Audit Committee. Following Mr. Sape’s resignation in 2014, the Board appointed Mr. Moss to serve on the Audit Committee. All Audit Committee members are independent, as independence for audit committee members is defined in the applicable NYSE listing standards and rules of the Securities and Exchange Commission, referred to as the “SEC.” The Audit Committee held five meetings during 2013. All Audit Committee members possess the required level of financial literacy as defined in our Audit Committee charter, and Mr. Manley and Dr. Dickins, Co-Chairpersons of the Audit Committee, qualify as “audit committee financial experts” as defined by applicable SEC rules and regulations and meet the current standard of requisite financial management expertise as required by the NYSE and applicable SEC rules and regulations.

The Audit Committee’s functions include overseeing the integrity of our financial statements and internal control over financial reporting, our compliance with legal and regulatory requirements, the qualifications of our independent registered public accounting firm and the performance of our internal audit function and controls regarding finance, accounting, legal compliance and ethics that management and our Board have established. In this oversight capacity,The Audit Committee’s responsibilities include, but are not limited to:

All Audit Committee members possess the required level of financial literacy as defined in our Audit Committee charter, and all Audit Committee members qualify as “audit committee financial experts” as defined by applicable Securities & Exchange Commission (referred to as the Audit Committee. See “CodesSEC) rules and regulations and meet the current standard of Conduct” for additional information.requisite financial management expertise as required by the NYSE and applicable SEC rules and regulations.

Please refer to theThe Report of the Audit Committee, which is set forth in this Proxy Statement, for a further description of ourdescribes the Audit Committee’s responsibilities and its recommendation with respect to our audited consolidated financial statements for the year ended December 31, 2013.2016.

Compensation CommitteeCommittee.

During 2013, Messrs. Manley and Sape were the members of the Compensation Committee. Following Mr. Sape’s resignation in 2014, the Board appointed Mr. Moss to serve on the Compensation Committee. All Compensation Committee members are independent as required by applicable listing standards of the NYSE and

applicable SEC rules. The Compensation Committee held six meetings during 2013.oversees our compensation programs, including equity-based compensation plans. The Compensation Committee determinesCommittee’s responsibilities, which may not be delegated, include, but are not limited to:

Nominating & Governance Committee.Our Nominating & Governance Committee’s purpose is to assist the Board in identifying individuals qualified to become members of our executive officersBoard consistent with the Amended and Restated 2001 Incentive Compensation Plan (the “2001 Plan”) and our Fourth Amended and Restated 1996 Qualified Employee Stock Purchase Plan. Please refer to the Report of the Compensation Committee and Compensation Discussion and Analysis, which iscriteria set forth in this Proxy Statement, for a further descriptionour Corporate Governance Guidelines, to help in the evaluation of the effectiveness of our Compensation Committee’s responsibilitiesBoard and its compensation philosophyindividual members, and to review and update our corporate governance principles. The Board may assume, change or add additional activities fromtime-to-time to assure the effective operation of the Board. The Nominating & Governance Committee’s activities include, but are not limited to:

Director Nominations.The Board considers candidates for director who are recommended by the Nominating & Governance Committee, by other Board members and by management. The Nominating & Governance Committee annually reviews the performance and contributions of individual Board members. To the extent they are candidates forre-election, the Nominating & Governance Committee considers all aspects of each componentcandidate’s qualifications and skills in the context of compensation paidthe Company’s needs at that point in time, their diversity of experience and individual perspectives. When considering candidates as potential Board members, the Board and the Nominating & Governance Committee evaluate a candidate’s ability to contribute to such

diversity. While not an exclusive list, the Nominating & Governance Committee considers the following important qualifications when evaluating a director candidate:

When evaluatingre-nomination of existing directors, the Nominating & Governance Committee also considers the nominees’ past and ongoing effectiveness on the Board and, with the exception of the employee directors, their independence.

The CompensationNominating & Governance Committee operates under a formal charter that governs its duties and conduct. The charter is reviewed annuallywill consider candidates recommended by the Compensation Committee, and any recommended changesWatsco’s shareholders pursuant to the charter arewritten applications submitted to the Board for its approval. A copy of the current charter is available on our website atwww.watsco.com, under the caption “Committees” within the CorporateNominating & Governance section. The charter is also available in print to any shareholder who requests it in writing to our Investor Relations department atCommittee, c/o Watsco, Inc., Investor Relations, 2665 South Bayshore Drive, Suite 901, Miami, Florida 33133.

Nominating & Strategy Committee

During 2013, Cesar L. Alvarez, Aaron J. Nahmad, Albert H. Nahmad and George P. Sape were the members of the Nominating & Strategy Committee. Following Mr. Sape’s resignation in 2014, the Board appointed Mr. Moss to serve on the Nominating & Strategy Committee. We have elected to apply the exemption related to a controlled company provided by the NYSE that allows a company that has more than 50% of the voting power held by an individual (Albert H. Nahmad has a combined voting power of 52.9% as of the record date) The information required to be exempted from complying with rules requiring that only independent directors comprise our Nominating & Strategy Committee or adopt a charter. The Nominating & Strategy Committeeincluded in any such recommendation is responsible for (a) establishing procedures for the selection and retention of members of the Board, (b) evaluating Board nominees and members and (c) recommending nominees. The Nominating & Strategy Committee is responsible for reviewing at least annually the qualifications of directors and nominees, as well as the composition of the Board as a whole, in accordance with the Company’s corporate governance guidelines. While the Nominating & Strategy Committee has no specific minimum qualifications for director candidates, the Committee takes into account each individual’s independence from management, background and considerations including diversity, age, skills and experience in the context of the needs of the Board. The Nominating & Strategy Committee also considers whether, by significant accomplishment in his or her field, the director or nominee has demonstrated an ability to make a meaningful contribution to the Board’s oversight of the business and affairs of the Company, as well as his or her reputation for honesty and ethical conduct in his or her personal and professional activities. While the Company’s corporate governance guidelines do not prescribe specific diversity standards, as a matter of practice, the Nominating & Strategy Committee considers diversity in the context of the Board as a whole and takes into account considerations relating to ethnicity, gender, cultural diversity and the range of perspectives that the directors bring to their work.

Shareholders may recommend director nominees by sending a letter to the Nominating & Strategy Committee, or may make a nomination by complying with the notice procedures set forth in our Second Amended and Restated Bylaws, and the general qualification and specific qualities and skills established by the committee for directors are described above.

Director Election—Majority Vote. Director nominees are elected by our shareholders based on a majority vote, voting as separate classes.

Director Compensation. Historically, we typically grantednon-management directors a stock option award upon their initial appointment to the Board and paid these directors $1,000 for each board meeting attended in accordance withperson. In July 2016, the procedures outlined under “Shareholder Communications” provided in this Proxy Statement. When identifying, evaluatingCompensation and considering potential candidates for membership on our Board, including those recommended or nominated by shareholders, the Nominating & Strategy Committee considers relevant educational, businessGovernance Committees jointly formalized and industry experienceadopted a Director Compensation Policy intended to attract, retain, and demonstrated characterreward board members who are not employees of the Company, the terms of which are as follows:

We do not provide any taxgross-ups to ournon-management directors, does not differ based on whether any such nominee is recommended by a shareholder. Further information related to the Nominating & Strategy Committee is included in our Corporate Governance Guidelines.

The Nominating & Strategy Committee met one time during 2013.

Director Compensation

We pay each director, who is not a Company employee, a $1,000 fee for each meetingall of the Board attended in person by such director, and we reimburse directorswhom are solely responsible for their respective tax obligations as a result of their equity and cash compensation for Board service. Directors are reimbursed for reasonable expenses incurred in connection with their activities as directors. We do not pay a fee for directordirectors, including attendance at telephonic meetings. Directors who are also employeesdirector-education seminars and conferences. Employee directors do not receive any additional compensation for their service on the Board. The Nominating & StrategyGovernance Committee reviews directors’director remuneration along with the Compensation Committee and recommends to the Board any proposed changes to director remuneration. In connection with his role as lead director, Audit Committee Co-Chairperson and Chairman of the Compensation Committee, Mr. Manley received annual fees of $55,000 in 2013 and was reimbursed for expenses associated with the performance of his duties. Dr. Dickins received an annual fee of $45,000 for her role as Co-Chairperson of the Audit Committee in 2013 and was reimbursed for expenses associated with the performance of her duties. Our directors are eligible to receive stock options under our 2001 Plan at the discretion of our Compensation Committee. We generally grant 20,000 non-qualified stock options to each of our non-management directors upon appointment to the Board.compensation.

The following table sets forth the total compensation received by our non-employeenon-management directors for 2013.in 2016:

The following summarizes stock option awards outstanding for eachnon-management director as of December 31, 2016:

Management Succession. As reflected in our Corporate Governance Guidelines, one of the Board’s primary responsibilities includes planning for CEO succession and monitoring and advising on management’s succession planning for other NEOs, with the goal of establishing an effective succession plan. The Board routinely discusses management succession during the course of its meetings, including during sessions held by the Company’snon-management directors.

Minimum Stock Ownership Requirement for Directors and Officers.In an effort to align the interests of our directors and NEOs with those of our shareholders, each director and NEO is required to meet the following minimum stock ownership requirements:

Our directors and NEOs have two years from the date they became directors or NEOs to comply with these ownership requirements. Compliance with the minimum stock ownership level will be determined on the date

when the grace period set forth above expires, and annually on each December 31 thereafter, by multiplying the number of shares held by each director and officer and the average closing price of those shares during the preceding month. As of December 31, 2016, all of our directors and NEOs satisfied these minimum requirements. The number of shares (or other equity instruments) held by our directors and NEOs as of December 31, 2016 is summarized in the Stock Ownership Table below.

Director Tenure. Directors may bere-elected at the end of each term. The Board has not established term limits as we believe that directors who have developed insight into Watsco and its operations over time provide an increasing contribution to the Board as a whole. To ensure the Board continues to generate new ideas and operate effectively, the Nominating & Governance Committee evaluates individual Board member performance and takes steps as necessary regarding continuing director tenure. With respect to our incumbentnon-management directors, as of the date of this Proxy Statement, two have served on the Board for more than 10 years (Mr. Moss and Mr. Sape), and two have served on the Board for less than 10 years (Dr. Dickins and Mr. Darnell).

Shareholder Proposals. Shareholders interested in submitting a proposal for inclusion in our proxy materials for our 2018 annual meeting of shareholders may do so by following the procedures set forth in Rule14a-8 promulgated by the SEC under the Exchange Act. To be eligible for inclusion in such proxy materials, our Corporate Secretary must receive shareholder proposals no later than December 29, 2017. Any shareholder proposal submitted other than for inclusion in the proxy materials for that meeting must be delivered to us no later than March 7, 2018, or such proposal will be considered untimely. If a shareholder proposal is received after March 7, 2018, we may vote in our discretion as to the proposal all of the shares for which we have received proxies for the 2018 annual meeting of the shareholders.

Shareholder Engagement.The Board and management consider institutional shareholders as partners in our business and actively engage and communicate with them throughout the year. This engagement is accomplished through a combination of events, including an annual investor day (during which directors, officers and a variety of leaders attend and participate), investor meetings, analyst conferences,non-deal road shows, headquarter visits and visits to our business units. Our overall philosophy is to provide consistent access and build relationships with a long-term time horizon in mind. This engagement is not just held with investment decision-makers, but also with institutional shareholders’ corporate governance leaders. In 2016, we met with a majority of the institutions with investments in our Company and also conducted meetings with the primary proxy advisory services to communicate the Company’s track record, cultural foundations and our unique use of restricted shares with long-term cliff vesting as part of our compensation philosophy. More information can be found atwww.watsco.com in the Investor Relations section.

Communications with the Company and the Board. Interested parties may communicate with the Company by letter addressed to Investor Relations, Watsco, Inc., 2665 South Bayshore Drive, Suite 901, Miami, Florida 33133, or bye-mail to Investor Relations,info@watsco.com.

Interested parties may communicate with our Board by calling (800) 4WATSCO in the United States and leaving a message for the Lead Independent Director, or bye-mailing our Lead Independent Director at presidingdirector@watsco.com (which can also be accessed via our website atwww.watsco.com under the caption “Lead Director” within the Corporate Governance section). Regardless of the method used, the Lead Independent Director will be able to view your unedited message and determine whether to relay your message to other members of the Board.

Corporate Governance Documents. Please visit our website atwww.watsco.com, under the section captioned “Corporate Governance” for the following:

These materials may also be requested in print by writing to our Investor Relations Department at Watsco, Inc., 2665 South Bayshore Drive, Suite 901, Miami, Florida 33133.

Certain Relationships and Related Person Transactions

We review, atAt least annually we review all relationships and transactions in which the Company and our directors or executive officersNEOs or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. We may use outside legal counsel to assist in such determination. As required under SEC rules, transactions thatin which we are determined to be directlya participant and the amount involved exceeds $120,000, and in which any related person had or indirectlywill have a direct or indirect material to the Company or a related personinterest, are disclosed in this Proxy Statement. In addition, as set forth in the Audit Committee Charter,charter, the Audit Committee reviewshas established a formal process by which related party transactions are subject to its review and approves or ratifies anyapproval.

The Audit Committee considers the following factors, among others, in determining whether to approve transactions:

Pursuant to us in a comparableits related-party transaction in arms-length dealings with an unrelated third party. We believe that all agreements and transactions described below met that standard atpolicy, the time they were effectedAudit Committee reviewed and approved the following transactions using the criteria set forth above:

Moss & Associates, LLC serves as general contractor for the remodeling of our Miami headquarters, which began in 2016 and is expected to continue through 2017. Moss & Associates, LLC has revenues in excess of $1 billion. Mr. Moss has served as its Chairman and Chief Executive Officer since its founding in 2004. He has served as a director of the Company since 2014 and previously served as a director from 1992 to 2012. During 2016, payments made to Moss & Associates, LLC for construction services totaled approximately $291,000. Mr. Moss’s direct interest in profits earned by Moss & Associates, LLC is expected to be immaterial to Mr. Moss.

Bank of America provides bank account administration services and has participated in the Company’s revolving credit agreements since 1989 and previously served as an aircraft lessor under a lease that expired in March 2017. Mr. Darnell retired from Bank of America in June 2016, having served as Vice Chairman from August 2014 until his retirement. Mr. Darnell has served as a director of the Company since 2012, and as a member of the audit committee since his retirement from Bank of American in June 2016. Payments made to Bank of America in 2016 included $2.0 million of lease payments, $1.8 million of bank account administrative fees and $500,000 of interest related to its participation in the Company’s line of credit (the lead agent for which is JP Morgan Chase). Bank of America has not provided, nor has it ever provided, advisory or ratified byinvestment banking services to the Audit Committee.Company at any time in the Company’s history. At December 31, 2016, Bank of America had assets of over $2 trillion and revenues of over $90 billion. Prior to his retirement, Mr. Darnell did not have a direct or indirect material interest in any of our transactions with Bank of America.

Mr. Alvarez, a director nominee, is the Co-Chairmana Senior Chairman of Greenberg, which receives customary fees for legal services. During 2013,2016, we paid Greenberg approximately $80,000less than $120,000 for services performed. We currently anticipate that this arrangement will continue.

Mr. Darnell, a director, is the Co-Chief Operating Officer of Bank of America, which provides services to us, including as one of the lenders under our syndicated revolving credit agreement, the lessor for our corporate aircraft, cash management services and other bank-related services. During 2013, we paid Bank of America approximately $3,300,000 for banking services and lease payments. We currently anticipate that these arrangements will continue. For additional information on our revolving credit agreement, please refer to Note 6 to our consolidated financial statements, which are contained in our Annual Report to Shareholders, filed with the SEC as Exhibit 13 to our Annual Report on Form 10-K for the year ended December 31, 2013.

Aaron J. Nahmad, a director and our Vice President of Strategy and Innovation, is the son of Albert H. Nahmad, our Chairman of the Board, President and CEO. Aaron J. Nahmad receives annual compensation and benefits that are consistent with the compensation and benefits provided to other executive officers with equivalent qualifications, experience and responsibilities. For further information, see the Compensation Discussion and Analysis, compensation tables and narrative discussion thereof contained in this Proxy Statement.

Shareholder Agreement

In 2009, we formed a joint venture with Carrier Corporation, which we refer to as Carrier, and issued 2,985,685 shares of Common stock and 94,784 shares of Class B common stock to Carrier as consideration. Watsco and Carrier entered into a shareholder agreement, referred to as the Shareholder Agreement. In 2012, we formed another joint venture with UTC Canada Corporation, which we refer to as UTC Canada, an affiliate of Carrier, and issued 1,250,000 shares of Common stock as consideration. At that time, we amended and restated the Shareholder Agreement. The Shareholder Agreement defines Carrier, its parent corporation, UTC, and all of UTC’s subsidiaries, including Carrier and UTC Canada as the “Shareholder Group Members”. The Shareholder Agreement applies to all shares beneficially owned by them.

Among other things, the Shareholder Agreement provides that, for as long as Carrier’s and UTC Canada’s aggregate ownership of our Common stock and Class B common stock exceeds five percent (5%) of the total number of outstanding shares of Common stock and Class B common stock:

The Shareholder Agreement also provides, among other things, that Shareholder Group Members may not, directly or indirectly, acquire, offer to acquire, or agree to acquire, by purchase or otherwise, unless specifically requested by us in writing, any shares, or the power to vote and/or direct the vote of shares, of our Common stock and Class B common stock that would result in the Shareholder Group Members owning in aggregate more than 19.9% of the total number of shares, or voting power, of our Common stock and Class B common stock then outstanding.

Communications with the Company and the Board

All interested parties may communicate with the Company by writing to our Investor Relations Department at Watsco, Inc., 2665 South Bayshore Drive, Suite 901, Miami, Florida 33133. You may also contact the Company by e-mail at info@watsco.com.

All interested parties may communicate with our Board by calling (800) 4WATSCO in the United States and leave a message for the lead independent director. You may also contact the lead independent director by e-mail at presidingdirector@watsco.com or by going to our website atwww.watsco.com, under the caption “Lead Director” within the Corporate Governance section. Regardless of the method you use, the lead independent director will be able to view your unedited message. The lead independent director will determine whether to relay your message to other members of the Board.

Shareholder Proposals

Shareholders interested in submitting a proposal for inclusion in our proxy materials for our 2015 annual meeting of shareholders may do so by following the procedures set forth in Rule 14a-8 promulgated by the SEC under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. To be eligible for inclusion in such proxy materials, shareholder proposals must be received by our Corporate Secretary no later than December 18, 2014. Any shareholder proposal submitted other than for inclusion in the proxy materials for that meeting must be delivered to us no later than March 3, 2015, or such proposal will be considered untimely. If a shareholder proposal is received after March 3, 2015, we may vote in our discretion as to the proposal all of the shares for which we have received proxies for the 2015 annual meeting of the shareholders.

STOCK OWNERSHIP

The following table sets forth information regarding the beneficial ownership of our Common stock and Class B common stock by:

The table also contains, in the final column, the combined voting power of the voting securities on all matters presented to the shareholders for their approval, except for the election of directors and for such separate class votes as are required by Florida law. Holders of our Common stock are entitled to one (1) vote per share on each matter that is submitted to shareholders for approval and holders of our Class B common stock are entitled to ten (10) votes per share on each matter that is submitted to shareholders for approval. All information is as of the record date, April 4, 2014.7, 2017. As of the record date, we had 30,094,57730,396,097 shares of Common stock and 4,870,0715,271,389 shares of Class B common stock issued and outstanding.

regulations promulgated under the Exchange Act and the information is not necessarily indicative of beneficial ownership for any other purpose. Under applicable rules of the SEC, although each named person and all directors and named executive officers as a group are deemed to be the beneficial owners of securities that may be acquired within 60 days through the exercise of, exchange, or conversion of options

or other rights, and the Class B common stock is immediately convertible into Common stock on a one-for-one basis, the number of shares set forth opposite each shareholder’s name does not include shares of Common stock issuable upon conversion of our Class B common stock.stock notwithstanding that the Class B common stock is immediately convertible into Common stock on aone-for-one basis.

(3)

Based on Schedule 13G/A filed on May 7, 2012. United Technologies Corporation (“UTC”) is deemed to be the beneficial owner of 4,330,469 shares of common stock, 3,080,469 of which are owned directly by Carrier Corporation, which is a wholly owned subsidiary of UTC, and 1,250,000 shares of which are owned directly by UTC Canada Corporation, which is a wholly owned subsidiary of UTC. UTC has shared voting power and shared dispositive power over 4,330,469 of such shares. Carrier Corporation has shared voting power and shared dispositive power over 3,080,469 of such shares. The address of UTC is One Financial Plaza, Hartford, Connecticut 06101. The address of Carrier Corporation is One Carrier Place, Farmington, Connecticut 06034.

(4)

Based on Schedule 13G/A filed on January 31, 2014.27, 2017. BlackRock, Inc., a parent holding company, has sole dispositive power over 2,773,4682,221,975 of such shares and sole voting power over 2,636,4262,052,063 of such shares. The address of BlackRock, Inc. is 4055 East 52nd Street, New York, New York 10022.10055.

(5)(4)

Based on Schedule 13G/A filed on February 12, 2014.10, 2017. The Vanguard Group, an investment advisor, has sole dispositive power over 1,498,7971,920,238 of such shares, shared dispositive power over 35,09416,246 of such shares, sole voting power over 14,968 of such shares and soleshared voting power over 36,7942,539 of such shares. The address of The Vanguard Group is 100 Vanguard Boulevard, Malvern, Pennsylvania 19355.

(6)(5)

The number of shares of Common stock indicated are owned pursuant to the Watsco, Inc. Amended and Restated Profit Sharing Retirement Plan & Trust, (“Profit Sharing Plan”).referred to as the 401(k) Plan. The number of shares of Class B common stock indicated consists of (i) 379,572297,079 shares directly owned, (ii) 493,845498,845 shares owned by various family-related trusts, (iii) 1,330,000 shares owned by Albert Capital LP, a limited partnership over which Mr. Nahmad maintains effective control, (iv) 25,00025,618 shares owned by custodial accounts over which Mr. Nahmad is the custodian, (v) 1,415,622 shares issued under Restricted Stock Agreements held by Albert Henry Capital L.P., a limited partnership over which Mr. Nahmad maintains effective control, (vi) 756,560 additional shares issued under Restricted Stock Agreements and (vi) 527,335 additional(vii) 89,875 shares owned by the Albert H. and Jane D. Nahmad Foundation, Inc., a charitable organization over which Mr. Nahmad shares voting power as a member of its board with other family members.

(6)

The number of shares of Common stock indicated consists of (i) 1,408 shares directly owned, (ii) 1,150 shares owned by Mr. Nahmad’s spouse and (iii) 293 shares owned pursuant to the 401(k) Plan. Mr. Nahmad disclaims beneficial ownership of the shares held by his spouse, except to the extent of his pecuniary interest therein. The number of shares of Class B common stock indicated consists of (i) 63,605 shares directly owned and (ii) 78,311 shares issued under Restricted Stock Agreements.

(7)

The number of shares of Common stock indicated consists of (i) 4,00019,046 shares directly owned, (ii) 2,3022,384 shares owned pursuant to the Profit Sharing401(k) Plan, (iii) 450 shares owned in an Individual Retirement Account and (iv) 108,750 shares issued pursuant to Restricted Stock Agreements. The number of shares of Class B common stock indicated consists of (i) 25,000 shares directly owned and (ii) 103,200 shares issued under Restricted Stock Agreements.

(8)

The number of shares of Common stock indicated consists of (i) 1,40828,954 shares directly owned, and (ii) 2071,340 shares owned pursuant to the Profit Sharing Plan. The number of shares of Class B common stock indicated consists of (i) 51,605 shares directly owned, (ii) 30,700 shares issued under Restricted Stock Agreements and (iii) 6,000 shares issuable upon exercise of presently exercisable options granted pursuant to the 2001 Plan.

(9)

The number of shares of Common stock indicated consists of (i) 28,954 shares directly owned, (ii) 1,259 shares owned pursuant to the Profit Sharing401(k) Plan and (iii) 40,000 shares issued pursuant to Restricted Stock Agreements. The number of shares of Class B common stock indicated consists of (i) 35,20037,037 shares issued under Restricted Stock Agreements and (ii) 7,5004,867 shares directly owned.

(9)	The number of shares of Common stock indicated consists of (i) 5,754 shares directly owned and (ii) 334 shares issuable upon exercise of presently exercisable options granted pursuant to the 2001 Plan.Watsco, Inc. 2014 Incentive Compensation Plan (the “2014 Plan”).

(10)	The number of shares of Common stock indicated consists of (i) 5,296 shares directly owned and (ii) 7,000 shares issuable upon exercise of presently exercisable options granted pursuant to the 20012014 Plan.

(11)	The number of shares of Common stock indicated consists of (i) 7,0002,225 shares directly owned and (ii) 334 shares issuable upon exercise of presently exercisable options granted pursuant to the 2014 Plan.

(12)

The number of shares of Common stock indicated consists of (i) 10,000 shares for which Mr. Moss shares voting and dispositive power with his spouse, (ii) 10,000 shares owned by a trust controlled by Mr. Moss, (iii) 1,800 shares owned in an Individual Retirement Account, and (iii)(iv) 1,000 shares owned by Mr. Moss’ spouse.spouse and (v) 334 shares issuable upon exercise of presently exercisable options granted pursuant to the 2014 Plan. Mr. Moss disclaims beneficial ownership of the shares held by his spouse, except to the extent of his pecuniary interest therein.

(12)	The number of shares of Common stock indicates shares owned by trusts controlled by Mr. Manley. The number of shares of Class B common stock indicates shares owned by a trust controlled by Mr. Manley.

(13)

The number of shares of Common stock indicated consists of (i) 11,4318,581 shares directly owned (ii) 669 shares owned pursuant to the Profit Sharing Plan and (iii) 37,500 shares issued pursuant to Restricted Stock Agreements. The number of shares of Class B common stock indicated consists of (i) 55,200 shares issued under Restricted Stock Agreements and (ii) 7,5007,667 shares issuable upon exercise of presently exercisable options granted pursuant to the 20012014 Plan.

(14)	Includes shares beneficially owned by directors and named executive officers as described in footnotes(6) (5)-(13).

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC reports of ownership of, and transactions in, our equity securities. To our knowledge, based solely on a review of copies of such reports that we received, our records and written representations received from our directors, executive officers and certain of those persons who own greater than 10% of any class of our equity securities, for the year ended December 31, 2013,2016, all applicable Section 16(a) filing requirements were complied with on a timely basis.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table contains information as of December 31, 20132016 with respect to compensation plans (including individual compensation arrangements) under which any of our equity securities are authorized for issuance.

EXECUTIVE OFFICERSCOMPENSATION DISCUSSION AND ANALYSIS

The namesIntroduction

Our executive compensation program is grounded by the guiding principle that compensation should be highly dependent uponlong-term shareholder returns. This key tenet of our fivecompensation philosophy has driven the unique design of our program for many years and has enabled our executive officersleadership team to stay solidly focused on long-term growth—generating a compounded annual growth rate for total shareholder return of 20.8% over the last 25 years.

Our program is unique in comparison to other companies because of our approach to long-term incentives. All of the restricted shares we have granted to more than 40 key leaders of our Company, including our NEOs, vest upon reaching retirement age (62 or older). Vesting may also occur at an even later date for those who extend their careers beyond age 62.This means that our key leaders will not know the value and cannot realize the value of their equity awards until they have spent their career with the Company. We believe granting restricted stock effectively balances strategic risk-taking and long-term performance, creates an ownership culture, and aligns the interests of high-performing leaders with the interests of our shareholders. Additionally, we believe these awards help build a sustainable future by ensuring that our executives are set forthmaking the right long-term decisions that will survive well past their retirement.

The Company began granting restricted stock awards to a variety of leaders in 1997. As it relates to our NEOs,none of their restricted share awards have ever vested.On a weighted-average basis, our NEO’s respective restricted share awards have been outstanding for approximately 10 years and, due to the cliff-vesting upon retirement, will not begin to vest until 2022 for the Chairman & CEO and not until 2045 for the President. This long-term vesting demonstrates the distinct nature of this program, and the long-term perspective that is at the core of the Company’s compensation philosophy. Based on data provided by Equilar of the population of companies referred to in the table below, and we refer to such persons as our Named Executive Officers (“NEOs”). In the following Compensation Discussion and Analysis, we describe the policies and practices that relate to the compensationduration of our NEOs.cliff-vesting period is solely unique to Watsco.

This compensation discussion and analysis (referred to as CD&A) explains our executive compensation program for our NEOs listed below. It also describes the Compensation Committee’s process for making pay decisions in 2016.

Biographical information2016 Business Performance. Watsco produced another year of record performance in 2016:

Philosophy, Culture & Performance

Ana M. MenendezCompensation Philosophy., 49, has served as We measure success by our Chief Financial Officerability to create shareholder value over significantly long periods of time. The vision and Treasurer since November 2003, as Treasurer since 1998leadership of our entrepreneurial managers are at the core of our historic performance and as Assistant Secretary since 1999. Ms. Menendezit is a certified public accountant.their continued commitment to drive long-term sustainable growth that we believe will solidify our ongoing success. To this end, we must attract, motivate and retain high-caliber talent. Accordingly, our compensation program is designed to reward our leadershipwith an emphasis on the long-term.

Paul W. JohnstonPay-For-Performance & Ownership Culture., 61, was appointed For employees throughout Watsco, including our NEOs, we maintain apay-for-performance culture that provides for a variety of potential rewards. Our stock-based plans include 401(k) matching contributions to eligible employees, a voluntary employee stock purchase plan and the newly-created positiongranting of Senior Vice President, Officestock options and restricted stock awards based on individual merit and measures of performance. Equity compensation plans are designed to promote long-term performance, as well as to create and sustain long-term employee retention, continuity of leadership and an “ownership culture” whereby management and employees think and act as owners of the Company. As described above, our restricted stock program is unique because an employee’s restricted shares vest entirely at the end of his or her career (generally at retirement age of 62 or later), subjecting such awards to significant market, performance and forfeiture risks.

Concentrated Use of Long-Term Incentives Using Restricted Stock. As noted above, for our Chairman & CEO, the President and other NEOs, the primary method of long-term incentive compensation is stock-based compensation awards in March 2014. In connectionthe form of restricted stock. This method has been consistent over the Company’s history and is rooted in the principle that long-term, stock-based compensation is the most effective method to align shareholder interests with his new appointment, Mr. Johnston vacated his rolethose of executives. To be fully effective and long-term focused, the Company’s stock awards havecliff-vesting upon retirement so that executives have the opportunity to build wealth, while facing significant risks over the vesting period. This program also extends beyond the NEOs to approximately 40 other key leaders of Watsco.

The Company believes this balance of risk and reward over long periods is more effective than more conventional equity-based programs that provide considerably shorter-term vesting and payouts, and effectively ties together the development ofshareholder wealthalong withemployee wealth. The program also serves as a NEO in March 2014, having served as VPan important method to retain key leaders for the duration of the Company since March 2008.their working careers.

COMPENSATION DISCUSSION AND ANALYSISOverall Performance. Total shareholder return (referred to as TSR) measures share price appreciation plus the reinvestment of dividends. The Company views total shareholder return as the simplest and most fundamental method of measuring long-term value creation for shareholders and considers it as a metric in determining long-term incentive awards. Based on data provided by FactSet Research Systems Inc. (referred to as FactSet), the Company’s compounded annual growth rate (referred to as CAGR) for TSR in comparison to a variety of public-company market indices as of December 31, 2016 is as follows:

Our3-year,5-year and10-year TSR and the25-year TSR of 20.8% in particular demonstrates the sustained level of performance of our Company over long periods of time. These results are also important in assessing the Company’s business strategy, quality of leadership, culture and the relative effectiveness of our compensation practices. Based on further analysis of data from FactSet, the Company’s performance ranks as follows:

Governance, Compensation Actions & Summary of Details

Executive SummaryCompensation Governance Practices. We believe that our executive compensation program promotes sound governance standards and includes many shareholder-friendly features, such as:

We are committed

OversightDetermination of Executive Compensation

Compensation.The Board has delegated to the Committee itsdelegates responsibility for determining totalthe compensation forstructure of our NEOs.Chairman & CEO and our President to the Compensation Committee. For our other NEOs, our Chairman & CEO determines their compensation after review and consultation with the Compensation Committee. The Compensation Committee currently consists of twothree independent directors appointed by the Board. Each member is independent in accordance with applicable rules and regulations ofIn providing input regarding the SEC and NYSE.

The responsibilities of the Committee, as stated in its charter, include the following:

The Committee is responsible each year to:

Role of Named Executive Officers in Determining Compensation

None of our NEOs has a direct role in determining the amount of his or her compensation. Our CEO recommends compensation packages for our NEOs, except for the VPSI and himself. The CEO’s assessment ofconsiders each executive’s compensation is based on the particular executive’s generalNEO’s responsibilities, the overall financial performance of the Company, the performance of the department or function that each executivesuch NEO leads and the collective success of the team meeting certain strategic priorities. Our CEOThe Compensation Committee has considerable discretion in respectthe opportunity to meet with the NEOs at various times during the year, which allows the Compensation Committee to form its own assessment of the compensation packages he recommends.each individual’s performance.

Elements of Executive Compensation Philosophy

The long-standing objective considered in the design ofCompensation. Our executive compensation is to closely align compensation with the long-term interests of the Company and its shareholders. This core philosophy is the foundation of our executive compensation decisions and reflected in a set of guiding principles. The application of these principles enables us to create a meaningful link between compensation and long-term, sustainable growth for our shareholders. The guiding principles are as follows:

Elements of Executive Compensation

Our executive compensation iscurrently made up of three principal elements: base salary; annualsalary, short-term incentive compensation paid in cash incentives; and long-term share-basedincentive compensation generally paid in restricted shares of Class B common stock, each of which is intended to be an important part of total executive compensation. Each year, the Committee reviews the compensation for our NEOs and sets compensation for our VPSI and CEO. The Committee has the opportunity to meet with the executives at various times during the year, which allows the Committee to form its own assessment of each individual’s performance.

Use of Discretion

The determination of the amount of each element of compensation for NEOs, other than the CEO, is discretionary and is not weighted or based on specific performance metrics; therefore, the relative amount of each element of compensation may vary from year-to-year. As described above, however, our core compensation philosophy focuses on long-term performance, which results in a relatively high portionproportion of executive compensation in the form of share-based compensation. The annual base salary and incentive compensation for the CEO is discussed separately below.

Named Executive Officers other than the CEOrestricted shares.

Base Salary

Salary.Base salary is designed to adequately compensate and reward the NEOs for theirday-to-day performance. The Compensation Committee determines base salary for our Chairman & CEO and for our President. Our Chairman & CEO determines in his discretion, base salaries for allour other NEOs other than the VPSIafter review and himself, after consultation with and subject to the approval of theCompensation Committee. When setting and adjusting each NEO’s salary level, the executive’s roles and responsibilities, experience, potential and performance are considered. Other factors are considered such as the annual merit increase, if any, paid to all other Company employees, demand in the labor market for the particular executive and succession planning. These factors are not weighted. Adjustments to base salary are discretionary and based on an overall assessment of all of these factors. Additionally, neither base salary nor any other element of executive compensation is benchmarked at any particular level versus a peer group or compensation survey data. Instead, reasonable judgment is used to set a base salary that, when combined with all other compensation elements, results in a competitive pay package.package intended to align with the compensation philosophy of the Company, while retaining high-performing executives.

The Committee reviews NEOFor 2016, the NEOs accepted voluntary salary reductions in response to a broader Company-wide strategy to reduce overall costs used to help set our business on the right path for future growth opportunities. Our Chairman and CEO’s salary was reduced by 20% and the remaining NEO’s salaries annually and sets the salaries for our VPSI and CEO. Effective July 1, 2013, the Committee approved an increase in the base salary of our VPSI from $175,000 to $225,000 based on an increase in his responsibilities. The determination was made that the base salaries for the other NEOs were adequate based on their respective roles and responsibilities; therefore, we made no adjustments in 2013. The salariesreduced by 10%. Salaries paid to the NEOs during 2013in 2016, including such adjustments, are shown in the 2013 Summary Compensation Table presented in this Proxy Statement.Table. These reductions were reinstated on January 1, 2017.

Annual Cash Incentives

Incentives.Annual cash incentives are discretionary and are used to reward NEOs for their current contributions to the Company, consistent with established annual goals and to align executive compensation with annual performance.strategic objectives of the Company. Our Chairman & CEO determines, in his discretion,is not eligible for an annual cash incentives for all NEOs, other than the VPSI and himself, after consultation with and subject to the approval of the Committee.incentive. Some of the factors considered when determining these incentivesthe Compensation Committee considers include, but are not limited to, the overall financial performance of the Company, the performance of the department or function that each executive leads and an assessment of the executive team’s collective achievement of strategic priorities. The Committee’s approvalFor our President, the Compensation Committee determines specific operational and determination whether to paytechnology-based objectives that must be achieved for an annual cash incentives has been, and continuesincentive to be entirely discretionary and is not based on any specific performance-based factors.earned.

For 2013,2016, the CEO determined, and the Compensation Committee approved, a discretionary cash incentive of $100,000 each for our CFO and SVP based on the factors set forth above. Also, the Compensation Committee independently determined and approved an annual cash incentive of $200,000 each$382,500 for our CFO, SVP and VPPresident based on the overall financialachievement of specified performance criteria established at the beginning of 2016 including 1) improvement of inventory turns related to the Company. Factors consideredCompany’s launch of new supply chain optimization software, 2) growth of sales in this determination include record performance in revenues, operating incomeparts and diluted earnings per share.supplies, 3) technology adoption and usage across the Watsco enterprise and by its customers and 4) development of various merger and acquisition activities. The annual cash incentives paid to the NEOs during 20132016 are shown in the 20132016 Summary Compensation Table presented in this Proxy Statement.Table.

Share-Based Compensation

We currently maintain one share-basedLong-Term Incentive Compensation. Our long-term incentive compensation plan is administered through the 2001 Plan, which provides a broad variety2014 Plan. As of share-based compensation alternatives. At December 31, 2013,2016, the 20012014 Plan had a total of approximately 200 participants. To date, awards underparticipants, including the 2001 PlanNEOs. Awards generally consist of: (1)(i) non-qualified stock options; and (2) awards of non-vested (restricted) stock. Grants are made to retain executives, align their incentives with the long-term interests of our shareholders and reward them for potential long-term contributions. Our CEO determines, in his discretion, the allocation between awards of non-qualified stock options and non-vested (restricted) stock for all NEOs, other than the VPSI and himself, after consultation with and subject to the approval of the Committee.

Share-based compensation awards generally provide either medium-term or long-term incentives. Awards of non-qualified stock options are granted as medium-term incentives, which generallythat vest in two equal installments over three and four years from the date of service. By comparison, non-vested (restricted)grant and (ii) awards of restricted stock veststhat vest upon an executive’s retirement age, generally resulting in longer vesting schedules; therefore, such awards are granted(age 62 or later). For the NEOs, as long-term incentives.

As described above, our core compensation philosophy is heavily-weightedheavily weighted toward long-term incentives,awards of restricted stock, which create an owner-oriented culture; therefore, the discretionary allocation betweennon-qualified stock options and non-vested (restricted)restricted stock generally favors the latter.

Stock Options

Stock options provide executives with an opportunity to purchase our Common stock at a price determined on the grant date. Options under the 2001 Plan generally vest over three to four years of service. Vesting may accelerate in certain circumstances prior to the original vesting date. There is a limited term in which the optionee can exercise stock options, known as the option term. Options under the 2001 Plan have an option term of five years. A stock option becomes valuable only if our Common stock price increases above the option exercise price, and the holder of the option remains employed during the period required for the option to “vest”; therefore, these options provide an incentive for the holders to remain employed by us.

In recent years, the CEO has determined and the Committee has approved that, as between awards of non-qualified stock options and non-vested (restricted) stock, incentives would be composed entirely of non-vested (restricted) stock, which generally vest over a significantly longer period of time than stock options. This determination was based on our philosophy that compensation should both (i) help establish a culture whereby executives think and act with a long-term point of view (i.e. create an owner-oriented culture) and (ii) provide executives with an incentive to sustain their career with the Company. No stock options were granted to the NEOs for the 2013 fiscal year. The approval and determination not to award For 2016, we awarded no stock options to the NEOs has been, and continuesNEOs.

In 2016, the Compensation Committee approved the discretionary award of 1,837 restricted shares of Class B common stock to be, entirely discretionary and is not based on any specific performance-based factors or because of any failure on the parteach of the executivesNEO’s (other than the Chairman & CEO) related to meet performance expectations. Instead,2015 performance. These discretionary awards are reflected in the determination was based on our core compensation philosophy outlined above.Summary Compensation Table.

Non-Vested (Restricted) Stock

Awards of non-vested (restricted)Restricted stock are designed to focus on the long-term performance of the Company for the duration of an executive’s career andawards are subject to forfeiture until certain specified events occur (generally, upon retirement at age 62 or later, death, long-term disability or a change in control of the Company). These features enhance our ability to retain, throughout their entire careers, those individuals who are key to the creationAwards of shareholder value. Shares of non-vested (restricted)restricted stock may be in either shares of either our Common stock or Class B common stock, none of which may be sold or disposed of prior to vesting, and which may be forfeited in the event of termination of employment prior to the end of athe restriction period. Generally, restricted period. A participant granted non-vested (restricted)shares of Class B common stock generally has allhave been awarded, as the Board considers long-term continuity, stability and consistency of culture as important long-term contributors to the rights of a shareholder ofCompany’s future success. The Company also believes other stakeholders, including its largest vendor partners, are comforted by and have made long-term commitments to the Company includingas a result of this long-term continuity, stability and consistency.

Shares of restricted stock include the right to vote and the right to receive dividends. Awardsdividends prior to vesting given the long-term vesting provision.The value of non-vested (restricted) stock are grantedrestricted shares is measured at no costthe date of grant and is amortized ratably over the period from the date of grant through the date of cliff-vesting. The Company receives a tax deduction equal to the employee.value of the shares at the vesting date. If the underlying shares appreciate in value, the income tax benefits that accrue to the Company will be substantially higher than if the annual award amounts were paid in cash.

Non-vested (restricted)Restricted stock awards, vary each year and, in the case of NEOs other than the VPSI,while discretionary, are based inupon the discretionCompany’s performance, as described below. For our Chairman & CEO and our President, the number of shares granted is based on the criteria and formula set forth below.

For our other NEOs, the Chairman & CEO after consultation withconsiders and recommends discretionary share grants, which are subject to the review and approval by the Committee. For our VPSI, the award is based solely in the discretion of the Compensation Committee. We have no formal program or pre-established performance or financial targets that determine the amount, if any, of awards. The Committee’s decision to grant non-vested (restricted)restricted stock awards to our other NEOs is based on the subjective weighting of the factors described below,following criteria, together with the overall performance of the Company.

The CEO and the Committee consider the following factors with respect to the amount of an individual executive’s non-vested (restricted) stock award:Company:

During 2013, the amount

A summary of non-vested (restricted)restricted stock awarded toawards held by our NEOs, was based on their respective individual performances and their respective current levelsincluding the range of equity relative toyears such shares were granted, the other NEOs. The grant date fair valuerange of the non-vested (restricted) stock awarded to the NEOs during 2013 is shown in the 2013 Grants of Plan-Based Awards Table presented in this Proxy Statement.

Authorization of Share-Based Awards

The Committee approves the grant of share-based compensation to the CEO. The Committee has delegated to the CEO the authority to grant options and award restricted stock under the 2001 Plan to the other NEOs except for the VPSI. The amounts granted to NEOs vary each year and are based on the discretion of the Committee in the case of the CEO and VPSI,cliff-vesting dates, and the discretionweighted-average years remaining until the cliff-vesting date is reached is as follows:

Compensation of the CEO in the case of the other NEOs.

Other than in connection with the CEO’s annual incentive opportunity, as discussed below, we do not have a formal policy or timetable for the granting of share-based compensation. Generally, we consider grants annually, during performance reviews or upon hiring. The decision to award only non-vested (restricted) stock in 2013 was based on our core philosophy described above, together with the recognition that medium-term incentives (i.e. non-qualified stock options) were already outstanding.

Additional long-term incentive compensation information related to the NEOs is included in the 2013 Summary Compensation Table, the 2013 Grants of Plan Based Awards Table and the Outstanding Equity Awards as of December 31, 2013 Table presented in this Proxy Statement.

Chief Executive Officer

Our Chairman & CEO.Albert H. Nahmad has served as our Chairman of the Board, President and& CEO since December 1972. His leadership hasvision and entrepreneurship have been instrumental in our growth and success over the past 4144 years, and his leadership continues to be of great importance to our future performance. Given the foregoing, Mr. Nahmad’s

The Chairman & CEO’s compensation is materially differentcomposed of two components: (i) base salary and (ii) a long-term incentive award of restricted shares. From 2011 to 2015, his annual base salary was $1,100,000. Beginning in January 2016, in connection with the appointment of A.J. Nahmad as President and greater than,there-assignment of certainday-today responsibilities, our Chairman & CEO’s base salary was reduced from $1,100,000 to $825,000. In 2016, Mr. Nahmad agreed to a further 20% voluntary reduction in salary to $660,000 in response to a broader-based cost reduction effort by the compensation paid to our other NEOs.Company.

Financial Metrics UsedThe design of our Chairman & CEO’s long-term incentive compensation plan is simple and has remained virtually unchanged since it was originally developed in Executive Compensation

Two key financial metrics are considered1997. His incentive compensation award is based on the performance of two fundamental metrics: (i) annual growth of earnings per share (referred to as EPS) and (ii) the year-over-year increase in measuringWatsco’s stock price. If either increases, then he earns a restricted stock award. If neither increases, then he is not entitled to a restricted stock award in that year. As a result, no restricted stock awards were received by our Chairman & CEO in 2007 or 2008 due to EPS and stock price performance for our CEO:

Earnings per Share

To ensureat that compensation istime. EPS growth recognizes the importance of a proportional to the return on investment earned by shareholders we use earnings per share, or EPS, as one of the metrics to determine annual incentive compensation for our CEO. EPSand is defined as diluted earnings per shareEPS calculated in accordance with U.S. generally accepted accounting principles.

Common Stock Price

As is the case with EPS, we also look at the closing market price for our Common stockprinciples, referred to as a meansGAAP. We do not consider any“non-GAAP” adjustments to ensure compensation is proportional to the potential return on investment earned by shareholders. Incentive compensation for our CEO takes into account the change in the price of our Common stock from year to year.

Our CEO does not earn any incentive compensation unless one of the two metrics above has increased for the year in which the incentive compensation is determined.

Annual Incentive Compensation

Each year, our CEO has an annual incentive opportunity based upon the increase, if any, in EPS andEPS. Common stock price appreciation is also a fundamental method of measuring value creation on ayear-to-year basis, and reflects not only performance, but other assessments made by shareholders related to the quality and nature of the Company. Effective January 1, 2013, we amended and renewed, and the Committee subsequently approved, an amendmententerprise.

To be eligible to our employment agreement with Mr. Nahmad, dated January 31, 1996, which we refer to as the CEO Agreement. Under the terms of the CEO Agreement, Mr. Nahmad may earn this annualreceive a long-term incentive award, pursuant to and under the 2001 Plan. Mr. Nahmadour Chairman & CEO must be employed for the entire year to be entitled to his annual incentive compensation for such year, unless the Compensation Committee otherwise specifically determines that such amounts are to be paid in respect of aotherwise. The Compensation Committee determines the performance criteria each year in which Mr. Nahmad is employed for only part of such year. The Committee and Mr. Nahmad mutually agree, within the first 90 days of the calendar year and formalizes such criteria as an amendment to the Chairman & CEO’s employment agreement (such agreement and amendments are referred to as the Employment Agreement), which was filed with the SEC as Exhibit 10.1 to the Quarterly Report on the metrics to be used in determining performance-based compensationForm10-Q for the applicable year. Such metrics are administeredquarter ended March 31, 2016 and incorporated herein by reference.

The design of our Chairman & CEO’s 2016 long-term incentive program was as follows:

EPS growth

$91,350 in value is awarded for each one cent of growth in the Committee and documentedCompany’s EPS over the prior year,plus

Common stock price growth

(i) Zero in value if the NYSE quoted price of Watsco’s Common stock did not exceed $117.13* on December 31, 2016, or

(ii) $1,680 in value awarded for each one cent of increase in the NYSE quoted price of Watsco’s Common stock over the prior year (if less than $140.56#), or

(iii) $2,520 in value is awarded for each one cent of increase in the NYSE quoted price of Watsco’s Common stock over the prior year (if greater than $140.56#)

The Employment Agreement sets forth that long-term incentives, if any, will be awarded in the form of an amendment to the CEO Agreement, which is filed with the SEC.

For 2013, the CEO’s incentive compensation was determined using the following formula:

For 2013, based on the achievement of the performance factors described above, Mr. Nahmad’s incentive compensation for 2013 was $16,100,100. Mr. Nahmad was entitled to receive 166,615 shares of Class B common stock, which was issuedlikely significantly less. Independent valuations obtained by the Company duringsuggest that the first quarterpresent value of 2014. These non-vested (restricted)such awards is at least 25% less and may be as much as 50% less than the grant date fair value.

During 2016, Watsco’s annual EPS increased from $4.90 per share in 2015 to $5.15 per share in 2016, and the price of its Common stock increased from $117.13 to $148.12, as of December 30, 2016. Based on the performance criteria factors set forth above, the calculated gross value of the 2016 long-term incentive award earned by our Chairman & CEO was $10.1 million (67,853 restricted Class B Common shares). Such restricted shares vest in their entiretyare scheduled to cliff-vest on October 15, 20222026 and are subject to forfeiture prior to this vesting date as set forth in the restricted stock agreements. The issuance of such restricted shares increased his combined voting control from 52.5% to 53.1%. Mr. Nahmad also received $93.00$96.25 in cash related tolieu of fractional shares.

Other BenefitsCompensation of Our President.On January 15, 2016, A.J. Nahmad was promoted to the position of President. Under his direction and Programs

A limitedleadership, Watsco began in 2012 to actively increase its investment in a number of other benefitsscalable technologies as a means of further strengthening its leadership position in the HVAC/R marketplace. His promotion to President acknowledged his leadership and programsrecognized the importance of the successful execution and adoption of these technological innovations across the Watsco enterprise. His promotion is availablealso considered an important event for the Company in terms of management succession with the goal of achieving long-term, generational continuity and consistency of Watsco’s unique culture.

To formulate our President’s compensation program, the Compensation Committee engaged Pearl Meyer & Partners, LLC (referred to as Pearl Meyer), an independent compensation consulting firm, to provide advice, relevant market data and best practices with respect to our NEOs. We offerPresident’s compensation. The Compensation Committee assessed the independence of Pearl Meyer against the specific criteria under applicable SEC and NYSE rules, received a letter from Pearl Meyer confirming their independence and determined that no conflict of interest is raised by Pearl Meyer’s work for the Compensation Committee.

Our President’s 2016 program included: (i) a base salary of $550,000; (ii) eligibility for an annual cash incentive of up to $450,000 contingent upon achieving specified operational and technology-related objectives, of which $382,500 was earned; and (iii) eligibility for an equity award contingent upon the attainment of specified performance criteria. The equity-based award, if any, is split into two components: (a) 75% of the amount of the award to be issued immediately as Class B restricted stock with cliff vesting at age 62 or later; and (b) 25% of the amount of the award to be issued as restricted stock units (RSUs) that are potentially convertible into shares of Class B restricted stock contingent upon the Company’s stock price performance measured at the end of a three-year period.

For 2016, the President’s equity-based incentive was as follows:

EPS growth

$39,150 in value is awarded for each one cent of growth in the Company’s EPS from the prior year,plus

Common stock price growth

(i) Zero in value if the NYSE quoted price of Watsco’s Common stock did not exceed $109.85* on December 31, 2016, or

(ii) $720 in value is awarded for each one cent of increase in the NYSE quoted price of Watsco’s Common stock from the prior year (if less than $131.82#), or

(iii) $1,080 in value is awarded for each one cent of increase in the NYSE quoted price of Watsco’s Common stock from the prior year (if greater than $131.82#)

Based on these benefitscriteria and programsactual 2016 performance, our President’s equity-based award for 2016 consisted of: (i) 25,774 shares of restricted Class B common shares that are scheduled to cliff-vest on October 17, 2043 – his estimated retirement date, and (ii) RSUs valued at $1,277,977 that may result in the issuance on December 31, 2019 (the measurement date) in Class B restricted shares dependent upon the three-year average annual performance of Watsco’s share price as partfollows:

The Compensation Committee has discretion to determine the RSU conversion factor based on achieved growth rates between the thresholds of each NEO’s total compensation package. A list0% to 10% and 10% to 20%. Restricted shares of specific benefitsClass B common stock, if any, issued pursuant to this award will cliff-vest on October 17, 2043, and are subject to the terms, conditions and risks of forfeiture contained in the related restricted stock agreements. Although restricted shares granted in 2016 are presented in the Summary Compensation Table at grant date fair value, due to the unusually long vesting periods and associated market and forfeiture risks, the present value of such awards is noted below:likely significantly less.

Employee Stock Purchase PlanBenefits Programs.

We maintain an Our NEOs are eligible to participate in our health and welfare plans (medical, dental, vision, life and other insurance), a 401(k) plan, employee stock purchase plan which isand other programs that are generally available to all eligible employees, that enables such employees to purchase our Common stock at a discounted rate, thereby keeping our employees’ interests aligned with the interests of our shareholders. Executives (other than our CEO) may participate in this plan on

the same basis as all other eligible employees. After ninety days of employment, eligible employees may elect to contribute to this plan through payroll deductions or lump sum contributions of up to $25,000 in any calendar year based on calculating the fair market value as of the grant date, as provided under the plan. Shares are purchased at a 5% discount to the closing share price of our Common stock at specified times, subject to certain restrictions.

Health and Welfare Benefits

We offer a variety of health and welfare programs to all eligible employees. Executives generally are eligible for the same benefit programs on the same basis as the rest of our employees. The health and welfare programs are intended to protect employees against catastrophic loss and encourage a healthy lifestyle. Our health and welfare programs include medical, wellness, pharmacy, dental, vision and life, accidental death and disability insurance.

Company AirplaneAirplane.

Pursuant to his employment agreement, Albert H. Nahmadour Chairman & CEO has limited access to our corporate aircraft for personal use (up to 4050 hours per calendar year)during 2016), and the value of such use is included in his annual compensation. We review the aircraft flight logs and categorize the flights as business-related ornon-business-related to determine Mr. Nahmad’sour Chairman & CEO’s personal use of the aircraft. The value of the personal use of the Company aircraft reported as compensation to our Chairman & CEO is determined following the Internal Revenue Service guidelines, which may be different than the Company’s aggregate incremental cost of such use.

Pension PlansPlans.

While we We do not provide a defined benefit pension plan or supplemental executive retirement plan, we provide to all of our eligible employees a profit sharing retirement plan that is qualified under Section 401(k) of the U.S. Internal Revenue Code of 1986, as amended. Under the plan, we may make matching contributions in our discretion, which may be in the form of our Common stock or cash. For 2013, we elected to match 50% of each participant’s contributions up to a maximum 1.5% of such participant’s compensation (as defined under the plan) in the form of our Common stock.plan.

Other CompensationEmployment Agreements.

We provide There are no employment agreements with our NEOs, with other benefits described in the All Other Compensation column in the 2013 Summary Compensation Table presented in this Proxy Statement, which we believe are reasonable, competitive and consistent withexcept for our overall executive compensation philosophy. The costs of these benefits constitute only a small amount of each NEO’s total compensation.Chairman & CEO’s Employment Agreement.

Severance PlanPlan.

We do not have severance agreements with any of our NEOs.NEOs except for the established termination provisions set forth in our Chairman & CEO’s Employment Agreement.

Employment AgreementsClawback Policy. The Company maintains a clawback policy whereby the Company has the ability to require that NEOs reimburse the Company for all or any portion of any incentive or equity-based compensation in the event of a material restatement of the Company’s financial statements or if the NEOs engaged in fraud or criminal misconduct related to the Company or its business.

ExceptStock Option Backdating & Repricing. We do not and have not backdated or repriced stock option awards.

Hedging of Shares.We do not permit and have not permitted short sales or transactions using derivatives of Watsco shares, including hedging transactions.

Certain Tax Considerations. Under Section 162(m) of the Internal Revenue Code (referred to as Section 162(m)), public companies may generally not take a tax deduction for Albert H. Nahmad’s agreementnon-performance compensation in excess of $1.0 million paid to certain executive officers, including the Chairman & CEO or any of the next three most highly compensated officers other than the CFO. If compensation qualifies as “performance-based” under Section 162(m), it does not count against the $1.0 million deduction limit. Our policy with respect to his incentiveSection 162(m) is to make reasonable efforts to ensure that compensation is deductible without limiting our ability to attract and retain qualified executives. The Compensation Committee has not adopted a policy that all compensation must be deductible, believing in the importance of retaining flexibility to design compensation programs that recognize a full range of criteria important to our success, even where compensation payable under the programs may not be fully deductible. Our Compensation Committee intends to monitor compensation levels and the deduction limitation.

Risk Considerations in our Compensation Programs. We have reviewed our compensation structures and policies as discussed above, wethey pertain to risk and have determined that our compensation programs do not create or encourage the taking of risks that are reasonably likely to have employment agreements witha material adverse effect on the Company.

Compensation Committee Interlocks and Insider Participation.

No member of the Compensation Committee during 2016 was an officer, employee or former officer of ours or any of our NEOs.

Accelerationsubsidiaries or had any relationship that would be considered a compensation committee interlock and would require disclosure in this Proxy Statement pursuant to SEC rules and regulations. None of Vesting; Change in Control

Under the 2001 Plan the Committee or the Board may, in its discretion, accelerate the exercisability, the lapsing of restrictions or the expiration of deferral or vesting periods of any award, and such accelerated exercisability, lapse, expiration and, if so provided in the award agreement, vesting shall occur automatically in the caseour named executive officers served as a member of a “changecompensation committee or a director of another entity under the circumstances requiring disclosure in control” of the Company. Except in the case of our CEO, a “change in control” generally

means (a) the electionthis Proxy Statement pursuant to the Board of the Company, without the recommendation or approval of the incumbent Board of the Company, of directors constituting a majority of the number of directors of the Company then in office; or (b) approval by shareholders of (i) a reorganization, merger or consolidation with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, (ii) a liquidation or dissolution of the Company or (iii) the sale of all or substantially all of the assets of the Company.

In the case of our CEO, a “change in control” means (a) the acquisition by any person, entity or group of beneficial ownership of 20% or more of the outstanding shares of any class of common stock entitled to vote in the election of any directors of the Company; provided, however, that the acquisition of any shares owned by or for the benefit of the CEO or the CEO’s spouse or descendants shall not be taken into account for this purpose; (b) the election to the Board of the Company, without the recommendation or approval of the incumbent Board of the Company, of directors constituting a majority of the number of directors of the Company then in office; or (c) approval by shareholders of (i) a reorganization, merger or consolidation with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, (ii) a liquidation or dissolution of the Company or (iii) the sale of all or substantially all of the assets of the Company.

Indemnification Agreements

We do not have indemnification agreements with any of our NEOs.SEC rules and regulations.

COMPENSATION COMMITTEE REPORT

The following report of the Compensation Committee shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission nor shall this information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into a filing.

During 2013, our Compensation Committee consisted of Paul F. Manley and George P. Sape. Mr. Sape continued to serve on the Compensation Committee until his resignation from the Board in March 2014.

The Compensation Committee has reviewed and discussed the Compensation Discussion and AnalysisCD&A contained in this Proxy Statement with management. Based on that review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and AnalysisCD&A be included in this Proxy Statement.

This report is provided by theThe following independent directors, who comprise the Compensation Committee:Committee, provide this report:

COMPENSATION COMMITTEE

Paul F. Manley, Chairman

Bob L. Moss

Risk Considerations in our Compensation Programs

We have reviewed our compensation structures and policies as they pertain to risk and have determined that our compensation programs do not create or encourage the taking of risks that are reasonably likely to have a material adverse effect on the Company.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee during 2013 was an officer, employee or former officer of ours or any of our subsidiaries or had any relationship that would be considered a compensation committee interlock and would require disclosure in this Proxy Statement pursuant to SEC rules and regulations. None of our executive officers served as a member of a compensation committee or a director of another entity under the circumstances requiring disclosure in this Proxy Statement pursuant to SEC rules and regulations.

COMPENSATION TABLES

20132016 Summary Compensation Table

The following table sets forth the compensation earned by the NEOs for services rendered for the years ended December 31, 2013, 20122016, 2015 and 2011.2014.

2013Comparison of CEO Compensation to Total Shareholder Return. The following chart represents the comparison for the last five calendar years of (i) our Chairman & CEO’s total compensation as summarized in the Summary Compensation Table, (ii) compensation actually paid (consisting of his base salary) and (iii) total shareholder return for each of the last five calendar years. Actual realized compensation in the last five years is substantially lower while the Company continues to outperform on TSR.

2016 Grants of Plan-Based Restricted Stock Awards

This table discloses the number of non-vested (restricted)restricted stock awards granted to our NEOs during 20132016 and the grant date fair value of these awards. No stock options to purchase shares of common stock were granted to our NEOs during 2013. This table should be read together with the information set forth under the heading “Chief Executive Officer” contained in the Compensation Discussion and Analysis section of this Proxy Statement.2016.