UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

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Securities Exchange Act of 1934

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PulteGroup, Inc.

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

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PULTEGROUP, INC.

3350 Peachtree Road NE, Suite 150

Atlanta, Georgia 30326

NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS

 

When:		Wednesday, May 12, 2021 at 5:00 P.M, Eastern Time				How To Vote In Advance Your vote is important. We encourage you to vote promptly, whether or not you plan to attend the meeting. In accordance with the rules and regulations adopted by the Securities and Exchange Commission, instead of mailing a printed copy of our proxy materials, we are furnishing proxy materials to our shareholders over the internet. Make sure to have your proxy card, voting instruction form or Notice of Internet Availability of Proxy Materials and Notice of Annual Meeting in hand and follow the instructions. By Telephone: You can vote your shares by calling 1-800-690-6903 within the USA, US territories and Canada on a touchtone phone By Internet: You can vote your shares online at www.proxyvote.com By Mail: If you received a proxy card by mail, you can vote your shares by signing and returning the proxy card in the postage-paid envelope. IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 12, 2021. The Company's Proxy Statement for the 2020 Annual Meeting of Shareholders and the Annual Report on Form 10-K to Shareholders for the fiscal year ended December 31, 2020 are available at: www.proxyvote.com
Where:		Via the internet at: www.virtualshareholdermeeting.com/PHM2021
Items of Business:		Proposal 1 – Election of eleven nominees for director named in this Proxy Statement
		Proposal 2 – Ratification of appointment of Ernst & Young LLP as our independent registered public accounting firm for 2021
		Proposal 3 – Say-on-pay: Advisory vote to approve executive compensation
		In addition, any other business as may properly come before the meeting
Who Can Vote:		Shareholders of record at the close of business on Thursday, March 18, 2021
Who Can Participate:		Shareholders who wish to attend the virtual meeting should review pages 61-63. To be admitted electronically to the annual meeting, you must go to the meeting website at www.virtualshareholdermeeting.com/PHM2021, and enter the 16-digit control code included in your proxy materials. Shareholders participating in the virtual meeting are deemed to be present in person at the annual meeting. Further instructions on how to participate in and vote at the annual meeting are available at www.virtualshareholdermeeting.com/PHM2021
Date of Mailing:		On or about Thursday, March 25, 2021, a Notice of Internet Availability of Proxy Materials and Notice of Annual Meeting are being mailed or made available to our shareholders containing instructions on how to access this Proxy Statement and our 2020 Annual Report on Form 10-K and vote online, as well as instructions on how to receive paper copies of these documents for shareholders who so elect
Shareholder List:		A list of shareholders entitled to vote at the annual meeting will be available at www.virtualshareholdermeeting.com/PHM2021 for examination during the annual meeting. Shareholders will need their 16-digit control code to access the list.
Questions:		You may submit questions online during the annual meeting at www.virtualshareholdermeeting.com/PHM2021. The Company reserves the right to edit or reject any questions deemed duplicative, profane or inappropriate.

 

Atlanta, Georgia

March 25, 2021

PROXY SUMMARY

This summary highlights selected information about the items to be voted on at the 2021 annual meeting of shareholders (“annual meeting”) of PulteGroup, Inc. (“PulteGroup,” the “Company,” “we” or “our”). This summary does not contain all of the information that you should consider in deciding how to vote. You should read the entire Proxy Statement before voting.

Meeting Agenda and Voting Recommendations

 

Proposal		Election of Directors
				The Board recommends a vote FOR each of the director nominees named in this Proxy Statement. ●  Slate of directors with broad and diverse leadership experience ●  Significant experience in relevant industries (including real estate and consumer markets) and public company leadership experience, among other key competencies ●  Ongoing refreshment and succession process of Board composition ●  Proactive shareholder engagement

 

  See pages 3-11 for further information  

 

DIRECTOR NOMINEES

Name

Principal Professional Experience

Years of Tenure

Gender or Ethnic Diversity

Current Committee Memberships(1)

Independence

Audit

Comp

Finance

Nom   /Gov

Brian P. Anderson

Former Chief Financial Officer, Baxter International Inc.

16

●

●

Bryce Blair Non-Executive Chairman

Former Chairman of the Board and Chief Executive Officer, AvalonBay Communities, Inc.

10

Richard W. Dreiling

Former Chairman of the Board and Chief Executive Officer, Dollar General Corporation

6

●

Thomas J. Folliard

Non-Executive Chairman of the Board and Former President and Chief Executive Officer, CarMax, Inc.

9

●

●

Cheryl W. Grisé

Former Executive Vice President, Northeast Utilities (now known as Eversource Energy)

13

●

●

André J. Hawaux

Former Executive Vice President, Chief Financial Officer and Chief Operating Officer, Dick’s Sporting Goods, Inc.

8

●

J. Phillip Holloman

Former President and Chief Operating Officer, Cintas Corporation

1

●

●

Ryan R. Marshall

President and Chief Executive Officer, PulteGroup, Inc.

5

●

John R. Peshkin

Founder and Managing Partner, Vanguard Land, LLC

5

●

Scott F. Powers

Former President and Chief Executive Officer, State Street Global Advisors

5

●

Lila Snyder

Chief Executive Officer, Bose Corporation

3

●

●

(1) These columns show the current committee memberships of the director nominees.

 

Audit = Audit Committee		Finance = Finance and Investment Committee
Comp = Compensation and Management Development Committee		Nom/Gov = Nominating and Governance Committee
= Chair of Committee

 

ii

Board Nominee Highlights

 

 

 

Governance Highlights

PulteGroup has a long-standing commitment to strong corporate governance and throughout the years has evolved its governance framework to align with best practices. In particular, we believe that the following corporate governance features help us best serve the interests of our shareholders:

 

Shareholder Rights		Annual election of all directors    Majority vote standard in uncontested director elections    Proxy access rights    Right to call a special meeting for shareholders with 20% or more of outstanding shares    Right to take action by written consent for shareholders    Active engagement with the Company’s top 20 largest shareholders
Independent Oversight		Strong Non-Executive Chairman role    Audit Committee, Compensation and Management Development Committee and Nominating and Governance Committee each comprised solely of independent directors    All directors are independent except the Chief Executive Officer    Committees have authority to retain independent advisors
Good Governance		Frequent cross-committee and Board communications    Robust Board, committee and director evaluation processes    Code of ethical business conduct and code of ethics    Director orientation and continuing education programs    Meaningful share ownership guidelines for executive officers and directors    Prohibition against hedging and pledging Company securities by all employees and directors    Charter of Nominating and Governance Committee expresses strong commitment to inclusion of diverse groups, knowledge and viewpoints in selection of Board nominees

 

iii

Proposal		Ratification of Appointment of Ernst & Young LLP as the Independent Registered Public Accountant for 2021
				The Board recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as the independent registered public accountant for 2021. ●   Independent firm with a reputation for integrity and competence ●   Provides significant financial reporting expertise ●   Few ancillary services and reasonable fees    See page 54 for further information

 

 

iv

Proposal		Say-on-Pay: Advisory Vote to Approve Executive Compensation
				The Board recommends a vote FOR this proposal. ●   Ongoing review of compensation practices by Compensation and Management Development Committee with assistance from an independent compensation consultant ●   Compensation programs designed to reward executives for performance against established performance objectives and improving shareholder returns ●   Adherence to commonly viewed executive compensation best practices           See pages 55-56 further information

 

Executive Compensation Highlights

Our executive compensation program is designed to reward executives for producing sustainable growth and improving shareholder returns consistent with our strategic plan and to align compensation with the long-term interests of our shareholders. In accordance with this pay for performance philosophy, PulteGroup compensates its named executive officers using a mix of cash and equity compensation elements with an emphasis on short-term and long-term performance:

 

Element				Description				Further Information (pages)
Base Salary				Provides base pay levels that are competitive with market practices to attract and retain top executive talent.				34
Annual Cash Incentive				Provides annual incentive opportunities competitive with market practices to attract, motivate and retain top executive talent.   Rewards executives for annual performance results relative to pre-established goals deemed critical to the success of the Company and its strategy and for year-over-year growth in pre-tax income.   Focuses on key annual results that we believe will position the Company for success over time, in keeping with the interests of shareholders.				34-36
Long-Term Incentive Program				Provides equity incentives competitive with market practices in order to attract, motivate and retain top executive talent.   Focuses executives on long-term performance of the Company.   Directly aligns interests of executives with those of our shareholders.   Retention of talent over performance / vesting period.				36-38
Restricted Share Units				Provides equity incentives competitive with market practices in order to attract, motivate and retain top executive talent.   Focuses executives on long-term performance of the Company.   Directly aligns interests of executives with those of our shareholders.   Retention of talent over performance / vesting period.				38-39

 

v

PulteGroup is also committed to having strong governance standards with respect to our executive compensation program, policies and practices. Consistent with this focus, we maintain the following policies and practices that we believe demonstrate our commitment to executive compensation best practices.

 

WHAT WE DO						WHAT WE DO NOT DO
		Annual say-on-pay vote						Prohibition on hedging and pledging Company securities
		Shareholder engagement						No dividends or dividend equivalents paid on unearned performance-based equity awards
		Compensation and Management Development Committee comprised entirely of independent directors						No automatic single-trigger vesting of equity awards upon a change-in-control
		Independent outside compensation consultant						No change-in-control tax gross-ups for named executive officers
		Pay for performance—CEO pay approximately 91% at-risk						No excessive perquisites
		Multi-year vesting schedule for equity awards						No service-based defined benefit pension plan
		Meaningful share ownership guidelines						Plan prohibits re-pricing of underwater stock options
		Clawback policy						Plan prohibits granting discounted stock options
		Market comparison of executive compensation against a relevant peer group

 

vi

TABLE OF CONTENTS

 

Notice of 2021 Annual Meeting of Shareholders			i
Proxy Summary			ii
Proxy Statement			2
Board of Directors Information			3
Proposal 1: Election of Directors			5
Committees of the Board of Directors			12
Corporate Governance			16
Corporate Governance Highlights			16
Governance Guidelines; Code of Ethical Business Conduct; Code of Ethics; Prohibition on Hedging			16
Board Leadership			16
Board Role in Risk Oversight			17
Board Assessments			17
Available Information about PulteGroup			18
Director Nomination Recommendations			19
2020 Director Compensation			20
Compensation Discussion and Analysis			22
Executive Summary			22
Establishing and Evaluating Executive Compensation			29
How We Make Executive Compensation Decisions			30
Executive Compensation Program Elements			32
2021 Compensation Decisions			40
Compensation and Management Development Committee Report			42
2020 Executive Compensation			43
2020 Summary Compensation Table			43
2020 Grants of Plan-Based Awards Table			44
Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table			45
2020 Outstanding Equity Awards at Fiscal Year-End Table			45
2020 Option Exercises and Stock Vested Table			46
2020 Non-Qualified Deferred Compensation Table			46
Potential Payments Upon Termination or Change-In-Control			46
Risk Management and Compensation			49
Pay Ratio Disclosure			50
Equity Compensation Plan Information			51
Certain Relationships and Related Transactions			51
Report of the Audit Committee			52
Other Audit Matters			53
Proposal 2: Ratification of Appointment of Ernst & Young LLP as the Independent Registered Public Accountant for 2021			54
Proposal 3: Say-On-Pay: Advisory Vote to Approve Executive Compensation			55
Beneficial Security Ownership			57
Other Matters			59
Questions and Answers About the Proxy Materials and the Annual Meeting			61

 

1

PROXY STATEMENT

The board of directors of PulteGroup, Inc. (“PulteGroup,” the “Company,” “we” or “our”) is soliciting proxies on behalf of the Company to be used at the annual meeting of shareholders (the “annual meeting”) to be held on Wednesday, May 12, 2021, at 5:00 P.M., Eastern Time, via the internet at: www.virtualshareholdermeeting.com/PHM2021. The annual meeting will be held in a virtual meeting format only and you will not be able to attend the annual meeting in person. See pages 61-63 for additional information on attending the annual meeting. In accordance with rules adopted by the Securities and Exchange Commission (the “SEC”), the Company is making this Proxy Statement and the Company’s Annual Report on Form 10-K (“Annual Report”) available to our shareholders electronically via the internet. In addition, the Company is using the SEC’s Notice and Access Rules to provide shareholders with more options for receipt of these materials. Accordingly, on or about March 25, 2021, the Company will be mailing a Notice of Internet Availability of Proxy Materials and Notice of Annual Meeting (the “Notice”) to our shareholders containing instructions on how to access this Proxy Statement and the Company’s Annual Report on the internet, how to vote online or by telephone, and how to receive paper copies of the documents and a proxy card.

 

2

BOARD OF DIRECTORS INFORMATION

Board of Directors Qualifications and Attributes

PulteGroup’s board of directors (the “Board” or “board of directors”) annually reviews the skills and experiences which should be represented on the Board. As a result of this ongoing review, the Board developed the following matrix which sets forth the collective experiences and qualifications of the directors that will continue to drive effective oversight of the Company. The Board reaffirmed this set of experiences and qualifications in assessing nominees for 2021.

 

Competency		Definition
Real Estate Experience		•  Deep experience in the single-family homebuilding sector •  Experience in a large organization where the purchase, entitlement and/or development of real estate is integral to the business
Public Company Leadership Experience		•  “C Suite” experience (e.g., Chief Executive Officer, Chief Financial Officer, Chief Operating Officer or similar) with a public company •  Sub “C Suite” experience as division president or functional leader within a large public company (e.g., subsidiary president/functional leader) •  Prominence and excellent reputation in the director’s industry
High Level of Financial Literacy		•  Able to qualify as an Audit Committee Financial Expert •  Public company senior financial leader (e.g., Chief Financial Officer) •  Experience with debt and capital market transactions and/or mergers and acquisitions (e.g., as a consumer finance or banking executive, or as an investment banker)
Public Company Board Experience		•  Experience serving as a public company director •  Demonstrated understanding of current corporate governance standards and practices in public companies •  “Independent” as defined by the New York Stock Exchange (“NYSE”) and the SEC
Consumer Markets Experience		•  Experience leading a large organization with profit and loss ownership in a consumer-facing business •  Executive experience in an organization with strong brands and who has a solid foundation in consumer insights, consumer trends and maintaining important brands
Experience in Highly Regulated Industries		•  Experience in a large organization where management of complex and/or diverse regulatory and compliance matters is integral to the operation of the business
Human Capital		•  Extensive experience managing a large and diverse workforce with involvement in compensation and incentive planning for various categories of employees
Technology/Innovation		•  Experience as an executive who understands the digital world and broader digital transformation impacts and opportunities, and who has experience implementing related strategies

In addition to these competencies and experiences, the Board also believes that integrity, business judgment, leadership skills, dedication and collaboration are personal attributes that are vital to the Board’s ability to effectively oversee the Company and act in the best interests of the Company’s shareholders. More detail regarding the Company’s individual directors is provided below. In addition to these personal characteristics and qualifications, PulteGroup highly values the collective experience and qualifications of the directors. PulteGroup believes that the diverse set of collective experiences, viewpoints and perspectives of its directors’ results in a Board with the commitment and energy to advance the interests of PulteGroup’s shareholders.

In March 2018, the Nominating and Governance Committee amended its charter to express the Nominating and Governance Committee’s commitment to the inclusion of diverse groups (including, where appropriate, diversity of age, gender, race, ethnicity and professional experience), knowledge and viewpoints in its selection of Board nominees. When adding new Board members or filling vacancies, the Nominating and Governance Committee will conduct its search consistent with its amended charter and our Corporate Governance Guidelines. Consistent with this charter amendment, all searches conducted since March 2018, including the recent search which resulted in the appointment of J. Phillip

 

3

Holloman as a director in November 2020, included a diverse pool of candidates with the objective of further enhancing the collective experiences and qualifications of the Board.

Independence

Under the Company’s Corporate Governance Guidelines, which are available to shareholders at http://www.pultegroupinc.com/investors/corporate-governance/guidelines/default.aspx, a substantial majority of the members of our Board must be independent. The Board has adopted categorical independence standards to assist the Nominating and Governance Committee in determining director independence, which standards either meet or exceed the independence requirements of the NYSE corporate governance standards. Under these standards, no director can qualify as independent unless (i) the Board affirmatively determines that the director has no material relationship with the Company, directly or as an officer, shareholder or partner of an organization that has a relationship with the Company, (ii) the director is otherwise independent under NYSE corporate governance standards and (iii) the director meets the following categorical standards:

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

 

•

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

In addition, Audit Committee members may not have any direct or indirect financial relationship whatsoever with the Company other than as directors.

The Board considered all relevant facts and circumstances in assessing director independence. In connection with this assessment, the Board affirmatively determined that Brian P. Anderson, Bryce Blair, Richard W. Dreiling, Thomas J. Folliard, Cheryl W. Grisé, André J. Hawaux, J. Phillip Holloman, John R. Peshkin, Scott F. Powers and Lila Snyder are independent within the meaning of the Company’s categorical standards and the NYSE listing standards. The Board further determined that Ryan R. Marshall, who is a current PulteGroup employee, is not independent within the meaning of the Company’s categorical standards and the NYSE listing standards.

 

4

Proposal		Election of Directors
				The Board recommends a vote FOR each of the director nominees named in this Proxy Statement. ●  Slate of directors with broad and diverse leadership experience ●  Significant experience in relevant industries (including real estate and consumer markets) and public company leadership experience, among other key competencies ●  Ongoing refreshment and succession process of Board composition ●  Proactive shareholder engagement

 

Our Restated Articles of Incorporation, as amended, require that we have at least three, but no more than 15, directors. The exact number of directors is set by the Board and is currently eleven. All directors will be elected on an annual basis for one-year terms. The eleven directors comprising the Board, all of whose terms are expiring at the annual meeting, are Brian P. Anderson, Bryce Blair, Richard W. Dreiling, Thomas J. Folliard, Cheryl W. Grisé, André J. Hawaux, J. Phillip Holloman, Ryan R. Marshall, John R. Peshkin, Scott F. Powers, and Lila Snyder. Mr. Holloman was appointed to the Board on November 17, 2020, and the source of Mr. Holloman’s recommendation to serve as a director of the Company was a search led by our Nominating and Governance Committee and conducted by a national third-party search firm, which was followed by a collective determination by our Board to nominate Mr. Holloman. The by-laws of the Company provide that a nominee for director at the annual meeting shall be elected by the affirmative vote of a majority of the votes cast with respect to that director’s election. A majority of votes cast means that the number of votes cast “for” a director’s election exceeds the number of votes cast “against” that director’s election (with “abstentions” and “broker non-votes” not counted as a vote cast either “for” or “against” that director’s election). If a nominee for director, who is an incumbent director, is not elected, the director shall promptly tender his or her resignation to the board of directors. The Nominating and Governance Committee will make a recommendation to the board of directors as to whether to accept or reject the resignation of such incumbent director, or whether other action should be taken. The board of directors shall act on the resignation, taking into account the committee’s recommendation, and publicly disclose (by a press release, a filing with the Securities and Exchange Commission or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within 90 days following certification of the election results. The director who tenders his or her resignation will not participate in the recommendation of the committee or the decision of the board of directors with respect to his or her resignation.

The eleven persons listed below are the nominees to serve a one-year term expiring at the Company’s 2022 annual meeting of shareholders, and each has agreed to serve the one-year term for which he or she has been nominated, if elected. Please see below for a description of the occupations and recent business experience of all director nominees. In addition, the specific experience, qualifications, attributes or skills that led the Nominating and Governance Committee to the conclusion that each of the director nominees should serve as a director of the Company are included in the descriptions below.

 

5

Nominees to Serve a One-Year Term Expiring at the 2022 Annual Meeting of Shareholders
Brian P. Anderson
		Mr. Anderson has significant experience as a chief financial officer of two large multinational companies and as a director of several large public companies. In addition, he has held finance positions including chief financial officer, corporate controller and vice president of audit and was an audit partner at an international public accounting firm. Mr. Anderson has significant experience in the preparation and review of complex financial reporting statements as well as experience in risk management and risk assessment.				Director Since: 2005   Age: 70   Committees: •   Audit •   Finance and Investment   Public Company Board Experience:
						Company W.W. Grainger, Inc. J. Hardie Industries plc Stericycle, Inc. A.M. Castle & Co.		Term 1999 - present 2006 - 2020 2017 - present 2005 - 2016

❖		Relevant Business Experience: Mr. Anderson is the former Executive Vice President of Finance and Chief Financial Officer of OfficeMax Incorporated, a distributor of business-to-business and retail office products. Prior to assuming this position in 2004, Mr. Anderson was Senior Vice President and Chief Financial Officer of Baxter International Inc., a global diversified medical products and services company, a position he assumed in 1998. Mr. Anderson has extensive experience sitting on and chairing the audit committees of public companies. Mr. Anderson also brings to the Board meaningful experience based on his service as the former Lead Director of W.W. Grainger, Inc. and former Chairman of A.M. Castle & Co., as well as his service as a Governing Board Member at the Center for Audit Quality. Mr. Anderson is an audit committee financial expert for purposes of the SEC’s rules.

 

Bryce Blair
		Mr. Blair has substantial experience in real estate development and investment, including having spent over ten years as chairman and chief executive officer of a public real estate investment trust. In addition, in his former role as chief executive officer of AvalonBay Communities, Inc., Mr. Blair was responsible for day to day operations, and he was regularly involved in the preparation and review of complex financial reporting statements. Mr. Blair also brings to the Board meaningful experience based on his service on the board of directors of AvalonBay Communities, Inc. and Regency Centers Corp. He also serves as Non-Executive Chairman of the board of directors of Invitation Homes, Inc.				Director Since: 2011   Age: 62   Committees: None (Mr. Blair is the Non-Executive Chairman)   Public Company Board Experience:
						Company Invitation Homes Inc. Regency Centers Corp. AvalonBay Communities, Inc.		Term 2017 - present 2014 - present 2002 - 2013

❖		Relevant Business Experience: Mr. Blair is the Manager of Harborview Associates, LLC, a company which holds and manages investments in various real estate properties. Mr. Blair is also the former Chairman of the Board and the former Chief Executive Officer of AvalonBay Communities, Inc. In addition, Mr. Blair served in a number of senior leadership positions with AvalonBay Communities, Inc., including Chief Executive Officer from February 2001 through December 2011, President from September 2000 through February 2005 and Chief Operating Officer from February 1999 to February 2001. Mr. Blair is also a past member of the National Association of Real Estate Investment Trusts, where he served as Chairman and was on the Executive Committee and the Board of Governors, and the Urban Land Institute, where he is past Chairman of the Multifamily Council and is a past Trustee.

 

6

Richard W. Dreiling
		Mr. Dreiling has wide-ranging experience serving as both a senior executive and a director of large, consumer-focused companies. Mr. Dreiling’s experience of overseeing the marketing and distribution functions of retail companies provides an in-depth understanding of PulteGroup’s customers’ needs and adds a valuable perspective for Board decision-making. Mr. Dreiling also brings to the Board meaningful experience based on his service on the board of directors of Dollar General Corporation, Inc., Kellogg Company, and Aramark. Mr. Dreiling also serves as the Non-Executive Chairman of the board of directors of Lowe’s Companies.						Director Since: 2015   Age: 67   Committees: •   Compensation and Management      Development •   Nominating and Governance (Chair)   Public Company Board Experience:
								Company		Term
								Lowe’s Companies		2012 - present
								Aramark Holdings Corp.		2015 - present
								Kellogg Company		2015 - present
								Dollar General Corporation		2008 - 2016

❖		Relevant Business Experience:
		Mr. Dreiling is the former Chairman of the Board and Chief Executive Officer of Dollar General Corporation. Mr. Dreiling served as Chief Executive Officer of Dollar General Corporation, the nation’s largest small-box discount retailer, from January 2008 through June 2015. Prior to 2008, Mr. Dreiling served as Chief Executive Officer, President and a director of Duane Reade Holdings, Inc. and Duane Reade Inc. (collectively, “Duane Reade”), the largest drugstore chain in New York City, from November 2005 until January 2008, and as chairman of the board of Duane Reade from March 2007 until January 2008. Earlier in his career, Mr. Dreiling was Chief Operations Officer for Longs Drug Stores Corporation and held executive positions with Safeway, Inc. Mr. Dreiling also previously served as the chairman of the board of the Retail Industry Leaders Association from January 2014 to January 2016.

 

Thomas J. Folliard
		Mr. Folliard has extensive experience as Chief Executive Officer of a large, consumer-focused public company. In connection with that role, Mr. Folliard has significant experience in operational matters and business strategy, which adds a valuable perspective for the Board’s decision making. Mr. Folliard also brings to the board of directors meaningful experience based on his service on the board of directors of CarMax, Inc., currently as Non-Executive Chairman; Baron Investment Funds and Baron Select Funds.				Director Since: 2012   Age: 56   Committees: •   Compensation and Management      Development •   Nominating and Governance Committee   Public Company Board Experience:
						Company		Term
						Baron Investment Funds Trust		2017 - present
						Baron Select Funds		2017 - present
						CarMax, Inc.		2006 - present
						DAVIDsTEA Inc.		2014 - 2017

❖		Relevant Business Experience:
		Mr. Folliard currently serves as a Trustee to Baron Investment Funds Trust and Baron Select Funds and has been in such positions since August 2017. Mr. Folliard served as President and Chief Executive Officer of CarMax, Inc., the largest retailer of used autos in the United States, from 2006 until his retirement on August 31, 2016. He joined CarMax, Inc. in 1993 as the senior buyer and became the director of purchasing in 1994. Mr. Folliard was promoted to vice president of merchandising in 1996, senior vice president of store operations in 2000 and executive vice president of store operations in 2001. Mr. Folliard is an audit committee financial expert for purposes of the SEC’s rules.

 

7

Cheryl W. Grisé
		Ms. Grisé has significant experience as a director of several large public corporations and as a former executive officer of a public utility holding company. Ms. Grisé’s substantial experience, including earlier experience as general counsel and corporate secretary, provide her with a unique perspective on the complex legal, compensation, and other issues that affect companies in regulated industries and the Board’s roles and responsibilities with respect to the effective functioning of the Company’s corporate governance structures. Ms. Grisé also brings to the Board meaningful experience based on her service as Lead Director of MetLife, Inc. and her service on the board of directors of several other public companies, including ICF International, Inc., which provides Ms. Grisé relevant insight in cybersecurity matters.				Director Since: 2008   Age: 68   Committees: •  Compensation and Management Development •  Nominating and Governance   Public Company Board Experience:
						Company		Term
						MetLife, Inc.		2004 - present
						ICF International, Inc.		2012 - present
						Pall Corporation		2007 - 2015

❖		Relevant Business Experience:
		Ms. Grisé was Executive Vice President of Northeast Utilities (now Eversource Energy), a public utility holding company, from December 2005 until her retirement effective July 2007; Chief Executive Officer of its principal operating subsidiaries from September 2002 to January 2007; President of the Utility Group of Northeast Utilities Service Company from May 2001 to January 2007; and Senior Vice President, Secretary and General Counsel of Northeast Utilities from 1998 to 2001.

 

André J. Hawaux
		Mr. Hawaux has significant experience serving as a senior officer of several corporations, including as executive vice president and chief financial officer of a large, consumer-focused public company. In connection with that role, Mr. Hawaux has extensive experience in operational matters and business strategy, which adds a valuable perspective for the Board’s decision-making. In addition, Mr. Hawaux has significant experience in the preparation and review of complex financial reporting statements as well as experience in risk management and risk assessment.						Director Since: 2013   Age: 60   Committees: •   Audit (Chair) •   Finance and Investment   Public Company Board Experience:
								Company		Term
								Lamb Weston Holdings, Inc.		2017 - present
								The Timberland Company		2010 - 2011

❖		Relevant Business Experience:
		Mr. Hawaux is the Former Executive Vice President, Chief Financial Officer, and Chief Operating Officer of Dick’s Sporting Goods, Inc. Mr. Hawaux joined Dick’s Sporting Goods, Inc., a leading omni-channel sporting goods retailer, in June 2013 as Executive Vice President, Finance Administration and Chief Financial Officer and also served as its Executive Vice President, Chief Operating Officer through August 2017. Mr. Hawaux served as president of the Consumer Foods business of ConAgra Foods, Inc. (now ConAgra Brands Inc.), one of North America’s leading packaged food companies, from 2009 until May 2013. He joined ConAgra Foods as executive vice president and chief financial officer in 2006, and prior to ConAgra Foods, he served as general manager of a large U.S. division of PepsiAmericas. Mr. Hawaux also previously served as chief financial officer for Pepsi-Cola North America and Pepsi International’s China business unit. Mr. Hawaux is an audit committee financial expert for purposes of the SEC’s rules.

 

8

J. Phillip Holloman
		Mr. Holloman brings significant insight to the Board from his career as an executive of Cintas Corporation, including in his position as President and Chief Operating Officer from 2008 to 2018. Mr. Holloman successfully guided Cintas during a challenging economic period and led Cintas’ rebranding exercise, including offering new products and services, as well as its entrance into new markets. In addition to his business unit responsibilities at Cintas, Mr. Holloman also oversaw the supply chain, marketing, fleet management, engineering and safety.				Director Since: 2020   Age: 65   Committees: •  Audit •  Finance and Investment   Public Company Board Experience:
						Company Rockwell Automation		Term 2013 - present

❖		Relevant Business Experience: Mr. Holloman served as President and Chief Operating Officer of Cintas Corporation from 2008 until July 2018. He joined Cintas in 1996 and has served in various positions including Vice President – Engineering/Construction from 1996 to 2000, Vice President – Distribution/Production Planning from 2000 to 2003, Executive Champion of Six Sigma Initiatives from 2003 to 2005, Senior Vice President – Global Supply Chain Management from 2005 until 2008. Mr. Holloman also serves as director of Rockwell Automation.

 

Ryan R. Marshall
		Mr. Marshall brings significant insight to the Board from his tenure at PulteGroup, including in his position as President and Chief Executive Officer and his management of many of the Company’s largest operations. Mr. Marshall’s extensive experience at the Company through various financial and operational roles prior to his appointment as the Chief Executive Officer of the Company provides an in-depth understanding of PulteGroup’s operations and complexity and adds a valuable perspective for Board decision-making.				Director Since: 2016   Age: 46   Committees: •  Finance and Investment   Public Company Board Experience:
						Company Floor & Decor Holdings, Inc.		Term 2020 - present

❖		Relevant Business Experience: Mr. Marshall is President and Chief Executive Officer of PulteGroup, Inc. Mr. Marshall has served as the President and Chief Executive Officer of PulteGroup, Inc. since September 8, 2016, and as the President since February 15, 2016. Prior to becoming CEO, Mr. Marshall most recently had the responsibility for the Company’s homebuilding operations and its marketing and strategy departments. Prior to being named President, Mr. Marshall was Executive Vice President of Homebuilding Operations since May 2014. Other previous roles included Area President for the Company’s Southeast Area since November 2012, Area President for Florida, Division President in both South Florida and Orlando and Area Vice President of Finance. In those roles, he has managed various financial and operating functions including financial reporting, land acquisition and strategic market risk and opportunity analysis.

 

 

 

9

John R. Peshkin
		Mr. Peshkin has significant experience as a founder and managing partner at a leading real estate investment group. In addition, Mr. Peshkin also has significant experience in the real estate and home building industries as a successful senior executive, as an investor and as a board member at two of the nation’s top builders, which brings valuable industry knowledge and insight to the Board. Mr. Peshkin also brings to the Board meaningful experience based on his service on the board of directors of for-profit companies and non-profit institutions.				Director Since: 2016   Age: 60   Committees: •  Audit •  Finance and Investment (Chair)   Public Company Board Experience:
						Company Standard Pacific Corp. (subsequently CalAtlantic Group, Inc., which was then acquired by Lennar Corporation)		Term 2012 - 2015

❖		Relevant Business Experience: Mr. Peshkin is the founder and Managing Partner at Vanguard Land, LLC, a private real estate investment group focused on the acquisition and development of residential and commercial properties throughout Florida since 2008. He was previously the founder and Chief Executive Officer of Starwood Land Ventures, an affiliate of Starwood Capital Group Global, a real estate private equity firm until 2008. Mr. Peshkin spent 24 years with Taylor Woodrow plc, a national homebuilder, serving as its North American CEO and President from 2000 to 2006. Mr. Peshkin is an audit committee financial expert for purposes of the SEC’s rules.

 

Scott F. Powers
		Mr. Powers has significant experience as a financial services executive executing growth strategies, managing operations and leading efforts in risk and crisis management. Mr. Powers brings additional skills to the Board honed through a career of managing through financial industry change. Mr. Powers also has prior public company board experience as a current member of the boards of directors of Sun Life Financial, Inc. and Automatic Data Processing, Inc. and a previous member of the board of directors of Whole Foods Market, Inc.						Director Since: 2016   Age: 61   Committees: •  Compensation and Management     Development (Chair) •  Nominating and Governance   Public Company Board Experience:
								Company		Term
								Automatic Data Processing, Inc.		2018 - present
								Sun Life Financial, Inc.		2015 - present
								Whole Foods Market, Inc.		2017

❖		Relevant Business Experience:
		Mr. Powers is the Former President and Chief Executive Officer of State Street Global Advisors. Mr. Powers held leadership positions at State Street Corporation, a financial holding company that performs banking services through its subsidiaries, from 2008 to 2015, most recently as Executive Vice President of State Street Corp, President and Chief Executive Officer of State Street Global Advisors. Mr. Powers also served as a member of the State Street Management Committee. In addition, he previously served as President and Chief Executive Officer of Old Mutual USA and Old Mutual Asset Management from 2001 to 2008. He also held executive roles at Mellon Financial Corporation and Boston Company Asset Management.

 

 

 

10

Lila Snyder
		Ms. Snyder has significant experience as a consultant and corporate executive in a wide variety of industries. Ms. Snyder has advised on and led innovation initiatives in the areas of digital technology, media and communications. Ms. Snyder also brings significant skills to the Board relating to strategy, operations, marketing, and sales as a current chief executive officer of a large multi-national private company and as a former C-level executive of a Fortune 1000 Company.						Director Since: 2018   Age: 48   Committees: •  Audit •  Finance and Investment

❖		Relevant Business Experience:
		Ms. Snyder has served as Chief Executive Officer of Bose Corporation since August 2020. Prior to her current role, Ms. Snyder held numerous senior leadership positions at Pitney Bowes, Inc., including Executive Vice President and President, Commerce Services from October 2017 to August 2020, President of Global Ecommerce from June 2015 to October 2017, and President of Document Messaging Technologies from November 2013 to June 2015. Prior to joining Pitney Bowes, Inc., Ms. Snyder was a partner at global consultancy firm McKinsey & Company, Inc., where she led McKinsey’s Stamford office and served clients in the technology, media and communications sectors.

 

		The Board of Directors recommends that shareholders vote “FOR” the election of these eleven nominees.
		If a nominee is unable to stand for election, the Board may reduce the number of directors or choose a substitute. If the Board chooses a substitute, shares represented by proxies will be voted for the substitute. If a director retires, resigns, dies or is unable to serve for any reason, the Board may reduce the number of directors or appoint a new director to fill the vacancy. The new director would serve until the Company’s next annual meeting of shareholders.

 

11

COMMITTEES OF THE BOARD OF DIRECTORS

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

 

Director Name

Audit Committee†

Compensation and Management Development Committee†

Nominating and Governance Committee†

Finance          and          Investment          Committee†

Brian P. Anderson

●

●

Bryce Blair*

Richard W. Dreiling

●

Thomas J. Folliard

●

●

Cheryl W. Grisé

●

●

André J. Hawaux

●

J. Phillip Holloman

●

●

Ryan R. Marshall

●

John R. Peshkin

●

Scott F. Powers

●

Lila Snyder

●

●

 

Chair

 

*	Non-Executive Chairman

 

†	This chart shows the current committee memberships.

Board Committee Refreshment

On at least an annual basis, the Nominating and Governance Committee reviews committee assignments and discusses whether rotation of Committee members and Committee Chairs is appropriate to introduce fresh perspectives and to broaden and diversify the views and experiences represented on the Board’s Committees. The Board continues to actively refresh its committees with each Committee chair having rotated at least once in the last 3 years. In 2020, Mr. Dreiling became the Chair of the Nominating and Governance Committee replacing Ms. Grise who remains on the Committee. Also in 2020, Mr. Folliard rotated from the Finance and Investment Committee and Audit Committee to the Nominating and Governance Committee and the Compensation and Management Development Committee.

Audit Committee

The Audit Committee met 9 times in 2020. The Audit Committee represents and assists the Board with the oversight of the integrity of the Company’s financial statements and financial reporting process, the Company’s system of internal accounting and financial controls, the performance of the Company’s internal audit function, the annual independent audit of the Company’s financial statements, the engagement of the independent auditors, the evaluation of the independent auditor’s qualifications, independence and performance, the Company’s compliance with legal and regulatory requirements, and the Company’s management of significant financial and technological risks. The Audit Committee is also responsible for preparing the report of the Audit Committee required to be included in the Company’s annual proxy statement.

The Audit Committee is responsible for selecting (subject to ratification by our shareholders) the independent auditor as well as setting the compensation for and overseeing the work of the independent auditor and approving audit services to be provided by the independent auditor. The Board has determined that each of the members of the Audit Committee is

 

12

independent within the meaning of the Company’s categorical standards and the applicable NYSE and SEC rules and financially literate as defined by the NYSE rules, and that Brian P. Anderson, André J. Hawaux and John R. Peshkin are audit committee financial experts for purposes of the SEC’s rules.

Compensation and Management Development Committee

The Compensation and Management Development Committee met 4 times in 2020. The Compensation and Management Development Committee is responsible for the review, approval and administration of the compensation and benefit programs for the Chief Executive Officer and the other named executive officers. It also reviews and makes recommendations regarding the Company’s general compensation philosophy and incentive plans and certain other compensation plans; reviews the Company’s leadership development programs and initiatives; and discusses performance, leadership development and succession planning for key officers with the Chief Executive Officer, as appropriate. The Compensation and Management Development Committee has the power to form subcommittees and delegate responsibility to them. The Board has determined that each of the members of the Compensation and Management Development Committee is independent within the meaning of the Company’s categorical standards and the NYSE rules.

Mr. Scott F. Powers is currently the Chair of the Compensation and Management Development Committee. Mr. Powers works with Ms. Michelle Hairston, the Company’s Senior Vice President, Human Resources, to establish meeting agendas and determine whether any members of PulteGroup’s management or outside advisors should attend meetings. The Compensation and Management Development Committee also meets regularly in executive session. At various times during the year at the request of the Compensation and Management Development Committee, Ryan R. Marshall, the President and Chief Executive Officer of the Company; Robert T. O’Shaughnessy, the Executive Vice President and Chief Financial Officer of the Company; and Todd N. Sheldon, the Executive Vice President, General Counsel and Corporate Secretary of the Company, may attend Compensation and Management Development Committee meetings, or portions of Compensation and Management Development Committee meetings, to provide the Compensation and Management Development Committee with information regarding the Company’s operational performance, financial performance or other topics requested by the Compensation and Management Development Committee to assist it in making its compensation decisions.

The Chief Executive Officer annually reviews the performance of each member of senior management (other than our Chief Executive Officer’s performance, whose performance is reviewed by the Compensation and Management Development Committee). Recommendations based on these reviews, including salary adjustments, annual bonuses, long-term incentives and equity grants, are presented to the Compensation and Management Development Committee. Decisions regarding salary adjustments, annual bonuses, long-term incentives and equity grants for our Chief Executive Officer are made by the Compensation and Management Development Committee. All decisions for 2020 made with respect to the executives listed in the Summary Compensation Table (other than the Chief Executive Officer) were made after deliberation with Mr. Marshall.

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

The Compensation and Management Development Committee receives, and reviews materials provided by the Compensation and Management Development Committee’s consultant and the Company’s management. These materials include information that the consultant and management believe will be helpful to the Compensation and Management Development Committee, as well as materials the Compensation and Management Development Committee specifically requests.

The Compensation and Management Development Committee has the authority to engage its own outside compensation consultant and any other advisors it deems necessary. Since May 2019, the Compensation and Management Development Committee has engaged Semler Brossy to act as its independent consultant. Semler Brossy regularly provides the Compensation and Management Development Committee with information regarding market compensation levels, general compensation trends and best practices. The Compensation and Management Development Committee also regularly asks Semler Brossy to opine on the reasonableness of specific pay decisions and actions for the named executive officers, as well as the appropriateness of the design of the Company’s executive compensation programs.

The activities of Semler Brossy are directed by the Compensation and Management Development Committee, although Semler Brossy may communicate with members of management, as appropriate, to gather data and prepare analyses as

 

13

requested by the Compensation and Management Development Committee. During 2020, the Compensation and Management Development Committee asked Semler Brossy to review market data and advise the Committee on setting executive compensation and the competitiveness and reasonableness of the Company’s executive compensation program; review and advise the Compensation and Management Development Committee regarding the Company’s pay for performance, equity grant and dilution levels, each as relative to the Company’s peers; review and advise the Compensation and Management Development Committee regarding regulatory, disclosure and other technical matters; and review and advise the Compensation and Management Development Committee regarding the Company’s compensation risk assessment procedures. The Compensation and Management Development Committee also asked the Semler Brossy to provide opinions on named executive officer pay decisions.

In 2020, Semler Brossy did not provide any other services to the Company. The Compensation and Management Development Committee assessed the independence of Semler Brossy pursuant to SEC rules and concluded that the work of the compensation consultants for the Compensation and Management Development Committee does not raise any conflict of interest.

The Compensation and Management Development Committee has determined that Semler Brossy is independent because it does no work for the Company other than that requested by the Compensation and Management Development Committee. The Chair of the Compensation and Management Development Committee reviews the consultant’s invoices, which are paid by the Company.

Nominating and Governance Committee

The Nominating and Governance Committee met 5 times in 2020. The Nominating and Governance Committee establishes criteria for the selection of new members of the board of directors and makes recommendations to the Board based on qualified identified individuals, including any qualified candidates nominated by shareholders, as described in “Director Nomination Recommendations” below. As noted above, in March 2018, the Nominating and Governance Committee amended its charter to express the Nominating and Governance Committee’s commitment to the inclusion of diverse groups (including, where appropriate, diversity of age, gender, race, ethnicity and professional experience), knowledge and viewpoints in its selection of Board nominees. Since the adoption of this charter amendment, subsequent Board searches have been conducted consistent with this practice and have served to enhance the diversity, including the gender diversity, of our Board.

The Nominating and Governance Committee is also responsible for matters related to the governance of the Company and for developing and recommending to the Board the criteria for Board membership, the selection of new Board members and the assignment of directors to the committees of the Board. The Nominating and Governance Committee assures that a regular evaluation is conducted of the performance, qualifications, and integrity of the Board and the committees of the Board. Please see “Corporate Governance—Board Assessments” for further information regarding the regular evaluations. The Nominating and Governance Committee also reviews and makes recommendations with respect to the compensation of members of the Board.

The Nominating and Governance Committee is also responsible for reviewing the Company’s Environmental, Social and Governance (“ESG”) Policies, reviewing the Company’s cultural metrics and assessing and monitoring the Company’s enterprise risk management initiatives. With respect to our ESG reporting, the Nominating and Governance Committee oversaw our Company’s process of beginning to report sustainability metrics consistent with the Sustainability Accounting Standards Board (“SASB”) for Home Builders along with other disclosures related to our environmental and social initiatives. Enhanced disclosure of ESG related metrics and initiatives has been included in our CEO’s performance objectives for 2021. With respect to our Company’s culture initiatives, the Nominating and Governance Committee reviews at least twice annually key company metrics with regard to workforce diversity, stability, health and safety as well as our compliance policies relating to employee conduct and anti-harassment.

The Board has determined that each of the members of the Nominating and Governance Committee is independent within the meaning of the Company’s categorical standards and the NYSE rules.

Finance and Investment Committee

The Finance and Investment Committee met 7 times in 2020. The Finance and Investment Committee reviews all aspects of the Company’s policies that relate to the management of the Company’s financial affairs. The Finance and Investment Committee also reviews the Company’s long-term strategic plans and annual budgets, capital commitments budget, certain land acquisition and sale transactions, and the Company’s cash needs and funding plans.

 

14

Board Meeting Information

The Board of Directors held a total of 8 meetings in 2020. During 2020, each director attended at least 95% of the aggregate number of meetings of the board of directors and of the committees on which such director served that were held during the period that such director served as a member of the board of directors and as a member of such committees. In light of the crisis brought on by the COVID-19 pandemic, the Board also received at least bi-weekly business updates between meetings during the latter part of our first quarter through the second quarter.

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

Throughout the year, PulteGroup held regularly scheduled executive sessions of its non-management directors without management participation. In addition, in 2021, PulteGroup will continue to regularly hold executive sessions of its non-management directors without the participation of management. Since the Company’s 2017 annual meeting of shareholders, Bryce Blair, our Non-Executive Chairman, has presided at these executive sessions. Provided that Mr. Blair is re-elected at the annual meeting, he will continue to preside over the executive sessions as the Non-Executive Chairman (as discussed further below).

 

15

CORPORATE GOVERNANCE

Corporate Governance Highlights

The Board continually takes steps that we believe improve our corporate governance and position our Company for long-term success, which have included:

 

●

Commitment to Diversity. The Nominating and Governance Committee amended its charter to express the Nominating and Governance Committee’s commitment to the inclusion of diverse groups (including, where appropriate, diversity of age, gender, race, ethnicity and professional experience), knowledge and viewpoints in its selection of Board nominees.

 

●

Majority Voting Standard. We amended our by-laws to change the voting standard for the election of directors in uncontested elections from a plurality standard to a majority standard.

 

●

Proxy Access. We amended our by-laws to implement proxy access.

 

●

Non-Executive Chairman of the Board. The Board appointed Mr. Blair to the position of Non-Executive Chairman of the Board, effective as of the Company’s 2017 annual meeting of Shareholders, to (i) ensure that the Board discharges its responsibilities, (ii) ensure that the Board has structures and procedures in place to enable it to function independently of management, (iii) provide leadership at independent directors’ executive sessions and in other work, (iv) promote director dialogue in and out of meetings and (v) ensure the Board clearly understands the respective roles and responsibilities of the Board and management.

 

●

Board Refreshment. Our Corporate Governance Guidelines provide that no director shall stand for election after the age of 75 and five of eleven members of our Board have served for five years or less.

Governance Guidelines; Code of Ethical Business Conduct; Code of Ethics; Prohibition on Hedging

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

Board Leadership

Our Corporate Governance Guidelines currently contemplate that the independent directors will annually designate one of the independent directors to serve as Non-Executive Chairman for a one-year term. As noted above, the Board appointed Bryce Blair as Chairman of the Board and, since the Company’s 2017 annual meeting of shareholders, Mr. Blair has served as the Non-Executive Chairman. Provided that Mr. Blair is re-elected at the annual meeting, as an independent director, he would continue to serve as Non-Executive Chairman.

Since Mr. Blair’s appointment as the Non-Executive Chairman, he has worked with the President and Chief Executive Officer to ensure that the Board discharges its responsibilities, has procedures in place to enable it to function independently of management and clearly understands the respective roles and responsibilities of the Board and management. In addition, the Non-Executive Chairman’s duties have included convening and chairing regular executive session meetings of the non-management directors and, as appropriate, providing prompt feedback to the President and Chief Executive Officer; coordinating and developing the agenda for executive sessions of the independent directors; convening meetings of the independent directors if necessary; coordinating feedback to the President and Chief Executive Officer on behalf of the independent directors regarding business issues and management; providing final approval, after consultation with the President and Chief Executive Officer, as to the agendas for meetings of the Board and informational

 

16

needs associated with those agendas and presentations; performing such other duties as may be necessary for the Board to fulfill its responsibilities or as may be requested by the Board as a whole or by the non-management directors; serving as the designated spokesperson for the Board when it is appropriate for the Board to comment publicly on any matter; and being available for consultation and communication if requested by the Company’s major shareholders. The Board recognizes that no single leadership model is right for all companies at all times, and as appropriate, the Board will continue to review its leadership model to determine the correct leadership structure for the Company.

Board Role in Risk Oversight

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

On an annual basis, the Nominating and Governance Committee of the Board oversees a formal risk assessment during which the principal operational risks facing PulteGroup and associated responses are evaluated and enterprise risks are reviewed to determine the appropriate allocation of oversight of those risks amongst the Board and its various Committees. For instance, the Audit Committee receives materials on a frequent basis to address the identification and status of risks to the Company, including financial risks, regulatory risks, litigation claims and risks, and cybersecurity risks. At meetings of the full Board, these risks are identified to Board members, and the Chair of the Audit Committee reports on the activities of the Audit Committee regarding risk analysis. In addition, two times per year, the Audit Committee receives a report from PulteGroup’s Ethics Committee regarding current hotline activities and associated responses. The other committees of the Board also consider and address risks as they perform their respective responsibilities, and such committees report to the full Board from time to time as appropriate, including whenever a matter rises to a material or enterprise level risk. As part of the Nominating and Governance Committee’s role in risk assessment in 2018, the Committee was designated to monitor risks related to the Company’s ESG initiatives and in 2019 the Committee began formally reviewing metrics regarding the Company’s culture. In addition to the formal risk assessment, the Board and committees of the Board are also involved in risk oversight on a more informal basis at regular Board and committee meetings. The Board also receives regular financial and business updates from senior management, which involve detailed reports on financial and business risks facing PulteGroup when applicable.

Cybersecurity and risks related to our information technology and other computer resources are an important focus of our Board’s risk oversight. Our computer systems, including our back-up systems, are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches (through cyberattacks from computer hackers and sophisticated organizations), catastrophic events such as fires, tornadoes and hurricanes, usage errors by our employees, or cyber-attacks or errors by third party vendors who have access to our confidential data or that of our customers. We have privacy and data security policies, practices and controls in place that are designed to prevent and/or mitigate the impact of security breaches. All of our employees with network access are required to complete information security and privacy training on an annual basis. We are continuously working to improve our information technology systems and provide employee awareness training around phishing, malware, and other cyber risks to enhance our levels of protection, to the extent possible, against cyber risks and security breaches, and monitor to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have an impact on our business. The Company’s cybersecurity program is based on the National Institute of Standards and Technology (NIST) Cybersecurity Framework, and periodically assessed by an independent third party. In addition, the Company maintains cybersecurity insurance as part of its overall insurance portfolio. Additionally, the Audit Committee receives materials on a frequent basis to address the identification and status of information technology cybersecurity risks, and management, including our Chief Information Officer and Chief Information Security Officer, provides regular updates to our Board with respect to cybersecurity matters.

Board Assessments

Each year, the Nominating and Governance Committee leads a confidential assessment process under which our Board and its committees conduct self-assessments. Additionally, every other year, the Nominating and Governance Committee leads a confidential assessment process under which each individual director completes a formal self-assessment and an assessment of each other director. The following is a summary of the assessment process:

 

•

Board assessments—Each year, the Board and the Nominating and Governance Committee review and discuss the results of the Board’s self-assessment. The discussion includes an assessment of the Board’s compliance with the principles in the Corporate Governance Guidelines and an identification of areas in which the Board could improve its performance.

 

17

•

Committee assessments—Each year, each committee of the Board and the Nominating and Governance Committee review and discuss the results of the respective committee’s self-assessment. Each committee discussion includes an assessment of the respective committee’s compliance with the principles in the Corporate Governance Guidelines and the committee’s charter, as well as an identification of areas in which the committee could improve its performance.

 

•

Director assessments—Every other year, each director completes a self-assessment and an assessment of each other director, and that feedback is shared in one-on-one discussions with each director. The Chair of the Nominating and Governance Committee conducts these assessments, except for the Chair’s own assessment, which is currently conducted by the Non-Executive Chairman. These assessments are designed to enhance each director’s participation and role as a member of the Board, as well as to assess the competencies and skills each individual director is expected to bring to the Board. While formal self-assessments are conducted every other year, the Chair and the Nominating and Governance Committee regularly solicit feedback from the other directors and take action as necessary to ensure a well-functioning Board.

In 2020, the Board and committee assessments were completed in December and contributed to the affirmation of the experience and qualifications matrix referenced previously on page 3. Our Board believes that one of the best measures of the effectiveness of an assessment process is how a Board uses the information and whether it takes action on the results. Our Board’s assessment process and annual review of our Competency matrix have been the key component in our proactive Board refreshment process resulting in five new Board members over the last five years. Our Board intends to continue to review the matrix for appropriate revisions at least annually.

Available information about PulteGroup

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

 

•

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

 

•

Audit Committee Charter

 

•

Compensation and Management Development Committee Charter

 

•

Nominating and Governance Committee Charter

 

•

Finance and Investment Committee Charter

 

•

Code of Ethics (for Covered Senior Officers)

 

•

Code of Ethical Business Conduct

 

•

Corporate Governance Guidelines

 

•

By-laws

 

18

DIRECTOR NOMINATION RECOMMENDATIONS

The Nominating and Governance Committee does not have a single method for identifying director candidates but will consider candidates suggested by a wide range of sources, including candidates recommended by shareholders. The Committee reviews the qualifications of various persons to determine whether they might make good candidates for consideration for membership on the Board. The Nominating and Governance Committee will review all proposed nominees, including those proposed by shareholders, in accordance with its charter and PulteGroup’s Corporate Governance Guidelines. The Nominating and Governance Committee considers the experience and skills for potential candidates adopted by the Board and summarized in the matrix on page 3. In addition, the Nominating and Governance Committee will review the person’s judgment, experience, qualifications, independence, understanding of PulteGroup’s business or other related industries and such other factors as the Nominating and Governance Committee determines are relevant in light of the needs of the Board and PulteGroup.

The Board also believes that diversity is an important goal and looks for potential candidates who will help ensure that the Board has the benefit of a wide range of skills and points of view. As noted above, in March 2018, the Nominating and Governance Committee amended its charter to express the Nominating and Governance Committee’s commitment to the inclusion of diverse groups (including, where appropriate, diversity of age, gender, race, ethnicity and professional experience), knowledge and viewpoints in its selection of Board nominees. Since the adoption of this charter amendment, subsequent Board searches have been conducted consistent with this practice and have served to enhance the diversity, including the gender diversity, of our Board.

The Nominating and Governance Committee will select qualified candidates and review its recommendations with the Board, which will decide whether to invite the candidate to be a nominee for election to the Board.

You may recommend a person to be nominated for director by submitting a written proposal by certified mail, return receipt requested, or by recognized overnight courier, to Todd N. Sheldon, Corporate Secretary, PulteGroup, Inc., 3350 Peachtree Road NE, Suite 150, Atlanta, Georgia 30326. Shareholders wishing to directly nominate a candidate for election as a director at next year’s annual meeting of shareholders must deliver written notice to PulteGroup at the above address not less than 90 days nor more than 120 days prior to the anniversary of the prior year’s annual meeting of shareholders (unless the annual meeting is convened more than thirty days before or more than 60 days after such anniversary date, in which case notice must be received no more than 120 days prior to the date of such annual meeting nor less than the later of (i) 90 days prior to such annual meeting and (ii) 10 days after the earlier of (A) the day on which notice of the date of the meeting was mailed or otherwise provided by the Company or (B) the day on which public disclosure of the meeting was made), and the required notice must include the information and documents set forth in the Company’s by-laws.

In addition, the Company’s by-laws permit proxy access. The proxy access by-law provision permits a shareholder, or a group of up to 20 shareholders, owning 3% or more of the Company’s outstanding common shares continuously for at least three years to nominate and include in the Company’s proxy materials director nominees constituting up to two individuals or 20% of the board, whichever is greater, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in the Company’s by-laws. Shareholders wishing to directly nominate a candidate for election as a director at next year’s annual meeting of shareholders and have such nomination included in the Company’s proxy materials must deliver written notice to PulteGroup at the above address not later than 120 days nor more than 150 days in advance of the date the Company’s proxy statement was released to security holders for the annual meeting (unless the date of such meeting has been changed by more than 30 days from the date contemplated at this time), and the required notice must include the information and documents set forth in the by-laws.

 

19

2020 DIRECTOR COMPENSATION

The table below shows compensation for the Company’s non-employee directors for the fiscal year ended December 31, 2020.

 

		Fees Earned or Paid in Cash (1)								Share Awards (2)(3)				Nonqualified Deferred Compensation Earnings				All Other Compensation				Total
Brian P. Anderson			$				71,250			$	150,022			$	—			$	—				$221,272
Bryce Blair			$				146,250			$	150,022			$	—			$	—				$296,272
Richard W. Dreiling			$				71,250			$	150,022			$	8,789			$	—				$230,061
Thomas Folliard			$				71,250			$	150,022			$	—			$	—				$221,272
Cheryl W. Grisé			$				96,250			$	150,022			$	—			$	—				$246,272
Andre Hawaux			$				96,250			$	150,022			$	—			$	—				$246,272
J. Phillip Holloman(4)			$				11,617			$	70,291			$	—			$	—				$  81,908
John R. Peshkin			$				96,250			$	150,022			$	7,685			$	—				$253,957
Scott F. Powers			$				96,250			$	150,022			$	1,244			$	—				$247,516
William J. Pulte(5)			$				33,407			$	—			$	—			$	—				$  33,407
Lila Snyder			$				71,250			$	150,022			$	—			$	—				$221,272

 

(1)

The amounts in this column represent the fees earned or paid in cash for services as a director, including annual retainer, committee chairmanship and Non-Executive Chairman fees. In the case of Messrs. Holloman and Pulte, their fees were pro-rated to reflect each of their partial year of service on the Board for 2020. In light of the uncertainty of the COVID-19 pandemic, the Company’s non-employee directors elected not to receive the quarterly disbursement of their annual board membership fee for the second quarter of 2020 ($23,750).

 

(2)

The amounts reported in this column are valued based on the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“FASB ASC Topic 718”). Assumptions used in the calculation of these amounts are included in Note 7 to the Company’s audited financial statements included in our Annual Report for the fiscal year ended December 31, 2020. On May 7, 2020 (December 2, 2020 with respect to Mr. Holloman), the then-serving directors received their annual equity grant of 5,303 shares (1,677 with respect to Mr. Holloman), which represents $150,000 (pro-rated with respect to Mr. Holloman based on the date of his appointment to the Board) divided by the average of the high and low share price on the date of grant. The amounts reported in this column for Ms. Grisé, Ms. Snyder and Messrs. Dreiling, Folliard, Peshkin and Powers represent the value of share units deferred under the PulteGroup, Inc. Deferred Compensation Plan for Non-Employee Directors. The share units consist of fully vested deferred share units that are settled in common shares and subject to a deferral election consistent with Internal Revenue Code Section 409A.

 

(3)	As of December 31, 2020, each individual serving as a non-employee director during 2020 had the number of deferred share units set forth below and did not hold any other equity awards as of December 31, 2020.

 

Director		Deferred Share Units
Brian P. Anderson		—
Bryce Blair		—
Richard W. Dreiling		31,573
Thomas Folliard		20,858
Cheryl W. Grisé		96,238
Andre Hawaux		—
J. Phillip Holloman		—
John R. Peshkin		20,858
Scott F. Powers		4,800
William J. Pulte		—
Lila Snyder		10,103

 

(4)	Mr. Holloman was appointed to the Board on November 17, 2020.

 

(5)	Mr. Pulte did not stand for re-election as a director at the Company’s 2020 Annual Meeting of Shareholders, and his service on the Board concluded on May 7, 2020.

 

20

Director Compensation

The Nominating and Governance Committee reviews the compensation of the Company’s non-employee directors. For 2020, the Nominating and Governance Committee did not make any changes to the non-employee director compensation program.

During 2020, non-employee directors were entitled to receive the following compensation for service as members of the Board of Directors and as members of Board committees:

 

•

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

 

•

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

 

•

Non-Executive Chairman retainer fee of $75,000 in cash; and

 

•

Annual Equity Retainer Fee of $150,000 in common shares (the number of common shares determined by dividing $150,000 by the average of the high and low share price on the date of grant).

Due to the concerns regarding the uncertainty of the COVID-19 pandemic, our non-employee directors agreed not to receive that portion of their annual Board membership fee which would have been payable in the second quarter of 2020 ($23,750). The amounts not paid to the directors were contributed to the Company’s Employee Assistance Fund to assist employees with personal financial issues brought on by the pandemic.

Director Deferred Compensation

In 2020, non-employee directors were entitled to defer all or a portion of their cash and equity compensation. Deferred cash payments are credited with interest at a rate equal to the five-year U.S. treasury rate, plus 2%. Under the “Deferred Compensation Plan for Non-Employee Directors,” the payment of director cash fees may be deferred for up to eight years, and directors may elect to receive their deferred fees in a lump sum or in equal annual installments over a period not to exceed eight years. In the event of the director’s departure either before or after the commencement of a deferral period, such director’s deferred fees will be paid in a lump sum payment. Under the terms of the plan, all deferred equity will be distributed to the director upon his or her departure from the Board.

Directors who also are our employees do not receive any of the compensation described above. Accordingly, Ryan R. Marshall, our President and Chief Executive Officer, and also a director of the Company, received no additional compensation for his services as a director during 2020. The compensation received by Mr. Marshall as an employee of the Company is shown in the 2020 Summary Compensation Table set forth in this Proxy Statement.

Equity Ownership Guidelines

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

 

21

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis (our “CD&A”) provides an overview of our executive compensation program for 2020 and our executive compensation philosophies and objectives. This CD&A is divided into five sections:

 

Executive Summary		•  Overview •  Return to Shareholders •  Pay for Performance •  Key Executive Compensation Decisions and Actions •  Shareholder Feedback •  Named Executive Officers
Establishing and Evaluating Executive Compensation		•  Executive Compensation Philosophy •  Key Factors in Setting 2020 Compensation •  Market Comparisons
How We Make Executive Compensation Decisions		•  The Compensation and Management Development Committee •  Independent Compensation Consultant •  Role of Executive Officers •  Use of Tally Sheets
Executive Compensation Program Elements		•  Base Salary •  Annual Incentive Compensation •  Long-Term Incentive Compensation •  Equity Grants •  Other Compensation Elements and Practices
2021 Compensation Decisions		•  Base Salary •  Annual Incentive Compensation •  Growth Incentive Pool •  Long-Term Incentive Compensation

EXECUTIVE SUMMARY

Overview

2020 was a year of unprecedented challenges and volatility for our society, our industry and our Company. We ended 2019 and began 2020 with our business experiencing positive operating conditions. However, on March 11, 2020, the World Health Organization declared COVID-19 a global pandemic, and the various containment and mitigation measures adopted by governments and institutions globally and in the U.S. began to have a severe economic impact, including causing the U.S. to enter into an economic recession the impact of which continues to date.

In response to the COVID-19 pandemic and various state and local orders, our leadership team instituted the following safety and operational actions in March 2020 intended to allow us to continue serving our customers while supporting the safety of our customers, employees and communities we serve:

What we did for our employees and trade partners:

 

•

Modified our corporate and division office functions in order to allow all of our employees to work remotely except for essential minimum basic operations which could only be done in an office setting;

•

Closed our sales centers, model homes, and design centers to the general public and shifted to appointment-only interactions with our customers where permitted, following recommended distancing and other health and safety protocols when meeting in person with a customer;

•

Eliminated non-emergency warranty work in our customers’ homes;

•

Placed restrictions on business travel for our employees; and

•

Modified our construction operations to enforce enhanced safety protocols around social distancing, hygiene, and health screening.

 

22

What we did for our customers and communities:

 

•

Enhanced our virtual sales tools to better enable our customers’ ability to shop for a new home online;

•

Modified much of our customer interactions around the mortgage origination and closing process to be virtual and minimize in-person interactions; and

•

Closed the public gathering spaces of our amenity centers as well as community pools and athletic facilities.

While all of the above-referenced steps were, and many remain, necessary and appropriate in light of the COVID-19 pandemic, they impacted our ability to operate our business in its ordinary and traditional course. During the second quarter of 2020 our senior leadership team was engaged in day-by-day – and, in some instances, hour-by-hour – planning to keep our employees, customers and trade partners safe while continuing to construct and deliver homes to our customers who needed them.

The COVID-19 pandemic also had a financial impact on our business – particularly in the second quarter of 2020 – and our senior leadership team took significant actions during this uncertain time to protect our liquidity and closely manage our cash flows, including through the following actions:

 

•

Delaying the acquisition of certain land parcels and slowing land development where practical;

•

Limiting our investment in house construction, including strictly limiting production of new unsold “speculative” homes, and contacting backlog customers to reconfirm status before beginning construction of sold homes;

•

As a precautionary measure, proactively drawing $700.0 million under our revolving credit facility in March 2020;

•

Suspending the repurchase of shares under our share repurchase program;

•

Reducing headcount and other overhead expenses; and

•

Having the members of our senior management team and Board members voluntarily forego a portion of their cash compensation to be allocated toward Company employees impacted by the pandemic.

As the pandemic continued through the second quarter of 2020, we saw demand for new homes beginning to stabilize in May and then rebound sharply in June. We believe the recovery in demand reflects a number of factors, including historically low mortgage interest rates, a restricted supply of new and existing home inventory, an increased appeal for homeownership and single-family living, and a desire among some buyers to exit more densely populated urban centers. As we saw this improved demand, our construction and manufacturing operations were able to shift back to functioning at effectively full capacity, subject to local health and safety regulations driven by the pandemic.

Despite the volatility in 2020, the resurgence of demand and our Company’s ability to stop, alter and restart operations quickly to meet this demand resulted in the second highest annual pre-tax income and the highest year-end backlog (as measured in dollars) in our history. These financial results, combined with the favorable outlook, has allowed us to enhance our return to shareholders and ensure financial stability for future growth by:

 

•

Fully repaying the $700.0 million drawn on our revolving credit facility;

•

Reinstating our share repurchase program, including the repurchase of $75.0 million of shares in the fourth quarter of 2020;

•

Increasing our quarterly dividend by 17% to $0.14 per share in the fourth quarter of 2020;

•

Announcing a tender offer completed in March 2021 for $300 million of our senior notes scheduled to mature in 2026 and 2027;

•

Increasing our investments in new communities via land acquisition and development expenditures; and

•

Improving our available liquidity to $3.4 billion, consisting of $2.6 billion of cash and cash equivalents and $750.3 million available under our revolving credit facility as of December 31, 2020.

We believe our compensation philosophy and practices support PulteGroup’s strategy to drive consistently high returns through the cycles inherent in the U.S. housing market. Our compensation planning is designed to focus executives on balancing short-term objectives and long-term priorities, to align executive and shareholder interests, and to attract and retain the leadership needed to continue to deliver strong results. Executive pay decisions for 2020 were made in the context of our financial performance relative to performance goals established prior to the full onset of the COVID-19 global pandemic, and also with consideration to the significant external factors throughout the year and the actions management took to strengthen PulteGroup’s position for 2021 and moving forward. We believe in incentivizing performance against a critical set of metrics through the volatility of market cycles. We believe that this compensation philosophy is reflected in the compensation delivered to our senior management team for 2020, as their effective execution against unprecedented challenges during the year enabled the Company to meet the rebound in demand in 2020 and deliver exceptional financial results and returns for our shareholders.

 

23

CEO 2020 Total Direct Compensation

In February 2020, the Compensation and Management Development Committee of our Board of Directors (the “Committee”) made the following changes to Mr. Marshall’s compensation:

•

Increased his target annual incentive award opportunity to $2,000,000 from $1,750,000; and

•

Increased the target value of his long-term incentive awards to $6,000,000 from $5,000,000, with such awards equally weighted between a share-settled three-year performance-based award and service-based restricted share units.

These changes to Mr. Marshall’s compensation reflected, among other things, the Committee’s acknowledgement of Mr. Marshall’s strong performance in 2019 and a desire to align Mr. Marshall’s compensation more closely with the competitive market.

Based on performance against the performance goals established in February 2020, and prior to the onset of the COVID-19 global pandemic, the Committee approved a payout under the 2020 annual incentive program to Mr. Marshall of $4,000,000 (200% of target) and a 2020 Growth Incentive Pool allocation based on pre-tax income growth of $2,126,804. We believe these payouts are appropriately aligned with the Company’s strong results this year, and reflect Mr. Marshall’s leadership of the continued implementation of our strategy of generating cash flows to fund growth, continued improvements in build quality measurements, and enhanced employee engagement, which helped the Company achieve outstanding 2020 financial performance despite the unprecedented and unpredictable impact of the COVID-19 pandemic on the homebuilding industry in 2020. Payouts were made based on performance against the Company’s original operating plan, which was not altered, despite the volatility throughout the year.

For additional information, see “Pay for Performance” on page 26 of this Proxy Statement and the “Annual Incentive Compensation” section on pages 34-36 of this Proxy Statement.

 

24

Return to Shareholders*

The following chart shows how a $100 investment in the Company’s common shares on December 31, 2015 would have grown to $260.44 on December 31, 2020, with dividends reinvested quarterly. The chart also compares the total shareholder return (“TSR”) on the Company’s common shares to the same investment in the S&P 500 Index and the Dow Jones U.S. Select Home Construction Index, with dividends reinvested quarterly. We believe this chart illustrates the significant value created for shareholders over the five-year period as compared to both indices.

Comparison of Five-Year Total Shareholder Return *

 

 

* Assumes $100 invested on December 31, 2015, and the reinvestment of dividends.

 

		2015				2016				2017				2018				2019				2020
PulteGroup, Inc.			100.00				105.12				192.81				152.78				231.20				260.44
S&P 500 Index - Total Return			100.00				111.96				136.40				130.42				171.49				203.04
Dow Jones U.S. Select Home Construction Index			100.00				102.22				163.71				113.40				169.65				215.44

 

25

The following chart illustrates the Company’s relative TSR over the last one-, three- and five-year periods versus each of the lowest, median and highest performing peer in our defined executive compensation peer group for each period as listed on page 30, including the impact of quarterly reinvestment of any dividends.

 

 

Pay for Performance

Our executive compensation program is designed (1) to reward executives for producing sustainable growth and improving shareholder returns consistent with PulteGroup’s strategy and (2) to align compensation with the long-term interests of our shareholders. The Committee strongly believes that a significant portion of executive compensation—both pay opportunities and pay actually realized—should be at-risk and tied to Company performance relative to the Company’s goals. For example, since 2014, the Company has incorporated a TSR performance metric into its annual equity grant for executives. In addition, consistent with its practice in previous years, the Committee designed the 2020 executive compensation program so that variable pay elements (annual incentive awards, restricted share units and performance-based awards) constitute a significant portion of our total executive pay opportunities at target levels. The following charts demonstrate the variable pay elements as compared to the targeted annual compensation of our continuing named executive officers. These charts demonstrate that the variable pay elements comprised at least 91% of the targeted annual compensation for our President and Chief Executive Officer and, on average, 79% of the targeted annual compensation for the other continuing named executive officers.

 

26

CEO 2020 Total Direct Compensation

 

 

NEO 2020 Total Direct Compensation

 

 

* Growth Incentive Pool reflects actual 2020 payout.

 

27

Key Executive Compensation Decisions and Actions

We are committed to having strong governance standards with respect to our executive compensation program, policies and practices. Consistent with this focus, we maintain the following policies and practices that we believe demonstrate our commitment to executive compensation best practices.

 

WHAT WE DO

WHAT WE DO NOT DO

ü

Annual say-on-pay vote

û

Prohibition on hedging and pledging Company securities

ü

Shareholder engagement

û

No dividends or dividend equivalents paid on unearned performance-based equity awards

ü

Compensation and Management Development Committee comprised entirely of independent directors

û

No automatic single-trigger vesting of equity awards upon a change-in-control

ü

Independent outside compensation consultant

û

No change-in-control tax gross-ups for named executive officers

ü

Pay for performance—CEO pay approximately 91% at-risk

û

No excessive perquisites

ü

Multi-year vesting schedule for equity awards

û

No service-based defined benefit pension plan

ü

Meaningful share ownership guidelines

û

Plan prohibits re-pricing of underwater stock options

ü

Clawback policy

û

Plan prohibits granting discounted stock options

ü

Market comparison of executive compensation against a relevant peer group

Shareholder Feedback

In its compensation review process, the Committee considers whether our executive compensation and benefits program serves the interests of our shareholders. In that respect, as part of its ongoing review of our executive compensation program, the Committee considered the approval by approximately 92% of the votes cast for the Company’s “say on pay” vote at our 2020 Annual Meeting of Shareholders. The Committee was pleased with this favorable outcome and interpreted this level of support as an endorsement by our shareholders of our executive compensation program and policies and did not make changes to our executive compensation program in response to the 2020 “say on pay” vote. The Committee values continuing and constructive feedback from our shareholders on compensation, and Messrs. Blair, Marshall, Sheldon, and O’Shaughnessy, among other board members and executive officers, have discussed the Company’s executive compensation program with various shareholders and have shared this shareholder feedback with the Committee. The Committee will continue to monitor our executive compensation program and, as it deems appropriate, engage with our shareholders and take into account shareholder input.

Named Executive Officers

For 2020, our named executive officers were:

 

		Name		Title
		Ryan R. Marshall		President and Chief Executive Officer
		Robert T. O’Shaughnessy		Executive Vice President and Chief Financial Officer
		John J. Chadwick		Executive Vice President and Chief Operating Officer
		Todd N. Sheldon		Executive Vice President, General Counsel and Corporate Secretary
		Michelle H. Hairston		Senior Vice President, Human Resources
		Stephen P. Schlageter		Former Senior Vice President, Strategy and Operations*

 

*	Mr. Schlageter separated from the Company, effective May 8, 2020. References in this CD&A to “continuing named executive officers” refers to the named executive officers other than Mr. Schlageter.

 

28

ESTABLISHING AND EVALUATING EXECUTIVE COMPENSATION

Executive Compensation Philosophy

To align the Company’s incentive compensation program with the Company’s overall executive compensation philosophy, the Committee has adopted the following compensation philosophy and guiding principles:

 

		Our Executive Compensation Philosophy
		Our overall compensation philosophy applicable to named executive officers is to provide a compensation program that is intended to attract and retain qualified executives for the Company through fluctuating business cycles, provide them with incentives to achieve our strategic, operational and financial goals, increase shareholder value and reward long-term financial success.
		Guiding Principles		•  Providing total compensation levels that are competitive with our direct competitors within the homebuilding industry, as well as companies of similar size and complexity in related industries.   •  Fostering a pay for performance environment by delivering a significant portion of total compensation through performance-based, variable pay.   •  Aligning the long-term interests of our executives with those of our shareholders.   •  Requiring our executives to own significant levels of Company shares.   •  Balancing cash compensation with equity compensation so that each executive has a significant personal financial stake in the Company’s share price performance (in general, we seek to provide a significant portion of total compensation to named executive officers in the form of equity-based compensation).   •  Balancing short-term compensation with long-term compensation to focus our senior executives on the achievement of both operational and financial goals and longer-term strategic objectives.

Key Factors in Setting 2020 Compensation

In establishing and evaluating our 2020 executive compensation program, the Committee, in consultation with our Chief Executive Officer, considered the following key factors:

 

•

Overall Company performance and specific financial results relative to incentive performance goals established by the Committee in February 2020;

 

•

Competitive pay practices (evaluated based on market comparisons and recommendations of the Committee’s independent compensation consultant);

 

•

Individual performance of each of our named executive officers;

 

•

Historical equity grants;

 

•

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

 

•

Our ability to retain and motivate key talent.

Market Comparisons

While the Committee considers relevant market pay practices when setting executive compensation, it does not believe that it is appropriate to establish compensation levels based only on market practices. The Committee believes that compensation decisions are complex and require a deliberate review of Company performance and peer compensation levels, as well as the overall business environment and the role and contributions of each individual. Accordingly, the review of peer information is one of many factors the Committee considers in determining compensation levels. For each element of compensation, the Committee reviews market data (i.e., peer group and survey data) to evaluate target compensation levels, while also considering the relative responsibilities of some of our named executive officers as compared to the peer group, revenue size relative to the peer group, our historical compensation practices, the overall mix of our compensation elements being weighted more heavily toward long-term and equity-based compensation, management ownership and financial performance. Other factors that influence the amount of compensation awarded

 

29

include an individual’s experience and past performance inside or outside the Company, compensation history, role and responsibilities within the Company, tenure with the Company and associated institutional knowledge, long-term potential with the Company, contributions derived from creative and innovative thinking and leadership and industry expertise.

The Committee believes that the Company’s peer group should reflect the industry in which the Company competes for business and executive talent. Accordingly, the Company’s peer group includes companies meeting the following criteria: (i) companies within, or operating in an industry similar to, the home-building industry and (ii) companies of similar size in terms of revenue or market capitalization (generally 1/3 to 3 times the Company’s revenue and market capitalization). In evaluating companies to include in our peer group, the Committee also reviewed the say-on-pay history for each of the companies to understand the alignment of the executive compensation programs at those companies with the interests and views of the shareholders of such companies. The peer group used for evaluating 2020 compensation decisions consisted of the companies below. This group is the same peer group that was used for evaluating 2019 compensation decisions, except that USG Corporation was removed from the peer group due to its acquisition by Gebr. Knauf KG in 2019.

 

D.R. Horton, Inc.		Mohawk Industries, Inc.
KB Home		NVR, Inc.
Lennar Corporation		Owens Corning
Masco Corporation		Taylor Morrison Home Corporation
M.D.C. Holdings, Inc.		Toll Brothers, Inc.
Meritage Homes Corporation

In addition to reviewing compensation practices among the compensation peer group, the Committee believes it is important to review compensation practices within the industry generally. The Company participates in and purchases a number of compensation surveys. With the assistance of Semler Brossy, the Committee reviewed a blend of general industry and peer group data in establishing target compensation levels and evaluating whether our compensation policies are in line with market data. The 2020 general industry survey data represented comparably-sized companies and similarly-situated executive positions from general industry sources. The Committee believes that the compensation practices at companies of this size are most relevant to the Committee’s decision-making process.

Based on Semler Brossy’s competitive market analysis prepared for evaluating 2020 compensation decisions, the Committee found that target compensation opportunities, in total, for the named executive officers was competitive, generally, with the market. In its analysis, Semler Brossy noted that our target compensation was positioned appropriately within the competitive range of our peer group. As noted above, the Committee also considered the relative responsibilities of some of our named executive officers as compared to the peer group, revenue size relative to the peer group, our historical compensation practices, the overall mix of our compensation elements being weighted more heavily toward long-term and equity-based compensation, management ownership and financial performance, as well as the other individual factors noted above.

HOW WE MAKE EXECUTIVE COMPENSATION DECISIONS

Role of the Compensation and Management Development Committee

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

 

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Establish compensation-related performance objectives to determine annual and long-term incentive compensation;

 

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Establish individual performance goals and objectives for the Chief Executive Officer and evaluate the job performance of the Chief Executive Officer in light of those goals and objectives;

 

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Evaluate the job performance of the other named executive officers;

 

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Annually review and approve compensation levels for our Chief Executive Officer and other named executive officers, with input from the independent members of the Company’s Board of Directors and compensation

 

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consultant in establishing compensation levels for our named executive officers (including our Chief Executive Officer);

 

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Administer the Company’s equity compensation;

 

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

 

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Review succession planning, leadership development programs, diversity representation and bench strength for all other senior executive positions; and

 

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Annually review the potential risks associated with our compensation program.

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

The Committee is currently comprised of Mr. Richard W. Dreiling, Ms. Cheryl W. Grisé, Mr. Thomas Folliard and Mr. Scott F. Powers. Mr. Powers currently serves as the Committee Chair.

Each current member of the Committee qualifies as an independent director under NYSE listing standards and our Corporate Governance Guidelines.

Role of the Independent Compensation Consultant

Semler Brossy provides independent executive consulting services to the Committee. Semler Brossy is retained by and reports to the Committee and participates in Committee meetings, as requested by the Committee. Semler Brossy also:

 

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Participates in the design of our executive compensation program to help the Committee evaluate the linkage between pay and performance;

 

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Provides and reviews market data and advises the Committee on setting executive compensation and the competitiveness and reasonableness of our executive compensation program;

 

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Reviews and advises the Committee regarding the elements of our executive compensation program, equity grant and dilution levels, each as relative to our peers;

 

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Reviews and advises the Committee regarding individual executive pay decisions;

 

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Reviews and advises the Committee with respect to new compensation plans and programs;

 

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

 

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Reviews and advises the Committee regarding our compensation risk assessment procedures.

During 2020, the compensation consultant did not provide any other services to the Company.

Role of Executive Officers

As noted above, the Committee is responsible for all compensation decisions for our senior executives (which include the named executive officers). During 2020, Ms. Hairston, our most senior human resources officer, worked with the Committee Chair to establish meeting agendas and to determine whether any members of the Company’s management or outside advisors should attend meetings.

Our Chief Executive Officer annually reviews the performance of each member of senior management (other than his own performance). Recommendations based on these reviews, including salary adjustments, annual bonuses and equity grants, are presented to the Committee. Decisions regarding salary adjustments, annual bonuses and equity grants for the Chief Executive Officer are made by the Committee. All decisions for 2020 made with respect to the named executive officers other than the Chief Executive Officer were made after deliberation with Mr. Marshall.

At various times during the year, at the request of the Committee, Ryan R. Marshall, the President and Chief Executive Officer of the Company; Robert T. O’Shaughnessy, the Executive Vice President and Chief Financial Officer of the Company; and Todd N. Sheldon, the Executive Vice President, General Counsel and Corporate Secretary of the Company, attended Committee meetings, or portions of Committee meetings, to provide the Committee with information regarding our operational performance, financial performance or other topics requested by the Committee to assist the Committee in making its compensation decisions.

 

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Use of Tally Sheets

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

EXECUTIVE COMPENSATION PROGRAM ELEMENTS

The Committee has designed the elements of the compensation program for the named executive officers to advance the operational objectives and the long-term strategies of the Company. The following table lists the principal elements of our 2020 executive compensation program. The Committee believes that the design of the Company’s executive compensation program balances fixed and variable compensation elements and provides alignment with our short and long-term financial and operational priorities and shareholder interests through the annual and long-term incentive compensation programs. Our incentives are designed to drive overall corporate and individual performance, with compensation payouts varying from target based on actual performance against pre-established and communicated performance objectives.

 

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Pay Element
		Salary		Annual Cash Incentive Awards		Performance-Based Awards		Restricted Share Units
Who Receives		All named executive officers
When Granted		Annually
Form of Delivery		Cash				Equity
Type of Performance		Short-term emphasis (fixed)		Short-term emphasis (variable)		Long-term emphasis         (variable)
Performance Period		1 year		1 year		3-year vesting based on performance		3-year cliff vesting based on service
Why We Pay This Element		Provides base pay levels that are competitive with market practices to attract and retain top executive talent.		Provides annual incentive opportunities competitive with market practices to attract, motivate and retain top executive talent.		Provides equity incentives competitive with market practices in order to attract, motivate and retain top executive talent.
				Rewards executives for annual performance results relative to pre-established goals deemed critical to the success of the Company and its strategy and for year-over-year growth in pre-tax income.		Focuses executives on long-term performance of the Company.
				Focuses on key annual results that we believe will position the Company for success over time, in keeping with the interests of our shareholders.		Directly aligns interests of executives with those of our shareholders.
						Retention of talent over performance / vesting period.
How Payout Determined		Responsibilities, individual performance and tenure, internal equity, market data and recommendations from the Committee’s independent compensation consultant.		Market practice and individual performance.   Annual Program Component:   Participants are eligible to receive a cash payout ranging from 0% - 200% of target based on the achievement of corporate goals.		Participants are eligible to receive Company common shares, with vesting levels ranging from 0% - 200% of target based on the achievement of corporate goals.		Market practice and individual performance.
				Growth Incentive Pool Component: Incentive pool funded based on pre-tax income growth as compared to 2019, with Growth Incentive Pool allocations established by the Committee at the beginning of 2020.		Market practice, individual performance and Company performance over the 2020-2022 performance period.
Performance Measures		Individual		Pre-tax income   Adjusted operating margin		Relative TSR   ROIC   Adjusted operating margin		Share price

 

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Base Salary

The Committee determines the appropriateness of executives’ base salaries by considering the responsibilities of their positions, their individual performance and tenure, a comparison to the base salary levels of executives in the compensation peer group and industry compensation surveys and the recommendations of the Committee’s independent compensation consultant, as described below. Base salary increases are considered annually and are based upon both individual and Company performance in the prior year; however, historically the Committee has not had a practice of regularly adjusting base salaries for our executive officers on an annual basis.

In 2020, the Committee increased Mr. Chadwick’s salary to $700,000 from $600,000 and Ms. Hairston’s salary to $450,000 from $400,000. These changes were made in order to more closely align with the competitive market for their roles and in recognition of some expansion of their scope of responsibilities related to developing and implementing key aspects of our strategy. None of our other named executive officers received a base salary adjustment with respect to 2020.

The table below sets forth the 2019 and 2020 base salary levels for each of our named executive officers.

 

Named Executive Officer		2019 Base Salary		2020 Base Salary(1)
Ryan R. Marshall		$1,000,000		$1,000,000
Robert T. O’Shaughnessy		$750,000		$750,000
John J. Chadwick		$600,000		$700,000
Todd N. Sheldon		$500,000		$500,000
Michelle H. Hairston		$400,000		$450,000
Stephen P. Schlageter		$500,000		$500,000

 

(1)

Amounts in this column do not reflect the voluntary salary reductions taken in 2020 by our NEOs, as described below.

In light of the uncertainty of the COVID-19 pandemic, Mr. Marshall agreed to forgo 20% of his 2020 base salary for three months, and each of our other named executive officers agreed to forgo 10% of their respective base salaries for those same three months.

Annual Incentive Compensation

We provide annual incentive compensation in order to motivate and reward our named executive officers for achieving short-term performance objectives. Annual incentive compensation is intended to be a significant component of an executive’s total compensation opportunity in a given year, helping create a “pay-for-performance” culture. Consistent with 2019, in 2020 there were two components to the Company’s annual incentive compensation program. For the first component, the Committee established a 2020 Annual Incentive Program (the “Annual Program” or the “2020 Annual Program”) similar to its historical approach, with payouts determined based on the Company’s performance against pre-established financial performance goals. This component is designed to reward progress against the achievement of the Company’s annual operating plan. As it did in 2019, the Committee also established an annual incentive pool (the “Growth Incentive Pool”), with funding based on the Company’s pre-tax income growth, as defined in the Annual Program, as compared to the prior year. The Growth Incentive Pool is designed to reward growth and to align with the interests of the Company’s shareholders, with management experiencing higher payouts in times of growth for the Company and receiving diminished or no payouts during more challenging times. We believe that the Growth Incentive Pool directly incentivizes year-over-year growth, an essential element of our strategy, without regard to the Company’s annual budget (which may not project growth in a given year given the cyclical nature of the homebuilding industry). The Annual Program and Growth Incentive Pool are described in further detail below.

2020 Annual Program

The financial measures used to assess corporate performance in 2020 were pre-tax income and adjusted operating margin, each as defined in the Annual Program and weighted equally. Pursuant to the terms of the Annual Program, each performance goal is measured independently of the other performance goal, and payouts are determined based on the weighted average result of the performance goals, with a potential payout ranging from 0% to 200% of the participant’s target opportunity. The Committee believes that the 2020 Annual Program performance metrics were meaningful measures of 2020 performance because these metrics increase the focus of participants on profitability and are tied to our strategy with respect to shareholder value creation.

 

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The Committee established the payout formula for performance objectives to encourage strong, focused performance. Given the economic and market conditions at the end of 2019, as well as market expectations at the beginning of 2020, target payout level was set in anticipation of a positive operating environment in 2020 with improving demand trends against an increasingly challenging competitive dynamic and rising production cost pressures. The target payout levels were significantly increased from the 2019 target levels and set at levels consistent with the Company’s Board-approved budget and designed to be achievable with strong management performance, while payout at the maximum levels was designed to be very difficult to achieve. At the time the 2020 Annual Program performance metrics and requisite performance levels were established, the Committee believed that they were robust and would be challenging to achieve. In addition, the 2020 Annual Program metrics were established prior to the full onset of the COVID-19 pandemic based on the Company’s operating plan at the time the goals were set. The table below sets forth the financial performance metrics and potential payouts with respect to the Company’s achievement of the 2020 Annual Program goals.

 

2020 Consolidated Goals ($ in 000s)(1)
		Weighting				Threshold Payout (50%)				Target Payout (100%)				Maximum Payout (200%)				Performance  Results		Achieved  Payout		Weighted  Payout
Pre-Tax Income(2)			50%				$1,201,910				$1,502,388				$1,802,866			$1,909,230		200%		100.00%
Operating Margin %(3)			50%				10.2%				13.2%				16.2%			16.2%		200%		100.00%
																		Total % of Target:				200.00%

 

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

 

(2)

Pre-tax income represents Income Before Income Taxes as reported in the Company’s Annual Report, as adjusted to exclude the impact of certain items, including, where applicable: certain incentive compensation, Company-wide restructuring costs as offset by savings associated with those restructuring efforts, changes in U.S. Generally Accepted Accounting Principles (“GAAP”), gain or loss on debt retirements, and adjustments to Pulte Financial Services reserves related to mortgage origination and other legacy mortgage exposures prior to 2012.

 

(3)

Adjusted operating margin represents the quotient of (i) Home Sale Gross Margin less SG&A expenses (excluding, where applicable, certain incentive compensation, Company-wide restructuring costs as offset by savings associated with those restructuring efforts, changes in GAAP, gain or loss on debt retirements, and adjustments to Pulte Financial Services reserves related to mortgage origination and other legacy mortgage exposures prior to 2012), divided by (ii) Home Sale Revenues.

The table below sets forth the award opportunities established by the Committee and the cash payout under the Annual Program applicable to the named executive officers. The Committee determined the target payout level for each of the named executive officers based on each named executive officer’s position within the Company, historical pay levels, the incentive pay for executives at companies in our compensation peer group, the general industry compensation surveys and the recommendations of the Committee’s independent compensation consultant. The Committee approved year-over-year changes to 2020 target award opportunities for Messrs. Marshall and O’Shaughnessy and Ms. Hairston, as a percentage of base salary, from 175%, 113% and 56% to 200%, 120% and 72%, respectively. These target award opportunity adjustments were made in order to more closely align their total compensation with market data and to reflect their individual strong performance.

 

Executive		Base Salary 2020				Target as a % of Salary(1)				Threshold(2)				Target				Maximum				Total Payout(2)
Ryan R. Marshall		$	1,000,000				200	%		$	500,000			$	2,000,000			$	4,000,000			$	4,000,000
Robert T. O’Shaughnessy		$	750,000				120	%		$	225,000			$	900,000			$	1,800,000			$	1,800,000
John J. Chadwick		$	700,000				100	%		$	175,000			$	700,000			$	1,400,000			$	1,400,000
Todd N. Sheldon		$	500,000				100	%		$	125,000			$	500,000			$	1,000,000			$	1,000,000
Michelle H. Hairston		$	450,000				72	%		$	81,250			$	325,000			$	650,000			$	650,000
Stephen P. Schlageter(3)		$	500,000				100	%		$	125,000			$	500,000			$	1,000,000			$	352,459

 

(1)	The Committee sets target opportunities under the Annual Program at whole dollar values. The amounts in this column reflect such target opportunities at the approximate percentage of each named executive officer’s base salary.

 

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

 

(3)	The total payout for Mr. Schlageter was pro-rated to reflect his May 8, 2020 separation date.

 

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Growth Incentive Pool

As it did in 2019, in 2020 the Committee established a Growth Incentive Pool, the size of which was dependent on pre-tax income growth, as defined in the Annual Program, over the prior year. The Committee approved the Growth Incentive Pool in order to recognize and incentivize the efforts to be taken to achieve pre-tax income growth and to further align the interests of the participants with the interests of the Company’s shareholders. For purposes of the Growth Incentive Pool, pre-tax income was calculated in the same manner as described above with respect to the 2020 Annual Program. The Committee allocated 2% of pre-tax income growth as compared to 2019 to the Growth Incentive Pool, with the allocation of the Pool for each named executive officer as follows:

 

Name		Pool Allocation
		%				$
Ryan R. Marshall			24%				2,126,804
Robert T. O’Shaughnessy			14%				1,240,636
John J. Chadwick			15%				1,329,253
Todd N. Sheldon			6%				531,701
Michelle H. Hairston(1)			5%				442,467
Stephen P. Schlageter(2)			4%				124,935

 

(1)	Ms. Hairston’s 2020 allocation of the Growth Incentive Pool was initially 4%. In February 2021, the Committee determined to increase Ms. Hairston’s allocation of the Growth Incentive Pool to 5% in recognition of her performance in 2020.

 

(2)	The amount allocated to Mr. Schlageter was pro-rated to reflect his May 8, 2020 separation date.

Long-Term Incentive Compensation

Annual Performance-Based awards

In order to provide management with incentives to achieve our long-term goals, the Committee continued its prior practice of granting performance-based equity awards under a long-term incentive program (or “LTI Program”). During 2020, each named executive officer was granted an aggregate award opportunity in the form of share-settled performance-based awards under the LTI Program for the 2020-2022 performance period. During the fiscal year ended December 31, 2020, the 2020-2022, 2019-2021 and 2018-2020 performance periods were outstanding under the LTI Program. The Committee designed the LTI Program to have overlapping performance periods to address the cyclical nature of the homebuilding industry. These overlapping performance periods provide the Committee with the flexibility to address circumstances within our industry as well as the general economic and market conditions at the time the targets are set. In addition to these performance criteria, awards under the LTI Program are also contingent on continued service through the performance period.

2020-2022 LTI Program

In 2020, the Committee approved performance-based awards for the 2020-2022 LTI Program that vest based on (i) the Company’s TSR performance relative to the TSR of the Company’s Performance Peer Group, as described below, (ii) the Company’s ROIC performance and (iii) the Company’s adjusted operating margin performance, with each goal weighted equally. These performance measures were deemed by the Committee to be effective long-term measures of performance reflective of our success in executing on our long-term business plan and aligning the executives’ interests with the interests of shareholders.

The Committee utilized adjusted operating margin as an element in both the Company’s Annual Program and 2020-2022 LTI Program in recognition that this measure is viewed as a core driver of the Company’s performance and shareholder value creation. In designing the Company’s executive compensation program, the Committee supplemented the use of adjusted operating margin with additional performance measures in order to strike an appropriate balance with respect to incentivizing top-line growth, profitability and shareholder returns over both the short-term and long-term horizons.

For purposes of the 2020-2022 LTI Program, the Company is required to achieve a TSR equal to the 75th percentile of the Performance Peer Group over the three-year performance period in order to earn target vesting, with no payout for bottom quartile performance. To measure relative TSR performance, the Committee approved a Performance Peer Group consisting of the homebuilders in the Company’s compensation peer group – namely, D.R. Horton, Inc.; KB Home; Lennar Corporation; M.D.C. Holdings, Inc.; Meritage Homes Corporation; NVR, Inc.; and Toll Brothers, Inc. The Committee determined that this was an appropriate measure of performance as the members of the Performance Peer Group were also subject to the cyclical nature of the homebuilding industry.

 

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The Committee established the payout formula for the ROIC and adjusted operating margin performance objectives to encourage strong, focused performance. Given the economic and market conditions at the time the targets were set, the target payout levels were designed to be achievable with strong performance, while payouts at the maximum performance levels were designed to be very difficult to achieve. The 2020-2022 LTI Program metrics were established prior to the full onset of the COVID-19 pandemic based on the Company’s operating plan at the time the goals were set. Under the 2020-2022 LTI Program, ROIC and adjusted operating margin are defined as follows:

 

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ROIC is defined as (i) consolidated earnings before interest and taxes (adjusted to exclude, where applicable, the expense related to certain incentive compensation, Company-wide restructuring costs as offset by savings associated with those restructuring efforts, changes in GAAP, gain or loss on debt retirements, and adjustments to Pulte Financial Services reserves relating to mortgage origination and other legacy mortgage exposures prior to 2012), divided by (ii) consolidated shareholders’ equity plus homebuilding debt (each as adjusted to exclude consolidated deferred taxes, internal mortgage company debt and changes in GAAP).

 

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Adjusted operating margin represents the quotient of (i) Home Sale Gross Margin less SG&A expenses (excluding, where applicable, certain incentive compensation, Company-wide restructuring costs as offset by savings associated with those restructuring efforts, changes in GAAP, gain or loss on debt retirements, and adjustments to Pulte Financial Services reserves relating to mortgage origination and other legacy mortgage exposures prior to 2012) divided by (ii) Home Sale Revenues.

The table below shows the award opportunities established by the Committee relating to the 2020-2022 LTI Program. For the 2020-2022 LTI Program, Mr. Marshall’s target award opportunity increased to $3,000,000 from $2,500,000, Mr. O’Shaughnessy’s target award opportunity increased to $925,000 from $825,000, Mr. Chadwick’s target award opportunity increased to $700,000 from $650,000, Mr. Sheldon’s target award opportunity increased to $400,000 from $300,000, and Ms. Hairston’s target award opportunity increased to $187,500 from $150,000. These changes were made in order to more closely align with the competitive market for their roles, to allocate a greater portion of their compensation to longer-term performance and, with respect to Mr. Chadwick and Ms. Hairston, in recognition of additional responsibilities related to developing and implementing the Company’s business strategy. The award opportunity under the 2020-2022 LTI Program did not change as compared to 2019 for Mr. Schlageter.

Actual settlement of the awards will be determined after the end of the three-year performance period based on the Company’s relative TSR, ROIC and adjusted operating margin performance during that time. Under the award agreements, the 2020-2022 LTI Program awards will be settled in Company common shares, except that the award will be settled in any combination of Company common shares and cash if (i) the fair market value of a Company common share is less than $5.00 on December 31, 2022 (or the date of termination of employment due to death or disability) or (ii) the Company does not have a sufficient number of available shares under the Company’s stock incentive plan in effect at the time of the settlement of the award.

Award Opportunity Under 2020-2022 LTI Program

 

Executive		Base Salary(1)				Target as % of Salary(2)				Threshold				Target				Maximum
Ryan R. Marshall		$	1,000,000				300	%		$	1,500,000			$	3,000,000			$	6,000,000
Robert T. O’Shaughnessy		$	750,000				123	%		$	462,500			$	925,000			$	1,850,000
John J. Chadwick		$	700,000				100	%		$	350,000			$	700,000			$	1,400,000
Todd N. Sheldon		$	500,000				80	%		$	200,000			$	400,000			$	800,000
Michelle H. Hairston		$	450,000				42	%		$	93,750			$	187,500			$	375,000
Stephen P. Schlageter(3)		$	500,000				55	%		$	137,500			$	275,000			$	550,000

 

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

 

(2)	The Committee sets target opportunities under the LTI Program at whole dollar values. The amounts in this column reflect such target opportunities at the approximate percentage of each named executive officer’s base salary.

 

(3)	In accordance with the terms of the 2020-2022 LTI Program, Mr. Schlageter will remain eligible for a pro-rated payout based on actual performance and his period of service during the performance period.

 

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Outstanding Performance Based Equity Awards

The 2019-2021 LTI Program remains outstanding and will be settled following the completion of the three-year performance period, based on (i) the Company’s TSR performance relative to the TSR of the Performance Peer Group, (ii) the Company’s ROIC performance, and (iii) the Company’s adjusted operating margin performance, with each goal weighted equally.

During 2020, the 2018-2020 LTI Program concluded, with each named executive officer achieving 121.80% of their target award pursuant to the terms of the 2018-2020 LTI Program established at the time of grant. The table below sets forth the performance metrics and achievement levels with respect to the 2018-2020 LTI Program goals.

 

2018-2020 LTI Program Consolidated Goals(1)
		Weighting		Threshold Payout (50%)		Target Payout (100%)		Maximum Payout (200%)		Performance Results		Achieved Payout (of target)		Weighted Payout
Relative TSR(2)		33.34%		25th percentile		75th percentile		Ranked 2nd or greater in peer group		Ranked 4th in peer group		90%		30.06%
ROIC(3)		33.33%		16.50%		21.50%		24.50%		22.88%		145.92%		48.59%
Adjusted Operating Margin(4)		33.33%		10.80%		13.80%		16.80%		14.69%		129.58%		43.15%
										Total % of Target:				121.80%

 

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

 

(2)	Measured relative to the Performance Peer Group.

 

(3)

ROIC is defined as (i) consolidated earnings before interest and taxes (adjusted to exclude, where applicable, the expense related to certain incentive compensation, Company-wide restructuring costs as offset by savings associated with those restructuring efforts, changes in GAAP, gain or loss on debt retirements, and adjustments to Pulte Financial Services reserves relating to mortgage origination and other legacy mortgage exposures prior to January 1, 2012), divided by (ii) consolidated shareholders’ equity plus homebuilding debt (each as adjusted to exclude consolidated deferred taxes, internal mortgage company debt and changes in GAAP).

 

(4)

Adjusted operating margin represents the quotient of Home Sale Gross Margin less SG&A expenses (excluding, where applicable, certain incentive compensation, Company-wide restructuring costs as offset by savings associated with those restructuring efforts, changes in GAAP, gain or loss on debt retirements, and adjustments to Pulte Financial Services reserves relating to mortgage origination and other legacy mortgage exposures prior to January 1, 2012) divided by Home Sale Revenues.

Annual Restricted Share Unit Awards

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

 

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

 

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

 

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Encourage executive retention, particularly through fluctuating business cycles.

Our philosophy is to award equity grants to our named executive officers in amounts that reflect market data, the participant’s position, the participant’s ability to influence our overall performance, and individual performance based on a review of results during the prior year against pre-determined objectives such as operational efficiency, employee engagement, and retention and development of key talent. In addition, the Committee considers historical grant practices and market compensation levels in determining grants for individual executives.

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

In determining the annual equity grants made in February 2021 for 2020 performance – of the Company and of each executive – the Committee considered the following: (i) the Company’s historical year-over-year compensation practices, including historical grant levels; (ii) total compensation earned by the named executive officers; (iii) a peer group analysis

 

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