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(1) | The address for our directors and executive officers is c/o Meritage Homes Corporation, 8800 East Raintree Drive, Suite 300, Scottsdale, Arizona 85260. |
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(2) | The amounts shown include the shares of common stock actually owned as of March 21, 2018, and the shares that the person or group had the right to acquire within 60 days of that date. The number of shares includes shares of common stock owned by other related individuals and entities over whose shares of common stock such person has custody, voting control or the power of disposition. As of March 21, 2018, there were no outstanding options for any of our NEOs or Board members as we no longer award stock options as part of equity compensation program. |
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(3) | Based on 40,630,066 shares outstanding as of March 21, 2018. |
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(4) | Shares are held by family trusts. As of March 21, 2018, Mr. Hilton had 900,000 shares pledged to a third-party lending institution, 350,000 of which are securing loans. Our pledging policy is discussed on page 28 of this proxy statement. |
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(5) | Shares are held by family trusts (6,000 shares Penny Sarver—wife; 2,000 shares Penny Sarver FBO Max Sarver—minor son; 8,170 shares Robert Sarver—trustee of Eva Lauren Hilton Trust; 8,170 shares Robert Sarver—trustee of Shari Rachel Hilton Trust; 176,319 shares Robert Sarver—trustee of Robert Sarver Trust). Mr. Sarver has expressly disclaimed any beneficial ownership of the shares held by the trusts for the benefit of Mr. Hilton’s children (Eva Lauren Hilton Trust and Shari Rachel Hilton trust). Mr. Sarver had 119,819 shares pledged to a third-party lending institution as of March 21, 2018. None of these shares secured loans in 2017. Our pledging policy is discussed on page 28 of this proxy statement. |
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(6) | Includes 15,000 shares held by charities on which Mr. Haddock serves as a board member and has authority to make investment decisions on behalf of. These holdings are with The Haddock Center (10,000 shares), and the Haddock Foundation (5,000 shares). Mr. Haddock has expressly disclaimed beneficial ownership of these shares. |
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(7) | 15,446 shares are held by a family trust.
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(8) | Includes 4,001 performance-based shares and 7,196 restricted stock units vesting on March 31,2018. |
17 MERITAGE HOMES| 2018 Proxy Statement
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SECURITY OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS |
Certain Other Beneficial Owners. Based on filings made under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 21, 2018, the23, 2023, the only other known beneficial owners of more than 5% of Meritage common stock are shown in the following table:
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| | | | Shares Beneficially Owned |
Name of Other Beneficial Owners | | Address Of Beneficial Owner | | Number | | Percent |
BlackRock, Inc. (1) | | 55 East 52nd Street, New York, NY 10055 | | 6,241,502 | | | 17.0 | % |
The Vanguard Group (2) | | 100 Vanguard Blvd., Malvern, PA 19355 | | 4,246,391 | | | 11.6 | % |
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| | | | Shares Beneficially Owned |
Name of Other Beneficial Owners | | Address Of Beneficial Owner | | Number | | Percent |
BlackRock, Inc. (1) | | 55 East 52nd Street, New York, NY 10055 | | 5,593,226 |
| | 13.9 | % |
FMR, LLC (2) | | 245 Summer Street, Boston, MA 02210 | | 3,663,704 |
| | 9.1 | % |
The Vanguard Group (3) | | 100 Vanguard Boulevard, Malvern, PA 19355 | | 3,426,070 |
| | 8.5 | % |
Dimensional Fund Advisors, LP (4) | | 6300 Bee Cave Road, Austin, TX 78746 | | 3,364,977 |
| | 8.3 | % |
Earnest Partners, LLC (5) | | 1180 Peachtree Street NE, Suite 2300, Atlanta, GA 30309 | | 2,080,250 |
| | 5.2 | % |
(1)Based solely on a Schedule 13G/A filed with the SEC on January 26, 2023, BlackRock, Inc. and certain affiliated entities have sole voting power with respect to 6,170,661 shares and sole dispositive power with respect to 6,241,502 shares. The Schedule 13G/A discloses that the interest of iShares Core S&P Small-Cap ETF holds more than five percent of the outstanding stock of the Company. | |
(1) | Based solely on a Schedule 13G/A filed with the SEC on January 19, 2018, BlackRock, Inc. and certain affiliated entities have sole voting power with respect to 5,503,561 shares and sole dispositive power with respect to 5,593,226 shares |
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(2) | Based solely on a Schedule 13G/A filed with the SEC on January 10, 2018, FMR, LLC has sole dispositive power with respect to 3,663,704 shares. |
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(3) | Based solely on a Schedule 13G/A filed with the SEC on February 9, 2018, The Vanguard Group has sole voting power with respect to 43,682 shares, shared voting power with respect to 4,872 shares, sole dispositive power with respect to 3,380,312 shares and shared dispositive power with respect to 45,758 shares. |
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(4) | Based solely on a Schedule 13G/A filed with the SEC on February 9, 2018, Dimensional Fund Advisors, LP has sole voting power with respect to 3,242,235 shares and sole dispositive power with respect to 3,364,977 shares. |
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(5) | Based solely on a Schedule 13G/A filed with the SEC on February 14, 2018, Earnest Partners, LLC has sole voting power with respect to 515,766, shared voting power with respect to 137,223 shares and sole dispositive power with respect to 2,080,250 shares. |
(2)Based solely on a Schedule 13G/A filed with the SEC on February 09, 2023, The Vanguard Group has shared voting power with respect to 30,500 shares, sole dispositive power with respect to 4,179,282 shares, and shared dispositive power with respect to 67,109 shares.
For each of the reporting owners set forth above, the beneficially owned shares are held in various individual funds owned or managed by the reporting owners, but none of the individual funds managed by the reporting owners above hold more than 5% of the Company stock.owners.
There are no stockholders with preferential voting or non-voting shares.
MERITAGE HOMES | 20182023 Proxy Statement 1817
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
Corporate Governance and Board Matters
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Role of the Board of Directors |
The Board of Directors (“the Board”) is elected by the stockholders to oversee the stockholders’ interests in the operation and overall success of our business. The Board serves as our ultimate decision-making body, except for those matters that require a vote of our stockholders. The Board selects and oversees the members of seniorexecutive management who are charged by the Board with conducting our business. We have established, and operate in accordance with, a comprehensive plan of corporate governance that defines and sets ethical standards for the conduct of our directors, officers and employees. This plan provides an important framework within which the Board can pursue our strategic objectives and ensure long-term stockholder value.
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Corporate Governance Principles and Practices |
We have adopted Corporate Governance Principles and Practices that define the key elements of our corporate governance framework and philosophy, including:
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•director qualifications, | •director access to officers and employees, |
•independence criteria, | •our philosophy with respect to director compensation, |
•director responsibilities, | •Board evaluation process, |
•committee responsibilities and structure, | •confidentiality requirements, |
•officer and director stock ownership requirements, | •director orientation and continuing education, and |
•director resignation policy, | •our plans with respect to management succession. |
independence criteria,
director responsibilities,
committee responsibilities and structure,
officer and director stock ownership requirements,
director resignation policy,
director access to officers and employees,
our philosophy with respect to director compensation,
Board evaluation process,
confidentiality requirements,
director orientation and continuing education, and
our plans with respect to management succession.
Our Corporate Governance Principles and Practices are available on our website at investors.meritagehomes.com and we will provide a printed copy to any stockholder upon request.. These principles are reviewed regularly by the Nominating/Governance Committee and changes are made as the Committee deems appropriate.
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Director Qualifications and Diversity |
Our Board of Directors is comprised of a group of individuals whose previous experience, financial and business acumen, personal ethics and dedication and commitment to our Company allow the Board to complete its key task as the over-seeroverseer and governing body of Meritage Homes Corporation.the Company. The specific experience and qualifications of each of our Board members are set forth below. The Board is committed to a policy of inclusiveness and diversity. The Board believes members should be comprised of persons with diverse backgrounds, skills, expertise, backgrounds and experiences, including without limitation, the following areas:following:
•management or board experience in a wide variety of enterprises and organizations,
•banking, capital markets and finance,
•accounting,
•legal and regulatory,
•real estate, including homebuilding, commercial and land development,
•technology and cyber security,
•sales, and marketing and branding,
•environmental, social and governance ("ESG") and human capital, and
•operations.
18 MERITAGE HOMES| 2023 Proxy Statement
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
The below matrix illustrates the key skills, expertise, and experience of each director:
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Capabilities | Steven J. Hilton | Phillippe Lord | Peter L. Ax | Raymond Oppel | Gerald Haddock | Dana C. Bradford | Michael R. Odell | Deborah Ann Henretta | Joseph Keough | P. Kelly Mooney | Louis E. Caldera |
Current Executive Management | X | X | X | | X | X | X | | X | X | |
Cyber/IT/Technology | | | X | | | | | X | | | |
ESG | | | | | | | | X | | | X |
Financial | X | | X | | X | X | X | X | X | | X |
Home Building/Real Estate | X | X | | X | | | | | X | | |
Human Capital | | | | | | | | | | X | X |
Legal, Regulatory & Compliance | | | X | | X | | | | | | X |
Manufacturing or Operations | X | X | | X | X | X | X | X | | | |
Marketing & Sales | X | | X | X | | X | X | X | | X | |
Private Board | X | | X | X | X | X | X | X | X | X | X |
Public Board | X | | X | X | X | X | X | X | X | X | X |
Our bylaws require a customary majority voting standard for the election of directors. In addition, our Corporate Governance Principles and Practices require that any nominee for director who is an incumbent director but who is not elected by the vote required in the bylaws, and with respect to whom no successor has been elected, promptly tender his or her offer to
19 MERITAGE HOMES| 2018 Proxy Statement
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
resign to the Board of Directors for its consideration. The Nominating/Governance Committee of the Board of Directors will recommend to the Board of Directors whether to accept or reject the resignation offer, or whether other action should be taken. In determining whether to recommend that the Board of Directors accept any resignation offer, the Nominating/Governance Committee will be entitled to consider all factors believed relevant by the Nominating/Governance Committee’s members. The Board of Directors will act on the Nominating/Governance Committee’s recommendation within 90 days following certification of the election results and will announce its determination and rationale in a Form 8-K. In deciding whether to accept the resignation offer, the Board of Directors will consider the factors considered by the Nominating/Governance Committee and any additional information and factors that the Board of Directors believes to be relevant. If the Board of Directors accepts a director’s resignation offer pursuant to its process, the Nominating/Governance Committee will recommend to the Board of Directors and the Board of Directors will thereafter determine what action, if any, will be taken with respect to any vacancy created by a resignation. Any director who tenders his or her resignation pursuant to this policy will not participate in the proceedings of either the Nominating/Governance Committee or the Board of Directors with respect to his or her own resignation.
In case of a Board vacancy or if the Board elects to increase its size, determinations regarding the eligibility of director candidates are made by the Nominating/Governance Committee, which considers the candidate’s qualifications as to skills and experience in the context of the needs of the Board of Directors and our stockholders. When seeking new Board candidates, the Nominating/Governance Committee is committed to a policy of inclusiveness and will take reasonable steps to ensure that women and minority candidatespeople of color are considered for the pool of candidates from which the Board nominees are chosen, and will endeavor to include candidates from non-traditional venues. Currently, the Board has retained a search firm with a search underway to replace potential director retirements in the near term.
The following charts and biographies provide summary information about the tenure, demographics and experience of our directors as of March 23, 2023:
(a) Includes two females and one person of color.
MERITAGE HOMES | 20182023 Proxy Statement 2019
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
Our Board is comprised of the following members:
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Steven J. Hilton, 5661 | | Mr. Hilton is the Executive Chairman of Meritage Homes and has been the Company’s chairmana director since 1996. Mr. Hilton led Meritage Homes for 35 years as Chairman and Chief Executive Officer since May 2006. Mr. Hilton was the co-chairman and co-Chief Executive Officer of Meritage Homes Corporation from 1996 to May 2006.until his retirement as CEO effective January 1, 2021. In 1985, Mr. Hilton co-foundedcofounded Arizona-based Monterey Homes, the predecessor company to Meritage Homes Corporation.Homes. Under Mr. Hilton’s leadership, Monterey became publicly traded in 1996. 1997. Mr. Hilton received his Bachelor of Sciencea Bachelor’s degree in accountingAccounting from the University of ArizonaArizona. He serves as Chairman of the Board for Banner Health Foundation as well as a board member for Translational Genomics Research Institute (TGEN) Foundation and isthe Boys & Girls Clubs of Greater Scottsdale Foundation. He also previously served as a director ofboard member for Western Alliance Bancorporation, (a NYSE listed company), a leading bank holding company based in Phoenix, Arizona.
(NYSE: WAL) until June 2022. Mr. Hilton has almost 32brings extensive and intimate knowledge of the Company to the Board as its co-founder and through over 35 years of real estate experience and is considered an expert and innovator in leading the homebuilding industry. He is a frequent participant in panels and interviews regarding the industry.Company. |
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Raymond Oppel, 6166 | | Mr. Oppel has been a director since December 1997. Mr. Oppel is a licensed real estate broker and currently is active as a private investor in real estate development. He was the co-founder, chairmanChairman and Chief Executive Officer of The Oppel Jenkins Group, a regional homebuilder in Texas and New Mexico, which was purchased in 1995 by public homebuilder KB Home.
Mr. Oppel has almostover 30 years of experience in the homebuilding business. Mr. Oppel possesses extensive knowledge about the real estate industry in general and the homebuilding industry in particular. |
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Richard T. Burke, Sr., 75 | | Mr. Burke has been a director since September 2004. Mr. Burke is currently the Chairman of the Board of Directors of UnitedHealth Group, which he founded, took public in 1984 and served as Chief Executive Officer as well. From 1995 until 2001, Mr. Burke was the owner and Chief Executive Officer of the Phoenix Coyotes, a National Hockey League team and has served as a director for a number of other companies, both public and private.
Mr. Burke is a business and civic leader in Phoenix, Arizona, and his experience as the chairman and CEO of a multi-billion dollar public company provides the Board with outstanding corporate governance and financial insight. |
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Dana C. Bradford, 5358 | | Mr. Bradford has been a director since August 2009. In 2012, Mr. Bradford iscofounded and was appointed and currently serves as Chairman and Chief Executive Officer of WaittC3 Brands, the parent company to a diversifiednumber of consumer brands company.brands. From 2005 to 2012, Mr. Bradford was the presidentPresident and managing partnerManaging Partner of McCarthy Capital Corporation, a private equity firm. He also serves as a director on the boards of Southwest Value Partners, a San Diego-based real estate company and Customer Service Profiles, an Omaha-based provider of customer satisfaction data and analytics. Mr. Bradford formerly served as chairmanChairman of the boardBoard of SAFE Boats International, a Seattle-based manufacturer of defense and emergency response boats and Vornado Air, a Wichita-based consumer brands company and formerly served as a director on the boards of McCarthy Groups, Ballantyne, NRG Media, Guild Mortgage and Gold Circle Films.
Mr. Bradford earned a bachelor’sBachelor's degree in business administrationBusiness Administration from the University of Arizona and an MBA from Creighton University. Mr. Bradford brings additional perspective to the Board relating to real estate and corporate finance matters. |
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DebDeborah Ann Henretta, 5661 | | Ms. Henretta has been a director since March 2016. Ms. Henretta retired from the ProctorProcter & Gamble, Co. ("P&G") in 2015. Throughout her 30 years at P&G, she held various senior positions throughout several sectors, serving as Group President of Global e-Commerce, which includede-Business while concurrently serving as HeadPresident/Senior Executive Officer of Global Beauty Care; DivisionBeauty; President of Global Baby/Toddler & AdultBaby Care; and Division Vice President of Fabric Conditioners and Bleach. She has been a director at Corning, Inc. since 2013, at Nisource Inc. since 2015, and at Staples, Inc. from 2016 to September 2017 when Staples was acquired by Sycamore Partners, a private equity investor. In addition, effective January 1, 2018, Ms. Henretta was appointed a director of Iron Horse Special Purpose Acquisition Company, the successor to Staples, Inc. and an affiliated entity of Sycamore Partners.
American Eagle Outfitters (NYSE:AEO) since 2019. Ms. Henretta is a Partner at Council Advisors (formerly G100 CompaniesCompanies) where she assisted in establishing a New Director Board Excellence Program that includes director education on board oversight and governance, including digital transformation and cyber security.
Ms. Henretta graduated summa cum laude from St. Bonaventure University with a BABachelor of Arts in communications in 1983.Communication. She earned her MAMaster of Arts in advertising research and teaching assistantshipAdvertising from Syracuse University Newhouse School of Public Communications in 1985. and holds an honorary Doctorate of Humane Letters from St. Bonaventure University. Ms. Henretta brings additional perspective to the Board relating to technology, cyber security and diversity and inclusion. |
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P. Kelly Mooney, 59 | | Ms. Mooney has been a director since March 2020. Ms. Mooney is the Founder and CEO of Equipt Women, a public benefit corporation dedicated to connecting, empowering and upskilling young professional women. She was previously a co-owner of Resource/Ammirati, a digital marketing and customer experience innovation firm, and held various positions of leadership including Chief Executive Officer from January 2011 to September 2017; President from June 2001 to January 2011; and Chief Experience Officer and Director of Intelligence from March 1995 to May 2001. During that tenure, she advised dozens of Fortune 500 executives on customer growth strategy and digital transformation to increase shareholder value. In 2016, Resource/Ammirati was sold to IBM to become part of IBM iX, one of the world’s largest digital consultancies. Ms. Mooney joined IBM iX in September 2017 and served as Chief Experience Officer until June 2018. She advises consumer and technology-focused entrepreneurs on leadership, strategy and innovation.
Ms. Mooney has also served as a board member of Sally Beauty Supply Holdings, Inc. (NYSE:SBH), an international specialty retailer and distributor of professional beauty supplies and J. Jill Inc. (NYSE: JILL), an omnichannel women's apparel brand. She graduated with honors with a Bachelor of Science in Industrial Design from The Ohio State University. Ms. Mooney brings additional perspective on innovation, sustainability, diversity and inclusion. |
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21 20 MERITAGE HOMES| 20182023 Proxy Statement
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
Class III Directors
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Louis E. Caldera, 67 | | Mr. Caldera has been a director since December 2021. Mr. Caldera is a private investor and corporate director. He has been serving as a director of DallasNews Corp (formerly Belo Corp) since 2001, where he also chairs the compensation and management development committee, and has been serving as a director of Granite Construction Inc since 2021. Mr. Caldera is also currently serving as a senior advisor to Belay Associates, LLC, a private equity firm, and its affiliate Everest Consolidator Acquisition Corporation (NYSE: MTNT.U). Mr. Caldera has held several leadership positions in education, including Distinguished Adjunct Professor of Law at American University Washington College of Law from September 2018 to June 2021, and Professor of Leadership and a Senior Fellow of the George Washington University Cisneros Hispanic Leadership Institute from 2016 to 2018. He has also served in government as Secretary of the Army in the Clinton Administration and as an Assistant to the President and Director of the White House Military Office in the Obama Administration. Mr. Caldera began his career as an army officer, corporate lawyer, and California state legislator.He is the co-founder and co-chair of the Presidents’ Alliance on Higher Education and Immigration, a nonprofit organization, and serves on the board of the Latino Corporate Directors Association.
Mr. Caldera holds an MBA from Harvard Business School, a Juris Doctor from Harvard Law School and a Bachelor of Science from the United States Military Academy. He has significant knowledge and experience in the leadership of large organizations, corporate governance including environmental, social and sustainability governance, and in legal, regulatory and policy matters. |
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MERITAGE HOMES | 2023 Proxy Statement 21
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
Class II Directors | | | | | | | | |
Peter L. Ax, 5863 | | Mr. Ax has been a director since September 2000 and is the Company's lead independent director. He isIn 2001 he joined UpscriptHealth, a telemedicine-based software platform which facilitates pharmaceutical manufacturers selling medications direct-to-consumers, where he currently serves as the Chief Executive Officer of UpscriptHealth, a telemedicine based software platform which allows pharmaceutical manufacturers to sell medications direct-to-consumer.Officer. He is also remains the managing partnerManaging Partner of Phoenix Capital Management, an operationally focused venture capital firm. Mr. Ax iswas the former chairmanChairman and Chief Executive Officer of SpinCycle, Inc., a public reporting consolidator and developer of coin-operated laundromats. Previously, Mr. Ax served as head of the Private Equity Placement Division and senior vice presidentSenior Vice President of Lehman Brothers in New York and has served in various operating roles for enterprises operated by Phoenix Capital Management. Mr. Ax is also served on the board of directors of iGo, Inc. (formerly, NASDAQ: IGOI) and serves on the Advisory Board of Directors of Cascadia Capital, a Seattle-based investment banking and merchant banking firm.
from 2007 to January 2022.
Mr. Ax holds an MBA from the Wharton School at the University of Pennsylvania, a J.D.Juris Doctorate from the University of Arizona, and a B.S.B.A.Bachelor of Science in Business Administration from the University of Arizona, and has been a certified public accountant.Certified Public Accountant. Mr. Ax possesses extensive skills and experience relating to, among other things, capital markets and corporate finance. |
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Robert G. Sarver, 56 | | Mr. Sarver has been a director since December 1996. Effective April 1, 2018, Mr. Sarver will become the executive chairman of Western Alliance Bancorporation, transitioning from his previous position as chairman and Chief Executive Officer. Mr. Sarver is also the managing partner of the Phoenix Suns NBA basketball team. From 1995 to 1998, he served as chairman of Grossmont Bank. He was the chairman and Chief Executive Officer of California Bank & Trust from 1998 to 2001. Mr. Sarver earned a bachelor’s degree in business administration from the University of Arizona and has been a certified public accountant.
Mr. Sarver has been active in the real estate industry for more than 30 years and is known nationwide as a leader and expert in banking. He has extensive experience in a wide spectrum of successful real-estate activities, including commercial, residential and development projects.
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Gerald Haddock, 7075 | | Mr. Haddock has been a director since January 2005. Mr. Haddock is the founder of Haddock Enterprises, LLC and formerly served as presidentPresident and Chief Executive OfficerCEO of Crescent Real Estate Equities, a diversified real estate investment trust. He is currentlyMr. Haddock previously served for over 30 years as a director of Valaris plc (formerly ENSCO International, Plc.), a leading global offshore oil and gas drilling service company. As a director for ENSCO,Valaris, he has served as its co-lead director and Chairperson of the Audit Committee and iswas also a member of the Nominating & Governance Committee. From December 2004 to October 2008, Mr. Haddock is also a director of Union Acquisition Corp II, a special purpose acquisition corporation, and has served in this capacity since December 2018. Further, Mr. Haddock serves as a Board MemberDirector of Cano Petroleum, Inc.Hartman Income REIT, a non-traded SEC reporting real estate investment trust, and has served in this capacity since mid-2020. As a director for Hartman, Mr. Haddock serves as the Chairman of the Nominating & Governance Committee and as a member of the Audit Committee. He also serves on the board of trustees and is a memberthe CEELI Institute. Mr. Haddock has previously served on the Board of various committees for theTrustees of Baylor College of Medicine, (2011 to 2015),as a member of the Executive Investment Committee at Baylor University, and on the M.D. Anderson Proton Therapy Education and Research Foundation, the CEELI Institute, and the Johnny Unitas Golden Arm Educational Foundation.
Mr. Haddock received his Bachelor of business administrationBusiness Administration and Juris Doctorate degrees from Baylor University. He also received a Masters of Law in Taxation degree from New York University and an MBA degree from Dallas Baptist University. Mr. Haddock has extensive experience in real estate, legal and regulatory compliance. |
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Michael R. Odell, 5459 | | Mr. Odell has been a director since December 2011. He is presidentSince 2017, he has been Board Member, President and Chief Executive OfficerCEO of Marubeni Automotive Aftermarket Holdings LLC,("Marubeni"), a holding company for investments in the automotive aftermarket andaftermarket. He also presidentcurrently serves as Board Member, President and Chief Executive Officer of Marubeni subsidiaries XL Parts, LLC, anand The Parts House, both automotive parts distributor. Indistributors. From 2015 andthrough 2016, he served as presidentPresident of Eastern Auto Parts Warehouse, an automotive parts distributor. From 2008 through 2014, he served as president, Chief Executive OfficerPresident, CEO and board member of The Pep Boys - Manny, Moe & Jack, a NYSE-listed Fortune 1000 company and the nation’s leading automotive aftermarket service and retail chain.company. Mr. Odell joined Pep Boys in 2007 as Chief Operating Officer. Previously, he served as executive vice presidentExecutive Vice President and general managerGeneral Manager of Sears Retail & Specialty Stores, a $26 billion division of Sears Holdings Corporation.
Mr. Odell started his career as a CPA with Deloitte & Touche LLP. Mr. Odell holds an M.B.A.MBA from Northwestern University's Kellogg School of Management, and a B.S.Bachelor of Science in Accounting from the University of Denver's Daniels College of Business. Mr. Odell has deep service, retail and distribution experience, with a broad background in strategic planning, leadership, sales, operations and finance.
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Joseph Keough, 53 | | Mr. Keough has been a director since June 2019. He currently serves as Chairman and CEO of Wood Partners, one of the nation's largest multifamily real estate companies. Before joining Wood Partners, Mr. Keough was Chief Operating Officer of Fuqua Capital, the office for the Atlanta-based Fuqua family. Mr. Keough had also been a Senior Vice President in the office and multifamily division of Cousins Properties, a publicly traded REIT, as well as a Principal at The Boston Consulting Group. Mr. Keough is also on the board of directors of Interface, Inc. (NASDAQ: IFSIA).
Mr. Keough earned his MBA from Harvard Business School and received his Bachelor degree in Finance and Economics from Babson College. Mr. Keough brings a 23-year track record of strong business leadership, deep understanding of real estate and first-hand experience driving organizational transformation.
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Phillippe Lord, 49 | | Mr. Lord became the CEO of Meritage Homes on January 1, 2021. He previously served as Chief Operating Officer of Meritage Homes from 2015 to 2020. From 2012 to 2015, Mr. Lord was President of the West Region at Meritage Homes. Mr. Lord began his Meritage Homes career in 2008 by creating the Company’s strategic operations and market research department, which analyzes land acquisitions, product and pricing.
Prior to joining Meritage Homes, Mr. Lord held leadership positions with Acacia Capital, Centex Homes and Pinnacle West Capital. Mr. Lord received a Bachelor's degree in Economics and Business from Colorado State University and completed his master's coursework in Economics at the University of Arizona. As CEO of the Company, Mr. Lord is uniquely qualified to serve as a member on our Board. |
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22 MERITAGE HOMES| 20182023 Proxy Statement 22
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
The Nominating/Governance Committee evaluates and reports to the Board of Directors regarding the independence of each Board candidate. Consistent with the rules and regulations of the NYSE, at least a majority of the Board of Directors must be independent. No director will be deemed to be independent unless the Board affirmatively determines that the director has no material relationship with the Company, either directly or as an officer, shareowner,stockholder, member, partner or trustee of an organization that has a relationship with the Company. The Board observes all criteria established by the NYSE and other governing laws and regulations. In its review of director independence, the Board considers all commercial, banking, consulting, legal, accounting, charitable and other business relationships the director may have with the Company.
As a result of its review, the Board of Directors has determined that a majorityall of Meritage’sour current Board members are independent. Our independent directors, with the exception of Messrs. Hilton and Lord. Messrs. Hilton and Lord are Peter L. Ax, Raymond Oppel, Richard T. Burke, Sr., Gerald Haddock, Dana C. Bradford, Michael R. Odell and Deb Henretta.
not considered independent because they are executive officers of the Company. In making this determination, the Board of Directors evaluated whether any relationships exist between these individuals and Meritage and determined that no relationship exists between Meritage and any independent director.
Steven J. Hilton is not considered independent because he is employed by the Company.
Prior to 2004, Robert G. Sarver was deemed an independent director. The Nominating/Governance Committee has continually monitored certainThere are no familial relationships between Mr. Sarver and Meritage along with relationships between Mr. Sarver and Mr. Hilton. Mr. Sarver and Mr. Hilton have certain business relationships unrelated to Meritage, including Mr. Sarver serving as trustee of certain of Mr. Hilton’s family trusts. The Nominating/Governance Committee evaluated these relationships and determined that they did not impair Mr. Sarver’s independence because they do not involve Meritage and are insignificant in relation to Mr. Sarver’s net worth. During 2004, Mr. Sarver became the controlling ownermembers of the Phoenix Suns basketball team, in which Mr. Hilton purchased a minority ownership interest. This relationship was closely evaluated by the Nominating/Governance Committee because of its significance to Messrs. Sarver and Hilton. The Nominating/Governance Committee and the Board of Directors believe Mr. Sarver is a valuable member of the Board and that the Company benefits from his extensive business experience. Although Mr. Sarver does not have any material relationship with the Company which under the applicable rules and regulations would deem him not independent, the Nominating/Governance Committee has nevertheless concluded it is at this time in the best interest of Meritage’s stockholders that Mr. Sarver not be deemed an independent director.Board.
The Board has also determined that all committees of the Board with the exception of Land Committee, should be comprised entirely of independent directors and therefore neither Mr.Messrs. Hilton nor Mr. Sarverand Lord do not serve on any Board committees. The Board limits its independent members from serving on more than three other public company boards, limits the Executive Chairman to serving on two additional public company boards, and limits the CEO to serving on one additional public company board.
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Board Leadership Structure |
Steven J. Hilton, ourthe Company's co-founder, and CEO, also serves as a director and the Executive Chairman of the Board. We believe Mr. Hilton’s unique industry experience and continuing involvement in the day-to-daystrategic operations of the Company make him highly qualified to serve as our Board’sExecutive Chairman. Mr. Hilton co-founded Meritage Homes and is thus intimately familiar with its history, culture and operations. Mr. Hilton possesses in-depth knowledge and expertise in the homebuilding industry as a whole and Meritage Homes in particular and is the Company’s largest non-institutional stockholder. The Board of Directors has concluded that this puts Mr. Hilton in a unique position and makes it compelling for him to serve both as Executive Chairman of the Board and CEO to effectively represent the stockholders’ interest.
Mr. Ax, our Audit Committee Chair, serves as the Board’s lead independent director. Mr. Ax has extensive knowledge of capital markets and corporate finance and has previously served as CEO of a publicly traded corporation. We believe that Mr. Ax’s role as our lead independent director serves as a counterbalance to and complements Mr. Hilton’s position as BoardExecutive Chairman and provides the appropriate level of independent director oversight. Additionally, our lead independent director collaborates with Mr. Hilton in establishing agendas for Board meetings, presides over all independent director meetings and can call special meetings of the independent directors as he deems necessary to address any matters the lead independent director feels should be addressed by the majority of our directors at any time. To more formalize the role, duties and qualifications of the lead independent director, the Board has adopted a Lead Director Charter. This Charter is available on our website at investors.meritagehomes.com.
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CEO and Management SuccessionSuccession; Board Composition and Refreshment |
Under the charter of the Nominating/Governance Committee, it is the role of the Nominating/Governance Committee to review and recommend to the Board of Directors changes as needed to the Company’s Corporate Governance Principles and Practices, including items such as management succession, policies and principles for CEO selection and performance review, and policies regarding succession in the event of an emergency or departure of the CEO.CEO, and Board diversity, tenure and refreshment. Our Corporate Governance Principles and Practices provide, among other things, that our Executive Compensation Committee is to conduct an annual review of the performance of the CEO.
The Board is committed to good corporate governance and regularly solicits and receives feedback from investors, potential investors, and other participants in the investing community. As indicated above, the Board seeks to achieve a balance of Board director tenures in order to benefit from long-tenured directors’ institutional knowledge and newly elected directors’ fresh perspective and, towards this goal, has added three new independent directors over the past five years. The Board believes an effective refreshment program must be continuous and ongoing. Currently, the Board has retained a search firm with a search underway to replace potential director retirements in the near term.
Classified Board Structure
The Board will sunset the classified board structure within five years from 2023.
23 MERITAGE HOMES| 20182023 Proxy Statement23
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The Board of Directors considers management evaluation and CEO succession planning an important responsibility of the Board. Under our Corporate Governance Principles and Practices, the Board of Directors is responsible for approving a succession plan for our CEO and other senior officers. Issues relating to CEO succession planning are addressed regularly (at least annually) by the Board.
Our Board of Directors has overall responsibility for the oversight of risk management. As part of this oversight, on a regular basis, our Board of Directors receives reports from various members of management and is actively involved in monitoring and approving key decisions relating to our operations and strategy. Additionally, the management teams at our divisions must obtain approvals from our corporate executive team prior to engaging in certain activities or committing prescribed amounts of the Company’s financial and operational resources. As a result, senior management, who report directly to executive management, cannot authorize transactions that exceed prescribed thresholds that, while they may result in short-term benefits for their divisions, may expose the Company to unwarranted risks. Similarly, our executive management (including our NEOs) cannot engage in certain transactions without approval from our Board of Directors.Board. For example, management must obtain approval from the Board, of Directors, acting through the Land Committee, before proceeding with any land acquisition above a pre-established threshold. In addition, our General Counsellegal department regularly reports to the Board of Directors information concerning ongoing litigation and possible legal, regulatory and other risks that might expose the Company to liability or loss. The Board also annually reviews the Company’s insurance programs.
Management operates the business within parameters established by an annual budget that is reviewed and approved by the Board of Directors.Board. At each regular Board meeting, management provides the Board of Directors a status report with respect to the budget and addresses any material variances. We believe our budgeting process provides a useful mechanism for identifying risks and the related rewards and provides a quantitative method for evaluating those risks and rewards. The Board of Directors also provides oversight of risk through its standing committees. For example:
•Our Audit Committee is responsible for reviewing and analyzing significant financial and operational risks and how management is managing and mitigating such risks through its internal controls and financial risk management processes. Our VP of Internal Audit reports directly to the Audit Committee and provides routine updates on the progress and findings of the department's on-going internal audit reviews. Our external auditors also have at least quarterly discussions with our Audit Committee, and meet both with and without Company management present, to highlight what they perceive as our key financial risks. Our Audit Committee plays an important role in approvingoverseeing our internal controls monitoring and is regularly engaged in discussions with management regarding business risks, operational risks, transactional risks, cyber-security and financial risks. Cybersecurity and affiliated risks related to our information technology are a key component of our Board’s risk oversight. Our ability to conduct our business may be impaired if our information technology resources are compromised, degraded, damaged or fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or telecommunications system failure, service provider error or failure, intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources. All of our employees receive and are required to take ongoing cybersecurity awareness training throughout the year and our Chief Information Officer (CIO) provides a formal update to our Audit Committee at least twice per year, reviewing cybersecurity risks, trends, plans for future actions and measurements against recognized external cybersecurity frameworks and benchmarks.
•Our Executive Compensation Committee oversees risks relating to the compensation and incentives provided to our senior executive officers. The Executive Compensation Committee negotiates and approves all of the employment agreements of our NEOs and the Compensation Committee approves all grants of equity awards to all of our eligible employees. The Compensation Committee has the sole authority to hire outside compensation advisors and consultants and to determine the terms, scope and fees of such engagements.
Only Independent Directors sit•Our ES&S Committee is responsible to the Board and reports regularly to the Board and provides updates on the support, development, strategy, prioritization, integration and reporting of the Company's ongoing commitment to environmental, safety, corporate social responsibility, sustainability and other related trends, issues and concerns. The ES&S Committee regularly engages in discussions with management regarding our governance Committeesprocesses for identifying, assessing, monitoring and managing the principal environmental and social risks most relevant to provide greater Director participation in key policy decisions. Although it is not a requirement that members of our Land Committee are independent, currently all members are independent directors.Company.
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The Board and Board Committees |
We currently have nineeleven incumbent directors and the following committees:
•Audit Committee
Executive •Compensation Committee
•Nominating/Governance Committee
•Land Committee
•ES&S Committee
Our Board of Directors typically meets on a quarterly basis, with additional meetings held as required. During 2017,2022, the Board of Directors held four meetings. Throughout 2017,2022, each directorof our current directors attended at least 75% of the aggregate of the Board and committee meetings of which they were a member. Our Land Committee does not have regularly scheduled meetings but rather meetsare provided relevant materials for consideration and voting when significant land transactions require the Land Committee’s consideration. authorization.
24 MERITAGE HOMES| 2023 Proxy Statement
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
Directors are expected to attend our annual meetings of stockholders. All directors, including the five that are up for re-election at this year's meeting, attended our 20172022 annual meeting held on May 19, 2017.
MERITAGE HOMES | 2018 Proxy Statement 24
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
2022.
The following table identifies the current members of our Board of Directorsand Board Committees and the number of meetings held during 2017:2022:
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Board of Directors | | Audit Committee | | Executive Compensation Committee | | Nominating/ Governance Committee | | Land Committee |
Steven J. Hilton* | | | | | | | | |
Peter L. Ax + | | C | | | | ü | | ü |
Raymond Oppel | | | | C | | | | ü |
Richard T. Burke, Sr. | | ü | | | | | | |
Gerald Haddock | | | | | | C | | ü |
Dana Bradford | | ü | | ü | | | | ü |
Michael R. Odell | | | | ü | | | | |
Robert G. Sarver | | | | | | | | |
Deb Henretta | | | | | | ü | | |
Number of Meetings | | 8 | | 7 | | 4 | | 12 |
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Board of Directors | | Audit Committee | | Compensation Committee | | Nominating/ Governance Committee | | Land Committee | | ES&S Committee | | | | |
Steven J. Hilton* | | | | | | | | | | | | | | |
Phillippe Lord | | | | | | | | | | | | | | |
Peter L. Ax + | | C | | | | ü | | ü | | | | | | |
Raymond Oppel | | | | ü | | | | ü | | ü | | | | |
Gerald Haddock | | | | | | C | | ü | | | | | | |
Dana C. Bradford | | ü | | ü | | | | ü | | | | | | |
Michael R. Odell | | | | C | | | | | | | | | | |
Deborah Ann Henretta | | | | | | | | | | C | | | | |
Joseph Keough | | ü | | | | | | | | ü | | | | |
P. Kelly Mooney | | | | ü | | ü | | | | | | | | |
Louis E. Caldera | | | | ü | | | | | | | | | | |
Number of Meetings | | 7 | | 9 | | 4 | | n/a | | 4 | | | | |
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* | = | Executive Chairman of the Board |
ü | = | Member |
C | = | Committee Chair |
+ | = | Lead Independent Director |
Audit Committee
The Board of Directors has established an Audit Committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act, of 1934 (Exchange Act), and the rules and regulations of the NYSE. The Audit Committee assists the Board of Directors in:
•fulfilling its oversight of the integrity of our financial statements,
•overseeing our compliance with legal and regulatory requirements,
•determining our independent registered public accounting firm’s qualifications and independence,
•evaluating our financial, operational, and information/cyber security risks and overseeing our efforts to mitigate these risks, which include among other things, annual cyber and risk trainings for all employees,
•evaluating the performance of our internal audit function and independent registered public accounting firm, and
•reviewing and approving any related party transaction between the Company and senior executive officers andor directors.
The Audit Committee has the sole authority to appoint and replace our independent registered public accounting firm and approves all audit engagement fees and terms of all significant non-audit engagements with the independent registered public accounting firm in accordance with the pre-approval policies set forth in our Audit Committee charter. The Audit Committee has the authority to obtain advice and assistance from, and receives appropriate funding from us for, outside legal, accounting and other advisors as it deems necessary to carry out its duties. The Audit Committee also receives briefings from our executive management team at least quarterly, addressing audit, compliance, and information security matters, among other topics.
The Audit Committee operates under a written charter established by the Board. The charter is available on our website at investors.meritagehomes.com and we will provide a printed copy to any stockholder upon request.. Each member of the Audit Committee meets the independence requirements of the NYSE and the Exchange Act, and is financially literate, knowledgeable and qualified to review our financial statements. In addition, each member of the Audit Committee has accounting or related financial management expertise. The Board of Directors has determined that Peter L. Ax, the Chair of our Audit Committee and each of our other two directors who serve as audit committee members are independent directors as defined by the NYSE’s listing standards, and each is an “audit committee financial expert.” Information about past business and educational experience of Mr. Ax and other members of the Audit Committee is included in their biographies in this proxy statement underin the captionsection “—Director Qualifications and Diversity —”Diversity”.
The report of the Audit Committee is included in this proxy statement underin the captionsection “Report of the Audit Committee.”
Executive MERITAGE HOMES | 2023 Proxy Statement 25
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Compensation Committee
The Board of Directors has established an Executivea Compensation Committee (the “Compensation Committee”) in accordance with the NYSE’s rules and regulations. The Compensation Committee regularly reports to the Board of Directors and its responsibilities include:include, but are not limited to:
•reviewing and approving goals and objectives relative to the compensation of our NEOs, evaluating our NEOs’ performance in light of these goals and approving the compensation of our NEOs,
•reviewing and incorporating stockholder preferencesconsidering input from stockholders with respect to compensation agreements with our NEOs,
25 MERITAGE HOMES| 2018 Proxy Statement
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•overseeing and approving all equity-based award grants
making recommendations to the Board of Directors with regard to non-NEO compensation and equity-based awards, including those for non-NEOs, and
•producing a report on executive compensation to be included in our annual proxy statement.
The Compensation Committee is currently comprised of threefive members of the Board, each of whom is independent under the independence standards of the NYSE and a “non-employee director” under Section 16 of the Exchange Act, and an “outside director” for purposes of Section 162(m) of the Internal Revenue Code (the “Code”).Act. Generally, the Compensation Committee Chair is in charge of setting the schedule for the Compensation Committee’s meetings as well as the agenda of each meeting.
The Compensation Committee operates under a written charter, which is available on our website at investors.meritagehomes.com. We will provide a printed copy of the charter to any stockholder upon request.
The Compensation Committee has the sole authority to hire outside compensation advisors and consultants and to determine the terms, scope, fees and costs of such engagements. Since 2013,2018, the Compensation Committee has engaged The POE Group ("POE Group") annuallyPearl Meyer as its independent executive compensation consultant to provide an update on current compensation trends and to provide recommendations on the compensation packages of our NEOs.
The Compensation Committee determines executive compensation with respect to our NEOs independent of management. The Compensation Committee approves all grants of equity-based awards. For the NEOs, the number and type of equity award grants are determined or based on an employment agreement between the Company and the NEO, which may be periodically re-negotiated and revised, as approved by the Compensation Committee. For non-NEOs, management is responsible for recommending to the Compensation Committee the persons to receive grants of equity based awards and the nature and size of the proposed award.awards. Because management is responsible for the day-to-day operation of the Company, the Compensation Committee believes that management is in the best position to make this recommendation.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee is, or has been, an employee of Meritage or any of its subsidiaries. There are no interlocking relationships between Meritage and other entities that might affect the determination of the compensation of Meritage’s executive officers.
Nominating/Governance Committee
The Board of Directors has established a Nominating/Governance Committee, which directly reports to the Board of Directors and is responsible for:
•developing director qualifications and determining whether newly elected directors or prospective director candidates meet those qualifications,
•identifying individuals qualified to become Board members and recommending director nominees for the next annual meeting of stockholders,
•considering recommendations for director nominations received from stockholders,
•reviewing and recommending changes as needed to the Company’s Corporate Governance Principles and Practices and other corporate governance documents,
•addressing such items as management succession, including policies and principles for our CEO selection and performance review and succession in the event of an emergency or departure of the CEO,
•establishing and implementing director qualification standards, including policies regarding director tenure, retirement and succession,
•reviewing the charters of the Compensation Committee, Audit Committee, and Nominating/Governance Committee, ES&S Committee, Land Committee and any other committees, as well as the Lead Director Charter,
•assessing and monitoring, with Board involvement, the Board’s performance and the contributions and performance of individual directors,
•recommending nominees for the Compensation Committee, Audit Committee, Nominating/Governance Committee, ES&S Committee, and Land Committee,
•monitoring compliance with our Corporate Governance Principles and Practices, including stock ownership requirements for directors and NEOs, and
•promoting adherence to a high standard of corporate governance, ethics, and Company values.
26 MERITAGE HOMES| 2023 Proxy Statement
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The Nominating/Governance Committee has the sole authority to retain and terminate any search firm used to identify director candidates, including sole authority to approve the search firm’s fees and other retention terms. The Nominating/Governance Committee operates under a written charter, which is available on our website at investors.meritagehomes.com. We will provide a printed copy of the charter to any stockholder upon request. Each member of the Nominating/Governance Committee meets the independence requirements of the NYSE.
MERITAGE HOMES | 2018 Proxy Statement 26
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Land Committee
The Board of Directors has established a Land Committee, which directly reports to the Board of Directors.Board. The Land Committee is responsible for reviewing and approving/denying land acquisition transactions recommended by management in excess of a predetermined monetary threshold. The Committee is intended to function as an additional approval mechanism for executive management’s land acquisition approval policies and procedures.
As of the date of this filing, the Land Committee was comprised of Messrs.Ax, Oppel, Haddock and Bradford. The Land Committee is transactional in nature; accordingly, the frequency ofLand Committee does not have regularly scheduled meetings is not pre-determined,but rather are provided relevant materials for consideration and rather meetings only occurvoting when significant land transactions arise that require the Land Committee consideration.Committee’s authorization. Currently, no compensation is paid to any director for service on the Land Committee, and there is not a Land Committee chair. Each member of the Land Committee meets the independence requirements of the NYSE.
ES&S Committee
The ES&S Committee reports directly to the Board and is responsible for:
•assisting in setting the Company's general strategy with respect to ES&S matters, and considering and recommending policies, practices and disclosures that conform with the strategy,
•reviewing and collaborating with the Nominating/Governance Committee regarding the Company’s environmental, social, and governance reports and scores from relevant internal and external stakeholders, as available, and provide guidance on areas of opportunity with respect to ES&S matters,
•in coordination with the Nominating/Governance Committee, overseeing and approving annual updates to the Company's Human Rights Policy, Environmental Responsibility Policy, Responsible Marketing Policy and Vendor Code of Conduct, all of which can be found on our website at investors.meritagehomes.com;
•overseeing the Company's policies to protect the health and safety of employees, contractors, customers and the public and, as applicable, the environment, and review with management the quality of the Company’s procedures for identifying, assessing, monitoring and managing the principal environmental and social risks to the Company,
•in collaboration with the Chief People Officer, overseeing the Company’s policies and practices promoting diversity and inclusion,
•reviewing and advising the board on sustainability goals and long-term ES&S objectives,
•monitoring environmental, social and political trends as well as major global legislative and regulatory developments or other public policy issues and making recommendations to the board, as appropriate, on adjustment of Company policies and practices to address such trends and issues,
•overseeing the accounting, reporting and disclosure with respect to ES&S matters, such as climate change and greenhouse gas emissions, including data collection and compliance with any applicable laws,
•reviewing and approving the Company's annual ESG report, Task Force on Climate-Related Financial Disclosures ("TCFD") report and other similar reports, and
•consulting with the Compensation Committee on matters related to compensation targets that may be linked to ES&S objectives and metrics.
The ES&S Committee operates under a written charter, which is available on our website at investors.meritagehomes.com. Each member of the ES&S Committee meets the independence requirements of the NYSE.
Director Nomination Process
Director Qualifications. The Nominating/Governance Committee will evaluate prospective nominees using the standards and qualifications set forth in our Corporate Governance Principles and Practices and in our criteria for new directors. Prospective nominees must meet these qualification requirements and should have the highest professional and personal ethics and values, as well as broad experience at the policy-making level in business, government, education or public interest. Prospective nominees shouldmust be committed to enhancing stockholder value and shouldmust have sufficient time to devote to carrying out their duties and to provide insight based upon experience, talent, skill and expertise appropriate for the Board. Each prospective nominee must be willing and able to represent the interests of our stockholders.
Identifying and Evaluating Nominees for Directors. The Nominating/Governance Committee utilizes a variety of methods for identifying and evaluating nominees to serve as directors. The Nominating/Governance Committee assesses the current composition of the Board, of Directors, the balance of management and independent directors and the need for Audit Committee and other expertise in its evaluation of prospective nominees. In the event that vacancies are anticipated, or otherwise arise, the Nominating/Governance Committee may seek recommendations from current Board members, professional search firms,
MERITAGE HOMES | 2023 Proxy Statement 27
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
outside legal, accounting and other advisors, or stockholders in order to locate qualified nominees. The Nominating/Governance Committee also evaluates each candidate in the context of maintaining and creating a diverse Board, as previously discussed. After completing its evaluation, the Nominating/Governance Committee will make a recommendation to the full Board of Directors as to the persons who should be nominated by the Board, of Directors, and the Board will determine the nominees after considering such recommendations. Currently, the Board has retained a search firm with a search underway to replace potential director retirements in the near term.
Stockholder Recommendations. The policy of the Nominating/Governance Committee is to consider properly-submitted stockholder recommendations for candidates for membership on the Board of Directors as described below. In evaluating such proposals, the Nominating/Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership qualifications and criteria described below.above. Any stockholder recommendations proposed for consideration by the Nominating/Governance Committee must include the nominee’s name and qualifications for Board membership and should be submitted to:
Meritage Homes Corporation
8800 East Raintree Drive
Suite 300
Scottsdale, Arizona 85260
Attn: Secretary
The Secretary will forward all recommendations to the Nominating/Governance Committee.
Stockholder Nominations. Our bylaws also permit stockholders to nominate directors for election at an annual stockholder meeting. For a description of the process for submitting such nominations for consideration at next year’s annual meeting, please see “Stockholder Proposals, Director Nominations and Other Items of Business” on page 5961 of this proxy statement.
Proxy Access. In February 2017, we amended ourOur bylaws to permit an eligible shareholder,stockholder, or a group of up to 20 shareholders,stockholders, that has continuously owned at least three percent of the Company’s outstanding shares of common stock for three years to include in the Company’s proxy materials director nominations of up to 20% (rounded to the nearest whole number) of the number of Directors constituting the class up for election at any annual meeting. For a description of the process and deadlines for submitting such nominations for consideration at next year’s annual meeting, please see “Stockholder Proposals, Director Nominations and Other Items of Business” on page 5961 of this proxy statement.
Director Orientation and Continuing Education
It is the policy of the Board that all new directors should participate in an orientation program sponsored by the Company. This orientation will beis designed to familiarize new directors with the Company’s strategic plans, its significant financial, accounting and risk management issues, its compliance programs, its Code of Ethics, its principal officers, its internal audit function, and its independent auditors.registered public accounting firm. In addition, the Board encourages each director to attend prominent continuing
27 MERITAGE HOMES| 2018 Proxy Statement
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CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS |
education programs. The Company will pay for the director’s tuition and reasonable and customary travel expenses to attend continuing education programs.
Executive Sessions of Independent Directors
Our Corporate Governance Principles and Practices dictate that the non-management members of the Board of Directors will meet in executive session at least quarterly outside the presence of directors that are employees or officers of the Company. The non-management directors met in executive session four times during 2017.2022. Peter L. Ax is our Lead Independent Director and presides over these executive session meetings.
We are committed to conducting business consistent with the highest ethical and legal standards. The Board of Directors has adopted a Code of Ethics, which is applicable to all employees, including our senior and executive management and our directors. Thedirectors, and a Vendor Code of Conduct, which is applicable to all contractors, subcontractors, vendors and partners. Both the Code of Ethics and the Vendor Code of Conduct are available on our website at investors.meritagehomes.com and we will provide a print copy to any stockholder upon request..
Meritage Stock Pledging Policy
In February 2013, the Nominating/Governance Committee approved a modification to the Company’s securities trading policySecurities Trading Policy prohibiting all future pledging of the Company’s equity securities by our employees, NEOs and directors. In connection with this policy, the Company adopted a grandfather provision relating to existing pledges. AsNone of the date our modified policy was adopted, only Messrs. Hilton and Sarver had outstanding pledges. Our grandfather provision exempts existing pledges and continuationCompany's NEOs or replacements thereto; provided, however, that with respect to these existing pledges (or continuations or replacements thereof) the number of sharesdirectors currently have pledged may not exceed the greater of (i) two-thirds of the total number of Meritage shares beneficially owned by Mr. Hilton or Sarver, as the case may be, or (ii) 200,000 shares. In establishing these grandfather provisions, the Board considered the particular circumstances of Mr. Hilton and Mr. Sarver, the founder of theany Company and an original board member, respectively, both of whom have a significant ownership in the Company’s equity securities.stock.
Anti-Hedging Policy
We have a securities trading policy thatOur Securities Trading Policy sets forth guidelines and restrictions on transactions involving our stock, which are applicable to all employees, including our NEOs and directors. Among other things, our policy prohibits all types of hedging transactions,
28 MERITAGE HOMES| 2023 Proxy Statement
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including, but not limited to, purchases of stock on margin, short sales, buying or selling puts or calls and similar transactions involving any derivative securities. If allowed, these types of transactions could enable employees to own Company stock without the full risks and rewards of ownership. When that occurs, employees may no longer have the same objectives as the Company’s other stockholders and therefore such transactions involving Meritage stock are prohibited.
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Communications with the Board of Directors |
Interested persons may communicate with the Board of Directors by writing to our Lead Independent Director at the address set forth on page 2.2. The Lead Independent Director will disseminate the information to the rest of the Board at his discretion.
MERITAGE HOMES | 2018 Proxy Statement 28
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COMPENSATION DISCUSSION AND ANALYSIS |
Compensation Discussion and Analysis
The following discussion and analysis should be read in conjunction with the “Summary Compensation Table” and related tables that are presented immediately following this discussion.
The purpose of this compensation discussion and analysis (“CD&A”) is to provide information about each material element of compensation that we pay or award to, or that is earned by, our NEOs. For our 20172022 fiscal year, our NEOs were:
Steven J. Hilton, Chairman and•Phillippe Lord, Chief Executive Officer ("CEO")
•Hilla Sferruzza, Executive Vice President ("EVP"), Chief Financial Officer ("CFO")
C. Timothy White,•Steven J. Hilton, Executive Vice President,Chairman ("EC")
•Clint Szubinski, EVP, Chief Operating Officer ("COO")
•Malissia Clinton, EVP, General Counsel ("GC") and Secretary
Phillippe Lord, Executive Vice President, Chief Operating Officer
•Javier Feliciano, Executive Vice President,EVP, Chief Human ResourcesPeople Officer ("CPO")
For 2022, we have voluntarily included Javier Feliciano as a named executive officer. Mr. Feliciano rounds out our core executive management team and we believe it is beneficial and transparent for investors to be presented with, and understand, the compensation program of our full core executive management team. In addition, Mr. Feliciano was an NEO in 2021 and in prior years. This CD&A addresses and explains the numerical and related information contained in the summarySummary Compensation Table and other executive compensation tables, and includes actions regarding executive compensation that occurred during 2017,2022, including the award of bonuses related to 20172022 performance, and the adoption of any new, or the modification of any existing, compensation programs, if applicable.
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2017 EnvironmentExecutive Summary |
In 2017 the housing market experienced solid growth as a result of a strong economy and a favorable demand environment, particularly as Millennials have increasingly entered the home buying market. Historically, first-time buyers have made up a significant percentage of homebuyers. That buyer segment had been absent in recent years as Millennials accumulated large amounts of student debt in a stagnant economy and were unable to save for down payments. The economy's improvement along with job growth and these young adults reaching a phase of life where many are now part of a dual income household has made homebuying within reach again. Entry-level product is also attracting the second largest segment of the population, the baby-boomers, who are looking to downsize due to life events.
We remain focused on positioning ourselves in well-located and highly-desired communities in many of the top residential real-estate markets in the United States where we are now focused on product offerings targeting these first-time buyer segments. We believe we successfully differentiate ourselves from our competition by offering a lineup of extremely livable and efficient plans featuring new designs that highlight the benefits of our industry-leading energy-efficient building features and technology which we believe are particularly appealing to the first-time buyer. Over the last couple of years we have been executing a strategy to address that demand by acquiring communities and designing homes that can be delivered at a lower cost by simplifying our product and construction processes, starting more spec homes to allow buyers to move in quicker, and by enhancing and making the entire home buying experience easier for our customers. The growth and profitability of Meritage is dependent on executive management’s vision and actions to implement and support these strategic goals and we feel we have taken, and continue to take, appropriate steps for Meritage to be well-positioned for success.
Meritage Homes is committed to building long-term stockholder value. Accordingly, our NEO compensation program is designed to be largely performance driven. At our 20172022 Annual Meeting of Stockholders, the Company’s stockholders approved the compensation of our NEOs (on an advisory basis) by approximately 96%58% of total votes cast, indicating thatas previously discussed in “—Advisory Vote to Approve Compensation of our Named Executive Officers (Proposal No. 3)” on page 8. Historically, our stockholders werehave been in agreement with our Compensation Committee and its direction of setting compensation arrangements based on performance metrics that are in line with the goals of our stockholders.stockholders, and we are committed to regaining that stockholder agreement. A summary of our compensation packages is discussed further in this proxy in the section titled “Compensation Program.”
Subsequent to the 2022 Meeting, we sought to engage with our top 30 institutional stockholders, who accounted for over 73% of our total shares outstanding at December 31, 2022. Seven of the top 30 stockholders, over half of whom voted against the 2022 Say on Pay and whose shares represented 47% of the top 30 ownership, welcomed a conversation with members of our Board and executive management. From these investor engagement efforts, we learned and determined the following:
•The majority of stockholders voting against the proposal expressed that they based their vote on a third-party proxy advisory recommendation, which was critical of the Board-approved, one-time payment made in 2021 to Mr. White.
•Regarding the one-time payment in 2021 to Mr. White, our former General Counsel, stockholders were interested in additional context around his separation in light of his significant contributions to Meritage and the payment to induce the accelerated timing of his retirement. The Board appreciates the view of some that the payment was discretionary. The stockholders who responded to our outreach efforts also appreciated how the inducement facilitated the company’s successful process for recruitment and transition of an important NEO position, as well as its contribution to long-term shareholder value creation.
•Appreciating our long track record of fair executive compensation and alignment of pay with performance, the stockholders we spoke with supported our overall compensation plan design and pay-for-performance practices.
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•The stockholders expressed that outside of another non-recurring event, they do not have significant negative concerns about the existing structure of our compensation program. We accept the feedback from our stockholders. No such payments were paid during 2022, and none are contemplated to be paid in any future period. We will continue to limit discretionary payments and incorporate the expectations of stockholders when structuring or negotiating severance payments and benefits.
Our Say on Pay support has exceeded 90% of the votes cast for the ten years prior to the 2022 annual meeting and our goal is to return to this high level of support from our stockholders on the Say on Pay proposal in this current year and beyond.
20172022 Business Highlights
2017During the second half of 2020 and throughout all of 2021, the homebuilding industry experienced unprecedented growth. The expansion continued in the first quarter of 2022, but the market steadily weakened throughout the rest of 2022 due to rapidly rising interest rates, uncertainty about current economic conditions and changes in personal finances. We were able to adapt quickly to the market changes by increasing incentives and offering interest rate locks and buy downs to offset the increases to monthly home mortgage payments for our customers. While this cool down in the back half of 2022 resulted in a year-over-year decline in order volume, 2022 was anotherstill a record year in many of growthour key financial and progress on many strategic fronts for Meritage Homes.operational metrics. Below is a summary of some of the significant accomplishments achieved in 2017:2022:
Generated highest pre-tax net income in over a decade, with 14% year-over-year growth.
•Grew total home closing revenue to $3.2$6.2 billion in 2017,2022, up 6%22% over 2016. 2021, on an 11% higher average sales price on closings.
Expanded•Closed 14,106 homes, our highest volume in Company history and a 10% increase over the numberprior year.
•Improved home closing gross margin to 28.6%, an 80 basis point improvement year-over-year, and a Company record.
•Achieved the Company's lowest ever SG&A as a percentage of communities targeting the growing first-time homebuyer segment to approximately 30%revenue of our total active communities8.3%, a 90 basis point improvement year-over year.
•Generated 35% year-over-year growth in earnings before income taxes.
•Achieved Company-high diluted earnings per share of $26.74 per share, a 39% increase over 2021.
•Strengthened balance sheet leverage with debt-to-capital and net debt-to-capital ratios of 22.6% and 6.8% at December 31, 2017.
Increased our lots under control by 15%2022, compared to prior year to 34,319 lots27.6% and 15.1% at December 31, 2017.
Managed our net2021. Net-debt-to-capital is a non-GAAP measure. For a reconciliation to the debt-to-capital ratio, withinthe most comparable GAAP measure, please see our target ofAnnual Report on Form 10-K for the low-to-mid 40% range while still growing our balance sheet to address market demand, reporting 41.4% atyear ended December 31, 2017.2022 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Financial Resources—Financing Cash Flow Activities.”
•Ended the year with 271 actively selling communities, a 5% increase over 2021.
Our executive compensation program is designed to be driven with a strong focus on pay-for-performance. In 2017,2022, more than half of the compensation program for our NEOs was based on various performance metrics that are tied to Meritage’s financial and operational goals. The following graph illustrates CEO compensation as it relates to the performance of the Company over the last three years.
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Before deduction of CEO total compensation (as reflected in the Summary Compensation Table). COMPENSATION DISCUSSION AND ANALYSIS |
In addition
(1) Before deduction of CEO total compensation (as reflected in the Summary Compensation Table).
(2) 2020 CEO compensation reflects Mr. Hilton, who served as CEO that year; 2021 and 2022 reflect compensation for Mr. Lord.
2022 Environmental, Social, and Sustainability Highlights
Meritage is committed to sustainability through the homes we build, the communities in which we live and work, and the ways we conduct ourselves every day. We strive to integrate an environmental focus into all aspects of our business—from land acquisition and development to the design and construction of homes to our financial services offerings, which include title and operating successes,escrow, mortgage and insurance services. At Meritage, Homeswe also believe corporate social responsibility is committedimportant for the long-term sustainability of the business. We believe that fostering a culture that champions diversity, equity and inclusion ("DE&I") allows us to building every homebe an employer of choice to meet or exceed ENERGY STARour people and a builder of choice to our customers and trade partners. We take pride in being an organization driven by ethics and living by our core values and our promise to deliver a Life.Built.Better.® standards, with many We promote the long-term interests of stakeholders and customers and focus on the transparency and accountability of Meritage’s Board of Directors, executive management, our employees and trade partners.
Philanthropy
One of our communities greatly surpassing those levels. The Environmental Protection Agency has recognized Meritage Homes as an ENERGY STAR Partner of the Year every year since 2010. For the fifth consecutive year, in 2017 Meritage received the ENERGY STAR® prestigious Partner of the Year for Sustained Excellence Award in recognition of our ongoing industry leadership in advancing energy-efficient building standards. In 2017,core values is "Start With Heart" and we expanded our innovation platform to include home automationdo so through our new M.Connected Home Automation Suite®. This technology includes features that allow homeowners to monitor and control key components of their homes, such as Wi-Fi enabled lighting, video doorbells and smart door locks.
We have also enjoyed successes in establishing Meritage as a company that gives back and has been recognized for such efforts.various initiatives. Since 2013, Meritage has partnered with Operation Homefront to provide newly-built mortgage-free homes to military families through its Permanent Homes on the Homefront program.for Veterans program and we built and donated three homes through this program in 2022. In addition, in 2022 we donated over $1.1 million through the Meritage CaresFoundation to non-profit organizations that support food insecurity in the U.S., tree planting efforts and DE&I initiatives, just to name a few, and made corporate contributions of $1.4 million to fund education opportunities. Our employees donated thousands of man-hours and significant financialalso donate their time to support tolocal organizations, including Ronald McDonald House, Habitatpacking meals for Humanity, numerous local food banksNo Child Hungry, and other local and nationalwe are proud to offer a benefits program that provides paid time off for volunteering with charitable organizations including those focused on hurricane relief efforts as a result of the unprecedented weather in 2017, many of these organizations we plan to continue to support through the Meritage Cares Foundation.
organizations.
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Diversity, Equity and Inclusion
Meritage Homes is committed to creating and cultivating a diverse team, fostering an inclusive culture and creating a workplace environment where our team members can reach their full potential in support of organizational goals. We seek to increase and retain the demographic and skill diversity of our workforce at all levels, develop meaningful relationships and collaborate effectively with diverse customers, trade partners, and the communities we serve. We have a robust talent assessment and succession planning model designed to help identify and develop talent and provide a roadmap for promotion of identified employees. Our culture is guided by our core values through which every employee is strongly encouraged to embrace opportunities to develop and grow their careers.
At December 31, 2022, we had 1,921 full-time employees. Of our entire employee population at December 31, 2022, approximately 40% were female and 26% were people of color. We are proud of the diversity in our team and are committed to the ongoing and intentional work to achieve inclusive excellence, including the long-term goals of attracting diverse talent and forming strategic relations. We are dedicated to learning, improving our practices and challenging our leaders and employees to recognize and leverage our differences for the greater good of the team and the organization. We promote an open-door policy where individuals are encouraged to voice concerns which are promptly addressed. In 2022 our DE&I program included the following efforts:
•Leveraged an internal DE&I council comprised of both field and corporate leaders to support our DE&I efforts and serve as collaborative partners to senior management as we plan and execute our DE&I initiatives.
•Donated to multiple nonprofit organizations supporting ongoing DE&I and educational efforts focused on underrepresented groups, including the National Association of Women in Construction and the Society of Women Engineers. We also established scholarship funds at Historically Black Colleges & Universities as well as Hispanic Servicing Institutions. We also expanded our partnership with Building Talent Foundation, a non-profit organization whose mission is to advance the education, training and career progression of young professionals, especially those from underrepresented groups in residential construction,
•Ongoing recruiting efforts designed to attract diverse talent, including continued relationships with INROADS, a non-profit organization focused on career development of underrepresented talent, and WayUp, an organization that matches candidates with employers based on the candidate's interests, experience, and skills, to broaden our recruitment activities to capture a wider based of female, minority, and underrepresented groups.
•Conducted a company-wide engagement survey to identify our successes and areas of opportunity as they relate to employee's feelings of connectedness and belonging.
•Provided several educational and engagement opportunities for our leaders and employees focused on a culture of inclusion and building DE&I skills and capabilities.
Environmental, Social and Sustainability Practices
Energy Efficiency. Meritage Homes has been a leader in incorporating innovation in every home we build, employing industry-leading techniques and technologies aimed at setting the standard for sustainable and energy-efficient homebuilding. At a minimum, we construct every home to meet or exceed ENERGY STAR® standards. Every new Meritage home comes standard with spray foam insulation, the MERV-13 air filter, an advanced air filtration system, ENERGY STAR® certified appliances, and a multispeed heating, ventilation and air conditioning ("HVAC") system that is designed to operate more efficiently than traditional HVAC, allowing owners to better manage the comfort of their home while reducing their operating costs and environmental impact. We proudly delivered 14,106 homes in 2022 that we expect will be ENERGY STAR® certified, of which 100% of our homes in California included solar panels.
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HERS Score | |
| Year after year, we strive to improve the energy efficiency of our homes through better building processes and selection of construction materials and features inside the home. These efforts reduce the energy consumption and greenhouse gas emissions of our homes compared to a similar-sized traditional new U.S. home, which creates energy savings and lower utility bills for our homeowners. As a result, we have received various national and regional awards in recognition of our efforts, including: •2022 EPA's ENERGY STAR® Partner of the Year for Sustained Excellence for the ninth year; •2021 - 2022 EPA's Indoor airPLUS Leader Award; •2013 - 2022 EPA's ENERGY STAR® Market Leader Award for Certified Homes; and •2020 Builder of the Year for Green Home Builder.
In addition to the ENERGY STAR® standard, the Home Energy Rating System ("HERS") is another industry standard by which a home's energy efficiency is measured. HERS is the nationally recognized system for inspecting and calculating a home's energy performance, according to the Residential Energy Services Network ("RESNET"). Third-party RESNET-certified companies assess and rate the energy efficiency of every new Meritage Home. The index graph to the left depicts HERS ratings of typical existing homes and the average Meritage home. In 2022, Meritage delivered homes with an average HERS score of 53, which implies 47% greater energy efficiency and lower monthly energy bills for the homeowners than the RESNET Reference Home, a standard based on a HERS Index score of 100 for a typical home built in 2006.
We design and build our homes to maximize energy efficiency, as evidenced by our industry-leading low HERS score. We are leading the way in sustainable homebuilding. |
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Responsible Supply Chain. Responsible sourcing and the use of sustainable materials are important to our operations. Our raw materials consist primarily of lumber, concrete, drywall, roofing materials and similar construction materials, and are frequently purchased on a national or regional level. However, because such materials are substantially comprised of natural resource commodities, Meritage expects responsible management of social and environmental risks in our supply chain. We work with our partners to ensure they understand our needs and our Company culture and conduct. Our contracts require that our suppliers comply with all laws, environmental regulations and safety and labor practices pertaining to their products and work as well as follow our Vendor Code of Conduct and we monitor our suppliers' compliance with zoning, building and safety codes. Where possible, we use recycled building materials and sustainably-sourced products. Certain of our building materials are sourced locally to reduce transportation and the related green-house gas emissions.
As a major purchaser of lumber, we are committed to sustainable forestry. Responsible forest management is important in order to maintain sustainable natural resources. Proper selection of trees to harvest can help with forest regeneration. We have lumber partners who provide us Sustainable Forest Initiative ("SFI") certified wood. Our wood varieties most often come from inland areas of the western US and Canada rather than coastal areas with endangered wood varieties.
We specify that quality durable materials be used in the construction of our homes to ensure the home carries enduring value for our customers. Spray foam insulation and vinyl windows create a tight long-lasting housing envelope, which help ensure long-lasting value. We seek to minimize the use of wood products in our homes, such as replacing wood flooring with engineered vinyl panels.
Meritage continues to support the advancement of energy efficient and sustainable home building practices in the U.S. To further these principles, Meritage engages in stakeholder discussions across the landscape of the home building industry, elected officials, and regulatory bodies at the federal, state, and local levels. We are a founding member of the Institute for the Building Envelope and we collaborate and participate with several trade associations and councils, including the International Code Council, Housing Innovation Alliance, California Building Industry Association, Florida Volume Builders Council, Policy Advisory Board of the Harvard Joint Center for Housing, RESNET, and Leading Builders of America.
Climate Change. In 2022, Meritage became the first U.S. public production builder to issue an inaugural TCFD report and to join approximately 3,900 other institutions in becoming an official TCFD supporter. We have been establishing a baseline foundation for our Company’s climate data by reporting our annual greenhouse gas emissions ("GHG") inventory since 2019. Our GHG inventory is developed in accordance with the GHG Protocol Corporate Accounting and Reporting Standard, using both spend-
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based and activity-related data. Meritage’s operations in the homebuilding sector generate direct and indirect GHG emissions. By evaluating and measuring the carbon footprint of our business operations, job sites, and value chain, we are gaining a better understanding of the changes that impact our annual emissions. Since scope 3 (the indirect impact of our value chain) is the majority of our GHG emissions each year, we are collaborating with our vendors to further determine where we can partner and make the greatest improvements to reduce our GHG emissions in the future.
We provide a more comprehensive analysis of our DE&I and ESG efforts, including the standards and metrics by which they are measured, annual GHG emissions inventory, and equal employment opportunity ("EEO-1") data in our ESG report, which is located within the Investor Relations area of our website. Our ESG report does not constitute soliciting material and should not be deemed filed or incorporated by reference herein.
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Compensation Philosophy and Objectives |
Our executive compensation program is designed to drive and reward superior corporate performance both annually and over the long termlong-term while simultaneously striving to be externally competitive.competitive amongst our peer group. We continually review our executive compensation program to ensure it reflects good governance practices and is in the best interests of stockholders. Since 20132018, the Compensation Committee has engaged POE GroupPearl Meyer as its independent external compensation consultant to evaluateconsultant. Pearl Meyer evaluates and makemakes recommendations regarding the terms of our NEO and Board compensation programs as they relate to creating stockholder value as well as remaining competitive in the marketplace with the changing trends and levels in NEO compensation, while meeting the below core objectives:objectives. We do not engage Pearl Meyer for any other advisory services.
Pay for Performance
A substantial portion of the total potential compensation for our NEOs is intended to be variablevariable/at risk on a pay-for-performance basis. The terms of the performance-based compensation contemplated in each respective NEOsNEO's employment agreement was based upon an assessment performed by POE GroupPearl Meyer of external market data to ensure that the compensation formula is competitive relative to the compensation paid by companies with which we compete for executive talent. This compensation is derived based on (i) the performance of the Company as a whole, as measured against our peer group and (ii) the NEOs role in the attainment of the Company’s performance goals.
Stock Ownership
We are committed to utilizing our compensation program to increase executive stock ownership over time. We believe that equity ownership directly aligns the interests of our executivesNEOs with those of our stockholders and helps to focus our executives on long-term stockholder value creation. We award restricted stock, restricted stock units and performance share awards to our NEOs, as we believe such awards provide our NEOs with an incentive to continue to increase long-term stockholder value, even during periods of declining stock prices. We believe the granting of equity awards is an important retention tool and is widely used in our industry.
Recruiting and Retention
Due to the competitive nature of our industry, we are committed to providing total compensation opportunities that are competitive with, though not identical to, the practices of other public homebuilders within our peer group. We intend for our compensation program to be sufficiently aligned with industry practices so that we can continue to attract and retain outstanding executives who are motivated to help us achieve our mission.
Compensation Peer Group
As a member of the homebuilding industry, we predominantly compete for executive talent and have historically compared ourselves to other companies in our industry. There are a limited number of homebuilders that have revenue and market capitalization similar to ours. Therefore, the Compensation Committee, with the assistance of POE Group,Pearl Meyer, has established a peer group of comparably sized companies selected from the homebuilding industry, with organizational structures similar to ours such as wellbeing a publicly traded company, operations limited to the United States, and building single family housing as the building products industry. The majority of the peer group companies fall within the following parameters:
0.4 times to 2.5 times our revenues, and
0.25 times to 4.0 times our market capitalization. their core business.
The peer group companies that were used in 20172022 for executive compensation benchmarking and performance benchmarking are set forth below. We believe that this peer group provides an appropriate benchmark comparison for our Company.
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l | | Armstrong World Industries | | l | | Martin Marietta Materials |
l | | Beazer Homes USA, Inc. | | l | | Owens Corning M.D.C. Holdings, Inc. |
l | | CalAtlantic GroupCentury Communities, Inc. | | l | | M/I Homes, Inc. |
l | | D.R. Horton, Inc. | | l | | NVR, Inc. |
l | | Hovnanian Enterprises, Inc. | | l | | Pulte Group, Inc. |
l | | Fortune BrandsKB Home | | l | | Taylor Morrison Home Corporation |
l | | KB HomeLennar Corporation | | l | | Toll Brothers, Inc. |
l | | M.D.C. HoldingsLGI Homes, Inc. | | l | | TRI PointePoint Group, |
l | | M/I Homes | | l | | USG Inc. |
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In addition to the peer group listed above being used for executive compensation benchmarking, the Compensation Committee established aalso used this same peer group for the total shareholder return ("TSR") portion of performance basedperformance-based long-term incentive awards that includes only homebuilders based on the recommendations of POE Group. The TSR peer group for 2017 is set forth below: |
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l | | Beazer Homes USA | | l | | Pulte Group |
l | | CalAtlantic Group | | l | | Taylor Morrison Home |
l | | KB Home | | l | | Toll Brothers |
l | | M.D.C. Holdings | | l | | TRI Pointe Group |
l | | M/I Homes | | | | |
in 2022.
While market data is an important factor utilized by the Compensation Committee when setting compensation, it is only one of multiple factors considered, and the amount paid to each executiveNEO may be more or less than the composite market predicted value based on the performance of the Company and the executive,NEO, the roles, experience level and responsibilities of the executive, experience level of the individual,NEO, internal equity and other factors that the Compensation Committee deems important.
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Compensation Best Practices |
The best practices evidenced by our compensation programs and processes include:
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Compensation Best Practices |
The best practices evidenced by our NEO compensation programs and processes include:
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WE DO | | WE DO NOT |
a | | Pay for performance by requiring a significant portion of the total compensation of our NEOs be determined based on performance tied to strategic objectives. | | r | | Provide perquisites for our NEOs other than those limited to auto allowance, reimbursement of certain insurance premiums and other limited benefits. |
a | | Have executive Stock Ownership Requirementsstock ownership requirements in place set at a multiplier of base salary. | | r | | Reprice or replace stock options and other equity awards. |
a | | Have a clawback policy for our NEOs requiring the recoupment of incentive bonuses in the event of a restatement of financial results resulting from willful misconduct or gross negligence of the applicable NEO. | | r | | Allow hedging. |
a | | Engage an independent compensation consultant whothat reports directly to the Compensation Committee to provide an update on current compensation trends and to provide recommendations on our NEOs’ current compensation packages. | | r | | Allow pledging, subject to certain limited grandfather provisions.pledging. |
a | | DoubleHave double trigger cash severance based upon a change-in-controlchange of control of the Company. | | r | | Provide tax gross-ups applicable to change-in-controlfor change of control and severance payments. |
Our executive compensation policies and practices are designed to align our NEOs’ long-term interests with those of our stockholders via a pay-for-performance model. The charts below depict the 20172022 percentage of compensation for our CEO and other NEOs that is fixed versus performance-based (fromfrom the summary compensation tableSummary Compensation Table on page 45):47:
* Represents average for NEOs for the year ended December 31, 2022, other than the CEO.
** Includes fair value of performance share awards granted (at target level) and actual non-equity incentive plan compensation paid.
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* | Represents average for current NEOs other than the CEO. |
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** | Includes fair value of performance share awards granted (at target level) and actual non-equity incentive plan compensation paid. |
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Independent Compensation Consultant |
In accordance with its charter, the Compensation Committee has the sole authority to obtain advice and assistance from consultants, legal counsel, accounting and other advisers as appropriate. The Compensation Committee has the sole authority to retain and terminate any compensation consultant, counsel or adviser and to determine and approve the terms, costs and fees for such engagements. Since 2013,2018, the Compensation Committee has engaged POE GroupPearl Meyer to serve as its independent executive compensation consultant. When engaging an executive compensation consultant takingthe Compensation Committee takes into consideration (i) the independence of and similarother factors pertaining to POE Groupthe consultant as required by the New York Stock Exchange (NYSE), the Securities and Exchange Commission (SEC)NYSE, SEC and other applicable rules and regulations. Upon consideration of these factors, the Compensation Committee has concluded that engaging POE Group didthe engagement of Pearl Meyer does not present any conflicts of interest.
POE Group provided informationPearl Meyer is a leader in the executive compensation consulting industry and provides information and advice regarding compensation philosophy and strategy; recommended peer group selection criteria as well as recommended potential peer companies; and consulted with the Compensation Committee on both long-term and short-term incentive compensation.
The key components of our executive compensation program are base salary, annual incentive cash compensation and long-term equity incentive compensation. In addition, our NEOs have the opportunity to participate in our company-wide 401(k) plan, a non-qualified deferred compensation plan, and to receive limited certain personal benefits, as described below.on the next page. The employment agreements of our CEO and other NEOs are further described in this proxy under the section “—Employment Agreements in Effect for 2017.2022.”
In recent years, the Compensation Committee undertook a holistic review of theOur executive compensation program with the assistance of POE Group. The executive compensation program wasis designed based on the following strategic principles:
•Alignment with key outcomes of our business strategies;
•Appropriate balance of short- and long-term incentive award opportunity;
Provision of market-competitive•Market-competitive total compensation opportunity within our industry and peer group;
•Appropriate alignment with our stockholders by delivering a significant percentage of total compensation opportunity through equity;equity and including goals that are measured by total shareholder return;
•Setting a total compensation package where a significant percentage of total compensation is at risk;
•Transparency in the communication of plan design and performance goals to enhance understanding; and
•Adherence to sound governance practices, including the prudent management of compensation risk.
Based on the results of the analysis, the components of our NEO compensation program are as outlined below.
Base Salary
The purpose of the base salary is to provide a fixed amount of cash compensation that is not variable and is generally competitive with market practices. Consistent with industry practice and our pay-for-performance objective, the base salary for each of our NEOs is designed to account for only a portion of their overall total target compensation. As comparedWe target our NEO base salaries to be competitive with our compensation peer group, we target our NEO salaries to be commensurate with other public homebuilders.group. We believe the NEO base salaries are appropriate based on the officers’ roles, responsibilities, experience and contributions to the Company, as well as compared to market data.
Annual Cash Incentive Compensation ("Non-Equity Incentive Plan")
We believe our Non-Equity Incentive Plan focuses our NEOs on the most important short-term measures of our business, establishes a clear connection between performance and earned compensation, and provides greater transparency to our stockholders as to the operation of our Non-Equity Incentive Plan. Each goal represents a fixed percentage of total potential non-equity incentive compensation with each goal assessed separately from the others. The annual incentive compensation is designed to comply with the requirements of Section 162(m) of the Code to allow for the tax deductibility of incentive compensation paid to our NEOs.
The specific details of each NEO’s 20172022 annual cash incentive compensation are further described under the section “—Employment Agreements in Effect for 2017”2022”.
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Discretionary Bonuses
Discretionary bonuses may be awarded based on specific achievements of an individual beyond those of the performance measurements included in the annual incentive compensationNon-Equity Incentive Plan calculations, subject to approval by Executivethe Compensation Committee. For 2017, there were noAlthough contemplated within the compensation program for our NEO's, the use of discretionary bonuses awardedhas been and is expected to our NEOs.continue to be very limited.
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Long-Term Equity Incentive Awards
Long-term incentivesequity incentive awards are intended to provide compensation opportunities based on the creation of stockholder value and an increase in our stock price. In 2017, all of the long-term equity awards granted to our NEOs contained at least one performance metric as further discussed below. The employment agreements in effect for 2017 also2022 for our NEOs allow for grants of performance-based restricted stock units to be granted without ("performance criteria, however no such awards were granted in 2017. Theshare awards") and time-based restricted stock unit and performance share awards generallyunits, both of which have a three-year cliff vesting schedule.
In connection with our equity awards, we have also adopted stock ownership requirements as further discussed below in the section “—Security Ownership Requirements.”
The Compensation Committee believes that equity awards provide a strong long-term incentive for our NEOs (and other officers and employees) that, along with their stock ownership, helps to align the interests of management with our stockholders. The Compensation Committee believes that these equity-based awards provide the opportunity for our executivesNEOs to benefit from strong equity performance and, particularly in the case of the restricted stock and restricted stock unit awards, the NEOs focus on balancing stability and preservation of stock value against being incentivized to potentially take on an imprudent level of additional risk to drive stock appreciation with more contingent equity awards such as stock options. The Company and the Compensation Committee also believe that an appropriate mix of cash compensation and non-cash compensation in the form of equity awards is necessary and appropriate because, among other reasons, equity-based awards do not require the use of our working capital. The Compensation Committee is mindful of the fact that equity awards represent an expense under generally accepted accounting principles and a cost to the Company and its stockholders in the form of dilution. Accordingly, we seekthe Company seeks to achieve an appropriate balance between cash and non-cash compensation such that management isthe NEOs are appropriately incentivized, our working capital and financial results are minimally affected, and our stockholders do not experience undue dilution.
Other Compensation
The Compensation Committee does not believe in the extensive use of perquisites as a component of executive compensation. The Compensation Committee believes that the perquisites provided to our NEOs (above those received by all employees or officers in general) are limited but help maintain the competitiveness of our compensation package as compared to our peer group companies. The types of perquisites we provide to our NEOs generally consist of car allowances, and enhanced life and disability or long-term care insurance.
Limitations on Deductibility of Compensation
Prior to the Tax Cuts and Jobs Act (“Tax Reform”) that was signed into law December 22, 2017, Section 162(m) of the Internal Revenue Code placed a $1 million limit on the amount of compensation the Company could deduct in any one year for compensation paid to our NEOs (other than our CFO) unless the compensation qualified as “performance-based compensation.” Tax Reform repeals the “performance-based compensation” exception for tax years beginning after December 31, 2017 and, as a result, compensation paid to our NEOs (including our CFO) in excess of $1 million in 2018 and beyond will not be deductible unless it qualifies for transition relief applicable to binding written agreements in effect on November 2, 2017 and not materially modified thereafter.
Historically, the Compensation Committee sought to provide our NEOs with incentive and equity compensation that preserved the tax deductibility of compensation paid by the Company, to the extent reasonably practicable and consistent with the Company’s other compensation objectives. However, due to the uncertain scope of the transition relief under Tax Reform and the lack of guidance from the Internal Revenue Service, we cannot guarantee that compensation originally intended to satisfy the “performance-based compensation” exception will, in fact, satisfy such requirements. Similarly, despite the availability of transition relief under Tax Reform, the Compensation Committee believes that stockholder interests are best served by not restricting the Committee’s discretion and flexibility in structuring its compensation programs. As such, the Compensation Committee has always, and continues to, reserve the right to amend arrangements that were initially intended to qualify as “performance-based compensation” if the Committee determines such amendments are in the best interests of the Company and its stockholders, even though such changes may cause the arrangements to fail to qualify for Tax Reform’s transition relief, resulting in a non-deductible compensation expense for the Company.
Going forward, the Compensation Committee will continue to monitor the impact that Tax Reform will have on the Company’s compensation programs and contracts, including whether and to what extent our existing contracts and programs qualify for the transition relief described above.
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Security Ownership Requirements |
We maintain security ownership requirements for our directors and certain executive officers.NEOs. The Board of Directors believes that these guidelines align the interests of our directors and executive officers with those of stockholders. Our directors and executive officersare required to comply with ownership guidelines. The guidelinesrequirements for our directors and NEOs are outlined below:
•Directors, threefive times annual directorboard retainer fees (exclusive of committee, committee chair or lead director fees),
•Executive Chairman and CEO, tensix times base salary,salary;
•COO and CFO, three times base salary; and
COO, CFO, CHRO•GC and General Counsel,CPO, two times base salary.
In the case of the appointment of a new executive officer or director, theythe new officer or director shall not be required to purchase stock in the open market in order to become compliant. For directors and executive officers, untilUntil such compliance is achieved they may not sell or otherwise transfer any stock or stock equivalents related to equity awarded by the Company; provided, however, until such compliance is achieved, they may sell stock as necessary to pay any required income tax withholdings in connection with the vesting of any equity grants. Once their income tax withholdings are fulfilled, they may not sell more than 50% of the remaining equity grants or awards that vest in a fiscal year and must hold the balance of their shares until their ownership requirements are met. In order to enable our directors and executive officers to prudently manage their personal financial affairs, our policy provides that once compliance is obtained, subsequent changes in stock price will not affect their compliance with the guidelines provided the officer or director continues to hold at least the number of shares that were necessary to comply with the Stock Ownership Guidelinesstock ownership requirements but for a decrease in stock price.
For purposes of the stock ownership guidelines,requirements, stock is deemed “owned” for both directors and officers in the case of (a) shares owned outright and (b) beneficially-owned shares, and (c) phantom shares allocated to an officer in the Company’s Non-Qualified Deferred Compensation Plan.shares. As of December 31, 2017,2022, all officers and directors were in compliance with their respective security ownership requirements or transitional requirements.
Meritage has traditionally granted equity-based awards to directors, seniorboard members, executive officers and other key employees to provide a means for incentive compensation and to align the interests of management with the interest of Meritage’s stockholders. Since 2009, all equity awards to employees and directors have been comprised of restricted stock or restricted stock units and for NEOs have been comprised of a combination of restricted stock or restricted stock units and performance share awards as a means of providing sufficient long-term incentive compensation to align with industry trends.market competitiveness.
38 MERITAGE HOMES| 2023 Proxy Statement
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COMPENSATION DISCUSSION AND ANALYSIS |
We have comprehensive policies relating to the granting of stock options and other equity-based awards. Following is a summary of key aspects of our policies:
•All equity-based awards must be approved by the Compensation Committee.
All equity-based grants will be approved at formal meetings (including telephonic) of the Compensation Committee.
•The grant date of such awards will be the date of the meeting (or a specified date shortly after the meeting).
•The customary annual equity-based grant shall be approved at a regularly scheduled meeting of the Compensation Committee during the first part of the year, but generally after the annual earnings release. We believe that coordinating the main annual award grant after our annual earnings release will generally result in this grant being made at a time when the public is in possession of all material information about us.
•The Company shall not intentionally grant equity-based awards before the anticipated announcement of materially favorable news, or delay the grant of equity-based awards until after the announcement of materially unfavorable news.
•The Compensation Committee will approve equity-based grants only for persons specifically identified at the meeting by management.
MERITAGE HOMES | 2023 Proxy Statement 39
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COMPENSATION DISCUSSION AND ANALYSIS |
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Employment Agreements in Effect for 20172022 |
WeThe Compensation Committee annually reviews each NEO’s total compensation relative to the market data while considering the responsibilities of their position, their individual performance and their tenure. In January 2021, we entered into revisednew employment agreements with all of our NEOs, except for Ms. Clinton with whom we entered into an employment agreement in April 2022 when she joined the Company. The employment agreement for Mr. Hilton ends on December 31, 2023. The employment agreements for Mr. Lord, Ms. Sferruzza, and Messrs. White, LordSzubinski and Feliciano in February 2017. The employment agreementsautomatically renew for Messrs. Hilton and White were scheduled to expirea term of one-year on December 31 2017 with automatic one-year extension renewal provisions. These renewal provisions extend the terms of the arrangements for oneeach year, unless on or before August 31 of any renewal term, the executive or the Company notifies the other that it wishes to terminate the agreement. For Ms. Sferruzza and Messrs. Lord and Feliciano, their agreements expire on December 31, 2018 and contain automatic one-year extension renewal provisions unless written notice of non-renewal is providedagreement within sixty days prior to the expiration bydate of any renewal term. The employment agreement for Ms. Clinton initially ends on December 31, 2022 and includes an automatic extension renewal provision that extends the executiveterm of the arrangement for one year unless she or the company.Company notifies the other that it wishes to terminate the agreement within sixty days prior to the expiration date of any renewal term. In December 2021 we increased certain components of compensation for Mr. Lord, Ms. Sferruzza and Messrs. Szubinski and Feliciano. Following is a description of the key provisions between the Company and each of the NEOs of their respective employment agreements in effect for 2017.2022.
MERITAGE HOMES | 2018 Proxy Statement 36
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COMPENSATION DISCUSSION AND ANALYSIS |
Base Salary | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Named Executive Officer |
| | Phillippe Lord | | Hilla Sferruzza | | Steven J. Hilton | | Clint Szubinski | | Malissia Clinton | | Javier Feliciano |
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Base Salary | | $ | 900,000 | | | $ | 725,000 | | | $ | 1,000,000 | | | $ | 650,000 | | | $ | 515,000 | | | $ | 430,000 | |
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| | Named Executive Officer |
| | Steven J. Hilton | | Hilla Sferruzza | | C. Timothy White | | Phillippe Lord | | Javier Feliciano |
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Base Salary | | $ | 1,000,000 |
| | $ | 525,000 |
| | $ | 525,000 |
| | $ | 550,000 |
| | $ | 320,000 |
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Non-Equity Incentive PlanAnnual Cash Incentive Bonus
OurIn 2022, our NEOs arewere each entitled to an annual cash incentive bonus based upon the achievement of certain performance goals established by the Compensation Committee. The amount of the target bonus and payout ranges for each NEO is set forth below. The amount of the bonus to be paid is contingent upon the achievement of the performance criteria established by the Compensation Committee. Where the actual performance falls below the threshold level, no incentive bonus will be paid with respect to that performance goal.goal, unless the Compensation Committee approves a discretionary amount.
The non-equity incentive planNon-Equity Incentive Plan has three performance measures, weighted 60%, 30% and 10%, respectively:
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1. | EBITDA as adjusted for specific and pre-determined items (adjusted EBITDA); |
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2. | Number of home closings; and |
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3. | Customer satisfaction rating as determined by our third-party rating agency. |
1.Earnings before interest expense and interest amortized to cost of sales, income taxes, depreciation and amortization (“EBITDA"), adjusted for specific and predetermined items ("adjusted EBITDA");
2.Number of home closings; and
3.Customer satisfaction rating as determined by a third-party rating agency.
We believe these metrics focus our NEOs on the most important short-term measures of our business, establish a clear connection between the Company's strategy, performance and the NEO's earned compensation, and provide greater transparency to our stockholders as to the operation of our non-equity incentive plan.Non-Equity Incentive Plan. Each goal represents a fixed percentage of total potential compensation with each goal assessed separately from the others.
For each of the three performance measures noted above, our Compensation Committee has specified:
•A threshold level of achievement below which no incentives will be paid;
•A target range level of achievement (e.g. between the threshold and maximum) associated with a market-competitive incentive award; and
•A maximum level of achievement above which incentives paid will not increase (payout ceiling)("payout ceiling").
The relationship between the level of performance and associated payout with each level for each of the performance metrics is reflected below.in the following tables. Where actual results fallfell between the performance levels set forth above, payments will bewere calculated based on linear interpolation.
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Adjusted EBITDA | | Performance as % of Target | | Payout as % of Target Payout (1) (2) | | Number of Home Closings | | Performance as % of Target | | Payout as % of Target Payout (1) (2) | | Customer Satisfaction Rating | | Performance as % of Target | | Payout as % of Target Payout (1) (2) |
Maximum | | 120.0 | % | | 200 | % | | Maximum | | 110.0 | % | | 200 | % | | Maximum | | 103.4 | % | | 200 | % |
Target | | 100.0 | % | | 100 | % | | Target | | 100.0 | % | | 100 | % | | Target | | 100.0 | % | | 100 | % |
Threshold | | 83.1 | % | | 50 | % | | Threshold | | 83.0 | % | | 50 | % | | Threshold | | 97.8 | % | | 50 | % |
Below Threshold | | <83.1% | | 0 | % | | Below Threshold | | <83.0% | | 0 | % | | Below Threshold | | <97.8% | | 0 | % |
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Adjusted EBITDA | | Performance as % of Goal | | Payout as % of Target Payout (1) |
Maximum | | 114.9 | % | | (2 | ) |
Target | | 107.7 | % | | 100 | % |
Intermediate (Goal) | | 100.0 | % | | 50 | % |
Threshold | | 90.0 | % | | 25 | % |
Below Threshold | | <90.0% |
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(1) Target payouts for Mr. Lord, Ms. Sferruzza, Messrs. Hilton, Szubinski, and Feliciano, and Ms. Clinton were $2,250,000, $906,250, $1,000,000, $1,300,000, $322,500 and $364,027, respectively, and are based on the achievement of target performance level, as indicated |
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Number of Home Closings | | Performance as % of Goal | | Payout as % of Target Payout (1) |
Maximum | | 112.8 | % | | (2 | ) |
Target | | 107.7 | % | | 100 | % |
Intermediate (Goal) | | 100.0 | % | | 50 | % |
Threshold | | 90.0 | % | | 25 | % |
Below Threshold | | <90.0% |
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Customer Satisfaction Rating | | Performance as % of Goal | | Payout as % of Target Payout (1) |
Maximum | | 112.5 | % | | (2 | ) |
Target (Goal) | | 100.0 | % | | 100 | % |
Intermediate | | 93.8 | % | | 50 | % |
Threshold | | 87.5 | % | | 25 | % |
Below Threshold | | <87.5% |
| | — | % |
40 MERITAGE HOMES| 2023 Proxy Statement
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(1) | Target payouts for Mr. Hilton, Ms. Sferruzza and Messrs. White, Lord and Feliciano are $2,500,000, $525,000, $600,000, $1,100,000 and $200,000, respectively, and are based on the achievement of target performance level (which is a performance level in excess of the established goal for the Adjusted EBITDA and Number of Home Closings metrics), as indicated in the table above. |
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(2) | Maximum payout percentages for Mr. Hilton, Ms. Sferruzza and Mr. White are 200%; and Messrs. Lord and Feliciano are 170.5% and 133%, respectively.COMPENSATION DISCUSSION AND ANALYSIS |
in the preceding tables. Ms. Clinton's target reflects a proration adjustment to her full-year target payout of $515,000 to reflect her length of employment with the Company in 2022.
(2) As outlined in his employment agreement, Mr. Hilton's maximum payout cannot exceed target, which is 100%. The below target thresholds for Mr. Hilton are applicable as indicated in the tables above.
For purposes of determining the executives’ formula bonuses, “Adjusted EBITDA”Adjusted EBITDA means earnings before interest expense and interest amortized to cost of sales, income taxes, depreciation and amortization (“EBITDA”)EBITDA adjusted to exclude non-routine charges that the Compensation Committee determines in its sole discretion at the time the incentive bonus plan is established isas appropriate to exclude.
37 MERITAGE HOMES| 2018 Proxy Statement
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COMPENSATION DISCUSSION AND ANALYSIS |
Annual Discretionary Bonus
Based on specific achievements of each individual beyond those of the performance measurements included in the annual incentive compensationNon-Equity Incentive Plan calculations, our NEOs may be awarded discretionary cash bonuses subject to approval by the Compensation Committee. No discretionaryThere were no such bonuses were awarded to our NEOs in 2017.2022.
Long-Term (Equity-Based) Incentive Awards
In 2017,2022, our NEOs were entitled to long-term equity incentive awards which consist of two equity delivery vehicles: where fifty-percent (50%) will be50% was provided through a performance-based awardperformance share awards based on three criteria with interpolated potential payout levels and fifty-percent (50%)50% was provided through a performance-based award based on a single performance metric without interpolated potential payout levels.time-based restricted stock units.
Performance Share Awards. In 2017,2022, our NEOs were entitled to performance-basedperformance share awards as part of their overall compensation. As mentioned above, half of theThe performance-based portion of the long-term incentive awards had threehave two metrics, which in 20172022 were weighted 40%, 30%70% and 30%, respectively:
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1. | Achievement of a targeted earnings per share (“EPS”) goal; |
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2. | Three-year total shareholder return (“TSR”) relative to our TSR peer group (as defined under the caption "—Compensation Philosophies and Objectives — Compensation Peer Group "); and |
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3. | Achievement of a targeted return on asset (“ROA”) goal. |
1.Achievement of a targeted return on assets (“ROA”) goal, and
2.Three-year total shareholder return (“TSR”) relative to our TSR peer group (as defined in the section "—Compensation Philosophies and Objectives — Compensation Peer Group ").
The Compensation Committee selected these threetwo measures for ourthe NEO long-term incentive awards as they believe they best align with our current stockholder interests of strong returns, increased profitability per share, and increased efficiency in generating profits from assets. Additionally, the three metrics are assessed from both relative and absolute measurement approaches providing internal and external performance perspective.
For each of the threetwo performance-based plan measures, our Compensation Committee has specified:
•A threshold level of achievement below which no incentivesawards will be paid;
•A target range level of achievement (e.g. between the threshold and maximum) associated with a market-competitive incentive award; and
•A maximum level of achievement above which incentivesawards will not increase (payout ceiling)("payout ceiling").
Each metric is assessed separately from the others,other, and each may be adjusted for specific and pre-determined items established by the Compensation Committee. Both the EPS andThe ROA goals are measured annually and on a standalone basis, although the vesting of the shares will occur at the end of a three-year performance period. The TSR goal remainsis a cumulative three-year metric. The relationship between the level of performance and the shares awarded with each level is reflected in the table below. Where actual results fall between the performance levels set forth below,in the following charts, payments will be calculated based on linear interpolation.
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ROA | | Performance as % of Target | | Shares Awarded as % of Target Payout (1) | | Relative TSR | | Peer Group Percentile | | Shares Awarded as % of Target Payout (1) |
Maximum | | 150.0 | % | | 150 | % | | Maximum | | 75.0 | % | | 150 | % |
Target | | 100.0 | % | | 100 | % | | Target | | 50.0 | % | | 100 | % |
Threshold | | 50.0 | % | | 50 | % | | Threshold | | 25.0 | % | | 50 | % |
Below Threshold | | <50.0% | | 0 | % | | Below Threshold | | <25.0% | | 0 | % |
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EPS | | Performance as % of Goal | | Shares Awarded as % of Target Payout (1) |
Maximum | | 114.9 | % | | 150 | % |
Target | | 107.7 | % | | 125 | % |
Intermediate (Goal) | | 100.0 | % | | 100 | % |
Threshold | | 90.0 | % | | 50 | % |
Below Threshold | | <90.0% |
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ROA | | Performance as % of Goal | | Shares Awarded as % of Target Payout (1) |
Maximum | | 112.8 | % | | 150 | % |
Target | | 107.7 | % | | 125 | % |
Intermediate (Goal) | | 100.0 | % | | 100 | % |
Threshold | | 90.0 | % | | 50 | % |
Below Threshold | | <90.0% |
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Relative TSR | | Peer Group Percentile | | Shares Awarded as % of Target Payout (1) |
Maximum | | 80.0 | % | | 150 | % |
Target | | 65.0 | % | | 125 | % |
Intermediate (Goal) | | 50.0 | % | | 100 | % |
Threshold | | 40.0 | % | | 50 | % |
Below Threshold | | <40.0% |
| | — | % |
MERITAGE HOMES | 2023 Proxy Statement 41