tol2014def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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TOLL BROTHERS, 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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TOLL BROTHERS, INC.
250 Gibraltar Road
Horsham, Pennsylvania 19044
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held on Tuesday, March 10, 2015
The 2015 Annual Meeting of Stockholders (the “Meeting”) of Toll Brothers, Inc. (the “Company”) will be held on Tuesday, March 10, 2015 at 12:00 noon EDT, at the offices of the Company, 250 Gibraltar Road, Horsham, Pennsylvania 19044, for the following purposes:
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1. | To elect the ten directors nominated by the Board of Directors of the Company (the “Board” or "Board of Directors") and named in the proxy statement to hold office until the 2016 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified. |
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2. | To ratify, in a non-binding vote, the re-appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the 2015 fiscal year. |
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3. | To approve, in an advisory and non-binding vote, the compensation of the Company’s named executive officers as disclosed in the proxy statement. |
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4. | To approve the Toll Brothers, Inc. Senior Officer Bonus Plan. |
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5. | To transact such other business as may properly come before the Meeting or any adjournment or postponement thereof. |
The Board has fixed the close of business on January 15, 2015 as the record date for the Meeting (the "Record Date"). Only stockholders of record at that time are entitled to notice of and to vote at the Meeting and any adjournment or postponement thereof.
The enclosed proxy card is solicited by the Board. Reference is made to the attached proxy statement for further information with respect to the business to be transacted at the Meeting. This proxy statement, our annual report, and the enclosed proxy card are first being sent to stockholders on or about February 9, 2015. The Board urges you to sign, date, and return the enclosed proxy card promptly, although you are cordially invited to attend the Meeting in person. The return of the enclosed proxy card will not affect your right to vote in person if you do attend the Meeting.
Please note the admission policy and procedures regarding attendance at the Meeting, which are set forth on the next page.
By Order of the Board of Directors,
MICHAEL I. SNYDER
Secretary
January 30, 2015
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON MARCH 10, 2015
The proxy statement and 2014 Annual Report of Toll Brothers, Inc. are available at:
https://materials.proxyvote.com/889478
ANNUAL MEETING INFORMATION
The Meeting will be held at the Company’s offices at 250 Gibraltar Road, Horsham, Pennsylvania 19044 and will begin promptly at 12:00 noon EDT. Directions to the Meeting are available under “Directions” at www.tollcareercenter.com. You must present a valid photo identification to be admitted to the Meeting. Cameras (including cellular phones or personal digital assistants, or “PDAs”, with photographic capabilities), recording devices and other electronic devices, and the use of cellular phones or PDAs, will not be permitted at the Meeting. Representatives will be at the entrance to the Meeting, and these representatives will have the authority, on the Company’s behalf, to determine whether the admission policy and procedures have been followed and whether you will be granted admission to the Meeting.
Attendance at the Meeting is limited to stockholders, who may own shares directly in their names (“record holders”), or in “street name” by banks, brokerages, or other intermediaries (“beneficial holders”). In addition to photo identification, you must present evidence of ownership as of the Record Date, such as a letter from the bank, broker, or other intermediary confirming ownership, or the relevant portion of a bank or brokerage firm account statement. If you are the authorized representative of an entity that is a beneficial holder, you must present a letter from the entity certifying the beneficial ownership of the entity and your status as an authorized representative.
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FOR RECORD HOLDERS: | FOR BENEFICIAL HOLDERS: |
If you plan to vote by proxy but attend the Meeting in person 1. Indicate your votes on your proxy card; 2. Mark the box on your proxy card indicating your intention to attend; 3. Return the proxy card to the address indicated therein; and 4. Follow all admissions policies set forth above. | If you plan to vote by proxy but attend the Meeting in person: 1. Indicate your votes on the voting instruction card; 2. Mark the box on the voting instruction card indicating your intention to attend; 3. Return the card to the address indicated therein; and 4. Follow all admissions policies set forth above. |
If you plan to attend and vote at the Meeting: 1. Bring your proxy card with you to the Meeting; 2. Send written notice* of your intention to attend the Meeting to the Company's headquarters by February 27, 2015 to the attention of Michael I. Snyder, Secretary; and 3. Follow all admissions policies set forth above. | If you plan to attend and vote at the Meeting: 1. Contact your bank or broker to obtain a written legal proxy form in order to vote your shares at the Meeting; failure to obtain a legal proxy form from your bank or broker will prevent you from voting your shares at the Meeting; 2. Send written notice* of your intention to attend the Meeting to the Company's headquarters by February 27, 2015 to the attention of Michael I. Snyder, Secretary; and 3. Follow all admissions policies set forth above. |
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* | Written notice should include: (1) your name, complete mailing address and phone number, (2) if you are a beneficial holder, evidence of your ownership, and (3) if you are a beneficial holder who is not a natural person and will be naming a representative to attend on your behalf, the name, complete mailing address and phone number of that individual. If you do not provide the requested information by February 27, 2015, please be prepared to show it at the entrance to the Meeting in order to gain admission. Failure to provide such information either in advance or at the Meeting may result in non-admission to the Meeting. |
TABLE OF CONTENTS
TOLL BROTHERS, INC.
PROXY STATEMENT
Annual Meeting of Stockholders
Wednesday, March 10, 2015
PROXY SUMMARY
Highlights of certain information in this proxy statement are provided below. Please review the complete proxy statement and 2014 annual report for Toll Brothers, Inc. (the “Company,” “we,” “us” or “our”) before you vote.
2014 Performance Highlights
In determining fiscal 2014 compensation for our named executive officers ("NEOs"), the Executive Compensation Committee of our Board of Directors (the "Compensation Committee") recognized that fiscal 2014 was a year of significant progress in growing our revenues and profits. Among other things, the Compensation Committee considered the Company's performance in the following areas for the fiscal year ended October 31, 2014:
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• | Revenues: Our revenues in fiscal 2014 of $3.91 billion and home building deliveries of 5,397 units rose 46% in dollars and 29% in units compared to fiscal 2013 and were the highest for any fiscal year since fiscal 2007. |
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• | Income: Our pre-tax income improved to $504.6 million in fiscal 2014, compared to pre-tax income of $267.7 million in fiscal 2013. We reported net income of $340.0 million, or $1.84 per share diluted, compared to net income of $170.6 million in fiscal 2013, or $0.97 per share diluted. |
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• | Gross Margin: Our gross margin for fiscal 2014 was 21.2%, compared to 20.2% for fiscal 2013. |
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• | Contracts. Our net contracts signed in fiscal 2014 of $3.90 billion rose 7% compared to fiscal 2013 and were the highest for any fiscal year since fiscal 2006. |
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• | Backlog: Our fiscal year end 2014 backlog was $2.72 billion, up 3% compared to fiscal 2013 and was the highest for any fiscal year since 2007. |
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• | Selling, General and Administrative Expenses (“SG&A”): Our SG&A as a percentage of revenue improved to 11.1% compared to 12.7% for fiscal 2013. |
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• | Operating Margin: Our operating margin improved to 10.2% for fiscal 2014 from 7.5% for fiscal 2013. |
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• | Joint Venture and Other Income: In fiscal 2014, we produced $107.3 million in pre-tax income from our joint ventures, ancillary operations, and other sources, compared to $66.6 million in fiscal 2013. |
The Compensation Committee recognized management’s efforts in achieving the performance outcomes set forth above. Our “Compensation Discussion and Analysis” is on pages 25 to 40, the “Compensation Committee Report” is on page 41, and our Summary Compensation Table and the other compensation tables and narrative discussion are on pages 42 to 51.
Meeting Agenda Items
Proposal One—Election of Directors. We are asking stockholders to elect ten directors, each of whom is standing for re-election to hold office until the 2016 Annual Meeting of Stockholders and until his or her respective successor has been duly elected and qualified. All directors attended over 75% or more of the meetings of the Board and Board Committees on which they served.
Set forth below is certain summary information concerning our director nominees. For more information regarding the experience and qualifications of our directors, see “Proposal One—Election of Directors” on page 6.
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Name | Age | Director Since | Principal Occupation | Independent |
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Robert I. Toll | 74 | 1986 | Executive Chairman of the Board of Directors, Toll Brothers, Inc. | |
Bruce E. Toll | 71 | 1986 | Vice Chairman of the Board of Directors, Toll Brothers, Inc. Principal, BET Investments | |
Douglas C. Yearley, Jr. | 54 | 2010 | Chief Executive Officer, Toll Brothers, Inc. | |
Robert S. Blank | 74 | 1986 | Co-Chairman & Co-CEO, Whitney Communications Company Senior Partner, Whitcom Partners | ü |
Edward G. Boehne | 74 | 2000 | Retired President, Federal Reserve Bank of Philadelphia | ü |
Richard J. Braemer | 73 | 1986 | Senior Counsel, Ballard Spahr LLP | ü |
Christine N. Garvey | 69 | 2009 | Retired Global Head of Corporate Real Estate Services, Deutsche Bank AG | ü |
Carl B. Marbach | 73 | 1991 | President, Greater Marbach Airlines, Inc. | ü |
Stephen A. Novick | 74 | 2003 | Senior Advisor, The Andrea and Charles Bronfman Philanthropies | ü |
Paul E. Shapiro | 73 | 1993 | Chairman, Q Capital Holdings LLC | ü |
The Board of Directors recommends that you vote “FOR” all Nominees
Proposal Two—Ratification of the Re-Appointment of Independent Registered Public Accounting Firm. We are asking stockholders to ratify, in a non-binding vote, the re-appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm (“independent auditors”) for the fiscal year ending October 31, 2015. As part of its oversight of the Company’s relationship with our independent auditors, the Audit and Risk Committee reviews annually our independent auditors’ qualifications, performance, and independence. Based on the results of this review, the Audit and Risk Committee re-appointed Ernst & Young LLP to serve as the Company’s independent auditors for fiscal 2015.
For more information regarding our engagement of Ernst & Young LLP including the fees earned for services rendered by Ernst & Young in fiscal 2014, see “Proposal Two—Ratification of the Re-Appointment of Independent Registered Public Accounting Firm” on page 10.
The Board of Directors recommends that you vote “FOR” Proposal Two
Proposal Three—Advisory and Non-Binding Vote on Executive Compensation (Say on Pay). As described on page 11 under “Proposal Three—Advisory and Non-Binding Vote on Executive Compensation (Say on Pay),” we are asking stockholders to approve, on an advisory basis, the compensation of our NEOs. We hold this advisory vote on an annual basis.
The Board of Directors recommends that you vote “FOR” Proposal Three
Proposal Four—Approval of the Toll Brothers, Inc. Senior Bonus Plan. We are asking stockholders to approve the Toll Brothers, Inc. Senior Officer Bonus Plan (the "Senior Officer Plan") to provide a tax-deductible bonus program for those officers designated as participants in the Senior Officer Plan by the Compensation Committee. If approved by stockholders, the Senior Officer Plan will continue to be the method of awarding tax-deductible bonus compensation to our executive officers. If the Senior Officer Plan is not approved by stockholders, we would not be able to deduct cash incentive compensation payments after fiscal 2014 to any of our “covered employees” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") to the extent that such amounts, together with other compensation that does not qualify as performance-based compensation for purposes of Section 162(m), exceeds $1 million.
For more information regarding the Senior Officer Plan, see “Proposal Four—Approval of the Toll Brothers, Inc. Senior Officer Bonus Plan” on pages 12 to 20.
The Board of Directors recommends that you vote “FOR” Proposal Four
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors of Toll Brothers, Inc., a Delaware corporation, for use at the Meeting, which will be held on the date, at the time and place, and for the purposes set forth in the foregoing notice, and any adjournment or postponement thereof. The Board does not intend to bring any matter before the Meeting except as specifically indicated in the notice and does not know of anyone else who intends to do so; however, if any other matters properly come before the Meeting, Messrs. Robert I. Toll and Douglas C. Yearley, Jr., or either of them, will vote or otherwise act thereon in accordance with his or their judgment on such matters, acting as proxies for stockholders who have returned an executed proxy to us.
If the enclosed proxy card is properly executed and returned to and received by us prior to voting at the Meeting, the shares represented thereby will be voted in accordance with the instructions marked thereon. If the enclosed proxy card is properly executed, returned, and received by us prior to voting at the Meeting without specific instructions, Messrs. Robert I. Toll and Douglas C. Yearley, Jr., or either of them, acting as your proxies, will vote your shares “FOR” all nominees under Proposal One and “FOR” each of the other proposals. Any proxy card may be revoked at any time before its exercise by notifying the Secretary of the Company in writing, by delivering a duly executed proxy card bearing a later date, or by attending the Meeting and voting in person.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP
The Record Date fixed by our Board for the determination of stockholders entitled to notice of and to vote at the Meeting is January 15, 2015. At the close of business on the Record Date, there were 175,465,694 shares of our common stock outstanding and eligible to vote at the Meeting. We have no other class of voting securities outstanding. At the Meeting, stockholders will be entitled to one vote for each share of common stock owned at the close of business on the Record Date.
The presence at the Meeting, in person or by proxy, of persons entitled to cast the votes of a majority of such outstanding shares of common stock will constitute a quorum for the proposals expected to be voted on at the Meeting. Abstentions and broker non-votes represented by submitted proxies will be included in the calculation of the number of the shares present at the Meeting for the purposes of determining a quorum. “Broker non-votes” are shares held of record by a broker that are not voted on a matter because the broker has not received voting instructions from the beneficial owner of the shares and lacks the authority to vote the shares in its discretion.
Under the New York Stock Exchange (“NYSE”) rules, your brokerage firm or other nominee may not vote your shares with respect to Proposals One, Three, or Four without specific instructions from you as to how to vote, because each of these proposals is not considered a “routine” matter under the NYSE rules. Proposal Two is considered a “routine” matter and therefore brokerage firms and nominees that are members of the NYSE are permitted to vote their customers’ shares if the customers have not furnished voting instructions prior to the Meeting. To elect directors and adopt the other proposals, the following votes are required under our governing documents and Delaware law:
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Proposal | | Vote Required | | Broker Discretionary Voting Allowed | | Broker Non- Votes | | Abstentions/ Withhold Votes |
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1. | Election of Directors | | Plurality of the votes cast | | No | | No effect | | No effect |
2. | Ratification of Independent Auditors | | Majority of votes cast | | Yes | | Not applicable | | No effect |
3. | Advisory Vote to Approve Executive Compensation | | Majority of votes cast | | No | | No effect | | No effect |
4. | Approval of the Toll Brothers, Inc. Senior Officer Bonus Plan | | Majority of votes cast | | No | | No effect | | Against |
Security Ownership of Principal Stockholders and Management
The following table sets forth beneficial ownership, as of the Record Date, of our common stock by: (1) each person known to us to be the beneficial owner of more than 5% of our common stock; (2) each of our directors (which includes nominees for director) and NEOs; and (3) all of our directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated.
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Name of Beneficial Owner | | Amount and Nature of Beneficial Ownership(1) | | Percent of Common Stock |
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BlackRock, Inc. (2) | | 14,993,902 |
| | 8.55 | % |
40 East 52nd Street New York, New York 10022 | | | | |
Goldman Sachs Asset Management (3) | | 12,040,221 |
| | 6.86 | % |
200 West Street, New York, NY 10282 | | | | |
The Vanguard Group (4) | | 9,487,538 |
| | 5.41 | % |
100 Vanguard Blvd. Malvern, PA 19355 | | | | |
Robert I. Toll (5) | | 12,864,599 |
| | 7.25 | % |
250 Gibraltar Road Horsham, Pennsylvania 19044 | | | | |
Bruce E. Toll (6) | | 3,776,437 |
| | 2.15 | % |
Robert S. Blank | | 121,849 |
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Edward G. Boehne | | 164,632 |
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Richard J. Braemer | | 269,440 |
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Christine N. Garvey | | 64,833 |
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Carl B. Marbach (7) | | 239,092 |
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Stephen A. Novick | | 127,882 |
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Paul E. Shapiro | | 250,530 |
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Douglas C. Yearley, Jr. | | 683,883 |
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Richard T. Hartman | | 200,075 |
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Martin P. Connor | | 120,836 |
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All directors and executive officers as a group (12 persons) (1)(8) | | 18,884,088 |
| | 10.54 | % |
* Less than 1%
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(1) | Shares issuable pursuant to restricted stock units (“RSUs”) and options exercisable within 60 days after the Record Date are deemed to be beneficially owned. Accordingly, the information presented above includes the following numbers of shares of common stock underlying RSUs and options held by the following individuals, and all directors and executive officers as a group: Mr. Robert I. Toll, 1,868,237 shares; Mr. Bruce E. Toll, 112,210 shares; Mr. Blank, 120,057 shares; Mr. Boehne, 127,482 shares; Mr. Braemer, 112,210 shares; Ms. Garvey, 64,633 shares; Mr. Marbach, 126,906 shares; Mr. Novick, 126,482 shares; Mr. Shapiro, 122,732 shares; Mr. Yearley, 596,574 shares; Mr. Hartman, 173,160 shares; Mr. Connor, 116,726 shares; and all directors and executive officers as a group, 3,667,409 shares. |
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(2) | BlackRock, Inc. (“BlackRock”) filed a Schedule 13G/A on January 22, 2015 which states that BlackRock has sole voting power with respect to 14,040,880 shares and sole dispositive power with respect to 14,993,902 shares. According to the Schedule 13G/A filed by BlackRock, various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares, and no one person’s interest in our common stock was more than 5% of the total outstanding common stock, as of the date the Schedule 13G/A was filed. |
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(3) | Goldman Sachs Asset Management L.P. and GS Investment Strategies, LLC ("GSAM") filed a Schedule 13G on February 13, 2014 which states that GSAM has shared voting power with respect to 11,966,167 shares and shared dispositive power with respect to 12,040,221 shares. According to the Schedule 13G filed by GSAM, various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares, and no one person’s interest in our common stock was more than 5% of the total outstanding common stock, as of the date the Schedule 13G was filed. |
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(4) | The Vanguard Group ("Vanguard") filed a Schedule 13G on February 12, 2014, which states that Vanguard has sole dispositive power with respect to 9,360,344 shares, sole voting power with respect to 147,294 shares, and shared |
dispositive power with respect to 127,194 shares. According to the Schedule 13G filed by Vanguard, various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares, and no one person’s interest in our common stock was more than 5% of the total outstanding common stock, as of the date the Schedule 13G was filed.
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(5) | Amount includes 133,155 shares held by trusts for Mr. Robert I. Toll’s children and grandchildren, of which Mrs. Jane Toll, Mr. Robert I. Toll’s spouse, is a trustee with voting and dispositive power and as to which he disclaims beneficial ownership. Amount includes 4,950,316 shares pledged to financial institutions to secure personal obligations of Mr. Robert I. Toll. |
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(6) | Amount includes 3,192,932 shares pledged to financial institutions to secure obligations of The Bruce E. Toll Revocable Trust (of which Mr. Bruce E. Toll is the sole trustee). |
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(7) | Amount includes an aggregate of 9,400 shares beneficially owned by individual retirement accounts (“IRAs”) for the benefit of Mr. Marbach and his wife. Mr. Marbach disclaims beneficial ownership of the 4,700 shares held by his wife’s IRA. |
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(8) | The Board of Directors, after reviewing the functions of all of our officers, both in terms of designated functions and functions actually performed, has determined that only Messrs. Robert I. Toll, Douglas C. Yearley, Richard T. Hartman and Martin P. Connor are deemed to be executive officers of the Company for purposes of Item 403 of Regulation S-K of the Securities Exchange Commission ("SEC"). |
PROPOSAL ONE—ELECTION OF DIRECTORS
Board Membership Criteria
The Nominating and Corporate Governance Committee of the Board of Directors (the "Governance Committee") identifies individuals qualified to become members of the Board of Directors consistent with criteria approved by the Board of Directors. The Governance Committee, in selecting, or in recommending the selection of, nominees for directors, considers applicable statutory, regulatory, case law, and NYSE requirements, including when appropriate those applicable to membership on the Audit and Risk Committee and the Executive Compensation Committee, as well as other criteria it deems appropriate.
The Governance Committee requires that, at a minimum, candidates possess a background that includes a strong education, extensive business experience, and the requisite reputation, character, integrity, skills, judgment, and temperament, which, in the view of the Governance Committee, have prepared them for dealing with the multi-faceted financial, business, governance, and other issues that confront a Board of Directors of a corporation with the size, complexity, reputation, and success of the Company. Although the Governance Committee does not have a formal policy regarding diversity, it values diversity of viewpoints, background, and experience in considering candidates for Board membership.
Board Composition
The Governance Committee assesses annually the composition of the Board, including a review of Board size, the skills and qualifications represented on the Board, and director tenure. The findings of the Governance Committee's annual review of Board composition are reported to and discussed with the full Board. Based on its evaluation, the Governance Committee may recommend an increase or decrease in the size of the Board or changes in the composition of the Board so as to best reflect the objectives and needs of the Company and the desired skill sets of the directors. Similarly, the Governance Committee may establish processes for developing candidates for Board membership and conducting searches for Board candidates.
In its review of the skills and qualifications of each director, the Governance Committee considers the characteristics that the Committee believes should be represented on the Board as a whole. The Governance Committee also reviews the composition of the Board, as well as the skills and qualifications represented on the boards of the Company's peer group.
As part of this annual review of Board composition, the Governance Committee reviewed director tenure during fiscal 2014, which included a comparison of director tenure to the Company's peer group. In advance of this review, the Chair of the Governance Committee conducted individual meetings with the independent directors to discuss each director's evaluation of the Board and determine his or her future plans that may assist the Committee in its consideration of the issue of director succession.
Our Lead Independent Director (who is the Chair of the Governance Committee) also leads the annual Board self-evaluation procedure to review the Board's effectiveness and to identify any opportunities for improvement. As part of this process, the Lead Independent Director receives feedback from each director regarding Board and committee composition, Board practices, Board accountability, and director standards of conduct. The Lead Independent Director leads the discussion with the Board to review this information and to identify any areas for improvement.
The Board believes that, through this annual review of Board composition and nomination process, coupled with its annual self-evaluation procedure, the Board will continue to evolve to meet the needs of the Company.
Our Director Nominees
The Board currently consists of ten directors. Each current director is standing for re-election to hold office until the 2016 Annual Meeting of Stockholders and until his or her respective successor has been duly elected and qualified. Each nominee has indicated a willingness to continue to serve as a director. Should a nominee become unavailable to accept election as a director, the persons named in the enclosed proxy will vote the shares that such proxy represents for the election of such other person as the Board may nominate on the recommendation of the Governance Committee. See page 2 for certain information regarding our director nominees.
Director Qualifications
The Governance Committee has reviewed the business experience and qualifications of each director nominee and has concluded that the directors possess business experience in the areas set forth below. The Governance Committee believes that the directors' business experience in these areas brings value to the Board and to the Company in light of our business strategy, structure, and direction.
This business experience, coupled with our directors' knowledge and understanding of the Company's operations, governance, personnel, and business ethic gained by them over time, have led the Governance Committee and the Board of Directors to the conclusion that each director provides the Company with unique perspective, insight, and skills that enable him or her to provide strong guidance and leadership during all phases of the cycle of the real estate market and in times of management transition, and, therefore, that each should serve as a director of the Company.
The table below summarizes certain key qualifications and skills of each director nominee that were relevant to the decision to nominate him or her to serve on the Board. The lack of a mark does not mean the director does not possess that qualification or skill; rather, a mark indicates a specific area of focus or expertise on which the Board relies most heavily. Each director's biography below describes his or her qualifications and relevant experience in more detail.
Skills and Qualifications of our Board of Directors |
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Name | Leadership | Industry | Operating | Accounting and Financial | Business Development and Marketing | Corporate Governance and Law | Other Board Experience |
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Robert I. Toll | ü | ü | ü | | ü | ü | ü |
Bruce E. Toll | ü | ü | ü | ü | ü | | ü |
Douglas C. Yearley, Jr. | ü | ü | ü | | ü | ü | |
Robert S. Blank | ü | | | ü | ü | ü | ü |
Edward G. Boehne | ü | | | ü | ü | ü | ü |
Richard J. Braemer | ü | ü | | ü | ü | ü | ü |
Christine N. Garvey | ü | ü | ü | ü | | ü | ü |
Carl B. Marbach | ü | | ü | ü | ü | | |
Stephen A. Novick | ü | | | | ü | ü | ü |
Paul E. Shapiro | ü | | ü | ü | ü | ü | ü |
In addition to the skills and qualifications referenced above, we include below other information about the backgrounds and experience of our director nominees, including specific qualifications, experience, skills, and expertise considered by the Governance Committee as relevant to each of the nominee's candidacy as a director.
Robert I. Toll, with his brother Bruce E. Toll, founded our predecessor’s operations in 1967. He has been a member of our Board since our inception in May 1986. He served as our Chief Executive Officer and Chairman of the Board from our inception until June 2010 when he assumed the new position of Executive Chairman of the Board. He brings to the Board his dynamic entrepreneurial and leadership experience as a founder, Chairman of the Board, Chief Executive Officer and, currently, Executive Chairman of the Company, which has established the Company as the country’s leading luxury homebuilder.
Bruce E. Toll, with his brother Robert I. Toll, founded our predecessor’s operations in 1967. He been a member of our Board since our inception in May 1986 and served as our Chief Operating Officer until May 1998 and our President until November 1998. He is a member of the Public Debt and Equity Securities Committee. He is the founder and Principal of BET Investments, a commercial real estate company, and the owner of several automobile dealerships. From June 2006 through August 2009, he was the Chairman of Philadelphia Media Holdings, L.L.C., the parent company of the Philadelphia Inquirer and the Philadelphia Daily News, and from December 2007 through February 2009, he served on the board of directors of Fifth Street Finance Corp., a company that lends to and invests in small and mid-sized companies. He brings to the Board his knowledge and experience as a co-founder of the Company and his service in various executive, director and advisory positions
with the Company since its formation in 1986; his ownership of several significant businesses has provided him with extensive managerial and leadership experience in the real estate industry and other fields, and his service on various public company boards of directors has been of added value to our Board.
Douglas C. Yearley, Jr. has been a member of our Board since June 2010. He joined us in 1990, specializing in land acquisitions from financial institutions. He has been an officer since 1994, holding the position of Senior Vice President from January 2002 until November 2005, and the position of Regional President from November 2005 until November 2009, when he was promoted to Executive Vice President. Since June 2010, he has been our Chief Executive Officer. Prior to joining us, Mr. Yearley practiced law in New Jersey as a commercial litigator. He brings to the Board a deep understanding of our industry and our business as a result of the significant operational roles in which he has served over the 24 years he has been with the Company, his managerial and leadership experience, and his legal background.
Robert S. Blank has been a member of our Board since September 1986. He is a member of the Nominating and Corporate Governance Committee and the Public Debt and Equity Securities Committee. Since 2003, Mr. Blank has been Co-Chairman and Co-Chief Executive Officer of Whitney Communication Company (“WCC”) and Senior Partner of Whitcom Partners. Whitcom Partners and its two partners individually make investments in public and non-public companies. Mr. Blank brings to the Board the skills and experience gained in his executive leadership roles in a major company in the communications industry, as well as in the investment field.
Edward G. Boehne has been a member of our Board since July 2000 and our Lead Independent Director since March 2011. He is the Chair of the Nominating and Corporate Governance Committee and a member of the Audit and Risk Committee. From 1981 until his retirement in May 2000, Mr. Boehne was the President of the Federal Reserve Bank of Philadelphia. Mr. Boehne is a member of the board of directors of Beneficial Bancorp, Inc. and its subsidiary, Beneficial Bank, Penn Mutual Life Insurance Co. and AAA Mid-Atlantic, Inc. (including the related holding company, AAA Club Partners). Mr. Boehne is also a member of the board of directors of, and Senior Economic Advisor to, the Haverford Trust Company. He brings to the Board his reputation and accomplishments as a leader and expert in the Federal bank regulatory field, as well as his current service in various board and advisory positions with high profile companies in the banking and insurance industries.
Richard J. Braemer has been a member of our Board since September 1986. He is the Chair of the Public Debt and Equity Securities Committee. He is senior counsel at the law firm of Ballard Spahr LLP, where he was a partner from 1994 through 2008. Mr. Braemer is a director, Chairman of the Compensation Committee and past Chairman of the Board of Directors of the Albert Einstein Healthcare Network, a Philadelphia-based, non-profit healthcare network. In addition to his professional skills as an attorney practicing primarily in the field of mergers and acquisitions, including real estate transactions, he brings to our Board the experience gained both as a former board member and audit committee chair of a public company and as an advisor to boards, board committees and independent directors of publicly and privately held corporations.
Christine N. Garvey has been a member of our Board since September 2009. She is a member of the Audit and Risk Committee. She was the Global Head of Corporate Real Estate Services at Deutsche Bank AG from 2001 to 2004. Prior to that, she served as Vice President of Worldwide Real Estate and Workplace Resources at Cisco Systems, Inc. and as Group Executive Vice President at Bank of America. She is also a member of the board of directors of HCP, Inc. She has served as a member of the board of ProLogis since September 2005, when Catellus Development Corporation, of which she had been a member of the board since 1995, merged into a subsidiary of ProLogis. Ms. Garvey served on the board of directors of Hilton Hotels Corporation through October 2007. She brings to the Board her extensive knowledge of and background in real estate and banking and her experience in executive leadership positions and board memberships with various public entities in the national real estate market.
Carl B. Marbach has been a member of our Board since December 1991. He is the Chair of the Executive Compensation Committee and a member of the Audit and Risk Committee and the Public Debt and Equity Securities Committee. Since January 2004, Mr. Marbach has been President of Greater Marbach Airlines, Inc., a company that provides aviation and consulting services. From January 1995 to January 2004, Mr. Marbach was President of Internetwork Publishing Corp., an electronic publisher, which he founded. He brings to the Board his expertise in the field of information technology, as well as his entrepreneurial experiences in building businesses in that and other industries.
Stephen A. Novick has been a member of our Board since January 2003. He is a member of the Executive Compensation Committee and the Nominating and Corporate Governance Committee. Mr. Novick serves as Senior Advisor to The Andrea and Charles Bronfman Philanthropies, a private family foundation. Until December 2006, Mr. Novick was a consultant to Grey Global Group, a marketing communications company. From 1990 until his retirement in December 2004, Mr. Novick was Chief Creative Officer-Worldwide, and from April 2000 to December 2004 was Vice Chairman, of Grey Global Group. Mr. Novick is also a member of the board of directors of Ark Restaurant Corp. In addition to the experience gained in his roles in the corporate and non-profit sectors, he brings to our Board his creative skills, leadership and expertise in the field of marketing communications.
Paul E. Shapiro has been a member of our Board since December 1993. He is the Chair of the Audit and Risk Committee and a member of the Executive Compensation Committee. Since June 2004, Mr. Shapiro has been Chairman of the Board of Q Capital Holdings LLC, and he is Chairman of the Board of its two operating companies that are in the life settlement business. From January 2004 to June 2004, Mr. Shapiro was Senior Vice President of MacAndrews & Forbes Holdings, Inc., a private holding company of operating businesses. From June 2001 to December 2003, Mr. Shapiro was Executive Vice President and Chief Administrative Officer of Revlon Inc. Prior thereto, Mr. Shapiro practiced corporate and securities law as a managing shareholder of the Palm Beach County office of Greenberg Traurig LLP (which acquired Shapiro and Bregman, a firm he co-founded) and was a partner in Wolf, Block, Schorr and Solis-Cohen. He brings to the Board his extensive business experience in executive positions with various nationally known companies, which he has served in a wide variety of capacities that have drawn upon his legal and entrepreneurial skills, including those in the areas of corporate governance and the regulatory corporate environment.
Required Vote
Director nominees are elected by a plurality of the votes cast at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” ALL NOMINEES.
PROPOSAL TWO—RATIFICATION OF THE RE-APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
As part of its oversight of the Company’s relationship with our independent auditors, the Audit and Risk Committee (the "Audit Committee") reviews annually our independent auditors’ qualifications, performance, and independence. Based on the results of this review, the Audit Committee re-appointed Ernst & Young LLP to serve as the Company’s independent auditors for the fiscal year ending October 31, 2015. Ratification is being sought at the Meeting in a non-binding vote of stockholders. Although ratification is not required by our bylaws or otherwise, the Board is submitting the selection of Ernst & Young LLP to our shareholders for ratification because we value our stockholders' views on the Company’s independent auditors. If our stockholders fail to ratify the selection, it will be considered notice to the Board and Audit Committee to consider the selection of a different firm.
Representatives of Ernst & Young LLP are expected to be present at the Meeting, will be afforded the opportunity to make a statement if they desire, and are expected to be available to respond to appropriate questions. We have been advised by Ernst & Young LLP that neither the firm, nor any member of the firm, has any financial interest, direct or indirect, in any capacity in us or our subsidiaries.
Audit and Non-Audit Fees
The following table sets forth the fees earned for services rendered by Ernst & Young LLP for professional services for the fiscal years ended October 31, 2014 and 2013:
|
| | | | | | | | |
| | 2014 | | 2013 |
| | | | |
Audit Fees (1) | | $ | 1,313,831 |
| | $ | 1,298,645 |
|
Audit-Related Fees (2) | | 40,485 |
| | 31,995 |
|
Tax Fees (3) | | 40,000 |
| | 23,398 |
|
All Other Fees | | — |
| | — |
|
| | $ | 1,394,316 |
| | $ | 1,354,038 |
|
| |
(1) | “Audit Fees” include fees billed for (a) the audit of Toll Brothers, Inc. and its consolidated subsidiaries, (b) the audit of the Company’s internal control over financial reporting, (c) the review of quarterly financial information, and (d) the issuance of consents and comfort letters to underwriters in various filings with the SEC. |
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(2) | “Audit-Related Fees” include fees billed for audits of a certain joint venture in which we have an interest, workpaper review of an acquired entity, and fees for the use of the independent auditors’ technical accounting research tool. |
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(3) | “Tax Fees” include fees billed for consulting on tax planning matters and tax compliance matters. |
The Audit Committee meets and agrees upon the annual audit fee directly with our independent auditors. The Audit Committee also establishes pre-approved limits for which our management may engage our independent auditors for specified services. Any work that exceeds these pre-approved limits in a quarter requires the advance approval of the Audit Committee. Each quarter the Audit Committee reviews the matters worked on by the independent auditors during the previous quarter and establishes any pre-approved limits for the current quarter. All fees and services for fiscal 2014 were approved by the Audit Committee. The Audit Committee also reviewed and approved the compatibility of non-audit services, including tax services, with Ernst & Young LLP’s independence. The Audit Committee reviewed the services provided by Ernst & Young LLP and approved the fees paid to Ernst & Young LLP for all services for fiscal 2014.
Required Vote
To be approved, this proposal must receive an affirmative majority of the votes cast on the proposal at the Meeting.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL TWO.
PROPOSAL THREE—ADVISORY AND NON-BINDING VOTE
ON EXECUTIVE COMPENSATION (SAY ON PAY)
Our stockholders voted in 2011, in a non-binding vote, in favor of the submission of the Company’s compensation of its NEOs annually to our stockholders on a non-binding basis, and our Board has adopted that approach. In accordance with this outcome of that stockholder vote and regulations under Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are including in this proxy statement a separate resolution, subject to a non-binding stockholder vote, to approve the compensation of our NEOs as disclosed in this proxy statement. In considering their vote, we encourage stockholders to carefully review our compensation policies and decisions regarding our NEOs as presented in the “Compensation Discussion and Analysis” and the tabular (and accompanying narrative) disclosure on pages 25 to 51.
Our Compensation Committee has developed and maintained a compensation program that is intended to reward performance and encourage actions that drive success in our short- and long-term business strategy.
Our executive compensation program received the support of 98%, 99%, 98%, and 99% of our stockholders who voted at our Annual Meeting of Stockholders in 2014, 2013, 2012, and 2011, respectively. In determining fiscal 2014 compensation for our NEOs, as described in the “Compensation Discussion and Analysis” starting on page 25, the Compensation Committee recognized that fiscal 2014 was a year of significant progress in growing our revenues and profits. The Compensation Committee paid particular attention to the notable areas of our performance and our management’s achievements in fiscal 2014 set forth under “Compensation Discussion and Analysis—2014 Company Performance” on pages 25 to 26.
Accordingly, we are asking our stockholders to approve, in a non-binding vote, the following resolution in respect of this Proposal Three:
“RESOLVED, that the stockholders approve, in a non-binding vote, the compensation paid to the Company’s named executive officers as disclosed pursuant to Item 402 of Regulation S-K, including the “Compensation Discussion and Analysis” beginning on page 25 of the proxy statement and the related compensation tables and narrative discussion.
Required Vote
To be approved, this proposal must receive an affirmative majority of the votes cast on the proposal at the Meeting.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL THREE.
PROPOSAL FOUR—APPROVAL OF THE TOLL BROTHERS, INC.
SENIOR OFFICER BONUS PLAN
The Board of Directors has adopted, upon the recommendation of the Compensation Committee and subject to stockholder approval, the Toll Brothers, Inc. Senior Officer Bonus Plan (“Senior Officer Plan”) to provide a tax-deductible bonus program for those officers designated as participants in the Senior Officer Plan by the Compensation Committee. If approved by stockholders, the Senior Officer Plan will be the method of awarding tax-deductible bonus compensation to our executive officers. If the Senior Officer Plan is not approved by stockholders, we would not be able to deduct cash incentive compensation payments after fiscal 2014 to any of our “covered employees” under Section 162(m) of the Code to the extent that such amounts, together with other compensation that does not qualify as performance-based compensation for purposes of Section 162(m), exceeds $1 million.
Background
The Board of Directors believes that our executive officers should be compensated through a mix of salary, cash incentive bonus awards, long-term incentive compensation, and retirement benefits, and that this compensation should be tax-deductible by us to the largest extent practicable. The Board of Directors and the Compensation Committee developed the Senior Officer Plan to be sufficiently flexible to allow the Compensation Committee to make awards in appropriate amounts and with appropriate performance periods and performance goals to whichever existing, new or recently promoted executive or other officers the Compensation Committee designates as plan participants. The Board of Directors and the Compensation Committee believe the Senior Officer Plan will enable us to attract, retain, motivate, and reward the exceptional level of leadership to which we and our stockholders have become accustomed.
The Senior Officer Plan permits the Compensation Committee to award up to $8.5 million per year to each participant. The Compensation Committee has never awarded this maximum amount, but has used its discretion to award amounts that are significantly less than this maximum. Since the adoption of the Senior Officer Plan in fiscal 2010, the Committee has consistently granted cash incentive bonus awards that were less than the maximum allowable, and has never awarded an annual cash bonus of more than $2.3 million to any individual participant under the Senior Officer Plan.
Tax Deductibility
The Senior Officer Plan is being presented to stockholders for approval in order to preserve the tax deductibility of cash incentive bonus awards to executive officers under Section 162(m) (“Section 162(m)”) of the Code. Section 162(m) generally limits to $1 million per year the deductibility, for Federal income tax purposes, of cash compensation to "covered employees," which means any individual who, as of the end of the year, is the principal executive officer of a public company or one of the other three most highly compensated executive officers (other than the principal financial officer). This limitation does not apply to compensation that is deemed to be “qualified performance-based” within the meaning of Section 162(m). Therefore, if compensation qualifies as “qualified performance-based” for purposes of Section 162(m), we will be permitted to deduct it for federal income tax purposes.
The provisions of Section 162(m) require, among other things, that the material terms of compensation plans such as our Senior Officer Plan must be approved by a company’s stockholders every five years in order for compensation awarded under such plan to qualify as “qualified performance-based.” The material terms of the Senior Officer Plan were last approved by stockholders in 2010, and, accordingly, the Senior Officer Plan will need to be approved by stockholders in 2015 in order for bonuses to continue to qualify as “qualified performance-based compensation” under Section 162(m).
Material Provisions of Senior Officer Plan
The following is a brief summary of the material provisions of the Senior Officer Plan. Because it is only a summary, it may not contain all of the information about the Senior Officer Plan that may be important to you and is qualified in its entirety by the full text of the Senior Officer Plan set forth in Annex A.
1. Participants. The participants in the Senior Officer Plan are those officers designated as participants by the Compensation Committee for a given Performance Period (as defined in the Senior Officer Plan and described below). If the Senior Officer Plan is approved by stockholders, the Compensation Committee has designated that there will be four participants for fiscal 2015, who will be our current executive officers: Robert I. Toll, Douglas C. Yearley, Jr., Richard T. Hartman, and Martin P. Connor.
2. Effective Date; Term. Subject to the approval of our stockholders, the Senior Officer Plan will be effective for our fiscal year ending October 31, 2010, and subsequent years unless and until terminated by the Board of Directors.
3. Performance Periods. The Compensation Committee has the discretion to establish Performance Periods for Awards (in each case, as defined in the Senior Officer Plan and described below) under the Senior Officer Plan. Performance Periods may be equal to one of our full fiscal years, or may be longer or shorter than a full fiscal year. Multiple Awards may be granted to any participant.
4. Awards. Awards are payable to participants in the Senior Officer Plan based on the achievement of one or more pre-established performance goals. For each Award established under the Senior Officer Plan, prior to or within the first 90 days of the relevant Performance Period (or, if the Performance Period is shorter than a full year, within the first 25% of the Performance Period), in accordance with the requirements of Section 162(m), the Compensation Committee will establish one or more performance goals with respect to such Performance Period and an objective formula or method for computing the amount of the Award payable to each participant if the specified performance goals are achieved.
The performance goals established by the Compensation Committee will be based upon objective business criteria that take into account one or more of the following for the Company as a whole or any of its subsidiaries, operating divisions or other operating units: share price, market share, gross revenue, net revenue, net income, pre-tax income, pre-tax pre-bonus income, operating income, cash flow, earnings per share, debt ratings, debt-to-capital ratio, generation of cash, issuance of new debt, establishment of new credit facilities, retirement of debt, return on equity, return on assets, return on capital, return on revenues, attraction of new capital, gross homebuilding margin, net margin, pre-tax margin, total shareholder return, acquisition or disposition of assets, acquisition or disposition of companies, creation of new performance and compensation criteria for key personnel, recruiting and retaining key personnel, customer satisfaction, employee morale, acquisition or disposition of other entities or businesses, acquisition or disposition of assets, hiring of strategic personnel, development and implementation of Company policies, strategies and initiatives, creation of new joint ventures, new contracts signed, increasing the Company’s public visibility and corporate reputation, development of corporate brand name, overhead cost reductions, unit deliveries, savings, productivity, or any combination of or variations on the preceding business criteria.
At or after the end of each Performance Period, the Compensation Committee will determine whether and to what extent the performance goals have been achieved and will calculate the amount of the Award to be paid to each participant, if any, based upon the levels of achievement of the relevant performance goals and the objective formula or method established with respect to such Performance Period. The establishment of performance goals and the granting of Awards under the Senior Officer Plan will, in all cases, be implemented in a manner that is consistent with the requirements of Section 162(m) and the Treasury Regulations promulgated thereunder.
5. Cap on Awards. Section 162(m) requires that the maximum potential Award amount payable under the Senior Officer Plan be disclosed to, and approved by, our stockholders, in order for any Award, regardless of its amount, to be tax-deductible by us. In order to ensure tax deductibility of all Awards under the Senior Officer Plan, the Compensation Committee has established that no Award payable under the Senior Officer Plan can exceed $8.5 million (the “Award Cap”), and in no event will the maximum aggregate amount payable to any participant with respect to Awards that have Performance Periods that end in the same fiscal year exceed two times the Award Cap, regardless of the number of Awards that would otherwise be payable in that fiscal year (the “Annual Payment Cap”). Awards that are limited pursuant to the Annual Payment Cap may not be carried over and paid during a subsequent fiscal year. The Compensation Committee will have no discretion to increase the amount of any Awards beyond the Award Cap or the Annual Payment Cap, as applicable, but may, in its sole discretion, reduce the amount of an Award to any lesser amount, or set the Awards at any lesser amount, including as low as $0, based on such facts and circumstances as it deems relevant.
6. Payment of Awards. Awards under the Senior Officer Plan may be paid in cash, equity, or a combination of the two. The equity portion of any Award under the Senior Officer Plan may be paid in shares of restricted stock, shares of unrestricted stock, or restricted or unrestricted stock units, all of which will be issued from the Toll Brothers, Inc. Stock Incentive Plan for Employees (2014) or a successor plan. To the extent an Award is settled with equity, such equity will be valued as of the end of the Performance Period for the Award.
7. Amendment and Termination of the Senior Officer Plan. The Senior Officer Plan may be terminated or revoked by action of the Compensation Committee or the Board of Directors at any time. The Senior Officer Plan may be amended from time to time by the Compensation Committee, provided that no amendment may be made to the class of individuals who are eligible to participate in the Senior Officer Plan, the business criteria specified in the
Senior Officer Plan, or the maximum amount payable under the Senior Officer Plan without disclosure to and approval by our stockholders, unless stockholder approval is not required in order for the Award paid under the Senior Officer Plan to a covered employee (as defined in Section 162(m)) to constitute qualified performance-based compensation under Section 162(m). The Senior Officer Plan may be amended by the Compensation Committee as it deems appropriate in order to comply with the provisions of Section 162(m).
New Plan Benefits
The amount of any Award to a participant in the Senior Officer Plan depends on the performance goals established for an Award for such participant by the Compensation Committee, the determination as to whether such performance goals were met, our overall performance as a company, the participant’s individual performance, and the discretion of the Compensation Committee. The actual amount that will be received under the Senior Officer Plan (assuming stockholder approval of the Senior Officer Plan) for Awards that have already been established by the Compensation Committee is not currently determinable. The table below discloses, based on the assumptions contained in footnotes 1 and 2 thereto: (a) what each NEO for fiscal 2014 could potentially have received if the Senior Officer Plan, and the Awards made thereunder, had been in effect for fiscal 2014, and (b) what all of our current executive officers as a group could potentially have received if the Senior Officer Plan, and the Awards made thereunder, had been in effect for fiscal 2014, in each case assuming that the Senior Officer Plan is approved by stockholders.
New Plan Benefits—Toll Brothers, Inc. Senior Officer Bonus Plan |
| | | |
Name and Position | | |
| | |
Robert I. Toll, Executive Chairman | | (1 | ) |
Douglas C. Yearley, Jr., Chief Executive Officer | | (1 | ) |
Richard T. Hartman, President and Chief Operating Officer | | (1 | ) |
Martin P. Connor, Chief Financial Officer | | (1 | ) |
Current Executive Officers as a Group | | (2 | ) |
Non-Executive Director Group | | (3 | ) |
Non-Executive Officer Employee Group | | (3 | ) |
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(1) | For the Awards already established by the Compensation Committee under the Senior Officer Plan, assuming stockholder approval of the Senior Officer Plan and assuming the same actual performance as in fiscal 2014, the Compensation Committee would have the ability to award up to the Award Cap of $8.5 million to each participant; however, the Compensation Committee has never awarded the maximum allowable amount to these participants under the existing Senior Officer Plan and has consistently awarded amounts that are far less than the maximum permissible. For example, in fiscal 2014, the Compensation Committee could have awarded up to $8.5 million to each of the NEOs under the terms of the Senior Officer Plan; however, the Compensation Committee, in its discretion, awarded bonuses of $1,500,000, $2,300,000, $800,000, and $800,000 to each of Mr. Robert I. Toll, Mr. Yearley, Mr. Hartman, and Mr. Connor, respectively, for fiscal 2014. |
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(2) | There are four current executive officers who are currently eligible for the Senior Officer Plan in fiscal 2015: Mr. Robert I Toll, Mr. Yearley, Mr. Hartman, and Mr. Connor. If each executive officer was awarded the maximum potential Award, assuming the same actual performance as in fiscal 2014, the aggregate amount paid to such executive officers as a group could equal four times the Award Cap. However, as noted above, the Compensation Committee has never awarded the maximum allowable amount payable under the Senior Officer Plan and has consistently awarded amounts that are far less than the maximum permissible. |
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(3) | There are no non-executive directors or non-executive officer employees who are participants in the Senior Officer Plan. |
Required Vote
To be approved, this proposal must receive an affirmative majority of the votes cast on the proposal at the Meeting. If the Senior Officer Plan is not approved by stockholders, we would not be able to deduct cash incentive compensation payments after fiscal 2014 to any of our “covered employees” under Section 162(m) to the extent that such amounts, together with other compensation that does not qualify as performance-based compensation for purposes of Section 162(m), exceeds $1 million.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” PROPOSAL FOUR.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of October 31, 2014 with respect to compensation plans (including individual compensation arrangements) under which the Company’s equity securities are authorized for issuance. There are no plans that have not been approved by stockholders.
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| | | | | | | | | | |
Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights(1) | | Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights(2) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)) |
| | | | | | |
| | (a) | | (b) | | (c) |
| | (In thousands) | | | | (In thousands) |
Equity compensation plans approved by security holders | | 10,647 |
| | $ | 25.9396 |
| | 8,821 |
|
Equity compensation plans not approved by security holders | | — |
| | | | — |
|
Total | | 10,647 |
| | $ | 25.9396 |
| | 8,821 |
|
| |
(1) | Amount includes 9,358,000 shares and 1,289,000 shares of stock options and RSUs, respectively, outstanding as of October 31, 2014. The amount of performance-based RSUs, which is included in the RSU amount, reflects the maximum number of shares that could be issued under the fiscal 2014 award as further described under "Performance-Based RSUs" on page 36. |
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(2) | The weighted-average exercise price does not take into account the 1,289,000 shares of RSUs outstanding as of October 31, 2014. |
CORPORATE GOVERNANCE
We are committed to operate within a comprehensive plan of corporate governance for the purpose of defining independence, assigning Board committee responsibilities, setting high standards of professional and personal conduct, and assuring compliance with such responsibilities and standards. The Board and the Governance Committee regularly monitor developments in the area of corporate governance to ensure that our corporate governance practices continue to evolve as appropriate.
Corporate Governance Guidelines and Practices
The Board has adopted Corporate Governance Guidelines, which describe the Board’s views on a number of governance topics. The guidelines are posted on, and can be obtained free of charge from, our website at www.tollbrothers.com under “Investor Relations: Corporate Governance.”
Leadership Structure
In connection with the appointments of Mr. Douglas C. Yearley, Jr. as CEO and Mr. Robert I. Toll as Executive Chairman of the Board, each effective June 16, 2010, the Board separated the roles of Chairman and Chief Executive Officer. As our CEO, Mr. Yearley is responsible for our day-to-day operations and for formulating and executing our long-term strategies in collaboration with Mr. Robert I. Toll, Executive Chairman of the Board, and the Board. As Executive Chairman of the Board, Mr. Robert I. Toll continues to play a significant role and is actively involved in our business by chairing the Board, acting as advisor to the executive officers, and regularly engaging in the review of land transactions and in planning our long-term business strategy, particularly with respect to product and geographic expansion.
In the Board’s view, an appropriate leadership structure depends on the opportunities and challenges facing a company at a given time. The Board believes that the current leadership structure is appropriate for us at this time as it enables us and the Board to continue to benefit from Mr. Robert I. Toll’s vast experience, skills, expertise, and knowledge of the Company and the home building industry.
In fiscal 2011, the Board designated Edward G. Boehne as the Lead Independent Director of the Board of Directors until his successor is duly designated and qualified. The Lead Independent Director helps ensure that there is an appropriate balance between management and the independent directors, and that the independent directors are fully informed and able to discuss and debate the issues that they deem important. The role of the Lead Independent Director includes:
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• | presiding over all executive sessions and other meetings of the independent directors; |
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• | acting as principal liaison between the Executive Chairman of the Board, the CEO and the non-independent directors, on the one hand, and the independent directors, on the other hand; |
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• | serving as the director whom stockholders may contact; |
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• | leading the process for evaluating the Board of Directors and the committees of the Board of Directors; |
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• | participating in the communication of sensitive issues to the other directors; and |
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• | performing such other duties as the Board of Directors may deem necessary and appropriate from time to time. |
Codes of Business Conduct and Ethics
Management has adopted a Code of Ethics for Principal Executive Officer and Senior Financial Officers, violations of which must be reported to the Audit Committee or to our Chief Executive Officer or General Counsel. This code and any waiver or amendment to the code are available free of charge from our website at www.tollbrothers.com under “Investor Relations: Corporate Governance.”
We operate under a comprehensive Code of Ethics and Business Conduct that we review annually and that applies to all directors, officers, and employees and includes provisions ranging from conflicts of interest and acceptance of gifts to harassment, discrimination, and other employment-related matters. Upon employment with
us, all employees are required to affirm in writing their receipt and review of the code and their compliance with its provisions. Copies of this code can be obtained free of charge from our website at www.tollbrothers.com under “Investor Relations: Corporate Governance.”
Director Independence
Under the NYSE rules and the standards adopted by the Board, a director is not “independent” unless the Board affirmatively determines that the director has no direct or indirect material relationship with us. In addition, the director must meet the requirements for independence set forth by the NYSE rules.
The Board has established categorical standards of director independence to assist it in making independence determinations. These standards, which are described below, set forth certain relationships between us and the directors, and their immediate family members or entities with which they are affiliated, that the Board, in its judgment, has determined to be material or immaterial in assessing a director’s independence. The standards applied by the Board in affirmatively determining whether a director is “independent” provide that a director is not independent if:
(1) the director is, or has been within the last three years, our employee or an immediate family member (defined as including a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone, other than domestic employees, who shares such person’s home) of, or is, or has been within the last three years, one of our executive officers;
(2) the director has received, or has an immediate family member who has received, during any 12-month period within the last three years, more than $120,000 per year in direct compensation from us, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service);
(3)(a) the director is a current partner or employee of a firm that is our internal or external auditor; (b) the director has an immediate family member who is a current partner of such a firm; (c) the director has an immediate family member who is a current employee of such a firm and personally works on our audit; or (d) the director or an immediate family member was, within the last three years, a partner or employee of such a firm and personally worked on our audit within that time;
(4) the director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of our present executive officers at the same time serves or served on that company’s compensation committee;
(5) the director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to or received payments from us for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or two percent of such other company’s consolidated gross revenues; and
(6) the director or an immediate family member is, or within the past three years has been, an affiliate of another company in which, in any of the last three years, any of our present executive officers directly or indirectly either:
(a) owned more than five percent of the total equity interests of such other company, or
(b) invested or committed to invest more than $900,000 in such other company.
The Board annually reviews the independence of all directors. The Board, in applying the above-referenced standards, has affirmatively determined that all of our directors are independent, other than Messrs. Robert I. Toll, Bruce E. Toll and Douglas C. Yearley, Jr. As part of the Board’s process in making such determination, the Board determined that all of the above-cited objective criteria for independence are satisfied, and that no independent director has any material relationship with us that could interfere with his or her ability to exercise independent judgment.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee during the fiscal year ended October 31, 2014 has ever been an officer or employee of the Company or its subsidiaries. None of the members has any relationship required to be disclosed under this caption under the rules of the SEC.
Personal Loans to Executive Officers and Directors
We do not permit personal loans to or for the benefit of our directors or executive officers.
Communication with the Board
Any person who wishes to communicate with the Board or specific individual directors, including the Lead Independent Director or the independent directors as a group, may do so by directing a written request addressed to such directors or director in care of the General Counsel, Toll Brothers, Inc., at the address appearing on the cover page of this proxy statement. Communications directed to members of the Board who are management directors will be referred to the intended Board member(s) except to the extent that it is deemed unnecessary or inappropriate to do so pursuant to the procedures established by the independent directors. Communications directed to independent directors will be referred to the intended Board member(s).
Committees of the Board and Meetings
The Board currently has the following standing committees: Audit and Risk Committee; Executive Compensation Committee; Nominating and Corporate Governance Committee; and Public Debt and Equity Securities Committee. The following table lists our four Board committees, as well as the chairs and members of each committee, for our entire 2014 fiscal year and at present.
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Name | Independent | Audit and Risk Committee | Executive Compensation Committee | Nominating & Corporate Governance Committee | Public Debt & Equity Securities Committee |
| | | | | |
Robert I. Toll | | | | | |
Bruce E. Toll | | | | | M |
Douglas C. Yearley, Jr. | | | | | |
Robert S. Blank | ü | | | M | M |
Edward G. Boehne | ü | M | | C | |
Richard J. Braemer | ü | | | | C |
Christine N. Garvey | ü | M | | | |
Carl B. Marbach | ü | M | C | | M |
Stephen A. Novick | ü | | M | M | |
Paul E. Shapiro | ü | C | M | | |
C-Chair M-Member
Audit and Risk Committee
The Audit Committee is composed of Paul E. Shapiro (Chair), Edward G. Boehne, Christine N. Garvey, and Carl B. Marbach, each of whom was a member of the Audit Committee for our entire 2014 fiscal year. Each member of the Audit Committee has been determined by the Board to meet the standards of independence required of audit committee members by the NYSE and applicable SEC rules. For more information on the NYSE standards for independence, see “Director Independence” above. The Board has also determined that all members of the Audit Committee are financially literate, and that Edward G. Boehne possesses accounting and related financial management expertise within the meaning of the listing standards of the NYSE and is an “audit committee financial expert” within the meaning of the applicable SEC rules. For a description of Mr. Boehne’s relevant experience, see “Proposal One—Election of Directors.”
The duties and responsibilities of the Audit Committee are set forth in its charter, which may be found at www.tollbrothers.com under “Investor Relations: Corporate Governance,” and include, among other things:
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• | acting on behalf of our Board to discharge the Board’s responsibilities relating to the quality and integrity of our financial statements; |
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• | overseeing our compliance with legal and regulatory requirements; |
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• | overseeing risk oversight and assessment; |
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• | the appointment, qualifications, performance and independence of the independent registered public accounting firm; |
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• | pre-approval of all audit engagement fees and terms, all internal-control related services and all permitted non-audit engagements (including the terms thereof) with the independent auditor; and |
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• | review of the performance of our internal audit function. |
The duties of the Audit Committee with respect to oversight of the Company’s financial reporting process are described more fully on page 52 under “Report of the Audit Committee.” During fiscal 2014, the Audit Committee held 10 regular meetings. All of its meetings were attended by representatives from Ernst & Young LLP, our independent registered public accounting firm.
Executive Compensation Committee
The Compensation Committee is, and for the entire 2014 fiscal year was, composed of Carl B. Marbach (Chair), Stephen A. Novick, and Paul E. Shapiro, each of whom has been determined by the Board to meet the NYSE’s standards for independence required of compensation committee members. In addition, each committee member qualifies as a “Non-Employee Director” as defined in Rule 16b-3 under the Exchange Act and as an “outside director” as defined for purposes of Section 162(m) of the Code.
The duties and responsibilities of the Compensation Committee are set forth in its charter, which may be found at www.tollbrothers.com under “Investor Relations: Corporate Governance,” and include, among other things:
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• | establishing our compensation philosophy and objectives; |
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• | overseeing the implementation and development of our compensation programs; |
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• | annually reviewing and approving corporate goals and objectives relevant to the compensation of the Executive Chairman of the Board and CEO; |
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• | evaluating the performance of the Executive Chairman of the Board and CEO in light of those goals and objectives and determining each of the Executive Chairman of the Board’s and CEO’s compensation level based on these evaluations; |
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• | reviewing and approving all elements and levels of compensation for our executive officers and any other officers recommended by the Board; |
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• | discussing the results of the stockholder advisory vote on Say on Pay; |
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• | making recommendations to the Board with respect to incentive compensation plans and equity-based plans; |
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• | administering (in some cases, along with the Board) all of our stock-based compensation plans, as well as the Senior Officer Plan and the SERP; |
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• | reviewing and approving, or making recommendations to the full Board regarding, equity-based awards; and |
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• | reviewing our regulatory compliance with respect to compensation matters. |
In fulfilling its responsibilities, the Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the committee. For a discussion concerning the process and procedures for determining executive
compensation and the role of executive officers and compensation consultants in determining or recommending the amount or form of compensation, see the “Compensation Discussion and Analysis” beginning on page 25. The Compensation Committee held two regular meetings and one special meeting during fiscal 2014. During fiscal 2014, the Compensation Committee's independent compensation consultant and its affiliates did not provide any services to the Company or its affiliates other than advising the Compensation Committee on executive officer compensation.
Nominating and Corporate Governance Committee
The Governance Committee is, and for the entire 2014 fiscal year was, composed of Edward G. Boehne (Chair), Robert S. Blank, and Stephen A. Novick, each of whom has been determined by the Board to meet the NYSE’s standards for independence.
The duties and responsibilities of the Governance Committee are set forth in its charter, which may be found at www.tollbrothers.com under “Investor Relations: Corporate Governance,” and include, among other things:
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• | identifying individuals qualified to become members of the Board and recommending to the Board the nominees for election to the Board; |
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• | evaluating from time to time the appropriate size of the Board and recommending any changes in the composition of the Board so as to best reflect our objectives; |
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• | assessing annually the composition of the Board, including a review of Board size, the skills and qualifications represented on the Board, and director tenure; |
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• | evaluating and making recommendations to the Board with respect to the compensation of the non-management directors; |
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• | adopting and reviewing, at least annually, corporate governance guidelines consistent with the requirements of the NYSE; |
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• | establishing procedures for submission of recommendations or nominations of candidates to the Board by stockholders; |
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• | reviewing the Board’s committee structure; |
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• | reviewing proposed changes to our governance instruments; |
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• | reviewing and recommending director orientation and continuing orientation programs; |
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• | reviewing and approving related person transactions; and |
The Governance Committee is responsible for evaluating and making recommendations to the Board with respect to compensation of our directors. The Governance Committee, along with the Board, administers the Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Non-Employee Directors (2007) (the “Directors Plan”). The Governance Committee held three regular meetings and two special meetings during fiscal 2014.
Public Debt and Equity Securities Committee
The Public Debt and Equity Securities Committee is, and for the entire 2014 fiscal year was, composed of Richard J. Braemer (Chair), Robert S. Blank, Carl B. Marbach, and Bruce E. Toll.
The duties and responsibilities of the Public Debt and Equity Securities Committee are set forth in its charter, which may be found at www.tollbrothers.com under “Investor Relations: Corporate Governance,” and include reviewing and approving, pursuant to authority granted by the Board, certain transactions relating to our public debt and equity securities and those of our affiliates. The Public Debt and Equity Securities Committee held two meetings during fiscal 2014.
Director Attendance
Attendance at Board Meetings
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• | The Board held four regular meetings and one special meeting during our 2014 fiscal year. |
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• | All directors attended over 75% or more of the meetings of the Board and Board Committees on which they served. |
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• | Our independent directors hold separate meetings. Edward G. Boehne, our Lead Independent Director, acts as chair at meetings of the independent directors. During our 2014 fiscal year, the independent directors met four times. |
Attendance at Annual Meetings of Stockholders
It is the policy of our Board that all directors attend annual meetings of stockholders except where the failure to attend is due to unavoidable circumstances or conflicts discussed in advance by the director with the Executive Chairman of the Board. All of our Directors attended our 2014 Annual Meeting of Stockholders, except Christine N. Garvey was unable to attend the meeting.
Consideration and Selection of Nominees for the Board
The Governance Committee is authorized to consider candidates for Board membership suggested by its members and by other Board members, as well as by management and by stockholders. A stockholder who wishes to recommend a prospective candidate for membership on the Board should follow the procedures described in this proxy statement under the caption “Procedures for Recommending Candidates for Nomination to the Board of Directors.” Once a prospective candidate has been identified by, or presented to, the Governance Committee, background information is elicited about the candidate, and the candidate is investigated and evaluated by the Governance Committee and, if deemed appropriate, interviewed. Following this process, the Governance Committee reports to the Board and makes a recommendation regarding the prospective candidate. No distinctions are to be made as between internally-recommended candidates and those recommended by stockholders. For a discussion of criteria for membership on our Board of Directors, see "Board Membership Criteria" on page 6 of this proxy statement.
Risk Oversight
Our Audit Committee regularly receives reports from a risk management committee comprised of representatives from various business functions within the Company that are charged with risk assessment and business continuity planning. This committee meets on a regular basis and selects topics related to specific risks and potential vulnerabilities related to particular business functions of the Company, which topics are then presented to the Audit Committee along with a summary of the measures we have taken or plan to take in order to define and mitigate such risks and prepare for and address such vulnerabilities. These presentations have included reports regarding risks and vulnerabilities relating to, among other things, operations, assets, land investments, competition, personnel, credit and debt covenant compliance, joint venture relationships, financial reporting, insurance, financing, mortgages, treasury, storm water compliance, safety, litigation exposure, and information technology.
In addition, our Compensation Committee oversees risks arising from our compensation practices, and our Governance Committee oversees succession risks. Each of these committees regularly reports to the full Board, which is ultimately responsible for overseeing risks at the enterprise level. In addition, our full Board oversees strategic risks through its focus on overall corporate strategy and execution. The Compensation Committee has reviewed the design and operation of our compensation structures and policies as they pertain to risk and has determined that our compensation programs do not create or encourage the taking of risks that are reasonably likely to have a material adverse effect on us.
DIRECTOR COMPENSATION
The Governance Committee is responsible for evaluating and recommending compensation for non-management directors to the Board. Our non-management directors are compensated in cash, stock options, and restricted stock for their service as directors. The equity portion of annual compensation is paid following the end of the fiscal year, so the equity grant for service in the fiscal year ended October 31, 2013 was made in fiscal 2014.
The compensation program in effect for fiscal 2013 and 2014 for non-management directors consisted of the following components:
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• | Board Retainer. The principal form of compensation for non-management directors for their service as directors is an annual retainer, consisting of a combination of cash and equity, with an annual aggregate value of $160,000 as follows: |
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• | Cash. Each non-management director receives one-third of the annual retainer in cash. |
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• | Equity. The equity portion of the annual retainer for a non-management director consists of two components: (a) non-qualified stock options having a grant date fair value of one-third of the annual retainer and (b) RSUs having a grant date fair value of one-third of the annual retainer, except that fractional shares and options are not issued. These equity grants are issued pursuant to the Directors Plan for the non-employee directors and the Stock Incentive Plan for Employees (2014) for Mr. Bruce E. Toll. |
Stock options are granted on a date within the last 15 days of December that is determined in advance by the Compensation Committee for service during the immediately preceding fiscal year and are granted by the Board with an exercise price equal to the fair market value of the underlying common stock on the date of grant. Each option grant made to a non-management director has a ten-year term and vests in equal annual installments over a two-year period, with a provision for automatic vesting upon a change of control of the Company. For directors with five or more years of service, options continue to vest and remain exercisable for the ten-year term in the event of the director's death, disability, or retirement.
RSUs are also granted on a date within the last 15 days of December that is determined in advance by the Compensation Committee for service during the immediately preceding fiscal year. RSUs granted as director compensation vest in equal annual installments over two years, and shares underlying RSUs are deliverable 30 days after the vesting of the second installment. Upon a change of control of the Company or upon the death, disability, or retirement of the director, RSUs granted as director compensation will vest immediately and will be deliverable 30 days after vesting.
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• | Committee Retainer. Each member of the Audit Committee, the Governance Committee, and the Compensation Committee receives annually, for service on each such Committee, a combination of cash and equity with a grant date fair value of $20,000 as follows (except that fractional shares and options are not issued): (a) one-third of this amount in cash; (b) non-qualified stock options having a grant date fair value of one-third of this amount; and (c) RSUs having a grant date fair value of one-third of this amount, in each case with the same material terms described above under “Equity.” In addition, the Chair of each of these committees receives an additional annual cash retainer of $10,000. |
Each member of the Public Debt and Equity Securities Committee receives annually in any year in which the Committee meets or takes official actions, for service on such Committee, a combination of cash and equity with a grant date fair value of $10,000 as follows (except that fractional shares and options are not issued): (a) one-third of this amount in cash; (b) non-qualified stock options having a grant date fair value of one-third of this amount; and (c) RSUs having a grant date fair value of one-third of this amount, in each case with the same features described above under “Equity.” In addition, the Chair of that Committee receives an additional cash retainer of $5,000 in any year in which the Committee meets or takes official action.
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• | Attendance at Board and Committee Meetings. Directors, Committee Chairs and Committee members do not receive any additional compensation for attendance at Board or Committee meetings. |
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• | Lead Independent Director. The Lead Independent Director, Edward G. Boehne, receives annually $10,000 in cash for his services in that capacity. |
Other Director Compensation Arrangements
Mr. Bruce E. Toll entered into an Advisory and Non-Competition Agreement (the “Advisory Agreement”) with the Company as of November 1, 2010. The Advisory Agreement expires on October 31, 2016. The purpose of the Advisory Agreement is to provide us with the valuable and special knowledge, expertise, and services of Mr. Bruce E. Toll, one of our co-founders and a director of the Company since our inception, on a continuing basis, as well as to provide that Mr. Toll does not engage in specified activities. The Advisory Agreement provides, among other things, that we will retain Mr. Bruce E. Toll as an employee and Special Advisor to the Executive Chairman of the Board and the CEO until October 31, 2016, at a compensation rate of $675,000 for the first year of the term of the Advisory Agreement, with such compensation rate to be reduced by $75,000 in each of the remaining five years of the term of the Advisory Agreement. In fiscal 2014, he received compensation in the amount of $450,000 under the Advisory Agreement.
The Advisory Agreement provides that during the term of the Advisory Agreement, Mr. Bruce E. Toll will be entitled to receive the health plan benefits provided to our NEOs, which in fiscal 2014 were the same as those provided to all of our employees after 60 days of service with us. Mr. Bruce E. Toll is a participant in the Company’s 401(k) retirement plan. During fiscal 2014, we provided Mr. Bruce E. Toll with a contribution to the Company’s 401(k) retirement plan in the amount of $10,215. Mr. Bruce E. Toll is also a participant in the SERP, which provides an annual benefit of $230,000 for 20 years; however, no payments are to be made to him under the SERP until the expiration of the term (or termination) of the Advisory Agreement. See “Executive Compensation Tables—Pension Benefits During Fiscal 2014—Supplemental Executive Retirement Plan” for a more detailed description of the SERP.
Director Compensation Table
The following table sets forth information concerning the fiscal 2014 compensation awarded to or earned by our non-management directors. Management directors are not compensated for their service as directors. The compensation received by our management directors for their services as employees is shown in the Summary Compensation Table on page 42 of this proxy statement.
Director Compensation during Fiscal 2014
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| | | | | | | | | | | | | | | | | | | | | | | | |
Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($)(1)(2) | | Option Awards ($)(3)(4) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | | All Other Compensation ($)(5) | | Total ($) |
| | | | | | | | | | | | |
Robert S. Blank | | $ | 63,336 |
| | $ | 63,323 |
| | $ | 64,534 |
| | $ | — |
| | $ | — |
| | $ | 191,193 |
|
Edward G. Boehne | | $ | 86,670 |
| | $ | 66,663 |
| | $ | 67,933 |
| | $ | — |
| | $ | — |
| | $ | 221,266 |
|
Richard J. Braemer | | $ | 61,668 |
| | $ | 56,678 |
| | $ | 57,737 |
| | $ | — |
| | $ | — |
| | $ | 176,083 |
|
Christine N. Garvey | | $ | 60,002 |
| | $ | 59,983 |
| | $ | 61,135 |
| | $ | — |
| | $ | — |
| | $ | 181,120 |
|
Carl B. Marbach | | $ | 80,004 |
| | $ | 70,004 |
| | $ | 71,331 |
| | $ | — |
| | $ | — |
| | $ | 221,339 |
|
Stephen A. Novick | | $ | 66,670 |
| | $ | 66,663 |
| | $ | 67,933 |
| | $ | — |
| | $ | — |
| | $ | 201,266 |
|
Paul E. Shapiro | | $ | 76,670 |
| | $ | 66,663 |
| | $ | 67,933 |
| | $ | — |
| | $ | — |
| | $ | 211,266 |
|
Bruce E. Toll | | $ | 56,668 |
| | $ | 56,678 |
| | $ | 57,737 |
| | $ | — |
| | $ | 460,215 |
| | $ | 631,298 |
|
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(1) | Annual RSU grants to non-management directors are made during the first quarter of each fiscal year for service on the Board and Board committees during the immediately preceding fiscal year; accordingly, the values reflected in the table above are values of grants for service in fiscal 2013. |
Each non-management director received RSUs for Board and Board Committee service having a value of $53,333 for Board service. In addition, non-management directors received RSUs having a value of $6,666 for service on the Audit Committee, the Governance Committee, and the Compensation Committee, and RSUs having a value of $3,333 for service on the Public Debt and Equity Securities Committee. For purposes of determining the number of RSUs that are awarded, the RSU grant date fair value per share is the closing price of our common stock on December 20, 2013, the grant date of the awards. RSUs for fractional shares are not granted.
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(2) | The non-management directors held the following amounts of outstanding RSUs at October 31, 2014: Mr. Blank, 3,767 units; Mr. Boehne, 3,965 units; Mr. Braemer, 3,371 units, Ms. Garvey, 3,568 units; Mr. Marbach, 4,164 units; Mr. Novick, 3,965 units; Mr. Shapiro, 3,965 units; and Mr. Toll, 3,371 units. |
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(3) | The annual stock option grants to non-management directors are made during the first quarter of each fiscal year for service on the Board and Board committees during the immediately preceding fiscal year; accordingly, the values reflected in the table above are values of grants for service in fiscal 2013. |
Each non-management director received options for Board and Board committee service having a value of $53,333 for Board service. In addition, non-management directors received options having a value of $6,666 for service on the Audit Committee, the Governance Committee, and the Compensation Committee; and options having a value of $3,333 for service on the Public Debt and Equity Securities Committee. Options for fractional options are not granted. The option grant values reflected in the table may vary from these amounts because the option grant date fair value per share is determined as follows:
For purposes of determining the number of shares that are subject to the options granted, the grant date fair value per share of the options was determined by multiplying the closing price of our stock on December 20, 2013, the date of the awards, by the average of the “Fair Value Quotient” for the three immediately previous fiscal years of the Company. The “Fair Value Quotient” is the fraction in which (x) the denominator is the closing price of our common stock on the date of the awards for each of the three years immediately preceding the current year, and (y) the numerator is the grant date fair value of the options granted in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation ("ASC 718"); assumptions used in the calculation of these amounts are included in Note 10 to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2014, excluding the effect of estimated forfeitures.
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(4) | The non-management directors held unexercised stock options to acquire the following amounts of our common stock at October 31, 2014: Mr. Blank, 150,862 shares; Mr. Boehne, 126,224 shares; Mr. Braemer, 141,140 shares; Ms. Garvey, 63,501 shares; Mr. Marbach, 158,585 shares; Mr. Novick, 158,224 shares; Mr. Shapiro, 153,474 shares; and Mr. Bruce E. Toll, 141,140 shares. |
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(5) | “All Other Compensation” consists of the following annual compensation and benefits provided to Mr. Bruce E. Toll pursuant to the Advisory Agreement. See “Other Director Compensation Arrangements,” above. |
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| | | | |
Annual compensation under Advisory Agreement | | $ | 450,000 |
|
Contribution to Company 401(k) plan | | 10,215 |
|
Total | | $ | 460,215 |
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EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Overview
This Compensation Discussion and Analysis ("CD&A") focuses on how our NEOs were compensated for fiscal 2014 and how their 2014 compensation aligns with our pay for performance philosophy. In our CD&A, we will discuss:
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2014 Company Performance | 25 |
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Executive Compensation Program Highlights | 27 |
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Compensation Philosophy and Objectives | 27 |
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Compensation Decision-Making Process | 29 |
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Elements of Compensation | 32 |
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Cash Compensation Decisions | 32 |
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Long-Term Incentive Compensation Decisions | 35 |
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Benefits and Perquisites | 37 |
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Other Compensation Practices and Policies | 39 |
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2014 Company Performance
In determining NEO compensation for the fiscal year ended October 31, 2014, the Compensation Committee recognized that fiscal 2014 was a year of significant progress in growing our revenues and profits. The Compensation Committee paid particular attention to the Company's performance in the areas of revenues, pre-tax income, and gross margin:
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• | Revenues: Our revenues in fiscal 2014 of $3.91 billion and home building deliveries of 5,397 units rose 46% in dollars and 29% in units compared to fiscal 2013 and were the highest for any fiscal year since fiscal 2007. |
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• | Income: Our pre-tax income improved to $504.6 million in fiscal 2014, compared to pre-tax income of $267.7 million in fiscal 2013. We reported net income of $340.0 million, or $1.84 per share diluted, compared to net income of $170.6 million in fiscal 2013, or $0.97 per share diluted. |
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• | Gross Margin: Our gross margin for fiscal 2014 was 21.2%, compared to 20.2% for fiscal 2013. |
The Compensation Committee also considered the following results and achievements:
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• | Contracts: Our net contracts signed in fiscal 2014 of $3.90 billion rose 7% compared to fiscal 2013 and were the highest for any fiscal year since 2006. |
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• | Backlog: Our fiscal year end 2014 backlog was $2.72 billion, up 3% compared to fiscal 2013 and was the highest for any fiscal year since 2007. |
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• | Selling, General and Administrative Expenses (“SG&A”): Our SG&A as a percentage of revenue improved to 11.1% compared to 12.7% for fiscal 2013. |
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• | Operating Margin: Our operating margin improved to 10.2% for fiscal 2014 from 7.5% for fiscal 2013. |
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• | Joint Venture and Other Income: In fiscal 2014, we produced $107.3 million in pre-tax income from our joint ventures, our other ancillary operations, and other sources, compared to $66.6 million in fiscal 2013. |
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• | Growth in a Recovering Economy: As the housing market progresses through the early stages of the recovery, we have made significant progress in growing our revenues and profits. Since the recent low point in fiscal 2011, our revenues and net income have increased at compound annual growth rates of 38% and 104%, respectively. |
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• | Integration of Shapell Acquisition. In fiscal 2014, we completed the integration of the Shapell Homes acquisition that closed in February 2014 and was the largest acquisition in the Company's history. With Shapell, at fiscal year-end, we were selling homes from 25 communities in California representing 9.5% of the Company’s total selling communities, compared to 9 communities representing 4.0% of our total a year before. In fiscal 2014, we also completed selective sales of Shapell land which were part of our strategy to reduce land concentration and outstanding borrowings following the closing of the acquisition. |
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• | Focus on Growth Opportunities: In fiscal 2014, we continued to strategically grow our land holdings in key markets, extend our product offerings across geographies, diversify our business lines, and strengthen our financial position. |
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◦ | In California, the $1.6 billion acquisition of Shapell Homes gave us approximately 5,000 home sites in established coastal communities in the California markets surrounding Los Angeles and San Francisco, enabling us to significantly expand our California operations. |
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◦ | In Texas, we opened four large master planned communities, where we will build homes and sell lots to other builders, which will generate future additional income. |
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◦ | Toll Brothers City Living, which is heavily concentrated in the urban metro New York City market, currently has 837 units in projects open or soon to be open for sale with another 1,203 units we control that are in the approval process. |
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◦ | Toll Brothers Apartment Living continues to expand our pipeline of urban and suburban for-rent projects. We currently have 1,441 units under management, 1,920 in construction, and nearly 3,000 in planning. |
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• | Honors: We were named "Builder of the Year" by Builder magazine. In addition, the Company and several of our executives were recognized in Institutional Investor magazine's 2015 All-America Executive Team survey of the investment community. |
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◦ | We were named Most Honored Company in the Home Building and Building Products sector among the 37 companies receiving nominations. We also ranked 8th overall among the approximately 2,000 companies receiving votes in this year's survey of the buy-side and sell-side analyst community. |
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◦ | Our CEO and CFO were named to the All-America Executive Team with each receiving recognition from both the buy-side and sell-side communities within the Homebuilders & Building Products sector. |
Executive Compensation Program Highlights
Our Compensation Committee has developed and maintained a compensation program that is intended to reward positive performance, retain talented personnel, and encourage actions that drive success in our business strategy. Our executive compensation program received the support of at least 98% of our stockholders who voted at our Annual Meeting of Stockholders in each of the last four years.
Our compensation program features the following attributes:
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• | A balanced mix of annual cash and longer-term equity incentives that reward our NEOs for current performance and align their interests with long-term performance and long-term stockholder value creation. |
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• | Long-term equity incentive grants with multi-year vesting periods and retirement benefits to encourage retention of our NEOs. |
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• | No NEO employment agreements, severance plans, or agreements that provide “golden parachute” cash payouts for our NEOs conditioned upon a change of control or excise tax gross-ups. Benefits conditioned upon a change of control are limited to vesting and potential payment of existing Supplemental Executive Retirement Plan ("SERP") benefits and vesting of previously granted equity compensation. |
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• | A structure for NEO incentive compensation that is designed to comply with tax Code requirements for deductibility. |
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• | Stock ownership requirements for our NEOs and policies restricting NEOs hedging and pledging of Company shares. |
Compensation Philosophy and Objectives
We face intense competition from a number of other home builders in each market in which we operate. It is vital to our success and long-term viability that our business continues to be managed by highly experienced, focused, and capable executives who possess the experience and vision to anticipate and respond to market developments.
The Board and the Compensation Committee believe that our ability to retain and motivate NEOs who possess the skills, experience, and capabilities to succeed in our competitive industry has been essential to our long-term success and a significant factor in creating long-term value for our stockholders. Base salaries, annual incentive bonuses, long-term equity compensation, retirement benefits, and competitive employee benefits are the primary tools used to retain and motivate our NEOs to deliver superior performance and to enhance long-term value to our stockholders. The Compensation Committee believes it has developed a compensation program that rewards outstanding short-term and long-term performance and encourages actions that successfully deliver on our business strategy.
The Compensation Committee also believes that long-term incentives should be a significant factor in the determination of the actual compensation realized over time, particularly because the many actions and decisions that are required of our NEOs in the business of home building, including evaluating and purchasing land, planning the use of that land and the timing of that use, obtaining approvals, completing development, and generating revenues, require a long time horizon before we realize tangible financial benefits.
The Compensation Committee’s primary objectives in setting compensation for our NEOs are:
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• | Set compensation levels that are sufficiently competitive to attract, motivate, and reward the highest quality individuals to contribute to our goals and overall financial success. By keeping compensation competitive during times of growth as well as contraction, the Compensation Committee attempts to achieve these objectives. |
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• | Retain executives and encourage continued service. The Compensation Committee seeks not only to attract but also to maintain the continuity of our excellent management team. The Compensation Committee believes our stockholders have historically benefited from the continued employment of our NEOs over an extended period of time—the Executive Chairman, who co-founded our business in 1967; the CEO, who joined the Company in 1990 and served in various senior management positions during the 20 years |
preceding his appointment as CEO; the President and COO, who joined the Company in 1980 and had served in various positions during the 31 years preceding his appointment as COO; and the CFO, who joined the Company in 2008. It is important that we concentrate on retaining and developing the capabilities of our current leaders and emerging leaders to ensure that we continue to have an appropriate depth of executive talent.
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• | Incentivize executives to manage risks appropriately while attempting to improve our financial results, performance, and condition over both the short-term and the long-term. The Compensation Committee provides both short-term and long-term compensation for current performance, as well as to provide incentives to achieve short- and long-term goals. Because of the nature of our business and the way we operate our business and implement our strategies, we may not witness for several years the positive results of many decisions made or actions taken by our NEOs in any current fiscal year, including those in connection with land purchased and strategies implemented to manage risks and position us for growth. The Compensation Committee, by seeking a balance of short-term and long-term compensation, seeks to motivate and reward NEOs for decisions made today that may not produce immediate or short-term results, but are intended and expected to have a positive long-term effect. |
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• | Align executive and stockholder interests. The Compensation Committee believes that the use of equity compensation, including use of RSU grants as a key component of executive compensation, is a valuable tool for aligning the interests of our NEOs with those of our stockholders, including the use of such compensation to reward actions that demonstrate long-term vision. When management and stockholder interests are aligned, the Compensation Committee believes management’s focus on creating long-term growth and value is increased. |
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• | Consider tax deductibility for incentive compensation. The Compensation Committee believes that tax deductibility for the Company is a favorable feature for an executive incentive compensation program. Although the Compensation Committee may award compensation to NEOs that is not tax-deductible when it deems that such compensation is in the best interests of the Company, it generally attempts to structure compensation for NEOs to meet the Code requirements for deductibility, including deductibility of compensation awarded under performance-based compensation plans. |
Compensation Decision-Making Process
Compensation Decision Timeline
The Compensation Committee reviews and determines base salary, annual incentive bonuses, and long-term incentive compensation, as well as benefits and perquisites, on an annual basis. For compensation relating to fiscal 2014, the primary steps taken by the Compensation Committee to establish and award compensation to our NEOs were as follows: |
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| | Compensation Committee Action Taken |
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December 2013 | | Set 2014 performance goals for fiscal 2014 annual incentive bonus and performance-based RSU awards and fixed target number of 2014 performance-based RSU awards for NEOs Set 2014 base salaries for the NEOs |
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June 2014 | | Reviewed the Say on Pay voting results from the 2014 annual meeting of stockholders Reviewed 2013 NEO compensation compared to our Peer Group Reviewed a market assessment prepared by the Committee's independent compensation consultant of 2013 senior executive pay versus performance for the Company compared to the Peer Group Reviewed Company financial results compared to the Peer Group for the prior fiscal year and the current fiscal year to date Consulted with the independent compensation consultant regarding industry trends in executive compensation |
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November 2014 | | Reviewed Company projected fiscal 2014 financial results compared to the Peer Group Reviewed market assessment prepared by the independent compensation consultant of 2013 senior executive pay versus projected Company 2014 performance compared to the Peer Group Held preliminary discussions regarding NEO individual performance during fiscal 2014 |
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December 2014 | | Reviewed Company fiscal 2014 financial results compared to the Peer Group Reviewed market assessment prepared by the independent compensation consultant of potential 2014 Company senior executive pay versus actual performance for the Company compared to the Peer Group Reviewed each NEO’s individual performance during fiscal 2014 Reviewed fiscal 2014 performance goals and certified the level of performance attained for annual incentive bonus eligibility and performance-based RSU payouts Determined fiscal 2014 annual incentive bonuses for the NEOs Determined and granted equity awards for fiscal 2014 performance |
Review of Company Performance
Throughout the fiscal year, the full Board monitored our financial performance in relation to our recent historical performance and in relation to our Peer Group. The Compensation Committee also reviewed our financial performance during the fiscal year, which it considered when making final fiscal 2014 compensation decisions. See "2014 Company Performance" above.
Review of Individual Performance
In making fiscal 2014 compensation determinations, the Compensation Committee particularly noted the contributions of each NEO to the Company’s achievements described under “2014 Company Performance” above. The Compensation Committee considered the following individual performance for each NEO:
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• | Robert I. Toll served as our Chief Executive Officer and Chairman of the Board from our inception until June 2010 when he assumed the new position of Executive Chairman of the Board. The Compensation Committee noted his continuing guidance and oversight with respect to Company strategy, particularly with respect to land acquisition as well as product and geographic expansion. |
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• | Douglas C. Yearley has been our Chief Executive Officer since June 2010. The Compensation Committee particularly noted his leadership in planning and guiding our growth and profitability, diversifying our business lines, and growing our land holdings in key markets, including through the successful integration of the Shapell acquisition. The Compensation Committee recognized his continued efforts to enhance our brand, which were reflected in the Company being named "Builder of Year" by Builder magazine. The Compensation Committee also noted his ability to communicate with, and represent us before, the media, banking, and investor communities. |
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• | Richard T. Hartman has been our Chief Operating Officer since January 2012 and our President since January 2013. The Compensation Committee noted his significant contributions to the strong 2014 fiscal year experienced by the Company as the principal officer in charge of sales and home building activities, which included major strides in geographical and product expansion in addition to improvements in processes and margin. The Compensation Committee also recognized his oversight of the successful integration of the Shapell acquisition into the Company's operations. |
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• | Martin P. Connor has been our Chief Financial Officer since September 2010. The Compensation Committee recognized his ability to work productively with all divisions and personnel in controlling our costs, preserving our cash, enhancing our balance sheet, and containing risk. The Compensation Committee also noted his successful execution of a cash generation strategy to reduce the Company's debt and net debt to capital ratio following the Shapell acquisition. |
Participation by Management
The Compensation Committee worked with management to establish its meeting agendas and determine the participants. Throughout the year, the Compensation Committee requested information from management and the Committee’s independent compensation consultant, including information about the compensation practices and financial performance of other companies in the home building industry and other industries. Our CEO and CFO were invited by the Compensation Committee to attend certain of its meetings in order to provide information and answer questions regarding the Company’s strategic objectives and financial performance related to the Compensation Committee’s work. Our other NEOs were also available to Compensation Committee members and to attend its meetings upon request.
With regard to compensation decisions relating to the Executive Chairman, the Compensation Committee, in addition to its own observations of the Executive Chairman’s performance during the 2014 fiscal year, gained significant insight into the performance of the Executive Chairman during that same period from its many exchanges with the other NEOs, other Company officers, and the other directors. The Executive Chairman submitted recommendations to the Compensation Committee regarding salary, bonus, equity compensation, and overall compensation levels for the CEO. Our CEO in conjunction with the Executive Chairman submitted recommendations to the Compensation Committee regarding salary, bonus, equity compensation, and overall compensation levels for the President and COO and the CFO. The Compensation Committee, after consideration of all of these inputs, determined the actual awards to the Executive Chairman, the CEO, the President and COO, and the CFO.
Use of Independent Compensation Consultant
The Compensation Committee engaged Compensation Advisory Partners LLC (“CAP”) to serve as its independent compensation consultant for fiscal 2014. CAP received instructions from, and reported to, the Compensation Committee on an independent basis. CAP was also authorized by the Compensation Committee to share with and request and receive from management specified information in order to prepare for Compensation
Committee meetings. The Compensation Committee requested CAP’s advice on a variety of matters, including the amount and form of executive compensation, compensation strategy, market comparisons, pay and performance alignment versus industry peers, executive pay trends, compensation best practices, compensation-related legislative matters and related rulemaking, and potential compensation plan designs and modifications. The Compensation Committee met with CAP, both with and without management, on several occasions during fiscal 2014, and also in early fiscal 2015 with respect to compensation decisions for 2014 performance. During fiscal 2014, CAP and its affiliates did not provide any services to the Company or its affiliates other than advising the Compensation Committee on executive officer compensation.
The Compensation Committee conducts a formal evaluation of the independence of CAP annually in the first quarter of the fiscal year. Based on this review, the Compensation Committee did not identify any conflict of interest raised by the work CAP performed in fiscal 2014. When conducting this evaluation, the Compensation Committee took into consideration the factors set forth in Rule 10C-1 under the Exchange Act and the NYSE’s listing standards.
Market Comparisons
Although the Compensation Committee does not believe that it is appropriate to establish compensation levels based solely on market comparisons or industry practices, it believes that information regarding pay practices at other companies is useful in three respects. First, marketplace information is one of many factors considered in assessing the reasonableness of compensation. Secondly, our compensation practices must be generally competitive for executive talent in the home building industry and in the overall market. Thirdly, marketplace information reflects emerging and changing components and forms of compensation. While the Compensation Committee considers peer compensation levels and practices when making its compensation decisions, it does not target compensation at any particular point within a range established by a comparison of the financial performance or compensation levels of our peer companies.
In 2014, the Compensation Committee, with guidance from its independent compensation consultant, reviewed our NEOs’ compensation against a peer group of publicly-traded home building companies (the “Peer Group”). The Peer Group consisted of the following companies with whom the Compensation Committee believes we primarily compete for talent and market share:
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Beazer Homes USA, Inc. | | Lennar Corporation | | NVR, Inc. |
D. R. Horton, Inc. | | M. D. C. Holdings, Inc. | | PulteGroup, Inc. |
Hovnanian Enterprises, Inc. | | M/I Homes, Inc. | | The Ryland Group, Inc. |
KB Home | | Meritage Homes Corporation | | Standard Pacific Corp. |
| | | | Taylor Morrison Home Corporation |
Of the companies within our Peer Group, only D.R. Horton, Inc. has an executive chairman. The Compensation Committee considered the executive chairman compensation information for D.R. Horton in its review of Peer Group pay practices. Our independent compensation consultant also discussed compensation practices generally for executive chairmen in companies of similar size outside of the home building sector but noted that the role of executive chairman is highly individualized and therefore compensation for this role varies considerably.
Consideration of Say-on-Pay Results
At our last annual meeting of stockholders, 98% of those stockholders voting on the Say on Pay proposal voted in support of the compensation of our NEOs described in our proxy statement filed in 2014. The Compensation Committee viewed the results of the 2014 advisory vote as an affirmation of our current pay practices, and so it did not implement significant changes to our executive compensation program for fiscal 2014.
Elements of Compensation
The Compensation Committee recognizes changing economic and industry conditions and changing compensation trends in its choice of methods to achieve the objectives discussed above, using a variety of compensation elements to accomplish its goals.
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Element | | Purpose | | Characteristics |
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Cash Compensation—Base Salary | | Provide a fundamental level of compensation to the NEOs for performing their roles and assuming their levels of executive responsibility. | | Fixed cash component. Annually reviewed by the Compensation Committee and adjusted from time to time, based on our Peer Group and individual performance. |
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Cash Compensation— Annual Incentive Bonus | | Promote improvement of our financial results, performance and condition; intended to be a short-term incentive to drive achievement of performance goals in a particular fiscal year, while discouraging inappropriate risk-taking and not deterring achievement of our long-term goals and initiatives. | | Annual incentive bonuses have been primarily paid in cash. Performance-based bonus opportunity for fiscal 2014 is based on the achievement of consolidated revenue and pre-tax income targets set by the Compensation Committee. |
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Equity Compensation— Long-Term Incentives | | Promote the achievement of our long-term financial goals and stock price appreciation by aligning NEO and stockholder interests, promoting NEO retention and rewarding NEOs for superior performance over time. | | Equity awards granted annually by the Compensation Committee, pursuant to stockholder approved plans, with four-year vesting. For fiscal 2014 performance, long-term incentive compensation was in the form of stock options and performance-based RSUs. Performance-based RSU payout is contingent on achievements of performance targets set by the Compensation Committee in the areas of pre-tax income, home building margin, and units delivered. |
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Benefits and Perquisites, Including Retirement Benefits | | Provide health and welfare benefits during employment and a program for income upon retirement. Designed to retain and reward NEOs by providing an overall benefits package competitive with those provided by comparable companies. | | Health and welfare benefits may vary based on employee elections. Perquisites and other benefits may vary from year to year. Retirement benefits, such as the SERP (see “Benefits and Perquisites” below), also vary based on compensation and years of service. |
Cash Compensation Decisions
Base Salary
Generally, when establishing annual base salaries, the Compensation Committee takes into account each NEO’s performance of his role and responsibilities over time and, to the extent useful, the range of compensation of comparable executives within our Peer Group. The Compensation Committee believes that its compensation objectives are more effectively met when most of an executive’s compensation package is composed of at-risk performance-based bonuses and long-term incentive compensation, rather than fixed compensation such as base salaries.
In December 2013, the Compensation Committee determined the following base salaries for our NEOs for calendar year 2014. The increases in the base salaries for Messrs. Hartman and Connor were based on a consideration of their performance in fiscal 2013, as well as the Committee’s 2013 review with the independent compensation consultant of our CFO's’ total compensation in 2013 compared to that of the chief financial officers in our Peer Group.
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| | Calendar 2014 Salary | | Calendar 2013 Salary |
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Robert I. Toll | | $ | 1,000,000 |
| | $ | 1,000,000 |
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Douglas C. Yearley, Jr. | | $ | 1,000,000 |
| | $ | 1,000,000 |
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Richard T. Hartman | | $ | 1,000,000 |
| | $ | 950,000 |
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Martin P. Connor | | $ | 850,000 |
| | $ | 800,000 |
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In December 2014, the Compensation Committee determined that, for calendar year 2015, the base salaries of Messrs. Toll, Yearley, and Hartman would remain at $1,000,000; and the base salary of Mr. Connor would be increased to $950,000. The increase in the base salary for Mr. Connor for calendar year 2015 was based on a consideration of his performance in fiscal 2014 and the Committee's review with its independent compensation consultant of Mr. Connor's total compensation compared to chief financial officers in our Peer Group.
Annual Incentive Bonus
Senior Officer Bonus Plan. The Senior Officer Plan is designed to be sufficiently flexible to allow the Compensation Committee to make awards in appropriate amounts and with appropriate performance periods and performance goals to the plan participants designated by the Compensation Committee. All of our NEOs have been designated as participants in the Senior Officer Plan. The awards paid under the Senior Officer Plan are designed to be tax deductible “qualified performance-based compensation” under Section 162(m) of the Code.
The Senior Officer Plan is designed to permit us to pay participants incentive compensation based upon the achievement of one or more pre-established performance goals. At or after the end of each performance period, the Compensation Committee determines whether and to what extent the performance goals have been achieved and calculates the amount of the award that could be paid to each participant, if any, based upon the levels of achievement of the relevant performance goals and the objective formula or method established with respect to such performance period.
In order to maximize tax deductibility of awards under the Senior Officer Plan, the Compensation Committee has established that no award payable under the Senior Officer Plan can exceed the Award Cap of $8.5 million. Additionally, in no event will the maximum aggregate amount payable to any participant with respect to awards that have performance periods that end in the same fiscal year exceed the Annual Payment Cap of two times the Award Cap, regardless of the number of awards that would otherwise be payable in that fiscal year. Awards that are limited under the Annual Payment Cap may not be carried over and paid during a subsequent fiscal year. The Compensation Committee has no discretion to increase the amount of any awards beyond the Award Cap or the Annual Payment Cap, as applicable, but may, in its sole discretion, reduce or completely eliminate an award based on such facts and circumstances as it deems relevant.
Awards under the Senior Officer Plan may be paid in cash, equity or a combination of the two. The equity portion of any award under the Senior Officer Plan may be paid in shares of restricted stock, shares of unrestricted stock, or restricted or unrestricted stock units, all of which would be issued from the Stock Incentive Plan for Employees (2014) ("2014 SIP") or a successor plan. To the extent an award is paid with equity, the equity is valued as of the end of the performance period for the award. For a description of the material terms of the Senior Officer Bonus Plan, see "Proposal Four— Approval of Toll Brothers, Inc. Senior Officer Bonus Plan" on pages 12 to 14.
Fiscal 2014 Bonus Performance Goals. For fiscal 2014, the Compensation Committee met in December 2013 and established that eligibility for the full amount available to the NEOs under the Senior Officer Plan was conditioned upon our achievement of equally weighted consolidated revenue and pre-tax income targets. At such time, the Compensation Committee determined that it would replace operating income, a metric used for our fiscal 2013 annual incentive bonus, with pre-tax income (excluding impairments and other items considered non-recurring in nature in accordance with the Senior Officer Plan) as one of the two Senior Officer Plan performance metrics. In making this determination, the Committee considered that the inclusion of pre-tax income would provide a metric that would continue to measure operating profitability but also measure the Company’s performance in its joint ventures and non-home building activities.
Eligibility for 50% of the amount available to the NEOs under the Senior Officer Plan was conditioned upon our achievement of at least 80% of those targets.
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Performance Metric | | 100% Eligibility | | 50% Eligibility (80%) |
Consolidated Revenues | | ≥ $3.417 billion (50%) | | ≥ $2.7336 billion (25%) |
Pre-tax Income (1) | | ≥ $458,389,800 (50%) | | ≥ $366,711,840 (25%) |
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(1) | Excluding impairments and certain other items considered non-recurring in nature in accordance with the Senior Officer Plan. Additional information regarding the calculation of the pre-tax income performance metric can be found under "2014 Performance RSUs" on page 37. |
2014 Cash Annual Incentive Bonuses. The Compensation Committee met in December 2014 and determined that we had exceeded the consolidated revenues and pre-tax income targets for 100% eligibility during fiscal 2014 and, therefore, the maximum amount was potentially available to each of the NEOs. Cash incentive bonuses under the Senior Officer Plan consider actual results against financial performance goals but allow the Compensation Committee to use judgment in considering quantitative and qualitative performance. In determining the actual cash bonus amounts to be paid, the Compensation Committee then made a subjective evaluation regarding the overall individual performance of each NEO and Company performance during fiscal 2014.
For fiscal 2014 performance, the Compensation Committee awarded cash annual incentive bonuses that were well below the maximum amounts allowable under the Senior Officer Plan, which has been true since adoption of the plan in 2010. In exercising its discretion to determine the actual cash incentive bonus amount to be paid to each NEO, the Committee did consider, however, that fiscal 2014 revenues and pre-tax income exceeded the threshold measures set forth above.
The Committee further considered actual results compared to performance targets for pre-tax income, home building margin, and units delivered, which were the metrics established by the Committee at the beginning of the fiscal year for the 2014 performance-based RSUs. For a further discussion of these performance metrics and actual results, see “2014 Performance-Based RSUs” on page 37. The Committee reviewed fiscal 2014 results in each of these areas both on an absolute basis and relative to the prior fiscal year. The Compensation Committee also considered that 2014 performance in the areas of pre-tax income and units delivered significantly exceeded 2013 results.
In its evaluation of individual performance, the Committee considered each NEO’s contribution to the financial and other business achievements highlighted above, as well as the Company’s fiscal 2014 results in the areas of contracts, backlog, and SG&A. Additionally, the Committee recognized the NEOs’ efforts in management of growth in a recovering economy, integration of the Shapell acquisition, focus on growth opportunities, development and execution of strategy, and industry honors received. The Committee also considered the leadership of each NEO in the areas of Company strategy, brand management, investor and analyst relations, and balance sheet management. For further discussion of these considerations, see “2014 Company Performance” on pages 25 to 26 and “Review of Individual Performance” on page 30. The Committee did not establish any individual performance goals for the NEOs at the commencement of fiscal 2014.
The Compensation Committee believed that, by surpassing the established fiscal 2014 Senior Officer Plan performance goals and by performing in an outstanding manner in fiscal 2014, Messrs. Toll, Yearley, Hartman, and Connor merited cash annual incentive bonuses for fiscal 2014 performance of $1,500,000, $2,300,000, $800,000, and $800,000, respectively.
Fiscal 2015 Bonus Performance Goals. In December 2014, the Compensation Committee set the 2015 performance goals for the Senior Officer Plan. The Committee determined that it would retain consolidated revenues and pre-tax income as the 2015 performance metrics under the Senior Officer Plan.
Total 2014 Cash Compensation
Total cash compensation (base salary and annual incentive bonus) paid to or earned by the NEOs for fiscal 2014 is set forth below. Details on total compensation, measured and presented in the format required by the SEC, can be found in the Summary Compensation Table on page 42 of this proxy statement.
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| | Base Salary | | Annual Incentive Bonus | | Total Fiscal 2014 Cash Compensation |
| | | | | | |
Robert I. Toll | | $ | 1,000,000 |
| | $ | 1,500,000 |
| | $ | 2,500,000 |
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Douglas C. Yearley, Jr. | | $ | 1,000,000 |
| | $ | 2,300,000 |
| | $ | 3,300,000 |
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Richard T. Hartman (1) | | $ | 991,667 |
| | $ | 800,000 |
| | $ | 1,791,667 |
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Martin P. Connor (1) | | $ | 841,667 |
| | $ | 800,000 |
| | $ | 1,641,667 |
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(1) | Reflects base salary earned during fiscal 2014. Base salary is paid on a calendar year basis; the 2014 calendar year salaries for Mr. Hartman and Mr. Connor were $1,000,000 and $850,000, respectively. |
Long-Term Incentive Compensation Decisions
For fiscal 2014, the Compensation Committee awarded equity compensation to our NEOs in the form of options and performance-based RSUs. These equity awards are based on its assessment of the Company’s performance, as well as its determinations of the effectiveness of each NEO and the extent of his contributions to our success, and the economic climate in which we operate. The Compensation Committee’s primary purposes and objectives when granting equity compensation to our NEOs are to:
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• | align the interests of our NEOs with those of our stockholders; |
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• | balance long-term operating decisions with short-term objectives; |
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• | serve as a particular incentive for NEOs to devote themselves to our future success by providing NEOs with an opportunity to increase their proprietary interest in the Company; |
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• | motivate NEOs to achieve long-term financial results that may ultimately cause an increase in the market price of our stock; |
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• | balance overall NEO compensation between long-term and short-term compensation; and |
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• | retain NEOs in our employ. |
Equity compensation for our NEOs may be either in the form of stock options, stock appreciation rights, stock awards, or stock units (which may be restricted, unrestricted or performance-based), in accordance with the terms of our stockholder-approved 2014 SIP or a successor plan.
Stock Options
Stock options for all employees, including NEOs, are granted on a date within the last 15 days of December that is determined in advance by the Compensation Committee. Because options are granted with exercise prices equal to the fair market value of the underlying common stock on the date of the grant, any value may ultimately be realized by an employee is based entirely upon our future performance, as perceived by investors who establish the market price of our common stock.
Options granted to our NEOs have a term of ten years from the date of the grant, and these options vest in equal annual amounts over a four year period, beginning on the first anniversary of the date of the grant. Options would continue to vest and be exercisable for the remainder of the ten-year term upon death, disability, or, in most cases, retirement, and would fully vest upon a change of control of the Company. In addition, all unexercised stock options, vested and unvested, granted to NEOs are subject to forfeiture in the event that, after the NEO retires or otherwise leaves our employ, the NEO competes with us. See “Potential Payments upon Termination or Change of Control” on page 48 of this proxy statement.
2014 Options. At the beginning of fiscal 2014, the Compensation Committee granted stock options to each of the NEOs, as set forth in the Grants of Plan-Based Awards During Fiscal 2014 table on page 44 of this proxy statement. These grants were awarded on December 20, 2013 in recognition of the respective NEO’s performance during fiscal 2013.
2015 Options. In December 2014, the Compensation Committee granted stock options to each of the NEOs in recognition of their fiscal 2014 performance, in order to further the Compensation Committee’s objectives, as set forth above. These grants were awarded on December 19, 2014.
The following table sets forth the number of stock options granted on December 19, 2014, in recognition of the respective NEOs' performance in fiscal 2014. Such grants were made as of December 19, 2014 and have an exercise price of $32.49. Because they were granted in fiscal 2015, the grants below will be reflected in the executive compensation tables in next year’s proxy statement.
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| Option Grant for 2014 Performance |
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Robert I. Toll | 100,000 |
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Douglas C. Yearley, Jr. | 160,000 |
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Richard T. Hartman | 43,000 |
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Martin P. Connor | 34,000 |
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Performance-Based RSUs
Starting in fiscal 2012, the Committee has awarded performance-based RSUs (“Performance RSUs”) to each of the NEOs in addition to granting stock options as described above. The Compensation Committee chose to award Performance RSUs based on the recommendation of the Committee’s independent compensation consultant to utilize a medium-term equity award tied to pre-established performance metrics, in addition to option awards, to further encourage our growth and profitability.
For performance in fiscal 2014, the Compensation Committee retained home building margin and units delivered as performance metrics, but replaced operating income with pre-tax income (excluding impairments and other items considered non-recurring in nature to be weighted equally with the other two performance metrics. In making this determination, the Committee considered that the inclusion of pre-tax income would add a metric that would measure operating profitability as well as the Company’s performance in its joint venture and non-home building activities. The Compensation Committee selected the number of units delivered as one of the performance metrics because it is a measure of growth, and it selected home building margin because it measures profitability and efficiency.
Each performance metric has a minimum threshold level, which, if achieved, would earn 90% of the Performance RSUs allocated to that metric; a target level, which, if achieved, would earn 100% of the Performance RSUs allocated to that metric; and a maximum level, which, if achieved, would earn 110% of the Performance RSUs allocated to that metric. To the extent that actual performance results fall between these levels, the Performance RSUs earned would be determined proportionately between those levels. The three performance metrics are weighted evenly in determining a blended average to calculate the payout for the Performance RSUs. If the minimum threshold performance level of 90% is not achieved, no award is made.
The payout for the 2014 Performance RSUs is set forth below under “2014 Performance-Based RSUs.” For fiscal 2013 performance, our NEOs earned 108.13%, 101.66%, and 104.60% of the 2013 Performance RSUs allocated to achievement of income from operations (which preceded pre-tax income as a performance measure), home building margin, and units delivered, respectively. For fiscal 2012 performance, our NEOs earned 110%, 110%, and 109.53% of the 2012 Performance RSUs allocated to achievement of income from operations, home building margin, and units delivered, respectively.
If the minimum performance criteria have been met, each Performance RSU is subject to vesting in equal annual amounts over four years from the date of grant and the Performance RSUs will not be delivered until the end of the four-year service vesting period, except that in the event of termination of service, the NEO would be entitled to receive shares underlying vested Performance RSUs. Shares subject to Performance RSUs held by an NEO fully vest and all restrictions immediately lapse upon a NEO’s termination of his employment due to death or disability. In addition, all
shares subject to Performance RSUs fully vest and all restrictions lapse upon a change of control of the Company. See “Potential Payments upon Termination or Change of Control” on page 48 of this proxy statement.
2014 Performance-Based RSUs. In December 2013, the Compensation Committee granted 2014 Performance RSUs relating to target levels of 133,667 shares to Mr. Toll; 100,000 shares to Mr. Yearley, 30,000 shares to Mr. Hartman; and 25,000 shares to Mr. Connor, respectively. The 2014 Performance RSUs were divided equally into three performance metrics: pre-tax income, home building margin, and units delivered.
The minimum, target, and maximum levels for the three 2014 Performance RSU metrics, as well as actual fiscal 2014 performance, are set forth below.
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2014 Performance Metric | | Minimum (90%) | | Target (100%) | | Maximum (110%) | | Fiscal 2014 Actual |
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Pre-tax Income (1) | | $458,389,800 | | $509,322,000 | | $560,254,200 | | $558,438,000 |
Home Building Margin (1)(2) | | 23.90 | % | | 26.56 | % | | 29.22 | % | | 25.97 | % |
Units Delivered | | 5,040 |
| | 5,600 |
| | 6,160 |
| | 5,397 |
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(1) | The following items, to the extent disclosed in a press release or conference call, are excluded from these performance metrics: |
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• | Restructuring and severance costs pursuant to a plan approved by the Board, CEO and/or President and COO |
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• | Gains or losses from litigation or claims, natural disasters, terrorism, fraud, or fraud investigations |
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• | Effect of changes in laws, regulations, or accounting principles |
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• | The gain or loss from the sale or discontinuance of a business segment, division, or unit and the budgeted, unrealized earnings before interest, taxes, depreciation, and amortization (EBITDA) for this business segment, division, or unit |
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• | Extraordinary items as defined by generally accepted accounting principles or non-recurring items |
In addition, the following items are also excluded from these performance metrics:
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• | Write down or impairment of assets or joint venture investments |
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• | Stock based compensation overages or underages compared to budget |
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• | Out-of-period charges or credits |
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• | Expense of an acquisition |
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• | Gains or losses from derivative transactions |
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(2) | Defined as home building cost of sales, excluding interest expense, as a percentage of home building revenue |
In December 2014, the Compensation Committee determined the level of the performance criteria that had been met for the 2014 Performance RSUs awarded in December 2013. Because the 2014 Performance RSU pre-tax income performance metrics incorrectly included $17.5 million of expenses associated with the Shapell acquisition, the Compensation Committee exercised its negative discretion to reduce the payout under these awards to correspond to the amount that would have been earned if these expenses had not been included. The Compensation Committee determined that the percent achieved for pre-tax income, home building margin, and units delivered was 106.00%, 97.78% and 96.38%, respectively, and the payout for the 2014 Performance RSUs, based on a blended average of the metrics, would be at 100.05% of target.
Based on this payout at 100.05% of target, our NEOs earned the following numbers of 2014 Performance RSUs: Mr. Toll – 133,736; Mr. Yearley – 100,051; Mr. Hartman – 30,015; and Mr. Connor – 25,012. One-fourth of the 2014 Performance RSUs vested on December 20, 2014, the first anniversary of the grant date and the remaining three-fourths of these RSUs remain subject to service-based vesting.
2015 Performance-Based RSUs. In December 2014, the Compensation Committee approved the grant of Performance RSUs for fiscal 2015 performance, subject to achievement of the award performance metrics in fiscal 2015, relating to the target levels of 133,667 shares to Mr. Toll; 100,000 shares to Mr. Yearley; 30,000 shares to Mr. Hartman; and 25,000 shares to Mr. Connor. The Committee determined that it would retain pre-tax income, home building margin, and units delivered as the performance metrics for the 2015 Performance RSUs.
Benefits and Perquisites
We provide all of our employees (after 60 days of service with us), including our NEOs, with specified employee benefits programs. These include the opportunity to save for retirement through the Toll Brothers 401(k) Savings Plan (the “401(k) Plan”) and various health and welfare benefit programs, including medical, dental, life insurance, and long-term disability insurance. The 401(k) Plan is a qualified retirement savings plan under the Code. Participants in the 401(k) Plan may contribute a portion of their compensation, subject to IRS regulations and specified limitations
applicable to “highly compensated employees,” as such term is defined in the Code. After a year of service, we may match a portion of each participant’s contribution and also may make an annual discretionary contribution to each active participant’s account. All of the NEOs were participants in the 401(k) Plan during fiscal 2014. We share the cost of the above programs with our employees. Our NEOs participate in these programs on the same terms as our other employees. These programs are intended to promote the health and financial security of our employees and are provided at competitive market levels to attract, retain, and reward employees.
Supplemental Executive Retirement Plan
We also maintain a SERP, which provides retirement benefits to our NEOs. The Board’s intention when adopting the SERP was to provide competitive retirement benefits, to protect against reductions in retirement benefits due to tax law limitations on qualified plans, and to encourage continued employment or service with the Company. For a discussion of the material terms of the SERP, please see “Executive Compensation Tables—Pension Benefits During Fiscal 2014—Supplemental Executive Retirement Plan.”
During fiscal 2014, the Compensation Committee amended the SERP to eliminate the 20-year service requirement, except that a participant would have to be employed for five years in order to receive a death or disability benefit under the SERP. The Compensation Committee made such revision out of concern that the 20-year service requirement might compromise the Company’s ability to attract senior lateral hires. In December 2014, the Compensation Committee determined to increase the SERP annual benefit payable to Mr. Yearley to $200,000 from $175,000, and to increase the SERP annual benefit payable to Mr. Hartman and Mr. Connor to $145,000 from $125,000. The Compensation Committee took into consideration the use of the SERP to encourage retention of the Company’s NEOs. The annual benefit amounts to our NEOs under the SERP as of the end of fiscal 2014 are set forth in the table below under “Executive Compensation Tables—Pension Benefits During Fiscal 2014—Supplemental Executive Retirement Plan.”
Perquisites
Perquisites did not constitute a material portion of the compensation paid to our NEOs for fiscal 2014. We provide our NEOs with limited perquisites and personal benefits that the Compensation Committee believes are consistent with our executive compensation philosophy and objectives. Each fiscal year, the Compensation Committee reviews and approves those perquisites that are to be provided to our NEOs. The Compensation Committee believes the perquisites for fiscal 2014, which included auto and gas allowances, insurance, and tax and financial statement preparation assistance, as more fully described in the footnotes to the Summary Compensation Table in this proxy statement, are reasonable, consistent with our past practices, and consistent with general practices in our industry.
Deferred Compensation Plan
The Toll Bros., Inc. Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”) was designed to enable certain management and highly compensated employees, including our NEOs, to defer a portion of their cash compensation during any calendar year. In December 2014, the Company amended and restated the Deferred Compensation Plan (the "2015 Plan"), which had been frozen for compensation earned after December 31, 2011, to enable employees to defer a portion of their cash compensation starting in January 1, 2015. Any amounts deferred prior to January 1, 2015, which are not re-deferred under the 2015 Plan, will continue to be governed by the terms of the Deferred Compensation Plan in effect prior to January 1, 2015. Mr. Hartman is the only NEO who participated in the Deferred Compensation Plan prior to January 1, 2015. We have the right under the Deferred Compensation Plan to make discretionary contributions for the benefit of any participant in the plan. We did not make any discretionary contributions under the Deferred Compensation Plan in fiscal 2014.
Interest earned during fiscal 2014 on NEO deferred compensation that is considered above-market interest under SEC rules is included under “Change in Pension Value and Nonqualified Deferred Compensation Earnings” in the Summary Compensation Table in this proxy statement, and further information about NEO deferred compensation is contained in the Nonqualified Deferred Compensation During Fiscal 2014 table in this proxy statement.
Other Compensation Practices and Policies
Employment Agreements, Change of Control Provisions and Severance Payments
None of our NEOs has an employment agreement with us. We do not have a severance plan for our NEOs. We have no change of control agreements relating to employment benefits or additional benefits that arise simply from a change of control or severance related thereto; however, under our equity compensation plans and our SERP, awards and benefits are generally subject to special provisions upon a defined “change of control” transaction. Upon a change of control, any outstanding options, RSUs, deferred cash, or other plan awards will generally immediately vest, and any restrictions will immediately lapse. Under the SERP, if there is a change of control of the Company, all participants in the SERP would be fully vested in their SERP benefits and potentially eligible for a lump sum payout. See “Potential Payments upon Termination or Change of Control” on page 48 of this proxy statement.
Stock Ownership Guidelines
We maintain stock ownership guidelines pursuant to which our executive officers and non-management directors are expected to acquire a meaningful level of stock ownership in the Company so as to further align their interests with those of our stockholders. Under the guidelines, the executive officers and non-management directors are expected to own shares equivalent in value to a multiple of his or her base salary or annual cash retainer, as applicable, as set forth below:
|
| | |
Position | | Multiple |
| | |
Executive Chairman and CEO | | 3.0 x base salary |
Other Executive Officers | | 1.0 x base salary |
Directors | | 3.0 x annual cash retainer |
Executive officers and directors are expected to achieve compliance with these levels of ownership within the later of five years from adoption of the guidelines in December 2012, or the date he or she assumes the position of executive officer or director, and may not sell net shares of stock received upon the exercise of stock options (that is, shares other than those sold to pay withholding taxes, brokerage fees, and the exercise price) unless and until he or she has met these required levels of ownership.
On an annual basis, the Governance Committee reviews adherence to the stock ownership guidelines. For purposes of the guidelines, the following are included as “owned”:
| |
• | shares of stock owned by the executive officer or director, including shares held in a trust controlled by the executive officer or director, by a spouse or by minor children that are deemed beneficially owned by the executive officer or director under Rule 13d-3 under the Exchange Act; |
| |
• | one-third of the shares underlying vested stock options that were “in the money” at the beginning of the fiscal year of review; and |
| |
• | shares of stock underlying vested performance stock units, RSUs, and restricted stock awards, regardless of provisions relating to delivery. |
Specifically excluded from ownership under the guidelines as “owned” shares are any shares of stock or other equity-based awards which are pledged as collateral for a loan to a third party so long as such pledge remains in effect.
If an executive officer or director satisfies these guidelines, they are generally deemed satisfied for subsequent annual review periods, regardless of decreases in the Company’s stock price so long as the executive officer or director continues to hold the shares originally included in determining compliance. At the time of the Governance Committee's review of adherence to the stock ownership guidelines in December 2014, each NEO and director had achieved a stock ownership level in excess of the applicable level set forth above.
Anti-Hedging Policy
We have an insider trading policy that sets forth guidelines and restrictions applicable to employees’ transactions involving our stock. Among other things, this policy prohibits our employees from engaging in puts, calls, or similar options on our stock or in any derivative equity securities of the Company, or selling our stock short. In addition, this policy prohibits directors and executive officers from entering into hedging arrangements with respect to our equity
securities that are designed to offset or reduce the risk of price fluctuations in the underlying security (such as covered calls, collars, or other transactions that sever the ultimate alignment with our stockholders’ interests).
Pledging Policy
In fiscal 2013, the Governance Committee adopted a policy that prohibits any pledging of the Company’s equity securities by executive officers and directors with limited exceptions. At the time it established this policy, the Governance Committee considered the particular circumstances of Mr. Robert I. Toll and Mr. Bruce E. Toll as co-founders of the Company with substantial ownership of the Company’s equity securities and included specific exceptions for the two co-founders.
Subsequent to the adoption of the policy, the Governance Committee and Mr. Bruce E. Toll have agreed that he will not increase the aggregate number of shares of Company stock he has pledged, and the Governance Committee revised the Company’s pledging policy in January 2014 to reflect this agreement. With respect to Mr. Robert I. Toll, any increase in the aggregate number of shares of Company stock that he has pledged is prohibited under the policy except in situations, and on conditions, pre-approved by the Company’s General Counsel. Approvals will be based on the particular facts and circumstances of the request, including, but not limited to:
| |
• | the percentage of the individual’s equity holdings that are currently pledged; |
| |
• | the percentage of the Company’s outstanding class of equity securities represented by the number of securities of that class being pledged; |
| |
• | the market value of the securities being pledged and the total market value of the Company’s outstanding equity securities; |
| |
• | the historical trading volume of the Company’s equity securities; and |
| |
• | any compelling needs of the individual justifying the pledge transaction under the circumstances. |
The General Counsel’s decisions are reviewed by the Governance Committee.
As a result of this policy, no executive officer or director, other than Mr. Robert I. Toll and Mr. Bruce E. Toll, has Company shares that are pledged as of the date of this proxy statement. The number of shares pledged by Mr. Robert I. Toll and Mr. Bruce E. Toll as of the Record Date represents 2.8% and 1.8%, respectively, of the Company’s outstanding stock. The Governance Committee continues to monitor and seek reductions in the shares pledged by the Company’s co-founders.
Tax and Accounting Implications
Tax Regulations. Section 162(m) of the Code generally disallows a tax deduction to a public company for compensation over $1 million paid to specified “covered employees” (its chief executive officer and to any of its three other most highly-compensated executive officers other than its chief financial officer). Performance-based compensation will not be subject to the deduction limitation if specified requirements set forth in the Code and applicable Treasury Regulations are met. We intend to structure our compensation plans for our NEOs to comply with the performance-based compensation exemption requirements of Section 162(m) of the Code; however, since corporate objectives may not always be consistent with the requirements for full deductibility, the Board and the Compensation Committee may award non-deductible compensation to our NEOs as they deem appropriate. Our Senior Officer Plan, stock option grants, and Performance RSUs are currently designed to be tax deductible under Section 162(m).
Accounting Considerations. When making decisions about executive compensation, the Compensation Committee considers the accounting implications of the various elements of our compensation program, including the impact on our financial results and the dilutive impact to stockholders of various forms of compensation. For equity compensation grants, ASC 718 requires us to recognize compensation expense for all share-based payment arrangements based upon the grant date fair value of those awards and period of vesting. The aggregate expense estimated to be recognized over the period of vesting is included in the Summary Compensation Table contained in this proxy statement as part of the NEOs’ total compensation in the fiscal year of the grant. This number, while required by the SEC rules and important for understanding the impact of granting equity on our financial statements, may not accurately represent the value received by the NEO.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with our management the Compensation Discussion and Analysis section of this proxy statement. Based on such review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2014.
Respectfully submitted by the members of the Compensation Committee of the Board of Directors.
Carl B. Marbach (Chair)
Stephen A. Novick
Paul E. Shapiro
EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
|
| | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | | Year | | Salary ($) | | Stock Awards ($)(1) | | Option Awards ($)(1) | | Non-Equity Incentive Plan Compensation ($)(2) | | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(3) | | All Other Compensation ($)(4) | | Total ($) |
| | | | | | | | | | | | | | | | |
Robert I. Toll | | 2014 | | 1,000,000 |
| | 4,699,732 |
| | 1,302,000 |
| | 1,500,000 |
| | 368,131 |
| | 163,356 |
| | 9,033,219 |
|
Executive Chairman of the Board | | 2013 | | 1,000,000 |
| | 5,049,939 |
| | 1,351,000 |
| | 1,500,000 |
| | — |
| | 124,045 |
| | 9,024,984 |
|
2012 | | 1,057,692 |
| | 4,100,000 |
| | 878,000 |
| | 2,500,000 |
| | 816,478 |
| | 94,173 |
| | 9,446,343 |
|
Douglas C. Yearley, Jr. | | 2014 | | 1,000,000 |
| | 3,516,000 |
| | 3,016,230 |
| | 2,300,000 |
| | 198,902 |
| | 40,922 |
| | 10,072,054 |
|
Chief Executive Officer | | 2013 | | 1,000,000 |
| | 3,778,000 |
| | 2,494,500 |
| | 2,200,000 |
| | 57,070 |
| | 33,744 |
| | 9,563,314 |
|
2012 | | 1,000,000 |
| | 2,255,000 |
| | 1,281,600 |
| | 2,000,000 |
| | 334,339 |
| | 32,249 |
| | 6,903,188 |
|
Richard T. Hartman | | 2014 | | 991,667 |
| | 1,054,800 |
| | 796,740 |
| | 800,000 |
| | 163,969 |
| | 31,079 |
| | 3,838,255 |
|
President and Chief Operating Officer | | 2013 | | 936,538 |
| | 1,133,400 |
| | 665,200 |
| | 550,000 |
| | 206,804 |
| | 30,707 |
| | 3,522,649 |
|
| 2012 | | 866,154 |
| | 102,500 |
| | 320,400 |
| | 500,000 |
| | 245,482 |
| | 28,153 |
| | 2,062,689 |
|
Martin P. Connor | | 2014 | | 841,667 |
| | 879,000 |
| | 626,010 |
| | 800,000 |
| | 142,288 |
| | 24,635 |
| | 3,313,600 |
|
Chief Financial Officer | | 2013 | | 780,769 |
| | 944,500 |
| | 498,900 |
| | 500,000 |
| | 69,143 |
| | 23,765 |
| | 2,817,077 |
|
2012 | | 690,385 |
| | 451,000 |
| | 213,600 |
| | 400,000 |
| | 229,476 |
| | 20,019 |
| | 2,004,480 |
|
| |
(1) | These columns present the aggregate grant date fair value of RSUs and stock options, respectively, granted in the indicated fiscal year, calculated in accordance with ASC 718 utilizing the assumptions discussed in Note 10 in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended October 31, 2014, excluding the effect of estimated forfeitures. The amounts shown in these columns do not reflect compensation actually received by the NEOs. The actual value, if any, that a NEO may realize from an award is contingent upon the satisfaction of the conditions to vesting in that award, including performance conditions in the case of Performance RSUs, and, for stock options, upon the excess of the share price over the exercise price, if any, on the date the options are exercised. Thus, there is no assurance that the value, if any, eventually realized by the NEOs will correspond to the amount shown in the table. |
With respect to the Performance RSUs granted in fiscal 2014, the estimate of the grant date fair value determined in accordance with ASC 718 assumes the vesting of 100% of the RSUs granted. Assuming the highest level of performance is achieved (which would result in the vesting of 110% of the RSUs granted), the aggregate grant date fair value of the RSUs set forth in the stock awards column above for fiscal 2014 would be: Mr. Toll—$5,169,705; Mr. Yearley—$3,867,600; Mr. Hartman—$1,160,280; and Mr. Connor—$966,900. The actual performance achieved for fiscal 2014 resulted in 100.05% of the Performance RSUs granted being earned, subject to service-based vesting.
| |
(2) | The annual incentive bonuses for Messrs. Toll, Yearley, Hartman, and Connor for fiscal 2014 were earned based upon the terms of the Senior Officer Plan, as described on pages 33 to 34 of this proxy statement. |
| |
(3) | The amounts in this column represent the increase in the actuarial present value of accumulated benefits under the SERP for each NEO and the amount of above-market interest earned on their respective balances, if applicable, in the Deferred Compensation Plan. Messrs. Toll, Yearley, and Connor did not participate in the Deferred Compensation Plan during the fiscal years indicated in the table above. The amounts attributed to the increase or decrease in actuarial present value of SERP benefits and above-market interest on deferred compensation are as follows (see also the Pension Benefits During Fiscal 2014 table on page 46 of this proxy statement): |
|
| | | | | | | | | | | |
Name | | Fiscal Year | | Increase (Decrease) in Actuarial Present Value of Accumulated SERP Benefits ($) | | Above-Market Interest Earned on Deferred Compensation | | Total ($) |
Robert I. Toll | | 2014 | | 368,131 |
| | N/A |
| | 368,131 |
|
| | 2013 | | (1,093,566 | ) | | N/A |
| | (1,093,566 | ) |
| | 2012 | | 816,478 |
| | N/A |
| | 816,478 |
|
Douglas C. Yearley, Jr. | | 2014 | | 198,902 |
| | N/A |
| | 198,902 |
|
| | 2013 | | 57,070 |
| | N/A |
| | 57,070 |
|
| | 2012 | | 334,339 |
| | N/A |
| | 334,339 |
|
Richard T. Hartman | | 2014 | | 139,583 |
| | 24,386 |
| | 163,969 |
|
| | 2013 | | 172,414 |
| | 34,390 |
| | 206,804 |
|
| | 2012 | | 213,453 |
| | 32,029 |
| | 245,482 |
|
Martin P. Connor | | 2014 | | 142,288 |
| | N/A |
| | 142,288 |
|
| | 2013 | | 69,143 |
| | N/A |
| | 69,143 |
|
| | 2012 | | 229,476 |
| | N/A |
| | 229,476 |
|
| |
(4) | Fiscal 2014 “All Other Compensation” consists of: |
|
| | | | | | | | | | | | | | | | |
| | Fiscal 2014 |
| | Robert I. Toll | | Douglas C. Yearley, Jr. | | Richard T. Hartman | | Martin P. Connor |
Payments for tax and financial statement preparation assistance | | $ | 94,093 |
| | $ | 8,359 |
| | $ | — |
| | $ | — |
|
Contribution to 401(k) Plan | | 10,300 |
| | 10,300 |
| | 10,300 |
| | 10,342 |
|
Life and disability insurance premiums (5) | | 17,027 |
| | 3,723 |
| | 4,759 |
| | 4,010 |
|
Auto and gas allowance | | 19,500 |
| | 15,900 |
| | 15,900 |
| | 9,900 |
|
Non-business use of Company cars and drivers | | 22,436 |
| | 2,640 |
| | 120 |
| | 383 |
|
Total | | $ | 163,356 |
| | $ | 40,922 |
| | $ | 31,079 |
| | $ | 24,635 |
|
| |
(5) | Includes annual premiums for: annual life, accidental death and dismemberment, and long term disability insurance provided to all employees; supplemental long-term disability insurance provided to executives; and an executive life insurance policy for Mr. Toll for which the Company pays $13,400 for the term component. |
Grants of Plan-Based Awards During Fiscal 2014
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | All Other Option Awards: Number of Securities Underlying Options (#)(3) | | Exer- cise or Base Price of Option Awards ($/Sh) | | Grant Date Fair Value of Stock and Option Awards ($)(4) |
Name | | Grant Date | | Action Date(1) | | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | |
Robert I. Toll | | | | | | (5) | | (6) | | 8,500,000 |
| | | | | | | | | | | | | | |
| | 12/20/2013 | | 12/5/2013 | | | | | | | | 120,300 |
| | 133,667 |
| | 147,034 |
| | | | | | | | 4,699,732 |
|
| | 12/20/2013 | | 12/5/2013 | | | | | | | | | | | | | | | | 100,000 |
| | 35.16 |
| | 1,302,000 |
|
Douglas C. Yearley, Jr. | | | | (5) | | (6) | | 8,500,000 |
| | | | | | | | | | | | | | |
| | 12/20/2013 | | 12/5/2013 | | | | | | | | 90,000 |
| | 100,000 |
| | 110,000 |
| | | | | | | | 3,516,000 |
|
| | 12/20/2013 | | 12/5/2013 | | | | | | | | | | | | | | | | 159,000 |
| | 35.16 |
| | 3,016,230 |
|
Richard T. Hartman | | | | (5) | | (6) | | 8,500,000 |
| | | | | | | | | | | | | | |
| | 12/20/2013 | | 12/5/2013 | | | | | | | | 27,000 |
| | 30,000 |
| | 33,000 |
| | | | | | | | 1,054,800 |
|
| | 12/20/2013 | | 12/5/2013 | | | | | | | | | | | | | | | | 42,000 |
| | 35.16 |
| | 796,740 |
|
Martin P. Connor | | | | (5) | | (6) | | 8,500,000 |
| | | | | | | | | | | | | | |
| | 12/20/2013 | | 12/5/2013 | | | | | | | | 22,500 |
| | 25,000 |
| | 27,500 |
| | | | | | | | 879,000 |
|
| | 12/20/2013 | | 12/5/2013 | | | | | | | | | | | | | | | | 33,000 |
| | 35.16 |
| | 626,010 |
|
| |
(1) | The Compensation Committee met on December 5, 2013 and made determinations regarding stock option grants for fiscal 2013 performance and Performance RSU grants relating to performance to occur during fiscal 2014. All grants of equity compensation were made on December 20, 2013, which is consistent with our practice of awarding equity compensation described under “Compensation Discussion and Analysis—Long-Term Incentive Compensation Decisions.” |
| |
(2) | Reflects Performance RSUs the Compensation Committee awarded to our NEOs under the Toll Brothers, Inc. Amended and Restated Stock Incentive Plan for Employees (2007) at its meeting on December 5, 2013. See “Compensation Discussion and Analysis—Long-Term Incentive Compensation Decisions—Performance-Based RSUs” for further information. |
| |
(3) | See “Compensation Discussion and Analysis—Long-Term Incentive Compensation Decisions—Stock Options” for a discussion of these option grants. The exercise price of the options granted in fiscal 2014 is the closing price of our common stock on the grant date. |
| |
(4) | Amount represents the aggregate grant date fair value of RSUs and stock options, respectively, granted in fiscal 2014, calculated in accordance with ASC 718 utilizing the assumptions discussed in Note 10 in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended October 31, 2014. The calculation of these amounts disregards the estimate of forfeitures related to time-based vesting conditions. With respect to the Performance RSUs, the estimate of the grant date fair value determined in accordance with ASC 718 assumes the vesting of 100% of the RSUs awarded. |
| |
(5) | Awards to Messrs. Toll, Yearley, Hartman, and Connor were made pursuant to the terms of the Senior Officer Plan. The plan does not include a threshold amount; awards in any fiscal year could be as low as $0. |
| |
(6) | The Senior Officer Plan does not include a target amount and, when the Compensation Committee met on December 5, 2013 to establish performance goals for fiscal 2014 for each of Messrs. Toll, Yearley, Hartman, and Connor, it did not establish a target amount for their awards. For a detailed discussion of the formula and criteria applied for such performance-based awards, see “Compensation Discussion and Analysis—Cash Compensation Decisions—Annual Incentive Bonus” in this proxy statement. |
Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table
Please see the “Compensation Discussion and Analysis” section of this proxy statement for a detailed description of the fiscal 2014 salary, annual incentive bonus, and equity awards with respect to each NEO.
Outstanding Equity Awards at October 31, 2014
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards |
Name | | Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable (9) | | Number of Securities Underlying Unexercised Options Unexercisable | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | | Market Value of Shares or Units of Stock That Have Not Vested ($)(10) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
Robert I. Toll | | 12/20/2004 | | 500,000 |
| | | | | 32.55 |
| | 12/20/2014 | | | | | | | | | |
| | 12/20/2005 | | 250,000 |
| | | | | 35.97 |
| | 12/20/2015 | | | | | | | | | |
| | 12/20/2006 | | 550,000 |
| | | | | 31.82 |
| | 12/20/2016 | | | | | | | | | |
| | 12/20/2007 | | 550,000 |
| | | | | 20.76 |
| | 12/20/2017 | | | | | | | | | |
| | 12/20/2010 | | 75,000 |
| | 25,000 |
| (1) | | 19.32 |
| | 12/20/2020 | | | | | | | | | |
| | 12/20/2011 | | 50,000 |
| | 50,000 |
| (2) | | 20.50 |
| | 12/20/2021 | | 109,843 |
| (5) | | 3,509,484 |
| | | | |
| | 12/17/2012 | | 25,000 |
| | 75,000 |
| (3) | | 32.22 |
| | 12/17/2022 | | 105,060 |
| (6) | | 3,356,667 |
| | | | |
| | 12/20/2013 | | | | 100,000 |
| (4) | | 35.16 |
| | 12/20/2023 | | 133,736 |
| (7) | | 4,272,865 |
| | | | |
Douglas C. Yearley, Jr. | | 12/20/2007 | | 16,250 |
| | | | | 20.76 |
| | 12/20/2017 | | | | | | | | | |
| | 7/18/2008 | | 18,692 |
| | | | | 18.92 |
| | 12/20/2014 | | | | | | | | | |
| | 7/18/2008 | | 9,007 |
| | | | | 18.92 |
| | 12/20/2015 | | | | | | | | | |
| | 7/18/2008 | | 14,162 |
| | | | | 18.92 |
| | 12/20/2016 | | | | | | | | | |
| | 12/20/2008 | | 17,500 |
| | | | | 21.70 |
| | 12/20/2018 | | | | | | | | | |
| | 12/20/2009 | | 46,875 |
| | | | | 18.38 |
| | 12/20/2019 | | | | | | | | | |
| | 12/20/2010 | | 90,000 |
| | 30,000 |
| (1) | | 19.32 |
| | 12/20/2020 | | | | | | | | | |
| | 12/20/2011 | | 60,000 |
| | 60,000 |
| (2) | | 20.50 |
| | 12/20/2021 | | 60,414 |
| (5) | | 1,930,227 |
| | | | |
| | 12/17/2012 | | 37,500 |
| | 112,500 |
| (3) | | 32.22 |
| | 12/17/2022 | | 78,598 |
| (6) | | 2,511,206 |
| | | | |
| | 12/20/2013 | | | | 159,000 |
| (4) | | 35.16 |
| | 12/20/2023 | | 100,051 |
| (7) | | 3,196,629 |
| | | | |
Richard T. Hartman | | 12/20/2007 | | 20,000 |
| | | | | 20.76 |
| | 12/20/2017 | | | | | | | | | |
| | 7/18/2008 | | 11,176 |
| | | | | 18.92 |
| | 12/20/2015 | | | | | | | | | |
| | 7/18/2008 | | 18,310 |
| | | | | 18.92 |
| | 12/20/2016 | | | | | | | | | |
| | 12/20/2008 | | 20,000 |
| | | | | 21.70 |
| | 12/20/2018 | | | | | | | | | |
| | 12/20/2009 | | 10,000 |
| | | | | 18.38 |
| | 12/20/2019 | | | | | | | |