COMPENSATION
DISCUSSION AND ANALYSIS
INTRODUCTION
This Compensation Discussion and Analysis (CD&A) describes the compensation programs for our named executive officers (NEOs). Our executive officers who served as named executive officers in fiscal 2022 are:
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NAME | TITLE |
Allan P. Merrill | Chairman, President and Chief Executive Officer |
David I. Goldberg | Senior Vice President and Chief Financial Officer |
Keith L. Belknap | Executive Vice President and General Counsel |
. For fiscal 2022, in addition to his responsibilities as Chief Financial Officer, Mr. Goldberg oversaw our capital sourcing, investor relations, treasury and information technology functions and, in addition to his responsibilities as General Counsel, Mr. Belknap led our customer teams, which include mortgage & settlement, marketing, customer experience and customer care functions.
We are a geographically diversified homebuilder with active operations in 13 states within three geographic regions in the United States: the West, East, and Southeast. Our homes are designed to appeal to homeowners at different price points across various demographic segments and are generally offered for sale in advance of their construction. Our objective is to provide our customers with homes that incorporate extraordinary value and quality, at affordable prices, while seeking to maximize our return on invested capital over the course of a housing cycle.
Our three pillars — Mortgage Choice, Surprising Performance and Choice Plans — serve as our primary points of differentiation. Mortgage Choice makes it easy for our customers to comparison shop among competing lenders, potentially saving them thousands of dollars on their home loan; Surprising Performance reflects the fact that every Beazer home is designed and built to meet Energy Star requirements and provide exceptional quality and comfort that results in a lower cost of ownership; and Choice Plans allow customers to personalize their primary living areas for how they want to live in their home, at no additional cost.
We also remain focused on meaningful ESG accountability — supporting a variety of charitable and community-based activities, promoting safety, inclusion and diversity in our workforce and building our homes and communities with a concern for their impact on the environment. For more information on environmental, social and corporate governance matters, see “ESG” beginning on page 5.
2022 BUSINESS HIGHLIGHTS
Here are several highlights of our financial and operational achievements in fiscal 2022, compared to fiscal 2021:
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| FINANCIAL | |
$2.3 BILLION | Revenue |
| Achieved a 8.2% year-over-year increase in homebuilding revenue, despite a 10.0% decrease in home closings |
| $220.7 MILLION | Net Income |
| | Generated net income from continuing operations of $220.7 million, or $7.17 per diluted share, compared to $122.2 million in fiscal 2021 |
| $370.1 MILLION | Adjusted EBITDA |
| | Achieved $370.1 million in Adjusted EBITDA, an increase of $107.4 million, or 40.9% |
| $74.4 MILLION | Debt Reduction |
| | Reduced our outstanding debt by $74.4 million, achieving our goal of reducing debt below $1.0 billion by fiscal year end |
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| OPERATIONAL | |
2.8 SALES PACE | Sales Pace Achieved average monthly home sales pace per community of 2.8, a decrease of 22.7% |
| $573.6 MILLION | Land Acquisition and Land Development Spending |
| | Spent $573.6 million on land acquisition and land development, a decrease of 3.7% |
| $1.1 BILLION | Dollar Value of Backlog |
| | Ended the year with dollar value of homes in backlog of $1.1 billion, representing 2,091 homes, compared to $1.3 billion, representing 2,786 homes, at the end of fiscal 2021 |
| $484,100 | Average Selling Price |
| | Average selling price (ASP) for our homes was $484,100, reflecting an increase of more than 20% |
| 120 COMMUNITIES | Average Community Count |
| | Average active community count was 120, a decrease of 5.6% |
| 25,170 LOTS | Number of Controlled Lots |
| | Ended the year with 25,170 lots controlled either through ownership or options to purchase, an increase of 14.5% |
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In fiscal 2023, we are selectively adjusting prices, incentive and/or specification levels as necessary to enhance buyer affordability and address the weak demand environment. We are also pursuing reductions in our construction costs and improvements in our construction cycle times. From a capital standpoint, we anticipate adhering to our long-standing Balanced Growth Strategy. We anticipate that this will enhance our strong liquidity position while investing sufficiently in land and land development to ensure we achieve community count growth in both 2023 and 2024. |
For purposes of this CD&A: | | | | | |
| “Adjusted EBITDA” means earnings before interest, taxes, depreciation and amortization, and is calculated by adding charges, including debt extinguishment charges, inventory impairment and abandonment charges and other non-recurring items for the period to EBITDA. |
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| “EBITDA” means earnings before interest, taxes, depreciation and amortization, and is calculated by adding non-cash charges, including depreciation and amortization for the period, to EBIT. |
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| “EBIT” means net income (loss) before (a) previously capitalized interest amortized to home construction and land sales expenses, capitalized interest impaired and interest expense not qualified for capitalization; and (b) income taxes. |
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| “Bonus Plan EBITDA” means Adjusted EBITDA before accrual of corporate bonuses. |
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Please see Annex I for a reconciliation of non-GAAP measures to GAAP measures. Statements regarding goals, aspirations, strategies or future initiatives and their expected results are forward-looking statements, which involve known and unknown risks, uncertainties and other factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022. |
FISCAL 2022 COMPENSATION HIGHLIGHTS Base Salaries (PG. 33)
Mr. Merrill's base salary for fiscal 2022 was increased by 2.6% to $1 million; Mr. Goldberg's base salary for fiscal 2022 was increased by 17.6% to $500,000; and Mr. Belknap's base salary for fiscal 2022 was increased by 6.5% to $575,000. These salary adjustments for our named executive officers (NEOs) were approved by the Compensation Committee to align salaries more closely with the 2022 Peer Group 50th percentile, individually and in the aggregate, and, in the case of Mr. Goldberg, as a continuation of the multi-year adjustment process associated with his promotion to Chief Financial Officer in November 2020.
Short-Term Incentive Opportunities (PGS. 34-35)
The target short-term incentive award opportunities for our NEOs (expressed as percentages of base salary) were 200% for Mr. Merrill, compared to 175% in fiscal 2021,125% for Mr. Goldberg, compared to 100% in fiscal 2021, and 125% for Mr. Belknap, which was unchanged from fiscal 2021. The Committee approved the adjustments for Mr. Merrill and Mr. Goldberg to align all of the NEOs' incentive award opportunities more closely with the 2022 Peer Group 50th percentile, individually and in the aggregate, and, in the case of Mr. Goldberg, as a continuation of the multi-year adjustment process associated with his promotion to Chief Financial Officer in November 2020. The Committee determined that our NEOs would be eligible to receive an award for the operational components of the 2022 short-term bonus opportunity only if threshold Bonus Plan EBITDA (defined on page 28) was achieved. The Committee retained the discretion to deduct from awards earned for any reason.
Long-Term Incentive Opportunities (PGS. 36-39)
For the 2020-2022 long-term incentive performance period, the target incentive award opportunities for our NEOs (expressed as percentages of base salary) were 300% for Mr. Merrill, 100% for Mr. Goldberg and 175% for Mr. Belknap. For this performance period, the Committee awarded one-third of the target award opportunity in restricted stock that vested ratably over 3 years and the remaining two-thirds of the opportunity in performance shares, the vesting of which was tied to the achievement of specific multi-year performance goals.
For the 2022-2024 long-term performance period, the target incentive award opportunities (expressed as a percentage of base salary) are 300% for Mr. Merrill, 175% for Mr. Goldberg and 175% for Mr. Belknap. The Committee approved a year-over-year increase of 25% for Mr. Goldberg to align all of the NEOs' incentive award opportunities more closely with the 2022 Peer Group 50th percentile, individually and in the aggregate, and as a continuation of the multi-year adjustment process associated with his promotion to Chief Financial Officer in November 2020. For this performance period, the Committee tied one-third of the target award opportunity to restricted stock and two-thirds to the achievement of specific multi-year performance goals, with one-half of any earned performance awards payable in cash and one-half in shares.
For each of these long-term incentive performance periods, the Committee continued to include a relative total shareholder return (TSR) modifier to NEO performance shares and performance cash awards, which could result in an adjustment to any earned awards (by up to +/- 20%).
OUR OVERALL COMPENSATION
PHILOSOPHY AND OBJECTIVES
Our executive compensation philosophy is to design compensation programs that:
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| Attract, retain and reward top talent; |
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| Align pay with performance without encouraging inappropriate risk taking; and |
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| Provide a substantial portion of our compensation in long-term equity-based compensation to reinforce key financial, operational and strategic objectives in support of long-term value creation. |
CORE PRINCIPLES AND KEY OBJECTIVES
We utilize a combination of base salary, short-term cash incentives and long-term incentives. Most of long-term incentives are tied to multi-year performance goals, along with a portion provided in time-based restricted stock.
Our Compensation Committee reviews our core compensation philosophy annually in conjunction with the review of our compensation programs. While our core compensation philosophy and objectives have remained consistent in recent years, the Committee has made adjustments to various aspects of our compensation programs to meet changing needs and circumstances. For example, for the 2021-2023 long-term incentive performance period, the Committee replaced a growth metric related to our Gatherings product line with a metric related to the home energy ratings of our delivered homes to link these awards with a key component of our Net Zero Energy Ready commitment and overall ESG strategy. In fiscal 2022, the Committee determined to continue to use this metric for the 2022-2024 performance period to incentivize achievement of this key component.
The Committee believes that salary and incentive compensation opportunities should be set based on a variety of factors, including key financial, operational and strategic objectives, Company performance, the compensation practices of our peer group, each executive’s specific responsibilities and skill sets, and the relationship among the compensation levels of members of our management team. The Committee has taken into consideration our need to attract and retain qualified executives in an industry that continues to experience an intense level of competition for senior executives.
By structuring compensation programs with features that are balanced between short- and long-term incentives as well as cash and equity awards, the Committee believes it can align management’s interests with those of our stockholders in both the short- and long-term; reduce risks that may be associated with compensation that is overly focused on short-term objectives; and attract, retain and motivate senior management personnel.
Further, while the Committee believes benchmarking against pay practices at other publicly-traded homebuilders is useful in determining whether our executive compensation practices are reasonable for fiscal 2022, it did not establish compensation levels based solely on benchmarking industry practices. Additional factors taken into account by the Committee are discussed in more detail on page 32.
Based on data for the 2022 Peer Group, Pearl Meyer advised the Compensation Committee that target total compensation for our NEOs was positioned within a competitive range (plus or minus 15%) of the 2022 Peer Group 50th percentile, individually and in the aggregate.
Our Compensation Committee is committed to ensuring that our executive compensation program reinforces key financial, operational and strategic objectives in support of long-term stockholder value creation and appropriately aligns pay with performance. This is demonstrated by the heavy emphasis placed on variable, performance-based incentives for our NEOs (representing approximately 66.7% of target total compensation for our CEO and averaging approximately 60.4% of target total compensation for other NEOs in fiscal 2022) and differences in realized pay relative to target opportunity. As part of that philosophy, failure to reach such goals can result in no compensation under a particular plan or metric.
Our compensation practices include: | | | | | |
| Emphasis on Performance-Based Pay: 66.7% of the ongoing pay mix for our CEO, and an average of 60.4% of the target pay mix for our other NEOs, was variable and performance-based for fiscal 2022. In the aggregate, 64.1% of the target compensation for our CEO and other NEOs for fiscal 2022 was variable and performance based. |
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| Long-Term Vesting: Our equity-based pay vehicles have multi-year vesting periods to reward long-term performance and value creation, enhance retention and deter inappropriate risk taking. |
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| Multiple Performance Measures: We use multiple metrics to evaluate Company performance, covering both short-term and long-term performance objectives, with award funding caps to deter inappropriate risk taking. |
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| Stock Ownership Requirements: We have meaningful stock ownership requirements for our directors and officers. For example, our CEO must hold common stock equal to at least five times his base salary. |
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| No Repricing: Our stock options cannot be repriced, reset or exchanged for cash if under water without stockholder approval. |
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| Anti-Pledging and Hedging Policies: We prohibit our directors and executive officers from (i) holding Beazer securities in a margin account or pledging any Beazer securities as collateral for a loan and (ii) entering into any hedge or other transaction in Beazer securities that limits the risk of ownership of Beazer common stock or stock options. |
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| Double Trigger Change in Control Provisions: We have a policy of requiring a double trigger to receive cash severance and to receive accelerated vesting of equity awards upon a change of control. |
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| Clawback: Each equity award is conditioned on repayment or forfeiture as required by existing law. In addition, each executive officer’s incentive compensation is subject to repayment or such other means of recovery (or a combination thereof) as is necessary to comply with law or related rules and regulations of the SEC or NYSE. |
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| No Tax Gross-Ups: We maintain severance agreements with our NEOs that standardize executive separation terms, minimize the risk of excessive payouts and do not provide for any tax gross-ups. |
ROLE OF THE COMPENSATION COMMITTEE, MANAGEMENT AND COMPENSATION CONSULTANTS
The principal responsibilities of our Compensation Committee include: | | | | | |
| meeting with its independent compensation consultant, with and without the presence of management, to review and structure objectives and compensation programs for our NEOs that are aligned with both the Company’s business and financial strategy and stockholder interests; |
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| evaluating the performance of our NEOs in light of those objectives; and |
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| based on this evaluation, determining and approving the compensation level for our CEO and for other executive officers. |
The Committee has retained Pearl Meyer to provide advice regarding compensation plan design, compensation levels and benchmarking data and advice. Prior to retaining Pearl Meyer for fiscal 2022, the Committee determined that Pearl Meyer qualifies as an independent compensation consultant. Pearl Meyer reports directly to the Committee and does not provide any other services to the Company.
In relation to compensation program design for fiscal 2022, the Committee took into account discussions with, and presentations by, key members of our management team to ensure that our compensation plans were aligned with our key financial, operational and strategic objectives. Also, on an annual basis, Mr. Merrill reviews the performance of the other NEOs, and makes recommendations to the Committee based on his review. In addition, our Lead Director discussed Mr. Merrill’s performance with the Committee. Mr. Merrill is present for the Committee’s deliberations related to the compensation of the other NEOs, but not for the Committee’s discussions related to his own compensation.
For fiscal 2022, our peer group remained the same as for fiscal 2021, composed of Century Communities, Inc., Green Brick Partners, Inc., Hovnanian Enterprises, Inc., KB Home, LGI Homes, Inc., M/I Homes, Inc., M.D.C. Holdings, Inc., Meritage Homes Corporation, Taylor Morrison Home Corp., and TRI Pointe Group, Inc. (the" 2022 Peer Group"). These companies were chosen because, in addition to being among our chief competition among publicly traded homebuilders, they are most closely aligned to us in terms of size.
Each year, Pearl Meyer conducts a review of peer group pay levels and practices, which the Committee takes into consideration when establishing NEO compensation levels, along with a variety of other factors, such as Company and individual performance, each incumbent’s qualifications and responsibilities, the Company’s recruiting experience and talent management needs and the Committee’s business judgment.
While the Committee believes benchmarking against pay practices at other publicly-traded homebuilders is useful in determining whether our executive compensation practices are reasonable for fiscal 2022, it did not establish compensation levels based solely on benchmarking industry practices.
ELEMENTS OF FISCAL
2022 COMPENSATION PROGRAM
CONSIDERATION OF SAY ON PAY VOTES
We have a long history of strong stockholder support for our executive compensation programs, with Say on Pay support levels averaging over 88% for the last five years. The Board and the Compensation Committee have considered the result of these stockholder votes in setting compensation policies and making compensation decisions for each of the fiscal years that has followed. At last year's annual meeting of stockholders, approximately 82% of our shares present in person or represented by proxy voted for approval of our fiscal 2021 executive compensation program.
In designing the compensation program for fiscal 2022, the Committee considered the results of the 2021 Say on Pay vote, our ongoing dialogue with stockholders, internal considerations such as key business and talent management objectives, consistency from year-to-year and an evaluation of peer practices. After consideration, the Committee concluded that, for fiscal 2022, it was appropriate to maintain most elements of the existing compensation program design for our NEOs, with targeted changes to the short-term incentive plan metrics and weightings. The fiscal 2022 compensation program continues to tie the majority of our NEOs’ compensation to performance metrics that support our Company’s Balanced Growth Strategy and Net Zero Energy Ready commitment.
Our ability to recruit and retain executive talent depends on setting competitive base salaries. We begin with an analysis of base pay relative to the market. We generally target base pay at or near the peer group 50th percentile (or median) and then evaluate the need to make any adjustments based on variables such as pay parity relative to other officers and internal accountability. We review base salaries annually, unless circumstances require otherwise. For non-CEO NEO salaries, we solicit CEO input.
Entering fiscal 2021, no changes were made by the Committee to the base salaries of Messrs. Merrill and Belknap. The Committee approved a 30.8% increase in base salary for Mr. Goldberg from $325,000 to $425,000 in connection with his promotion to Chief Financial Officer in November 2020. However, our NEOs voluntarily reduced their respective base salaries for fiscal 2021 by 10% with the possibility of the salaries being restored for the second half of fiscal 2021 if the Company's performance at that time was on pace to exceed 95% of its annual plan. Our NEOs began receiving their respective full base salaries as of April 1, 2021, and the actual salaries paid to the NEOs for fiscal 2021 were $926,384 to Mr. Merrill; $403,808 to Mr. Goldberg; and $513,074 to Mr. Belknap.
The Committee sought to position salaries for fiscal 2022 for each NEO within a competitive range of the 50th percentile of the 2022 Peer Group and to recognize the Company's strong financial and operational performance in 2020 and 2021 under the leadership of our NEOs. Mr. Goldberg's increase in base salary also reflected a continuation of the multi-year adjustment process associated with his promotion to Chief Financial Officer in November 2020. Mr. Merrill's base salary was increased 2.6% to $1 million; Mr. Goldberg's salary was increased 17.6% to $500,000 and Mr. Belknap's salary was increased 6.5% to $575,000.
SHORT-TERM INCENTIVE COMPENSATION
Our annual cash incentive plan is designed to motivate and reward executives for achieving key financial, operational and strategic objectives that continue to drive the Company’s success and generate returns for our stockholders. We set annual cash incentive bonus targets hierarchically based on a multiple of base salary.
In fiscal 2021, our NEOs voluntarily reduced their total short-term incentive target award opportunities by 10%. Unlike base salaries for fiscal 2021, however, no portion of the voluntary reductions to the short-term incentive target award opportunities were restored in fiscal 2021.
For fiscal 2022, short-term incentive target award opportunities for NEOs (expressed as a percentage of base salary) were 200% for Mr. Merrill (compared to 175% before voluntary reduction in 2021), 125% for Mr. Goldberg (compared to 100% before voluntary reduction in 2021) and 125% for Mr. Belknap (which was unchanged from 2021 before voluntary reduction). The Committee approved the adjustments for Mr. Merrill and Mr. Goldberg to align all of the NEOs' salaries more closely with the 2022 Peer Group 50th percentile, individually and in the aggregate and, in the case of Mr. Goldberg, as a continuation of the multi-year adjustment process associated with his promotion to Chief Financial Officer in November 2020.
Similar to prior years, for fiscal 2022, the large majority (75%) of short-term incentive award opportunities for our NEOs was tied to actual vs. planned Bonus Plan EBITDA, with the remaining 25% tied to five financial, operational and strategic objectives equally weighted at 5% each. The Committee chose to utilize largely the same objectives utilized in fiscal 2021, but achievement thresholds for these metrics were more difficult to attain than in fiscal 2021. The Committee also introduced a new objective to incentivize an aspect of employee wellness. Consistent with prior years, NEOs were eligible to receive an award for other components of the 2022 Bonus Plan only if threshold 2022 Bonus Plan EBITDA was achieved. The Committee retained the discretion to adjust results for unanticipated and exceptional items and to deduct from awards earned for any reason. No such discretion was exercised by the Committee.
2022 OBJECTIVES | | | | | |
| Bonus Plan EBITDA — 75% of bonus opportunity — Consistent with past practice, the Committee determined that the importance of growth in Adjusted EBITDA to accomplishing our strategic plan, coupled with the proven history of this metric driving results in past years, warranted allocating 75% of the overall annual bonus opportunity to this metric. The Committee established a 2022 Bonus Plan EBITDA objective with a $300 million threshold, $330 million target and $365 million maximum achievement levels. |
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| Increase Land Position — 5% of bonus opportunity — In order to achieve a bonus payout with respect to this metric, the Company was required to meet internal (and proprietary) goals for minimum company-wide lot position (i.e., the total lots controlled either through ownership or options to purchase) and percentage of lots controlled through options to purchase. |
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| Improve Internal Operating Margin — 5% of bonus opportunity — In order to achieve a bonus payout with respect to this metric, the Company was required to improve the percentage with respect to an internal (and proprietary) measure of operating margin that takes into account varying operational efficiencies and overheads among divisions and corporate. |
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| Improve Customer Experience — 5% of bonus opportunity — In order to achieve a bonus payout with respect to this metric, the Company was required to realize specific levels of year-over-year improvement in customer satisfaction as measured through third-party customer surveys. |
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| Employee Engagement and Performance Management — 5% of bonus opportunity — In order to achieve a bonus payout with respect to this metric, a minimum level of employee engagement and performance management was required. |
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| Employee Wellness Optimization — 5% of bonus opportunity — In support of the Company's ongoing commitment to prioritize the wellness of its employees and their career satisfaction, the Company has implemented a flexible time off policy. The Committee felt it was important to support this initiative by requiring a minimum percentage of employee participation in and utilization of this policy in order for a bonus payout to be earned under this metric. |
The specific performance targets for operational metrics are not disclosed here because we believe that the disclosure would result in competitive harm to us by providing competitors, vendors and suppliers with insight into our business strategies and operations beyond what is disclosed publicly.
2022 ACHIEVEMENT OF OBJECTIVES
In 2022, the following results were achieved against these objectives: | | | | | | | | | | | |
OBJECTIVE | WEIGHTING (%) | RESULT | ACHIEVEMENT |
Bonus Plan EBITDA | 75 | $380.8 million, a 40.6% year-over-year increase | Maximum achievement level |
Increase Land Position | 5 | Grew minimum lot position by 14.1% | Threshold achievement level |
Improve Internal Operating Margin | 5 | Increased Internal Operating Margin by 33.3% | Maximum achievement level |
Improve Customer Experience | 5 | Improved customer satisfaction survey achievement | Threshold achievement level |
Employee Engagement and Performance Management | 5 | Above benchmark for four quarters and full year | Maximum achievement level |
Employee Wellness Optimization | 5 | Internal utilization goals exceeded | Maximum achievement level |
Total | 100 | — | Between target and maximum on an overall basis |
To the extent actual 2022 Bonus Plan performance was between the threshold and target performance levels, or between the target and maximum performance levels, linear interpolation was applied to determine the actual payout under each component of the 2022 Bonus Plan.
2022 BONUSES AWARDED
Actual awards for our NEOs were equal to an average of 184% of target award opportunities, as shown in the table below. | | | | | | | | | | | | | | |
NAME | 2022 TARGET BONUS (% of actual base salary) | 2022 TARGET BONUS ($) | 2022 ANNUAL CASH INCENTIVE BONUS ($) | BONUS AS A PERCENTAGE OF TARGET (%) |
Allan P. Merrill | 200 | 2,000,000 | 3,665,000 | 183.3 |
David I. Goldberg | 125 | 625,000 | 1,157,500 | 185.2 |
Keith L. Belknap | 125 | 718,750 | 1,331,125 | 185.2 |
LONG-TERM INCENTIVE COMPENSATION
2020-2022 Performance Period
For the 2020-2022 performance period, the target long-term incentive award opportunities for our NEOs (expressed as percentages of base salary) were 300% for Mr. Merrill, 100% for Mr. Goldberg and 175% for Mr. Belknap. For this performance period, the Committee awarded one-third of the target award opportunity in restricted stock that vested ratably over 3 years and the remaining two-thirds of the opportunity in performance shares, the vesting of which was tied to the achievement of specific multi-year performance goals.
2021-2023 Performance Period
For the 2021-2023 performance period, all of our NEOs voluntarily reduced their target long-term incentive opportunities by 10% from the levels approved by the Committee. Accordingly, the target long-term incentive opportunities for this period (expressed as a percentage of base salary) are 270% for Mr. Merrill, 135% for Mr. Goldberg and 157.5% for Mr. Belknap. Additionally, based on recommendations from Pearl Meyer, and in an effort to help manage equity plan share usage while continuing to tie the majority (two-thirds) of long-term award opportunities to multi-year performance goals, the Committee utilized a three-component award mix consisting of a long-term, performance-based cash award, a performance shares award and a time-based restricted stock award, each equaling one-third of the total long-term incentive target award opportunity.
2022-2024 Performance Period
For the 2022-2024 performance period, Mr. Merrill's and Mr. Belknap's target long-term incentive award opportunities were restored to levels of 300% and 175% (expressed as percentages of base salaries), respectively. Mr. Goldberg's target long-term incentive award opportunity (expressed as percentage of base salary) was increased to 175% from 150%. The Committee approved the year-over-year adjustment for Mr. Goldberg to align all of the NEOs' salaries more closely with the 2022 Peer Group 50th percentile and as a continuation of the multi-year adjustment process associated with his promotion to Chief Financial Officer in November 2020. For this performance period, the Committee, as it did for the 2021-2023 performance period, utilized a three-component award mix consisting of a long-term, performance-based cash award, a performance shares award and a time-based restricted stock award, each equaling one-third of the total long-term incentive target award opportunity.
RESTRICTED STOCK
Time-based restricted stock awards vest ratably over a three-year period, beginning with the first anniversary of the grant date. In fiscal 2022, the NEOs were granted the following number of shares of restricted stock, which were calculated by dividing the applicable target award value by the average daily closing price of a share of common stock for the 30 consecutive trading days on the NYSE ending on November 12, 2021: Mr. Merrill: 54,854; Mr. Goldberg: 15,999; and Mr. Belknap: 18,399.
PERFORMANCE SHARES
In order to facilitate pay for performance, our core compensation philosophy continues to be focused on providing incentive compensation to our management team when they achieve key financial, operational and strategic objectives that the Compensation Committee and our Board of Directors believe are critical to enhancing long-term stockholder value. As part of that philosophy, the Committee believes that a significant portion of equity awards should be performance-based, with failure to reach such goals resulting in no compensation under a particular plan or metric. Accordingly, two-thirds of our senior executive management team’s overall long-term incentive awards are comprised of performance shares (and, with respect to awards for the 2021-2023 and 2022-2024 performance periods, performance cash awards) which reflect a target number of shares (and cash) that may be issued to the award recipient at the end of a three-year performance period based on the achievement of performance targets established at the time of grant. Performance share grant levels were determined by dividing target award values by the closing price of a share of our common stock on the date of grant.
When determining awards, the Committee utilizes performance metrics consisting of a variety of key financial, operational and strategic objectives. In addition, in order to ensure the awards align with enhancing stockholder value, any awards earned at the end of the three-year performance period are subject to adjustment (by up to +/- 20%) based on our relative total shareholder return (TSR) performance over the same three-year performance period.
Performance Measures for the Fiscal 2020-2022 Performance Period
Each performance share award reflects a target number of shares (based on the fair market value of our common stock on the award date) that may be issued to the award recipient at the end of a three-year award cycle based on the achievement of performance targets that are either (a) applicable to cumulative results over the entire three-year performance period or (b) applicable only to the final fiscal year of the three-year performance period. At the end of each performance period, the Committee confirms performance against the applicable performance targets, and performance shares corresponding to the level of achievement during the performance period are calculated.
In determining fiscal year 2020-2022 performance share award metrics, the Committee considered the fluid nature of the housing market and the need to design metrics that would not be obsolete in the event of a change in strategy during the three-year performance period ending with fiscal 2022. The three metrics used for the fiscal 2020-2022 performance period were:
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| Cumulative pre-tax income (defined as the Company’s income from continuing operations, before taxes and excluding impairments and abandonments, bond losses and such other non-recurring items as the Committee may approve) over the entire three-year performance period; |
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| Return on assets, based on the ratio of Adjusted EBITDA to total assets (defined as the Company’s total assets as shown on the consolidated balance sheet included in the Company’s Form 10-K for fiscal 2022) for fiscal 2022; and |
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| Gatherings — A metric tied to the number of active Gatherings communities. The Committee believed this metric aligned with its rigorous and business strategy-focused approach and underscored its pay for performance philosophy. |
Determination of Shares Earned for the Fiscal 2020-2022 Performance Period
Shares earned are based on achieving the Threshold, Target or Superior levels of performance on one or more of the metrics described above. One-third of target shares are earned for each metric achieving Threshold performance, two-thirds of target shares are earned for each metric achieving Target performance and 100% of target shares are earned for each metric achieving Superior performance. The shares earned on the three metrics are totaled, subject to both a 175% cap on primary funding metrics and a TSR Modifier to determine the final award. | | | | | |
| To illustrate, achievement of a Threshold level of performance on each of the three metrics would result in 33.3% of target shares earned for each metric or a total of 100% of the target number of shares, subject to adjustment based on the TSR Modifier. |
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| Superior-level performance on any one metric (100%) would earn a target number of shares subject to the TSR Modifier. |
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| The maximum number of shares that can be earned based on the results of the three metrics described above would be 175% of Target, even if Superior performance is achieved on all three metrics (300% of target shares). In the event of such maximum achievements, the maximum adjustment under the TSR modifier of 20% would result in shares awarded totaling no more than 210% of target. |
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| For performance between Threshold and Target or between Target and Superior, straight line interpolation between such levels is applied. |
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| The Committee retains the discretion to reduce the number of shares finally awarded notwithstanding the number earned pursuant to the above, and to award any amounts in excess of target in cash instead of shares. |
Results for the Fiscal 2020-2022 Performance Period | | | | | |
| Cumulative pre-tax income — The performance necessary to earn a Threshold, Target and Superior payout required a cumulative pre-tax income of $230.0 million, $250.0 million and $270.0 million, respectively. Actual cumulative pre-tax income for the fiscal 2020-2022 performance period was $501.2 million. |
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| Return on Assets — The performance necessary to earn a Threshold, Target and Superior payout required a ROA for fiscal 2022 of 10%, 11% and 12%, respectively. Actual return on assets for fiscal 2022 was 16.23%. |
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| Gatherings — Actual results for the 2020-2022 cycle were below threshold performance levels, resulting in no funding for this component. The specific performance targets for the Gatherings metric are not disclosed here because we believe that the disclosure would result in competitive harm to us by potentially disrupting our vendor and supplier relationships and providing competitors with insight into our business strategies beyond what is disclosed publicly. |
In sum, threshold performance was not reached for one of the metrics, however, Superior performance was exceeded for two of the metrics, resulting in earned awards of 175.0% of Target. Earned awards were subject to adjustment based on our relative TSR, as discussed below.
While our target performance awards are based on specific metrics established at the time of grant, actual payouts of incentive compensation are also directly tied to stockholder value. Accordingly, after determining the number of shares earned based on the achievement of the performance measures for the fiscal 2020-2022 performance period, the following three-year relative TSR scale was applied as a modifier:
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TSR PERCENTILE RANK VS. S&P HOMEBUILDERS SELECT INDUSTRY INDEX | ADJUSTMENT TO # OF PERFORMANCE SHARES |
At or above 75th Percentile | +20% |
70-74th Percentile | +15% |
65-69th Percentile | +10% |
60-64th Percentile | +5% |
40-59th Percentile | No adjustment |
35-39th Percentile | -5% |
30-34th Percentile | -10% |
25-29th Percentile | -15% |
Below 25th Percentile | -20% |
After application of the TSR modifier, the recipients’ percentage of awards earned attributable to the fiscal 2020-2022 performance period was reduced from 175.0% to 140.0% of Target.
Through heavy emphasis on variable, performance-based incentives with rigorous performance goals based on key financial, operational and strategic objectives and actual payouts subject to adjustment based on stockholder returns, the Committee believes our long-term incentive program appropriately aligns pay for performance while promoting stockholder value creation.
Performance Shares Issued for the Fiscal 2020-2022 Performance Period
Shares issued in November 2022 to NEOs for the fiscal 2020-2022 performance period are set forth in the following table: | | | | | | | | | | | |
NAME | PERFORMANCE SHARES AWARD TARGET (#) | PERFORMANCE SHARES EARNED (#) | PERFORMANCE SHARES EARNED AS A PERCENTAGE OF AWARD TARGET (%) |
Allan P. Merrill | 124,839 | 174,775 | 140.00 |
David I. Goldberg | 13,871 | 19,419 | 140.00 |
Keith L. Belknap | 40,332 | 56,465 | 140.00 |
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Performance Measures for 2022-2024 Performance Period
For performance shares and performance cash awards related to the 2022-2024 performance period, the Committee, as it did for the fiscal 2021-2023 performance period, determined that the Company's ongoing commitment to increase the energy efficiency of its homes and to build only Net Zero Energy Ready homes by the end of 2025 warranted accountability through the long-term incentive awards program. The Committee again used the performance metric, as it did for the 2021-2023 performance period, directly linking the Home Energy Rating System (HERS®) results for homes built by the Company. The Committee, however, set the performance targets for this metric for the 2022-2024 performance period at levels of increased difficulty compared to the 2021-2023 performance period.
HERS is an industry-leading home building scoring system developed by the Residential Energy Services Network (RESNET), an independent non-profit organization, for inspecting and calculating a home's energy performance after construction is complete. The specific performance targets for energy performance are not disclosed here because we believe that the disclosure would result in competitive harm to us by potentially disrupting our vendor and supplier relationships and providing competitors with insight into our business strategies beyond what is disclosed publicly. The Committee believes management’s ability to achieve the specific performance targets and the level of difficulty associated with meeting these performance targets is consistent with the other metrics and consistent with the performance required to meet our Net Zero Energy Ready commitment by the end of 2025.
Performance metrics for 2022-2024 performance period also include the following objectives: | | | | | |
| Cumulative pre-tax income — The performance necessary to earn a Threshold payout requires a cumulative pre-tax income of $750 million, Target payout requires a cumulative pre-tax income of $800 million, and the performance necessary to earn a Superior payout requires a cumulative pre-tax income of at least $850 million. |
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| Return on assets — The performance necessary to earn a Threshold payout requires an average return on assets for the performance period of 13%, Target payout requires an average return on assets of 14%, and the performance necessary to earn a Superior payout requires an average return on assets for the performance period of at least 15%. |
Target goals for cumulative pre-tax income and return on assets, which were set in November 2021, were set significantly higher than the targets for the 2021-2023 award cycle, as well as actual results for the 2019-2021 performance period.
Consistent with past practice, the actual number of performance shares and cash earned will be based on achieving the Threshold, Target or Superior levels of performance on one or more of the metrics described above. One-third of target shares and cash will be earned for each metric achieving Threshold performance, two-thirds of target shares and cash will be earned for each metric achieving Target performance and 100% of target shares and cash will be earned for each metric achieving Superior performance. The shares and cash earned on the three metrics will be totaled and will be subject to a 175% cap and a relative TSR modifier in order to determine the final award.
Our NEOs receive the standard benefits available to all employees, including: group health (medical, dental, pharmacy, and vision), group life, accidental death and dismemberment, business travel accident, disability plans, defined contribution retirement plans (a Money Purchase Retirement Plan and a 401(k) Savings Plan), and vacation.
Deferred Compensation Plan
The Company maintains the Beazer Homes Deferred Compensation Plan, or the Deferred Plan, to provide eligible employees the opportunity to defer a portion of their current compensation. With respect to fiscal 2022, the Company made a contribution to the Deferred Plan for the benefit of each NEO as follows: Mr. Merrill, $100,000; Mr. Goldberg, $50,000, and Mr. Belknap, $50,000. These contributions are made in regular installments and are subject to several restrictions and limitations including the Committee’s right to terminate or suspend any such contribution in the future.
Other Benefits
We do not have a defined benefit pension plan or supplemental executive retirement plan. Our executive management team, including our NEOs, participate in our various benefit programs on the same terms as other employees. The Company does not provide to its NEOs supplemental executive retirement plans, company cars (or automobile reimbursements), club memberships or other significant perquisites.
STOCK OWNERSHIP AND HOLDING REQUIREMENTS
The Company maintains a stock ownership and holding policy that requires NEOs and members of the Board of Directors to acquire and retain a meaningful level of stock ownership in the Company. The current stock ownership requirements are based on a multiple of base salary or annual retainer, as applicable, and are as set forth below:
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| MULTIPLE OF BASE SALARY/ ANNUAL RETAINER |
CEO | 5.0 x base salary |
Other NEOs | 3.0 x base salary |
Non-employee Directors | 5.0 x annual cash retainer |
For purposes of the stock ownership policy, the following types of shareholdings are counted towards an individual’s stock ownership: (i) stock that is considered beneficially owned and (ii) two-thirds of service-based restricted stock. Unearned performance shares and unexercised stock options (including vested "in-the-money" options) do not count towards ownership requirements. Individuals subject to this policy are required to be in compliance with ownership requirements no later than the fifth anniversary of the date the individual becomes a NEO or director. The policy also requires NEOs and directors to hold 50% of net after-tax shares issued upon vesting of restricted stock, performance shares or stock option exercises until their required respective stock ownership levels are achieved. As of December 15, 2022, each of our NEOs and directors was in compliance with the requirements of our stock ownership and holding policy.
COMPENSATION CLAWBACK POLICY
The Committee has adopted an incentive compensation clawback policy that would enable the Company to clawback all or a portion of incentive compensation in the event an individual’s misconduct causes the Company to issue a restatement of its financial statements, to the extent that such individual’s incentive compensation was based on the misstated financials.
In addition, awards under our 2014 Long-Term Incentive Plan are subject not only to our existing clawback policy but any other clawback policy adopted by the Compensation Committee, and the Committee has the authority to recoup or cancel awards if a participant engages in “detrimental activity” with respect to the Company.
As described in further detail under “Executive Compensation — Potential Payments Upon Termination or Change of Control,” pursuant to the severance agreements with each of our NEOs, any incentive compensation that is paid or granted to the NEOs will be subject to recoupment under the terms thereof.
RISK CONSIDERATIONS IN OUR COMPENSATION PROGRAMS
The Committee does not believe our compensation programs encourage inappropriate risk taking. The Committee, with assistance from Pearl Meyer, arrived at this conclusion for the following reasons: | | | | | |
| Our employees receive both fixed and variable compensation. The fixed portion provides a steady income regardless of the Company’s stock price or financial performance. This allows executives to focus on the Company’s business without an excessive focus on the Company’s stock price. |
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| Incentive award opportunities are tied to multiple metrics over various time periods that align with key financial, operational and strategic objectives. |
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| Incentive award opportunities are capped, with incentive payouts subject to clawback provisions. |
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| Our equity awards for executives generally vest over three-year periods, which discourages short-term risk taking while also enhancing retention. |
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| Our equity ownership and holding requirements encourage a long-term perspective by our executives. |
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| Our equity compensation plan provides that our executives’ unvested long-term equity compensation is forfeited upon voluntary termination. |
REPORT OF THE
COMPENSATION COMMITTEE
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with management. Based on such review and discussions, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis set forth above be included in this Proxy Statement.
DAVID J. SPITZ (CHAIR)
LLOYD E. JOHNSON
PETER M. ORSER
NORMA A. PROVENCIO
The Members of the Compensation Committee
EXECUTIVE
COMPENSATION
SUMMARY COMPENSATION TABLE
The table below summarizes compensation information for our NEOs for the fiscal years 2022, 2021 and 2020. | | | | | | | | | | | | | | | | | | | | | | | | | | |
NAME AND PRINCIPAL POSITION | FISCAL YEAR | SALARY ($) | BONUS ($) | STOCK AWARDS ($) (1) | STOCK OPTIONS ($) | NON-EQUITY INCENTIVE PLAN COMPENSATION ($) (2) | ALL OTHER COMPENSATION ($) (3) | TOTAL ($) |
Allan P. Merrill President and Chief Executive Officer | 2022 | 999,135 | — | 2,265,442 | — | 3,665,000 | 109,150 | 7,038,727 |
2021 | 926,384 | — | 1,671,256 | — | 2,808,679 | 108,700 | 5,515,019 |
2020 | 879,904 | — | 3,094,751 | — | 3,002,673 | 108,550 | 7,085,878 |
David I. Goldberg(4) Senior Vice President and Chief Financial Officer | 2022 | 497,404 | | 660,752 | | 1,157,500 | 58,808 | 2,374,464 |
2021 | 403,808 | | 364,234 | | 699,598 | 50,163 | 1,517,803 |
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Keith L. Belknap Executive Vice President and General Counsel
| 2022 | 573,788 | — | 759,860 | — | 1,331,125 | 58,812 | 2,723,585 |
2021 | 513,074 | — | 539,935 | — | 1,111,126 | 58,367 | 2,222,502 |
2020 | 487,331 | — | 999,830 | — | 1,187,871 | 58,427 | 2,733,459 |
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| Represents the aggregate grant date fair value of restricted stock and performance shares awarded in each of the fiscal years indicated above, determined in accordance with FASB ASC Topic 718. These are not amounts paid to or realized by the NEOs. The grant date fair value of the performance shares was calculated based on a “Monte Carlo” simulation model, which utilizes numerous arbitrary assumptions about financial variables that determine the probability of satisfying the performance conditions stipulated in the award. Further information regarding the valuation of stock and option awards can be found in Notes 2 and 16 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022. We caution that the amounts reported in the table for equity-related awards and, therefore, total compensation, may not represent the amounts that each NEO will actually realize from the awards. Whether, and to what extent, an NEO realizes value will depend on a number of factors, including Company performance and stock price. For more information on restricted stock and performance shares, see “Compensation Discussion and Analysis — Elements of Fiscal 2022 Compensation Program — Long-Term Incentive Compensation” above. |
| Amounts in this column are paid pursuant to the Company’s short-term incentive plan as described under “Compensation Discussion and Analysis — Elements of Fiscal 2022 Compensation Program — Short-Term Incentive Compensation” above. |
| For information on All Other Compensation, see table below. |
| Mr. Goldberg was appointed CFO effective November 20, 2020. |
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ALL OTHER COMPENSATION
The table below provides a detailed breakdown of the amounts for fiscal 2022 under “All Other Compensation” in the Summary Compensation Table above. | | | | | | | | | | | | | | | | | |
NAME | YEAR | DEFERRED COMPENSATION OR DISCRETIONARY LUMP SUM CONTRIBUTIONS ($) | 401(K) COMPANY MATCH ($) | TOTAL ($) | |
Allan P. Merrill | 2022 | 100,000 | 9,150 | 109,150 | |
David I. Goldberg | 2022 | 50,000 | 8,808 | 58,808 | |
Keith L. Belknap | 2022 | 50,000 | 8,812 | 58,812 | |
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GRANTS OF PLAN-BASED AWARDS TABLE
The following table shows information about eligible or granted plan-based awards in fiscal 2022 to our NEOs. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NAME | AWARD TYPE (1) | GRANT DATE | ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (2) | ESTIMATED FUTURE ISSUANCES OF SHARES UNDER EQUITY INCENTIVE PLANS (3) | ALL OTHER STOCK-BASED AWARDS (#) (4) | GRANT DATE FAIR VALUE OF STOCK- BASED AWARDS ($) (5) | ALL OTHER OPTION AWARDS (#) | EXERCISE OR BASE PRICE OF OPTION AWARDS ($) |
THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | THRESHOLD (#) | TARGET (#) | SUPERIOR (#) |
Allan P. Merrill | BP | 11/12/21 | 1,000,000 | | 2,000,000 | | 4,000,000 | | — | | — | | — | | — | | — | | — | | — | |
| PA | 11/12/21 | — | | 1,000,000 | | 2,100,000 | | — | | — | | — | | — | | — | | — | | — | |
| RS | 11/12/21 | — | | — | | — | | — | | — | | — | | 54,854 | | 1,173,876 | | — | | — | |
| PS | 11/12/21 | — | | — | | — | | — | | 46,728 | | 98,129 | | — | | 1,091,566 | | — | | — | |
David I. Goldberg | BP | 11/12/21 | 312,500 | | 625,000 | | 1,250,000 | | — | | — | | — | | — | | — | | — | | — | |
| PA | 11/12/21 | — | | 291,667 | | 612,501 | | — | | — | | — | | — | | — | | — | | — | |
| RS | 11/12/21 | — | | — | | — | | — | | — | | — | | 15,999 | | 342,379 | | — | | — | |
| PS | 11/12/21 | — | | — | | — | | — | | 13,629 | | 28,621 | | — | | 318,373 | | — | | — | |
Keith L. Belknap | BP | 11/12/21 | 359,375 | | 718,750 | | 1,437,500 | | — | | — | | — | | — | | — | | — | | — | |
| PA | 11/12/21 | — | | 335,417 | | 704,376 | | — | | — | | — | | — | | — | | — | | — | |
| RS | 11/12/21 | — | | — | | — | | — | | — | | — | | 18,399 | | 393,739 | | — | | — | |
| PS | 11/12/21 | — | | — | | — | | — | | 15,673 | | 32,913 | | — | | 366,121 | | — | | — | |
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| Award Type: “BP” means potential cash awards under 2022 Short-Term Incentive Plan; "PA" means performance cash awards under the 2022 Long-Term Incentive Plan; “RS” means shares of time-vesting restricted stock; “PS” means performance share awards under the 2022 Long-Term Incentive Plan. |
| Amounts represent the range of possible cash payouts for fiscal 2022 under the 2022 Short-Term Incentive Plan, as described under “Compensation Discussion and Analysis — Elements of Fiscal 2022 Compensation Program — Short-Term Incentive Compensation” above, and the range of possible cash payouts for performance cash awards under the 2022 Long-Term Incentive Plan, assuming achievement of threshold, target and superior performance. See "Compensation Discussion and Analysis — Elements of Fiscal 2022 Compensation Program -— Long-Term Incentive Compensation — Performance Measures for 2022-2024 Performance Period" above. The awards that were earned based on actual performance for fiscal 2022 were paid in November 2022 and are shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table above. |
| Represents the range of shares of Common Stock that may vest after the end of the three-year award cycle applicable to a performance share award, assuming achievement of threshold, target and superior performance. See “Compensation Discussion and Analysis — Elements of Fiscal 2022 Compensation Program — Long-Term Incentive Compensation — Performance Measures for 2022-2024 Performance Period” above. |
| Represents time-vested restricted stock. The shares of restricted stock generally vest in equal installments on the first, second and third anniversaries of the grant date. See “Compensation Discussion and Analysis — Elements of Fiscal 2022 Compensation Program — Long-Term Incentive Compensation — Restricted Stock” above. |
| See footnote 1 to the Summary Compensation Table above for an explanation of the calculation of the grant date fair value of stock-based awards. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END TABLE
The following table provides information with respect to outstanding unexercised options and unvested performance shares and restricted stock held by our NEOs at September 30, 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | OPTION AWARDS | | STOCK AWARDS | |
NAME | GRANT DATE | | NUMBER OF SECURITIES UNDERLYING OPTIONS/SARS | OPTION EXERCISE PRICE ($) | OPTION EXPIRATION DATE | | NUMBER OF SHARES OF STOCK THAT HAVE NOT VESTED (#) (1) | MARKET VALUE OF SHARES OF STOCK THAT HAVE NOT VESTED ($) (2) | NUMBER OF PER- FORMANCE SHARES THAT HAVE NOT VESTED (#) | | MARKET VALUE OF PERFOR- MANCE SHARES THAT HAVE NOT VESTED ($) (3) | |
(#) | |
EXERCISABLE | UNEXERCIS-ABLE | |
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Allan P. Merrill | 5/22/19 | | — | | 5,000 | | 9.62 | | 5/22/27 | | — | | — | | — | | | — | | |
| 11/15/19 | | — | | — | | — | | — | | | 20,807 | | 201,204 | | — | | | — | | |
| 11/15/19 | (4) | — | | — | | — | | — | | | — | | — | | 174,775 | | (4) | 1,690,074 | | |
| 11/16/20 | | — | | — | | — | | — | | | 38,656 | | 373,804 | | — | | | — | | |
| 11/16/20 | (5) | — | | — | | — | | — | | | — | | — | | 56,130 | | (5) | 542,777 | | |
| 11/12/21 | | — | | — | | — | | — | | | 54,854 | | 530,438 | | — | | | — | | |
| 11/12/21 | (6) | — | | — | | — | | — | | | — | | — | | 46,728 | | (6) | 451,860 | | |
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David I. Goldberg | 11/15/19 | | — | | — | | — | | — | | | 2,312 | | 22,357 | | — | | | — | | |
| 11/15/19 | (4) | — | | — | | — | | — | | | — | | — | | 19,419 | | (4) | 187,782 | | |
| 11/16/20 | | — | | — | | — | | — | | | 8,425 | | 81,470 | | — | | | — | | |
| 11/16/20 | (5) | — | | — | | — | | — | | | — | | — | | 12,233 | | (5) | 118,293 | | |
| 11/12/21 | | — | | — | | — | | — | | | 15,999 | | 154,710 | | — | | | — | | |
| 11/12/21 | (6) | — | | — | | — | | — | | | — | | — | | 13,629 | | (6) | 131,792 | | |
Keith L. Belknap | 11/15/19 | | — | | — | | — | | — | | | 6,722 | | 65,002 | | — | | | — | | |
| 11/15/19 | (4) | — | | — | | — | | — | | | — | | — | | 56,465 | | (4) | 546,017 | | |
| 11/16/20 | | — | | — | | — | | — | | | 12,489 | | 120,769 | | — | | | — | | |
| 11/16/20 | (5) | — | | — | | — | | — | | | — | | — | | 18,134 | | (5) | 175,356 | | |
| 11/12/21 | | — | | — | | — | | — | | | 18,399 | | 177,918 | | — | | | — | | |
| 11/12/21 | (6) | — | | — | | — | | — | | | — | | — | | 15,673 | | (6) | 151,558 | | |
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| Award vests ratably over a three-year period. |
| Reflects the value using the closing price of common stock on the NYSE on the last trading day of fiscal 2022 (September 30, 2022) of $9.67 per share. |
| “Market value” is calculated by multiplying the number of shares that have not vested by the closing price of common stock on the NYSE on September 30, 2022 of $9.67 per share. |
| Represents performance shares awarded in fiscal 2020 for a three-year performance period (fiscal 2020 through fiscal 2022). The performance shares shown are based on actual performance. See “Compensation Discussion and Analysis — Elements of Fiscal 2022 Compensation Program — Long-Term Incentive Compensation — Performance Shares” above. These performance shares vested in November 2022. For more information regarding these performance shares, see pages 40-41 of the Company’s proxy statement filed with the SEC on December 18, 2020. |
| Represents performance shares awarded in fiscal 2021 for a three-year performance period (fiscal 2021 through fiscal 2023). The performance shares shown assume target performance for the award cycle. For more information regarding these performance shares, see pages 37-38 of the Company’s proxy statement filed with the SEC on December 21, 2021. |
| Represents performance shares awarded in fiscal 2022 for a three-year performance period (fiscal 2022 through fiscal 2024). The performance shares shown assume target performance for the award cycle. See “Compensation Discussion and Analysis — Elements of Fiscal 2022 Compensation Program — Long-Term Incentive Compensation — Performance Shares” above. |
OPTION EXERCISES AND STOCK VESTED TABLE
The table below provides supplemental information relating to the value realized upon the exercise of stock options and upon the vesting of performance shares and restricted stock during fiscal 2022 for each NEO.
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| STOCK AWARDS |
NAME | NUMBER OF SHARES ACQUIRED ON VESTING (#) | VALUE REALIZED UPON VESTING ($) |
Allan P. Merrill | 360,185 | 7,753,712 |
David I. Goldberg | 25,825 | 557,886 |
Keith L. Belknap | 97,190 | 2,092,921 |
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NON-QUALIFIED DEFERRED COMPENSATION TABLE
The table below provides supplemental information relating to compensation deferred during fiscal 2022 under the terms of the Beazer Homes Deferred Compensation. | | | | | | | | | | | | | | | | | |
NAME | EXECUTIVE CONTRIBUTIONS IN LAST FY ($) | COMPANY CONTRIBUTIONS IN LAST FY ($) | AGGREGATE EARNINGS/ (LOSSES) IN LAST FY ($) (1) | AGGREGATE WITHDRAWALS/ DISTRIBUTIONS ($) | AGGREGATE BALANCE AT LAST FYE ($) (2) |
Allan P. Merrill | 0 | 100,000 | (507,300) | 0 | 1,951,795 |
David I. Goldberg | 0 | 50,000 | (15,618) | 0 | 75,690 |
Keith L. Belknap | 0 | 50,000 | (41,268) | 0 | 232,719 |
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| Represents amounts of earnings on the balance of the participants’ accounts that are attributable to the performance of independently managed funds available to and selected by each participant under the Deferred Plan and in which deferred amounts are deemed to be invested. None of the earnings in this column are included in the “Summary Compensation Table” above because they were not preferential or above-market. |
| Aggregate balances include unvested amounts of Company contributions. |
Narrative Disclosure to Non-Qualified Deferred Compensation Table
Under the Deferred Plan, participants select from a menu of investment options which track a variety of independently managed benchmark funds in which the funds are deemed to be invested. The return on the underlying investments determines the amount of earnings and losses that are credited or debited to the participants’ account. There is no guaranteed rate of return on these funds and the rate of return depends on the participants’ deemed investment option elections and on the market performance of the underlying funds. Deferred amounts and Company contributions are deposited in a trust that qualifies as a grantor trust under the Internal Revenue Code. Our obligations under the Deferred Plan are unsecured general obligations and rank equally with our other unsecured general creditors. Amounts deferred by participants and earnings and losses thereon are 100% vested.
POTENTIAL PAYMENTS UPON TERMINATION OR
SEVERANCE AND CHANGE OF CONTROL AGREEMENTS
We have severance and change of control agreements with each of our NEOs. The agreements set forth each executive’s then current base salary, eligibility to receive awards pursuant to short-term and long-term incentive compensation programs, deferred compensation and severance payments, all of which are described in greater detail below. The agreements are substantially identical in non-economic terms and set forth each executive’s non-competition and non-solicitation, confidentiality and intellectual property obligations. Base salaries, performance metrics and actual target opportunities for any given year remain within the discretion of the Company’s Compensation Committee.
The agreements provide for a lump sum severance payment in the event of a “change of control” of the Company followed by a termination of the executive without “cause” or a resignation by the executive for “good reason” within two years of the change of control. In such event, the severance payment for Mr. Merrill would be three times the sum of his then current base salary and annual cash incentive bonus target for the fiscal year in which the termination occurs, and, in the case of Messrs. Goldberg and Belknap, the severance payments would be two times the sum of the executive’s then current base salary and target annual incentive bonus for the fiscal year in which the termination occurs, in each case payable in a lump sum.
Where there is no change of control, in the event of a termination of the executive without “cause” or a resignation by the executive for “good reason,” such executive would receive a severance payment. The severance payment for Mr. Merrill in this situation would be (1) two times the sum of his then current base salary and target annual incentive bonus for the fiscal year in which the termination occurs, payable in equal installments over twelve months, and (2) a pro rata annual incentive bonus for the fiscal year in which the termination occurs calculated based on actual performance for the year, payable at the same time bonuses are paid to other executives. For Messrs. Goldberg and Belknap, the severance payment would be (1) one and one-fourth times the sum of the executive’s then current base salary and target annual incentive bonus for the fiscal year in which termination occurs, payable in equal installments over twelve months, and (2) a pro rata annual incentive bonus for the fiscal year in which the termination occurs calculated based on actual performance for the year, payable at the same time bonuses are paid to other executives. No severance will be payable in the event the executive is terminated for “cause” or the executive resigns without “good reason.”
The agreements do not entitle the executives to any extension or continuation of employee benefits after termination, except in the event the executive is entitled to receive severance pay, in which case the executive may receive up to twelve months of coverage under the group health, dental and vision plans the executive participated in prior to termination. In addition, there is no provision to “gross up” any payment to account for taxes for which the executive may be liable. Under the agreements, any incentive compensation that is paid or granted to the executives will be subject to recoupment under the terms of the Company’s “clawback” policy.
DISPOSITION OF OUTSTANDING EQUITY AWARDS
The severance and change of control agreements with each of our NEOs also govern the disposition of outstanding equity awards issued under our 2014 Long-Term Incentive Plan in the event the executive’s employment is terminated under various scenarios or in the event there is a change of control of the Company.
Termination of Employment by the Company with Cause or Resignation by Executive
Pursuant to the severance agreements, equity grants under our 2014 Long-Term Incentive Plan provide that all unvested awards will be forfeited in the event the executive is terminated by the Company for “cause” or the executive voluntarily resigns and the resignation is without Good Reason and not within two years after of a change of control of the Company.
Termination of Employment by the Company without “Cause,” by Executive for Good Reason or Retirement
If the executive’s employment is terminated by the Company without cause, the executive resigns for “good reason,” or the executive retires, unvested equity grants under our 2014 Long-Term Incentive Plan will generally vest as follows:
• awards that vest solely on a time basis will vest pro rata based on the number of months the executive was employed during the applicable vesting period; and
• awards that vest based on the Company’s performance will vest pro rata based on the Company’s performance during the applicable performance period and the number of months the executive was employed during such period.
Death or Disability
If the executive’s employment is terminated due to death or disability, all unvested equity grants under our 2014 Long-Term Incentive Plan will fully vest.
Change of Control
In the event of an anticipated change of control of the Company, the Company’s Compensation Committee has the authority to determine that awards granted under our 2014 Long-Term Incentive Plan:
• will be continued by the Company (if the Company is the surviving entity);
• will be assumed by the surviving entity or its parent or subsidiary; or
• will be substituted for by the surviving entity or its parent or subsidiary with an equivalent award for the outstanding award.
If an award is continued, assumed or substituted upon a change of control, such award will generally provide similar terms and conditions and preserve the same benefits as the outstanding award that is being continued or replaced, and, in the event executive’s employment is terminated without cause or the executive terminates his employment for good reason within two years following the change of control, the unvested outstanding award (or assumed or substituted award) will fully vest. Awards that are not continued, assumed or substituted upon a change of control will fully vest, subject to the Compensation Committee's discretion.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL TABLE
The table below summarizes the compensation payable to each NEO in the event of termination of employment. The amount of compensation payable to each NEO in each situation is listed, assuming termination had occurred on the last day of our most recent fiscal year, September 30, 2022. All equity awards have been valued as of September 30, 2022, the last trading day in the fiscal year.
| | | | | | | | | | | | | | |
| | TYPE OF TERMINATION |
NAME | PAYMENT OR BENEFIT TYPE | TERMINATION FOLLOWING CHANGE OF CONTROL WITHOUT CAUSE ($) | DEATH OR DISABILITY ($) | WITHOUT CAUSE OR FOR GOOD REASON ($) |
Allan P. Merrill | Severance | 9,000,000 | — | 9,665,000 |
| Vesting of Unvested Long-Term Awards | 5,579,902 | 5,580,152 | 3,395,455 |
| Benefits Continuation | 15,994 | — | 15,994 |
| Total | 14,595,896 | 5,580,152 | 13,076,449 |
David I. Goldberg | Severance | 2,250,000 | — | 2,563,750 |
| Vesting of Unvested Long-Term Awards | 1,160,200 | 1,160,200 | 590,054 |
| Benefits Continuation | — | — | — |
| Total | 3,410,200 | 1,160,200 | 3,153,804 |
Keith L. Belknap | Severance | 2,587,500 | — | 2,948,313 |
| Vesting of Unvested Long-Term Awards | 1,827,184 | 1,827,184 | 1,100,006 |
| Benefits Continuation | 17,662 | — | 17,662 |
| Total | 4,432,346 | 1,827,184 | 4,065,981 |
The following is a reasonable estimate, prepared under applicable SEC rules, of the ratio of the annual total compensation of our Chief Executive Officer to the annual total compensation of our median employee.
We identified the median employee using the employee population on September 30, 2022 that received taxable compensation (other than our Chief Executive Officer) for the fiscal year 2022, which included our reviewing gross compensation, excluding equity, within the fiscal year 2022. Compensation was annualized for employees who joined the Company during the fiscal year. The annual total compensation of our median employee (other than the Chief Executive Officer) for the fiscal year 2022 was $110,862. As disclosed in the Summary Compensation Table above, our Chief Executive Officer’s annual total compensation for fiscal 2022 was $7,038,727. For purposes of determining the ratio, the annual total compensation of the CEO and the median employee includes the dollar value of non-discriminatory health and welfare benefit contributions made by the Company, which are not required to be reported as compensation in the Summary Compensation Table. Based on the foregoing, our estimate of the ratio of the annual total compensation of our CEO to the annual total compensation of our median employee was 64:1.
This information is being provided for compliance purposes. Because SEC rules permit significant flexibility in terms of approaches used to calculate compensation and identify the median employee, comparisons of pay ratios among companies may not be very meaningful, even for companies within the same industry. Neither the Compensation Committee nor the executives of our Company used the pay ratio measure in making compensation decisions.
SECURITY
OWNERSHIP
GREATER THAN 5% BENEFICIAL OWNERS
The following table sets forth, to the best of our knowledge and belief, certain information regarding the beneficial ownership of our common stock by each person known to the Company to be the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) of more than 5% of our outstanding common stock, based on the number of shares of our common stock outstanding as of December 15, 2022. | | | | | | | | |
NAME AND ADDRESS OF BENEFICIAL OWNER | NUMBER OF COMMON SHARES BENEFICIALLY OWNED | PERCENT OF OUTSTANDING (1) |
| | |
BlackRock, Inc. (2) 55 East 52nd Street New York, NY 10022 | 2,776,160 | 8.86% |
| | |
The Vanguard Group(3) 100 Vanguard Blvd Malvem, PA 19355 | 1,651,463 | 5.27% |
| | |
Towle & Co. (4) 50 S. Steele Street, Suite 1000 Denver, CO 80209 | 1,536,581 | 4.90% |
| | |
| | | | | |
| Based upon 31,347,439 shares of common stock outstanding as of December 15, 2022. Beneficial ownership is determined in accordance with the rules of the SEC under which shares are beneficially owned by the person or entity that holds investment and/or voting power. |
| Based upon information set forth in a Schedule 13G/A filed by BlackRock, Inc. on February 7, 2022, BlackRock, Inc. reported beneficial ownership and sole voting power of 2,581,797 shares and beneficial ownership and sole dispositive power of 2,776,160 shares. |
| Based upon information set forth in a Schedule 13G filed by The Vanguard Group on February 9, 2022, The Vanguard Group reported beneficial ownership and sole voting power of 0 shares, beneficial ownership and shared voting power of 41,752 shares, beneficial ownership and sole dispositive power of 1,610,397 shares, and beneficial ownership and shared dispositive power of 41,066 shares. |
| Based upon information set forth in a Schedule 13G/A filed by Towle & Co. on February 15, 2022, Towle & Co. reported beneficial ownership and sole voting power of 1,536,581 shares and beneficial ownership and sole dispositive power of 1,536,581 shares. |
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information, as of December 15, 2022, with respect to the beneficial ownership of our common stock by each director, each of our NEOs, and all directors and executive officers as a group. Except as otherwise indicated, each beneficial owner possesses sole voting and investment power with respect to all shares. | | | | | | | | |
NAME OF BENEFICIAL OWNER | NUMBER OF COMMON SHARES BENEFICIALLY OWNED (1) (2) (3) (4) | PERCENT OF OUTSTANDING (5) |
Elizabeth S. Acton | 88,534 | * |
| | |
Keith L. Belknap | 247,349 | * |
David I. Goldberg | 158,958 | * |
Lloyd E. Johnson | 23,555 | * |
Allan P. Merrill | 1,335,872 | 4.26% |
Peter M. Orser | 70,569 | * |
Norma A. Provencio | 92,714 | * |
| | |
Danny R. Shepherd | 76,719 | * |
David J. Spitz | 40,323 | * |
C. Christian Winkle | 57,399 | * |
Directors and Executive Officers as a Group (10 persons) | 2,191,992 | 6.99% |
*Less than 1%
Beneficial ownership includes shares of unvested, time-based restricted stock: Ms. Acton - 14,181, Mr. Belknap - 46,958, Mr Goldberg -43,326, Mr Johnson - 14,181,Mr. Merrill - 140,710, Mr. Orser -14,181, Ms. Provencio - 14,181, Mr. Shepherd - 14,181, Mr.Spitz - 14,181 and Mr. Winkle 14,181.
Beneficial ownership for Messrs. Merrill, Goldberg and Belknap includes unvested performance shares granted in November 2020, November 2021 and November 2022: Mr. Merrill - 179,915, Mr. Goldberg - 51,708 and Mr. Belknap - 59,653.
Beneficial ownership includes shares underlying vested stock options: Mr. Merrill - 5,000.
All of the vested shares beneficially owned by Ms. Acton are held indirectly through the Robert and Elizabeth Acton Living Trust dated as of December 17, 2010 as amended. All of the vested shares beneficially owned by C. Christian Winkle are held indirectly through the Charles C. Winkle Revocable Trust UA 9/29/18. 1,185 of the vested shares beneficially owned by David I. Goldberg are held indirectly through the David I. Goldberg & Susan S. Goldberg JT Ten WROS account. 5,600 of the vested shares beneficially owned by Norma A. Provencio are held indirectly through an IRA account.
Based upon 31,347,439 shares of outstanding common stock as of December 15, 2022 and shares deemed outstanding with respect to each person pursuant to Exchange Act Rule 13d-3(d)(1). Adjusted as necessary to reflect the shares issuable to such person upon the vesting or exercise of his stock options listed in footnote 3 above (and assuming no other stock options are exercised). Shares of common stock subject to stock options that are currently exercisable or vested, or will become exercisable or vested within 60 days of December 15, 2022, are deemed outstanding for computing the percentage ownership of the person holding such stock options, but are not deemed outstanding for computing the percentage ownership of any other persons.
EXECUTIVE OFFICERS
Biographical information, as of September 30, 2022, for the executive officers of the Company is set forth below. Biographical information for Allan P. Merrill is set forth above under “Proposal 1 — Election of Directors — Nominees.”
KEITH L. BELKNAP. Mr. Belknap, 64, joined the Company as Executive Vice President, General Counsel and Corporate Secretary in January 2018. Mr. Belknap was previously EVP, Business Development, General Counsel and Chief Compliance Officer of Mueller Water Products, Inc. Previously, he served as SVP and General Counsel of PRIMEDIA, Inc., a digital media and real estate advertising company. In addition, Mr. Belknap held senior legal positions with PPG Industries and Georgia-Pacific Corporation. He began his legal career at Skadden, Arps, Slate, Meagher & Flom LLP. Mr. Belknap received a Bachelor of Arts degree from the University of Tulsa and a Juris Doctor from Harvard Law School.
DAVID I. GOLDBERG. Mr. Goldberg, 45, was appointed Senior Vice President and Chief Financial Officer and became an executive officer of the Company on November 20, 2020. Mr. Goldberg joined the Company in March 2015, serving as the Company’s Vice President, Treasurer and Head of Investor Relations prior to his appointment as Senior Vice President and Chief Financial Officer. Previously, Mr. Goldberg served as the lead Equity Research analyst for the US housing sector at UBS Investment Bank in New York, where he was widely recognized for his broader industry insights and stock specific research. Mr. Goldberg received a Bachelor of Arts from American University and a MBA from Columbia University.
TRANSACTIONS WITH
RELATED PERSONS
REVIEW, APPROVAL OR RATIFICATION OF
TRANSACTIONS WITH RELATED PERSONS The Audit Committee of our Board of Directors, in accordance with its charter and our Related Party Transactions Policy, is responsible for the review and prior approval of all proposed related party transactions to identify potential conflict of interest situations. Any identified related party transactions are then presented to our Board of Directors for approval and implementation of appropriate action to protect us from potential conflicts of interest. We have also adopted a Code of Ethics pursuant to which all directors and employees must disclose any potential conflicts of interest or related party transactions prior to entering into any such transactions.
There were no reportable transactions with related persons during fiscal 2022.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION The members of our Compensation Committee during fiscal 2022 were Messrs. Johnson, Orser and Spitz and Ms. Provencio. None of the members of our Compensation Committee has ever been an officer or employee of the Company or any of our subsidiaries. None of the members of our Compensation Committee had any relationship requiring disclosure under “Transactions with Related Persons.” During fiscal 2022, none of our executive officers served as a director or member of the compensation committee (or other committee of the board of directors performing equivalent functions) of another entity that had an executive officer serving on our Board of Directors.
PROPOSALS FOR THE
NEXT ANNUAL MEETING