriately aligned with their performance and NVR's financial performance as well as the interests of our shareholders.  The Compensation Committee will continue to consider the results of say-on-pay votes when making future compensation decisions for the named executive officers.
General Compensation Philosophy and Objectives
Homebuilding is a cyclical business with long project life cycles. As such, our executive compensation program is structured to focus our executives on long-term performance, not short-term quarterly or annual performance. Our executive compensation program is designed to achieve the following:
Motivate and retain highly qualified and experienced executives;
Provide performance-based incentives; and
Align our compensation with long-term creation of shareholder value.
We have structured our executive compensation to create long-term alignment with our shareholders through the following:
Low cash compensation;
Low capped annual cash incentives;
Significant long-term equity incentives;
Preferred use of stock options, which creates maximum alignment with shareholders and results in majority of compensation being "at risk"; and
Robust NVR share ownership requirements.
Our compensation philosophy has been consistent for over 20 years.
The compensation program for our named executive officers includes the following three components:
Base Salaries – We generally set base salaries paid to our named executive officers based on the range of base salaries paid to comparable positions in our peer group. We also consider the performance and experience of each named executive officer when setting base salaries.

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Annual Performance-Based Cash Bonuses – Our annual cash bonus is performance-based. We limit the annual cash bonus opportunity of our named executive officers to 100% of their base salary, and do not provide any opportunity to exceed that amount for performance in excess of our annual business plan.
Long-Term Equity-Based Compensation – We issue periodic (not annual) equity grants, including performance-based stock options, to our named executive officers that vest over a long period of time.  We believe that providing the majority of our named executive officers’ compensation in the form of equity grants with a long-term vesting schedule is an effective way to align their interests with the creation of long-term shareholder value.  Further, it assists us in retaining their services, and the services of all of our other key management employees compensated in the same manner, over a long-term period.  Additionally, each equity grant agreement contains non-competition provisions that protect our interests.
Compensation Determination Process
Roles of Our CEO and Chairman of the Board
Mr. Saville makes recommendations to the Compensation Committee with respect to the amount of each element of compensation paid to the other named executive officers.  These recommendations are partially based on compensation information for comparable positions at other large, publicly traded homebuilding companies, as well as Mr. Saville’s assessment of each officer’s overall performance during the prior year.  
The Compensation Committee considers the following when determining the compensation paid to Mr. Saville:
Salary information for chief executive officers at other large, publicly traded homebuilding companies;
Our financial and operating performance compared to information publicly available on our industry peers;
Our overall financial strength;
Mr. Saville's performance during the year; and
The recommendation from our Chairman of the Board, Mr. Schar.
Mr. Saville is not present during discussion or voting by the Compensation Committee regarding his compensation.
The Compensation Committee has the final authority to determine the compensation of our named executive officers, and exercises such authority regardless of what recommendations are made or information provided by Mr. Saville or Mr. Schar.
Role of Compensation Consultant
In 2017, the Compensation Committee engaged Aon Hewitt to assist the Compensation Committee in determining the targeted annual compensation for our named executive officers.  Aon Hewitt’s analysis included a comparative analysis of the named executive officer base pay, annual incentive opportunities and long-term incentive compensation.  The Compensation Committee assessed the independence of Aon Hewitt pursuant to SEC and NYSE rules and concluded that no conflict of interest exists that would impair Aon Hewitt’s independence.
Homebuilding Peer Group
We use a peer group of our major public-company homebuilding peers when analyzing the compensation of our named executive officers. The companies in the peer group were selected based on being national homebuilding companies and their annual revenues. The peer group is comprised of the following companies (the “Aon Hewitt Study Peer Group”):
Beazer Homes USA, Inc.
Lennar Corporation
CalAtlantic Group, Inc.
MDC Holdings, Inc.
D. R. Horton, Inc.
Meritage Homes Corporation
Hovnanian Enterprises, Inc.
PulteGroup, Inc.
KB Home
Toll Brothers, Inc.

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Determining the Size of Equity Awards
When issuing periodic block grants under our equity plans to our named executive officers as we did in 2014, the Compensation Committee, with assistance from Aon Hewitt, determines the amount of the awards as follows:
The Compensation Committee establishes a dollar value of the total targeted annual compensation to be awarded by position;  
After determining the salary and maximum annual bonus opportunity components for a particular year, these amounts are subtracted from the total targeted compensation for that year to derive the fair value that we want to transfer to the executive in the form of an equity award for the year;  
When making a block grant to cover multiple years, we multiply the equity award value for a single year by the number of years that the block grant covers to determine the total value of the block grant; and
On the date of grant, we divide that total equity award fair value dollar amount by the per share fair value, calculated using the Black Scholes option pricing model, to determine the number of stock options to award.
Although we consider this approach to sizing equity awards to be a reasoned approach based on a widely accepted option-pricing model, the ultimate value of an equity award is determined only when it is exercised or vests, as applicable.  We do not consider realized or realizable gains from prior equity grants when setting new grant amounts.  We do not believe that it is a fair practice to offset current compensation by realized or unrealized equity gains several years after the equity has been issued. Depending on our future stock price, any equity grant ultimately may be worthless, or conversely, worth much more than the fair value initially estimated.  Our goal is that the actual gain realized on an equity award will exceed our initial estimate of fair value, because gains in excess of that estimate mean that similar gains were realized by all holders of our Common Stock over the same time period.  We believe that limiting potential upside on equity gains does not provide an appropriate incentive for our named executive officers when focusing on long-term results, as our compensation philosophy dictates.
Elements of Compensation
Base Salary
The Compensation Committee took the following actions regarding the base salaries of the named executive officers during 2017:
Mr. Saville’s base salary was increased from $1,576,000 to $1,826,000 effective April 1, 2017. In making the decision to increase Mr. Saville's base salary, the Compensation Committee reviewed competitive market data for the CEO's in the Aon Hewitt Study Peer Group and considered Mr. Saville's performance compared to his peers, his tenure and his expertise in managing NVR. Following the salary adjustment, Mr. Saville's targeted cash compensation was between the 50th and 75th percentiles within the Aon Hewitt Study Peer Group. Another consideration is that Mr. Saville's annual cash compensation potential is more limited than the CEO's in the Aon Hewitt Study Peer Group as his annual bonus opportunity is capped at the target level (100% of base salary) while the peer group CEO's have higher opportunities.
Upon the recommendation of Mr. Saville, the Compensation Committee increased the base salaries for Messrs. Malzahn, Martchek, Henley and Bredow effective April 1, 2017.  Mr. Saville’s recommendations were based on the job performance of each named executive officer as well as the fact that the named executive officers’ base salaries were below the 50th percentile of comparable salaries within the Aon Hewitt Study Peer Group.  Following the salary increase, the base salaries for Messrs. Malzahn, Martchek, Henley and Bredow were still below the 50th percentile of comparable salaries within the Aon Hewitt Study Peer Group.  
The salaries were adjusted effective April 1, 2017 as follows: 
 
 
2016 Salary
 
2017 Salary
Paul C. Saville
 
$
1,576,000

 
$
1,826,000

Daniel D. Malzahn
 
$
495,000

 
$
520,000

Jeffrey D. Martchek
 
$
539,000

 
$
565,000

Robert W. Henley
 
$
465,000

 
$
487,000

Eugene J. Bredow
 
$
345,000

 
$
370,000

 

21



Annual Cash Bonus
General
The objective of the annual cash bonus is to focus the named executive officers on the attainment of annual goals that we believe are necessary to achieve our five-year business plan.  These annual goals are consistent with the current year's portion of our five-year business plan.  The named executive officers’ annual incentive opportunity is limited to a maximum of 100% of base salary, regardless of whether the goals are exceeded, consistent with our overall compensation philosophy of limiting short-term cash compensation in favor of equity-based long-term incentive opportunities.  Thus, the maximum amount of bonus is earned once the preset performance targets based on the annual business plan are attained.  The annual bonus is payable in cash.  
The Compensation Committee has never exercised discretion to award bonuses in amounts higher than the amount calculated by our actual results relative to the preset performance target and attainment ranges.
2017 Annual Bonus
For 2017, the Compensation Committee maintained the same annual bonus performance metrics used in 2016 for our named executive officers.  The annual bonus opportunity in 2017 was based 80% upon our consolidated pre-tax profit (before consolidated annual bonus and stock-based compensation expense but after all other charges) and 20% on the number of new orders (net of cancellations) that we generated compared to our 2017 annual business plan.  We believe that these measures provide a proper balance of focusing on current profitability while providing for longer-term growth.
The named executive officers were to begin earning the consolidated pre-tax profit portion of their annual bonus award once the annual business plan was at least 80% attained (the “threshold”).  The full amount of the consolidated pre-tax profit portion of their annual bonus award was to be earned ratably from 80% up to 100% achievement of the annual business plan.  They were to begin earning the new orders portion of their annual bonus award once the annual business plan was at least 85% attained.  The full amount of the new orders portion of their annual bonus award was to be earned ratably from 85% up to 100% achievement of the annual business plan.  In addition, the annual bonus for Messrs. Martchek and Henley was subject to a pro-rata reduction, limited to a maximum reduction of 20%, based on internal audit results that are below NVR’s standards for the operations under their direct management.
The following is a summary of the specific performance targets established under the 2017 annual bonus plan and the actual results: 
Performance Metric
 
Threshold
 
Maximum
 
Actual
 
Maximum
Bonus
Opportunity
 
% of
Maximum
Bonus
Opportunity
Earned
Consolidated Pre-Tax Profit (in thousands)
 
$
717,570

 
$
896,962

 
$
952,237

 
80
%
 
100
%
New Orders (Net of Cancellations)
 
14,195

 
16,700

 
17,608

 
20
%
 
100
%
 
Under our annual bonus plan, the target bonus amount is the same as the maximum bonus amount.  Based on our 2017 results, each of our named executive officers earned 100% of his maximum bonus opportunity of 100% of base salary.  
Equity-Based Compensation
2017 Equity Grant Activity
We did not issue any periodic equity-based compensation to the named executive officers during 2017. Our continuing approach, consistent with past practice, is to consider issuing periodic equity grants instead of annual grants.  While we recognize that annual grants are more common, this practice has served us well in motivating and retaining key executives and managers.
Update of 2016 Performance-Based Equity Grant
In January 2016, we issued a grant of stock options to Mr. Martchek in connection with his promotion to President of Homebuilding Operations.  The stock options vest 25% on each of December 31, 2018, 2019, 2020 and 2021.  The vesting for 50% of the stock options granted is based solely on continued employment.  The vesting for the other 50% of the stock options is based on continued employment and NVR’s return on capital performance during the years 2016 through 2018.  For the performance-based options, the vesting was subject to our return on capital relative to a peer group.  The following are the relevant details of the performance metric:

22



 
How is Return on Capital calculated?
 
Average Annual ((Pre-Tax Income +Homebuilding Interest Expense (period expense and in cost of sales))-Taxes at 38%)
Average Quarterly (Homebuilding Debt (including working capital borrowings) + Shareholders Equity)
 
 
 
Who is the Peer Group?
 
Beazer Homes USA, Inc.; D. R. Horton, Inc.; Hovnanian Enterprises, Inc.; KB Home; Lennar Corporation; MDC Holdings, Inc.; Meritage Homes Corporation; M/I Homes, Inc.; PulteGroup, Inc.; Taylor Morrison Home Corporation; and Toll Brothers, Inc.  Each member must be a stand-alone public company during the entire measurement period.
 
 
 
What is the measurement period?
 
Fiscal Years 2016-2018
 
 
 
How is the award earned?
 
Award is earned ratably from the Threshold to the Target.
 
 
 
What is the Threshold?
 
50th percentile of the peer group (award is 50% of the options granted)
 
 
 
What is the Target?
 
75th percentile of the peer group (award is 100% of the options granted)
 
 
 
What is the Maximum?
 
Same as the Target.  There is no opportunity to earn more than 100% of the number of options granted.
 
The following table illustrates the performance metric target calculation:
 
Rank
 
Builder
 
 
1
 
Builder #1
 
 
2
 
Builder #2
 
 
2.75
 
 
 
Target-100% Earned
3
 
Builder #3
 
 
4
 
Builder #4
 
 
5
 
Builder #5
 
 
5.5
 
 
 
Threshold-50% Earned
6
 
Builder #6
 
 
7
 
Builder #7
 
 
8
 
Builder #8
 
 
9
 
Builder #9
 
 
10
 
Builder #10
 
 
11
 
Builder #11
 
 
 
For 2016 and 2017, our average return on capital was the highest in the Peer Group. Thus, Mr. Martchek would have vested in 100% of the performance-based stock options if the performance period was 2016-2017.
Equity Plan Features
We believe that our equity plans reflect the following corporate governance best practices:
No evergreen provisions;
No re-pricing of stock options without shareholder approval (NVR has no history of re-pricing options);
No discounted stock options;
No reload features; and
Double trigger change of control provision in the equity agreements for the accelerated vesting of equity.
Clawback/Forfeiture
Under the terms of the equity agreements issued since May 2010, we may recapture from our named executive officers any gains from stock option exercises during the prior 12 months if we are required to prepare an accounting restatement due to the

23



material noncompliance, as a result of misconduct, with any financial reporting requirement under the securities laws.  The named executive officer must have knowingly engaged in the misconduct, been grossly negligent in engaging in the misconduct, knowingly failed to prevent the misconduct or been grossly negligent in failing to prevent the misconduct.
Stock Ownership Guidelines
We have adopted robust stock ownership guidelines to strengthen long-term alignment between our named executive officers and our shareholders.  These guidelines require the named executive officers to acquire and continuously hold shares with a total fair market value ranging from four- to eight-times their annual base salaries depending on position.  The multiple of salary that our named executive officers are required to hold in shares of stock is higher than many other companies.  
As of December 31, 2017, the stock ownership requirement for each of the named executive officers was as follows:
Name
 
Base Salary
 
Factor
 
Dollar Holding
Requirement
Paul C. Saville
 
$
1,826,000

 
8

 
$
14,608,000

Daniel D. Malzahn
 
$
520,000

 
6

 
$
3,120,000

Jeffrey D. Martchek
 
$
565,000

 
6

 
$
3,390,000

Robert W. Henley
 
$
487,000

 
4

 
$
1,948,000

Eugene J. Bredow
 
$
370,000

 
4

 
$
1,480,000

Only those shares owned by the named executive officer in their personal account, the NVR Profit Sharing Trust, the NVR Employee Stock Ownership Plan, and the Deferred Compensation Plan count towards the stock ownership requirement. Any named executive officer who does not meet his requirement must retain 50% of the net common stock received from option exercises until the stock ownership requirement is attained.  “Net common stock received” means the common stock received after the payment of the exercise price, if any, and the taxes withheld related to the option exercise.  
All of the named executive officers are currently in compliance with our stock ownership guidelines.
Pledging/Hedging of NVR Stock
Our Board has adopted a policy that prohibits directors and named executive officers from hedging or pledging their NVR stock. In addition, the policy prohibits short sales of NVR stock by directors and named executive officers.
Personal Benefits
Our named executive officers are entitled to and eligible only for the same personal benefits for which all of our employees are eligible.
Deferred Compensation Arrangements
We have two deferred compensation plans that:
Encourage ownership of our Common Stock in furtherance of our compensation philosophy;
Establish a vehicle whereby named executive officers may defer the receipt of salary and bonus that otherwise would be nondeductible for company tax purposes into a period where we would realize a tax deduction for the amounts paid (see Tax Deductibility of Compensation discussion below); and
Enable our named executive officers, and other members of management, to acquire shares of our Common Stock on a pre-tax basis in order to more quickly meet, and maintain compliance with, the stock ownership requirements described above.  
Our deferred compensation plans are structured as follows:
Amounts deferred are invested in a fixed number of shares of our Common Stock, which is purchased on the open market at fair market value;  
We own the shares of Common Stock in a Rabbi Trust, which makes payment of our obligations under the deferred compensation plans risk-free for NVR – the cost of the plans does not increase as the value of the Common Stock increases;
Our Common Stock is the only investment choice;  
All amounts placed in the deferred compensation plan are amounts already earned by the named executive officer;

24



We do not make employer contributions to the deferred compensation accounts;  
Earnings on deferred amounts solely represent the change the market value of the shares of our Common Stock held in the account;  
We do not provide for a minimum return or guarantee a minimum payout amount;  
Amounts deferred are “at risk” investments for the named executive officer; and
Amounts deferred cannot be distributed to the named executive officer until the named executive officer’s termination of service or, under one of the two plans, six months after termination.
The structure of our deferred compensation plans results in certain of our named executive officers holding Common Stock significantly in excess of the ownership requirement since our Common Stock is the only investment choice and shares held in the deferred compensation plans are not eligible for distribution until the named executive officer’s employment terminates.  
The market value of our named executive officers’ deferred compensation accounts is not considered when setting their current compensation.  The Compensation Committee reached this conclusion after considering the following points:
The compensation deferred was reviewed and analyzed based on the above-described compensation philosophy and policies at the time the compensation was earned in prior years and was fully earned at that time;  
If the executive officer had elected to receive a payout of the compensation at the time it was earned rather than electing the deferral, we would not have any knowledge of, and therefore would not consider, the executive officer’s investment experience related to that compensation when considering the amount by which we should compensate the executive officer in the current year;
The change in the deferred compensation balance is solely attributable to the change in the market value of our Common Stock since the dates of deferral;
We do not consider shares of Common Stock owned by an executive officer outside of the deferred compensation plans when setting current compensation; and
If the amounts had been paid to the executive officer when earned and not deferred until separation of service, we would have lost a substantial tax benefit that we will now expect to receive as a result of the deferral.
Thus, we do not believe it is appropriate to consider the value of an executive officer’s deferred compensation account in making current compensation decisions just because the account is held in a plan we sponsor and is invested in our Common Stock.  See the 2017 Non-Qualified Deferred Compensation Table and accompanying narrative below for additional information on our deferred compensation plans.
Change of Control and Post-Employment Payments
Each of our named executive officers is party to an employment agreement with us pursuant to which the officer is entitled to post-employment payments upon certain termination events, including termination following a change in control.  Generally, we do not believe that we should pay our named executive officers, or any other employee, any incremental compensation upon termination when the termination is either by choice or due to conduct that is potentially detrimental to NVR.  Thus, we do not provide any of our named executive officers any incremental post-employment benefits, other than any amounts already earned and accrued at the date of termination, if the termination is voluntary (unless due to a change in control of NVR, retirement or “with good reason”) or for “Cause.”
We do not provide tax “gross ups” to our named executive officers in connection with any change in control or post-employment payment.
Change of Control Provisions
The change of control provision in each applicable named executive officer’s equity agreement or employment agreement for the payment of the post-employment benefit is a double trigger, meaning that the change of control must be coupled with the officer’s termination from service within a certain period of time after the change of control to trigger a payment or accelerated right.  We believe this is a corporate governance best practice.  A double trigger for the post-employment benefit payment was selected because, unless the named executive officer’s employment is terminated after the change in control, the acquiring entity will continue to pay the named executive officer's salary and annual bonus.  See the Narrative Disclosures of Termination and Change of Control Payments discussion below for additional information on these post-employment payments.
The change of control provisions in the deferred compensation plans are single trigger, meaning that the change of control event alone triggers either a payment or an acceleration of certain rights.  This reflects our intent that the named executive

25



officers have the ability to vote those shares upon any proposed transaction since the amounts are already vested, and to ensure that the named executive officers receive deferred compensation they earned prior to the change of control.  See Narrative Disclosures of Termination and Change of Control Payments discussion below for additional information on these post-employment payments.
Payments Upon Death, Disability, Retirement and Other Employment Terminations
Each of the employment agreements provides for a post-employment benefit of two months’ salary and two months’ pro-rated annual bonus upon the named executive officer’s termination due to death or disability.  This amount reflects what we believe to be a modest transition for the executive or the executive's family for termination events that are sudden and beyond the executive’s control.  
We provide a post-employment benefit of 100% of base salary and any accrued pro-rated annual bonus (to the extent that performance targets are achieved for that year) upon the named executive officer's retirement.  We consider the 100% payment a reward for length of service given that we do not provide our executives defined benefit or supplemental executive retirement plans.
For Mr. Saville, we provide a post-employment benefit of 200% of base salary and any accrued pro-rated annual bonus (assuming that 100% of the target bonus would have been paid for that year) for termination without cause, voluntary with good reason or voluntary within one year after a change in control (requires a change in control and a material diminution in authority, duties or responsibilities). For Messrs. Malzahn, Henley and Bredow, we provide a post-employment benefit of 100% of base salary and any accrued pro-rated annual bonus (assuming that 100% of the target bonus would have been paid for that year) for termination without cause, voluntary with good reason or voluntary within one year after a change in control (requires a change in control and a material diminution in authority, duties or responsibilities).  For Mr. Martchek, we provide a post-employment benefit of 100% of base salary and any accrued pro-rated annual bonus (assuming that 100% of the target bonus would have been paid for that year) for termination without cause or voluntary with good reason. These amounts reflect our belief that it is difficult for executive officers to find comparable employment opportunities in a short period of time, particularly after experiencing a termination that was beyond their control.  
Management of Compensation-Related Risk
We have designed our compensation program to avoid excessive risk-taking by placing the majority of our named executive officers’ compensation opportunity in periodic grants of equity with a long-term vesting schedule, limiting the annual bonus opportunity to 100% of base salary and having significant stock ownership requirements for our named executive officers.  We do not believe any of our compensation programs create risks that are reasonably likely to have a material adverse impact on NVR.
Tax Deductibility of Compensation
Through December 31, 2017, Section 162(m) of the Internal Revenue Code limits the corporate deduction for compensation paid to the named executive officers (other than our CFO) to $1 million unless such compensation qualifies as “performance-based compensation.”  Among other things, Section 162(m) requires approval of the performance-based compensation by our shareholders.  The Compensation Committee takes the deductibility of compensation into consideration but it does not limit the design of its compensation plans to strictly fall within the definition of performance-based compensation.  Other than the NVR, Inc. 2000 Broadly-Based Stock Option Plan, all of our stock option plans were designed to enable all stock option awards to qualify as “performance based” under Section 162(m).  
In December 2017, the Tax Cuts and Jobs Act (the "Act") was enacted. The Act eliminates the "performance-based compensation" exception from Section 162(m). The Act includes a grandfathering provision for compensation pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect after such date. We believe that our outstanding equity grants and amounts in the deferred compensation plans as of December 31, 2017 are in compliance with the grandfathering provision of the Act, and thus will remain deductible to the extent they are considered "performance-based compensation."


26



THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE SHALL NOT BE DEEMED TO BE “SOLICITING MATERIAL” OR TO BE “FILED” WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY REFERENCE IN ANY DOCUMENT SO FILED.
Report of the Compensation Committee
The Compensation Committee hereby reports as follows:
1.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with NVR’s management; and
2.
Based on the review and discussion referred to in paragraph 1, the Compensation Committee recommended to the Board, and the Board has approved, that the Compensation Discussion and Analysis be included in our 2018 Proxy Statement to be incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, for filing with the Securities and Exchange Commission.
The undersigned, constituting all of the members of the Compensation Committee, have submitted this report to the Board of Directors.
Thomas D. Eckert (Chairman), David A. Preiser, W. Grady Rosier, and Paul W. Whetsell


27



2017 SUMMARY COMPENSATION TABLE
 
Name and Principal Position
 
Year
 
Salary
($)
 
Option
Awards
($)(1)
 
Non-Equity
Incentive Plan
Compensation
($)
 
All
Other
Compensation
($)(2)
 
Total
($)
Paul C. Saville
 
2017
 
$
1,763,500

 

 
$
1,763,500

 
$
11,600

 
$
3,538,600

President and Chief
 
2016
 
$
1,566,375

 

 
$
1,566,375

 
$
14,250

 
$
3,147,000

Executive Officer
 
2015
 
$
1,528,125

 
$

 
$
1,528,125

 
$
14,000

 
$
3,070,250

 
 
 
 
 
 
 
 
 
 
 
 
 
Daniel D. Malzahn
 
2017
 
$
513,750

 

 
$
513,750

 
$
11,600

 
$
1,039,100

Senior Vice President, Chief
 
2016
 
$
490,000

 

 
$
490,000

 
$
14,250

 
$
994,250

Financial Officer and Treasurer
 
2015
 
$
462,500

 
$

 
$
462,500

 
$
14,000

 
$
939,000

 
 
 
 
 
 
 
 
 
 
 
 
 
Jeffrey D. Martchek (3)
 
2017
 
$
558,500

 
$

 
$
558,500

 
$
11,600

 
$
1,128,600

President of Homebuilding
 
2016
 
$
539,000

 
$
2,930,640

 
$
537,006

 
$
14,250

 
$
4,020,896

Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Robert W. Henley
 
2017
 
$
481,500

 

 
$
481,500

 
$
10,600

 
$
973,600

President, NVR Mortgage
 
2016
 
$
460,000

 

 
$
460,000

 
$
13,250

 
$
933,250

 
 
2015
 
$
433,750

 
$

 
$
433,750

 
$
13,000

 
$
880,500

 
 
 
 
 
 
 
 
 
 
 
 
 
Eugene J. Bredow
 
2017
 
$
363,750

 

 
$
363,750

 
$
11,600

 
$
739,100

Vice President, Chief Accounting
 
2016
 
$
341,250

 

 
$
341,250

 
$
14,250

 
$
696,750

Officer and Controller
 
2015
 
$
322,500

 
$

 
$
322,500

 
$
14,000

 
$
659,000

 
(1)
The amounts disclosed represent the aggregate grant date fair value of stock options granted during the respective years in accordance with FASB ASC Topic 718.  For the 50% portion of the grant of stock options which is subject to the attainment of a performance condition, the amount disclosed is based on the target number of options, which is the same as the maximum.  For information on the valuation assumptions, refer to the note on Equity-Based Compensation, Profit Sharing and Deferred Compensation Plans in the NVR financial statements in the Annual Report on Form 10-K for the respective year-end, as filed with the SEC.
(2)
The “all other compensation” includes amounts contributed to our employee stock ownership plan for the respective plan year, and where applicable, a $1,000 matching contribution made by us pursuant to our 401(k) plan.
(3)
Effective January 1, 2016, Mr. Martchek was promoted to President of Homebuilding Operations.  Because Mr. Martchek was not an executive officer prior to January 1, 2016, only 2016 and 2017 compensation are reported.


28



2017 Grants of Plan-Based Awards
As discussed in our Compensation Discussion and Analysis, there were no equity grants to named executive officers during 2017. The following table presents information related to our annual bonus plan for 2017.
 
 
 
 
Estimated Future Payouts Under Non-
Equity Incentive Plan Awards ($)
 
Name
 
Grant Date
 
Threshold
 
Target
 
Maximum
 
Paul C. Saville (1)
 
2/15/2017
 
$

 
$
1,763,500

 
$
1,763,500

 
Daniel D. Malzahn (1)
 
2/15/2017
 
$

 
$
513,750

 
$
513,750

 
Jeffrey D. Martchek (1)
 
2/15/2017
 
$

 
$
558,500

 
$
558,500

 
Robert W. Henley (1)
 
2/15/2017
 
$

 
$
481,500

 
$
481,500

 
Eugene J. Bredow (1)
 
2/15/2017
 
$

 
$
363,750

 
$
363,750

 
 
(1)
Amounts pertain to our 2017 annual bonus plan.  See the Annual Cash Bonus section in our Compensation Discussion and Analysis above.
Narrative Disclosure to Summary Compensation and Grants of Plan-Based Awards Tables
Employment Agreements
We employed Messrs. Saville, Malzahn, Martchek, Henley and Bredow pursuant to employment agreements during 2017.  The employment agreements are for a five year term beginning on January 1, 2016.  
Other than the applicable named executive officers’ titles, minimum base salary amounts and NVR stock ownership requirements, the material terms of the employment agreements are essentially the same and cover:
Minimum base salaries:
Mr. Saville
$
1,537,500

Mr. Malzahn
$
475,000

Mr. Martchek
$
539,000

Mr. Henley
$
445,000

Mr. Bredow
$
330,000

Annual bonus eligibility up to 100% of base salary based on criteria determined by our Compensation Committee (see Compensation Discussion and Analysis – Annual Cash Bonus above);
Eligibility to participate in our benefit plans at identical participation costs offered to all of our employees eligible to participate in those plans;
Eligibility to have reasonable business expenses reimbursed, subject to reimbursement policies to which all of our employees are subject equally;
Requirement of a continuous NVR stock ownership requirement (see Compensation Discussion and Analysis - Stock Ownership Guidelines above);
Post-employment payments due under various termination scenarios (see Narrative Disclosures of Termination and Change of Control Payments below for additional information);
Covenants not to compete with us (see Narrative Disclosures of Termination and Change of Control Payments below for additional information); and
Indemnification to the executives to the fullest extent permitted by the laws of the Commonwealth of Virginia.

29



OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2017
 
 
Option Awards
Name
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
 
Option
Exercise
Price
($)
 
Option
Expiration
Date
Paul C. Saville:
 
 

 
 

 
 

 
 
2000 Option Plan (a)
 
57,344

 

 
$
703.00

 
5/10/2020
2014 Equity Plan (b)
 
15,825

 
15,825

 
$
1,094.22

 
5/13/2024
2014 Equity Plan (c)
 
15,825

 
15,825

 
$
1,094.22

 
5/13/2024
Daniel D. Malzahn
 
 

 
 

 
 

 
 
2000 Option Plan (a)
 
3,970

 

 
$
703.00

 
5/10/2020
2010 Equity Plan (d)
 
10,500

 
3,500

 
$
1,019.74

 
2/19/2023
2014 Equity Plan (b)
 
6,375

 
6,375

 
$
1,094.22

 
5/13/2024
2014 Equity Plan (c)
 
6,375

 
6,375

 
$
1,094.22

 
5/13/2024
Jeffrey D. Martchek
 
 

 
 

 
 

 
 
1998 Option Plan (e)
 
5,000

 

 
$
505.37

 
4/30/2019
2010 Option Plan (a)
 
8,822

 

 
$
703.00

 
5/10/2020
2010 Equity Plan (f)
 
4,000

 

 
$
727.86

 
2/28/2021
2010 Equity Plan (b)
 
4,500

 
4,500

 
$
1,094.22

 
5/13/2024
2014 Equity Plan (c)
 
4,500

 
4,500

 
$
1,094.22

 
5/13/2024
2014 Equity Plan (g)
 

 
4,000

 
$
1,643.00

 
12/31/2025
2014 Equity Plan (h)
 

 
4,000

 
$
1,643.00

 
12/31/2025
Robert W. Henley:
 
 

 
 

 
 

 
 
2010 Equity Plan (i)
 
10,000

 

 
$
844.50

 
9/30/2022
2014 Equity Plan (b)
 
4,925

 
4,925

 
$
1,094.22

 
5/13/2024
2014 Equity Plan (c)
 
4,925

 
4,925

 
$
1,094.22

 
5/13/2024
Eugene J. Bredow:
 
 

 
 

 
 

 
 
2010 Equity Plan (j)
 
8,000

 

 
$
804.80

 
5/31/2022
2014 Equity Plan (b)
 
2,975

 
2,975

 
$
1,094.22

 
5/13/2024
2014 Equity Plan (c)
 
2,975

 
2,975

 
$
1,094.22

 
5/13/2024
 
(a)
These options were granted on May 11, 2010.  The options vested in fifty percent increments on December 31, 2013 and 2014.
(b)
These options were granted on May 14, 2014.  Twenty-five percent of the options vested on each of December 31, 2016 and 2017.  The remaining options will vest ratably on December 31, 2018 and 2019, based on continued service.
(c)
These performance-based options were granted on May 14, 2014.  Twenty-five percent of the options vested on each of December 31, 2016 and 2017. The remaining options will vest ratably on December 31, 2018 and 2019, based on continued service.  
(d)
These options were granted on February 20, 2013.  Twenty-five percent of the options vested on each of December 31, 2015, 2016 and 2017.  The remaining options will vest on December 31, 2018, based on continued service.
(e)
These options were granted on May 1, 2009. The options vested in thirty-three percent increments on each of December 31, 2011, 2012 and 2013.
(f)
These options were granted on March 1, 2011.  The options vested in fifty percent increments on each of December 31, 2013 and 2014.
(g)
These options were granted on January 1, 2016.  The options will vest in twenty-five percent increments on each of December 31, 2018, 2019, 2020 and 2021, based on continued service.
(h)
These options were granted on January 1, 2016.  The options will vest in twenty-five percent increments on each of December 31, 2018, 2019, 2020 and 2021, based on continued service and the Company’s return on capital performance from 2016 through 2018. The number of options disclosed is based on the target number of options, which is the same as the maximum. See the Equity-Based Compensation section in our Compensation Discussion and Analysis for further discussion of the performance metric.
(i)
These options were granted on October 1, 2012.  The options vested in twenty-five percent increments on each of December 31, 2014, 2015, 2016 and 2017.
(j)
These options were granted on June 1, 2012.  The options vested in twenty-five percent increments on each of December 31, 2014, 2015, 2016 and 2017.  

30




2017 OPTION EXERCISES AND STOCK VESTED
 
 
 
Option Awards
Name
 
Number of
Shares
Acquired
on
Exercise (#)
 
Value Realized
on
Exercise
($)(1)
Paul C. Saville
 

 

Daniel D. Malzahn
 
3,000

 
$
5,405,050

Jeffrey D. Martchek
 
4,000

 
$
7,180,995

Robert W. Henley
 
11,028

 
$
13,329,568

Eugene J. Bredow
 
1,985

 
$
2,376,538

 
(1)
The value realized is calculated based on the difference between the market price of Common Stock on the date of exercise and the respective exercise price, multiplied by the number of options exercised.
2017 NON-QUALIFIED DEFERRED COMPENSATION TABLE
Name
 
Executive
Contributions
in Last FY
($)
 
Registrant
Contributions
in Last FY
($)
 
Aggregate
Earnings (Loss)
in Last FY
($)(a)
 
Aggregate
Withdrawals/
Distributions
($)
 
Aggregate
Balance at
Last FYE
($)
Paul C. Saville:
 
 

 
 

 
 

 
 

 
 

Plan 1 (b)
 

 

 
$
194,742,131

 

 
$
371,460,858

Plan 2 (c)
 

 

 
$
1,428,608

 

 
$
2,724,999

Daniel D. Malzahn
 

 

 

 

 

Jeffrey D. Martchek
 
 

 
 

 
 

 
 

 
 

Plan 1 (d)
 

 

 
$
1,099,854

 

 
$
2,097,916

Robert W. Henley
 

 

 

 

 

Eugene J. Bredow
 

 

 

 

 

 
(a)
Represents unrealized earnings/(losses) of the market value of the Common Stock held in the respective officer’s deferred compensation account.  We have never paid dividends.
(b)
Mr. Saville deferred a total of $15,995,411 of earned compensation prior to 2004, all of which was previously reported in prior years’ Summary Compensation Tables within our proxy statements.  This earned compensation was deferred prior to Mr. Saville being named CEO and has been “at risk” since the deferral prior to 2004.  The growth in the balance is solely from the appreciation in our Common Stock since the dates of deferral.
(c)
Mr. Saville deferred a total of $600,000 of earned compensation during 2006, all of which was previously reported in prior years’ Summary Compensation Tables within our proxy statements. The growth in the balance is solely from the appreciation in our Common Stock since the dates of deferral.
(d)
Mr. Martchek deferred a total of $201,744 of earned compensation prior to 2004. The growth in the balance is solely from the appreciation in our Common Stock since the dates of deferral.
Narrative to the 2017 Non-Qualified Deferred Compensation Table
We have two deferred compensation plans, which we refer to as Plan 1 and Plan 2 for purposes of this discussion.  Plan 1, which we adopted on December 15, 1999, was closed for new contributions effective December 31, 2004.  Each of the named executive officers, solely at their election, may defer 100% of any earned salary or bonus into Plan 2, which we adopted December 15, 2005.  Stock option gains are prohibited by law from being deferred.
Our deferred compensation plans are structured as follows:

Amounts deferred are invested in a fixed number of shares of our Common Stock, which is purchased on the open market at fair market value;  

31



We own the shares of Common Stock in a Rabbi Trust, which makes the payment of our obligations under the deferred compensation plans risk-free for NVR – the cost of the plans does not increase as the value of the Common Stock increases;
Our Common Stock is the only investment choice;  
All amounts placed in the deferred compensation plan are amounts already earned by the named executive officer;
We do not make employer contributions to the deferred compensation accounts;  
Earnings on deferred amounts solely represent changes in the market value of the shares of our Common Stock held in the account;  
We do not provide for a minimum return or guarantee a minimum payout amount;  
Amounts deferred are “at risk” investments for the named executive officer; and
Amounts deferred cannot be distributed to the named executive officer until the named executive officer’s termination of service.  The deferral period expires for Plan 1 at the named executive officer’s termination of service, and expires for Plan 2 six months after the named executive officer’s termination of service in accordance with Code Section 409A.

See Tax Deductibility of Compensation section in our Compensation Discussion and Analysis for further discussion of the tax deductibility of deferred compensation.

NARRATIVE DISCLOSURES OF TERMINATION AND CHANGE OF CONTROL PAYMENTS
Our named executive officers are eligible to receive certain termination and/or change in control payments and acceleration rights under certain of the compensation arrangements that they hold with us.  These payments and acceleration rights are contained within the executive officers’ employment agreements, equity agreements and deferred compensation plan agreements.
Employment Agreements
As noted in the Narrative Disclosure to Summary Compensation and Grants of Plan-Based Awards Tables, as of December 31, 2017, Messrs. Saville, Malzahn, Martchek, Henley and Bredow were employed pursuant to employment agreements.  The employment agreements are for a five year term beginning on January 1, 2016. The agreements cover the additional payments that would be due to these individuals in the certain termination scenarios. Summarized below are the post-employment payments due under the various termination scenarios pursuant to the employment agreements.
Termination Events

Voluntary.  The applicable named executive officer is not entitled to receive any unearned payments after the date of termination.

Without cause.  The named executive officer is entitled to receive, in a lump sum following six months from the date of termination, an amount equal to 200% or 100% of the named executive officer's then annual base salary, as applicable, and any accrued pro-rated annual bonus assuming that 100% of the target bonus would have been paid for that year. In addition, we would provide the executive with up to $100,000 of outplacement services. 

Voluntary with good reason.  The named executive officer is entitled to receive the termination payments and outplacement services described in the "Without cause" section above.  “Good reason” means (a) a material diminution in the executive’s authority, duties or responsibilities; (b) a change in the executive’s reporting relationship; (c) a material change in the executive’s principal place of employment; (d) the failure of any successor of the Company to expressly in writing assume our obligations under the employment agreement; or (e) a material breach by us of any agreement between the executive and us.

Retirement.  Upon retirement, the named executive officer is entitled to receive, in a lump sum following six months from the date of retirement, an amount equal to 100% of the named executive officer's then annual base salary and any accrued pro-rated annual bonus, to the extent that performance targets have been achieved and the annual bonus being paid at the same time that all of our other employees are paid their annual bonus.

Death or Disability.  The named executive officer is entitled to receive in a lump sum two months of the named executive officer's then annual base salary and accrued pro-rated annual bonus, assuming that the maximum of 100% of the annual bonus is earned for the period ending on the last calendar day of the second calendar month following the month in which the death or disability occurred.
 

32



Cause.  The applicable named executive officers are not entitled to receive any payments after the date of termination for cause. Termination for “cause” is a termination due to:
the executive being convicted of (a) a felony, (b) a willful or knowing violation of any federal or state securities law, or (c) a crime involving moral turpitude;
gross negligence or gross misconduct in connection with the performance of the executive’s duties as described within the employment agreement; or
the executive materially breaching any covenants contained in any agreement between the executive and us.
 
Termination after a change in control. A "change of control" means (a) any person or group acquires 50% or more of the combined voting power of our voting stock, (b) substantially all of our assets are sold to another party, (c) we are liquidated or dissolved, or (d) we are merged or consolidated into another entity in which we are not the surviving entity. The post-employment payments due following a termination within one year after a "change of control" are summarized below:

Without cause within one year after a change in control.   The named executive officer is entitled to receive the termination payments and outplacement services described in the "Without cause" section above. In addition, each equity agreement provides for the acceleration of vesting of all unvested equity if we experience a “change in control” and the named executive officer’s employment is terminated without cause within one year following the “change in control.”  The accelerated vesting is based on a double trigger, meaning that the named executive officer’s employment needs to be terminated to receive the acceleration right.  The “change in control” provisions within the named executive officers’ agreements are identical to the “change of control” provisions within the agreements for all other participants of the respective equity plans. 

Voluntary within one year after a change in control.  Messrs. Saville, Malzahn, Henley and Bredow are entitled to receive the termination payments described in the "Without cause" section above if there is a "change of control" and there has been a material diminution in the executive's authority, duties or responsbilities.
 
Voluntary termination upon the election or appointment, as applicable, of a new Chairman and/or Chief Executive Officer.  The applicable named executive officer is not entitled to receive any unearned payments after the date of termination.
Conditions to Receipt of Payment
The covenants within the employment agreements have non-competition provisions, including the prohibition from:
controlling or owing more than 5% of the outstanding shares of any residential homebuilding, mortgage financing or settlement services business that competes with us;
being employed by or providing services to any person or entity that competes with us in the residential homebuilding, mortgage financing or settlement services business;
inducing or attempting to induce any of our customers or potential customers;
hiring or attempting to hire our employees; or
utilizing the services of or trying to acquire land, goods or services from any of our developers or subcontractors.
The periods that the non-competition provisions cover are as follows:
During their term of employment with us, the named executive officer is bound by the non-competition covenants at all times.
For one year after termination, the named executive officer is bound by the non-competition covenants if the termination was voluntary, due to retirement, for cause or without cause.
The named executive officer is not bound by the non-competition covenants after the executive’s termination if the termination was voluntary with good reason, voluntary within one year after a change in control or voluntary upon the election or appointment, as applicable, of a new Chairman and/or Chief Executive Officer.


33



The following table quantifies the potential payments to the named executive officers upon termination of employment or a change in control as of December 31, 2017.
Name
 
Severance
 
Annual Incentive
 
Stock Options - Accelerated Vesting (1)
 
Outplacement Services
 
Total
Paul C. Saville
 
 

 
 

 
 

 
 

 
 

Without Cause
 
$
3,652,000

 
$
1,763,500

 
$

 
$
100,000

 
$
5,515,500

Voluntary with Good Reason
 
$
3,652,000

 
$
1,763,500

 
$

 
$
100,000

 
$
5,515,500

Retirement
 
$
1,826,000

 
$
1,763,500

 
$

 
$

 
$
3,589,500

Death or Disability
 
$
304,333

 
$
304,333

 
$

 
$

 
$
608,666

Without Cause Within One Year After a Change in Control
 
$
3,652,000

 
$
1,763,500

 
$
76,403,100

 
$
100,000

 
$
81,918,600

Voluntary Within One Year After a Change in Control
 
$
3,652,000

 
$
1,763,500

 
$

 
$

 
$
5,415,500

Daniel D. Malzahn
 
 
 
 
 
 
 
 
 
 
Without Cause
 
$
520,000

 
$
513,750

 
$

 
$
100,000

 
$
1,133,750

Voluntary with Good Reason
 
$
520,000

 
$
513,750

 
$

 
$
100,000

 
$
1,133,750

Retirement
 
$
520,000

 
$
513,750

 
$

 
$

 
$
1,033,750

Death or Disability
 
$
86,667

 
$
86,667

 
$

 
$

 
$
173,334

Without Cause Within One Year After a Change in Control
 
$
520,000

 
$
513,750

 
$
39,488,180

 
$
100,000

 
$
40,621,930

Voluntary Within One Year After a Change in Control
 
$
520,000

 
$
513,750

 
$

 
$

 
$
1,033,750

Jeffrey D. Martchek
 
 
 
 
 
 
 
 
 
 
Without Cause
 
$
565,000

 
$
558,500

 
$

 
$
100,000

 
$
1,223,500

Voluntary with Good Reason
 
$
565,000

 
$
558,500

 
$

 
$
100,000

 
$
1,223,500

Retirement
 
$
565,000

 
$
558,500

 
$

 
$

 
$
1,123,500

Death or Disability
 
$
94,167

 
$
94,167

 
$

 
$

 
$
188,334

Without Cause Within One Year After a Change in Control
 
$
565,000

 
$
558,500

 
$
36,647,760

 
$
100,000

 
$
37,871,260

Robert W. Henley
 
 
 
 
 
 
 
 
 
 
Without Cause
 
$
487,000

 
$
481,500

 
$

 
$
100,000

 
$
1,068,500

Voluntary with Good Reason
 
$
487,000

 
$
481,500

 
$

 
$
100,000

 
$
1,068,500

Retirement
 
$
487,000

 
$
481,500

 
$

 
$

 
$
968,500

Death or Disability
 
$
81,167

 
$
81,167

 
$

 
$

 
$
162,334

Without Cause Within One Year After a Change in Control
 
$
487,000

 
$
481,500

 
$
23,777,900

 
$
100,000

 
$
24,846,400

Voluntary Within One Year After a Change in Control
 
$
487,000

 
$
481,500

 
$

 
$

 
$
968,500

Eugene J. Bredow
 
 
 
 
 
 
 
 
 
 
Without Cause
 
$
370,000

 
$
363,750

 
$

 
$
100,000

 
$
833,750

Voluntary with Good Reason
 
$
370,000

 
$
363,750

 
$

 
$
100,000

 
$
833,750

Retirement
 
$
370,000

 
$
363,750

 
$

 
$

 
$
733,750

Death or Disability
 
$
61,667

 
$
61,667

 
$

 
$

 
$
123,334

Without Cause Within One Year After a Change in Control
 
$
370,000

 
$
363,750

 
$
14,363,300

 
$
100,000

 
$
15,197,050

Voluntary Within One Year After a Change in Control
 
$
370,000

 
$
363,750

 
$

 
$

 
$
733,750

(1)
Represents the intrinsic value of the acceleration of vesting of stock options that vest upon a change in control and termination of employment within one year of a change in control. Intrinsic value is the difference between the exercise price of the stock option and the closing price of our Common Stock, which was $3,508.22 on December 29, 2017, the last trading day of the year.

34



Deferred Compensation Plans
Under the deferred compensation plans (see the 2017 Non-Qualified Deferred Compensation Table above for more information on these plans), named executive officers receive their shares of Common Stock immediately if we experience a “change of control,” rather than receiving their shares of Common Stock at separation of service.  The “change of control” provisions within the deferred compensation plans are equally applicable to all participants within the plans.
Plan 1.  Generally, the “change of control” provision is the same as the “change in control” provision set forth in our equity agreements, as summarized above.
Plan 2.  Generally, the “change of control” provision is triggered if (i) we experience any transaction resulting in any person or entity owning 50% or more of the total fair market value or total voting power of our shares, (ii) we experience any transaction resulting in any person or entity acquiring 35% or more of the total fair market value or total voting power of our shares during a 12-month period, (iii) a majority of our Board is replaced during any 12-month period by new directors not endorsed by a majority of our Board who were on our board immediately preceding the new appointments or elections, or (iv) we sell to another entity our assets that have a total gross fair market value equal to or more than 40% of the total gross fair market value of our total assets.
Assuming a change of control under the deferred compensation plans at December 31, 2017, the market value of the accelerated account balances is presented in the 2017 Non-Qualified Deferred Compensation Table above.

Pay Ratio
Pursuant to Item 402(u) of Regulation S-K and Section 953(b) of the Dodd-Frank Act, presented below is the ratio of annual total compensation of our CEO to the annual total compensation of our median employee (excluding our CEO). The ratio presented below is a reasonable estimate calculated in a manner consistent with Item 402(u).
In identifying our median employee, we calculated the total cash compensation paid to each of our employees for the 10-month period ended October 31, 2017. Total cash compensation for these purposes included base salary and wages, and, if applicable, bonus and commissions and was calculated using internal payroll records.
We selected the median employee based on approximately 5,100 active full-time and part-time employees of NVR and its subsidiaries as of October 31, 2017. For employees hired in 2017 who did not work the full year, we did not annualize their compensation for purposes of this calculation.
The 2017 annual total compensation as determined under Item 402 of Regulation S-K (“Item 402 Compensation”) for our CEO was $3,538,600. The 2017 Item 402 Compensation for our median employee was $69,147. The ratio of our CEO’s Item 402 Compensation to our median employee’s Item 402 Compensation for fiscal year 2017 is approximately 51 to 1.
Because the SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.



35



2017 DIRECTOR COMPENSATION TABLE
 
Name
 
Fees Earned or
Paid in Cash
($)(a)
 
Option Awards
($)
 
Total
($)
Dwight C. Schar
 
$
34,000

 

 
$
34,000

C. E. Andrews
 
$
45,200

 

 
$
45,200

Timothy M. Donahue
 
$
37,200

 

 
$
37,200

Thomas D. Eckert
 
$
42,000

 

 
$
42,000

Alfred E. Festa
 
$
45,200

 

 
$
45,200

Ed Grier
 
$
42,000

 

 
$
42,000

Manuel H. Johnson
 
$
52,000

 

 
$
52,000

Mel Martinez
 
$
40,400

 

 
$
40,400

William A. Moran
 
$
34,000

 

 
$
34,000

David A. Preiser
 
$
45,200

 

 
$
45,200

W. Grady Rosier
 
$
45,200

 

 
$
45,200

Susan Williamson Ross
 
$
37,200

 

 
$
37,200

Paul W. Whetsell
 
$
45,200

 

 
$
45,200

 
(a)
Board members are paid a $26,000 annual retainer.  Mr. Johnson, the Audit Committee Chairman, is paid an additional annual retainer of $10,000 for serving in that capacity.  Board members are paid fees of $1,600 for each Board and Committee meeting attended.  Reasonable incidental travel and out-of-pocket business expenses are reimbursed as incurred in accordance with the policies to which all of our named executive officers and employees are subject.
Narrative Disclosure to Director Compensation Table
The cash paid to our directors in the form of the $26,000 annual retainer and the $1,600 per meeting fee has not changed since 2000, other than increasing the Audit Committee Chairman’s annual retainer to $36,000, which occurred in 2003.  Aon Hewitt prepared a benchmarking director compensation analysis for our Board in 2014.  According to the analysis, the average annual cash compensation paid to our Board is well below the 25th percentile of director cash compensation when compared to a survey of director compensation for companies with revenue between $2 billion and $8 billion.  We believe that weighting the compensation of our directors heavily towards long-term equity compensation serves to further align the interests of our directors and shareholders.
Consistent with the equity grants made to our named executive officers, equity grants are made to directors periodically for a four-year period.  In 2014, the then-serving directors received a grant of fixed price stock options which vest in 25% increments on December 31, 2016, 2017, 2018 and 2019.  During 2016, Ms. Ross was appointed to the Board and received a grant of fixed price stock options with a fair value that was consistent with the fair value of stock options granted in 2014. The directors did not receive any equity grants during 2017.

36



The following table sets forth the outstanding stock option awards for our directors at December 31, 2017:
 
 
 
Option Awards
Name
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
 
Option
Exercise
Price
($)
 
Option
Expiration
Date
Dwight C. Schar
 
 

 
 

 
 

 
 
2000 Option Plan (a)
 
23,350

 

 
$
703.00

 
5/10/2020
2014 Equity Plan (b)
 
15,824

 
15,826

 
$
1,094.22

 
5/13/2024
C. E. Andrews:
 
 

 
 

 
 

 
 
2014 Equity Plan (b)
 
1,300

 
1,300

 
$
1,094.22

 
5/13/2024
Timothy M. Donahue:
 
 

 
 

 
 

 
 
2010 Equity Plan (a)
 
1,764

 

 
$
703.00

 
5/10/2020
2014 Equity Plan (b)
 
1,300

 
1,300

 
$
1,094.22

 
5/13/2024
Thomas D. Eckert:
 
 

 
 

 
 

 
 
2010 Equity Plan (c)
 
2,035

 

 
$
669.85

 
11/30/2021
2014 Equity Plan (b)
 
1,300

 
1,300

 
$
1,094.22

 
5/13/2024
Alfred E. Festa:
 
 

 
 

 
 

 
 
2014 Equity Plan (b)
 
1,300

 
1,300

 
$
1,094.22

 
5/13/2024
Ed Grier
 
 

 
 

 
 

 
 
2010 Equity Plan (d)
 
714

 
714

 
$
1,017.86

 
5/6/2023
2014 Equity Plan (b)
 
810

 
1,300

 
$
1,094.22

 
5/13/2024
Manuel H. Johnson:
 
 

 
 

 
 

 
 
2010 Equity Plan (a)
 
1,764