UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. )

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☒	Definitive Proxy Statement

 

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☐	Soliciting Material Pursuant to §240.14a-12

M/I Homes, Inc.

 

(Name of Registrant as Specified In Its Charter)

 

  

 

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

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3 Easton Oval

Columbus, Ohio 43219

 

April 7, 2020

 

To Our Shareholders:

 

The 2020 Annual Meeting of Shareholders (the “Annual Meeting”) of M/I Homes, Inc. (the “Company”) will be held at 9:00 a.m., local time, on Monday, May 11, 2020 at the offices of the Company, 3 Easton Oval, Columbus, Ohio 43219.  Holders of record of our common shares as of March 16, 2020 are entitled to notice of, and to vote at, the Annual Meeting.

 

Enclosed is a copy of our 2019 Annual Report to Shareholders, which includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, a notice of the Annual Meeting and a proxy statement and proxy card for the Annual Meeting.  It is important that your common shares be represented at the Annual Meeting.  Please record your vote on the enclosed proxy card and return it promptly in the postage-paid envelope provided or, alternatively, vote your proxy electronically via the Internet or telephonically in accordance with the instructions on your proxy card.

 

The Company currently intends to hold the Annual Meeting in person. However, we are actively monitoring the impact of the coronavirus (COVID-19), and we may hold the Annual Meeting solely by means of remote communication if we determine that it is not possible or advisable to hold the Annual Meeting in person. If we take this step, we will announce the decision to do so and provide information regarding how to participate in the Annual Meeting via a press release that will be posted on the “Investors” section of our website (www.mihomes.com) and filed with the Securities and Exchange Commission as additional proxy materials.

 

We look forward to reviewing the activities of the Company at the Annual Meeting. We hope you can be with us.

 

 

 

 

PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD

IN THE ENVELOPE PROVIDED OR, ALTERNATIVELY, VOTE YOUR PROXY

ELECTRONICALLY VIA THE INTERNET OR TELEPHONICALLY.

 

 

3 Easton Oval

Columbus, Ohio 43219

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held May 11, 2020

 

To Each Shareholder of M/I Homes, Inc.:

 

Notice is hereby given that the 2020 Annual Meeting of Shareholders (the “Annual Meeting”) of M/I Homes, Inc. (the “Company”) will be held at 9:00 a.m., local time, on Monday, May 11, 2020, at the offices of the Company, 3 Easton Oval, Columbus, Ohio 43219, for the following purposes:

 

 

Only holders of record of our common shares at the close of business on March 16, 2020 will be entitled to receive notice of, and to vote at, the Annual Meeting or any adjournment thereof.

 

The Company currently intends to hold the Annual Meeting in person. However, we are actively monitoring the impact of the coronavirus (COVID-19), and we may hold the Annual Meeting solely by means of remote communication if we determine that it is not possible or advisable to hold the Annual Meeting in person. If we take this step, we will announce the decision to do so and provide information regarding how to participate in the Annual Meeting via a press release that will be posted on the “Investors” section of our website (www.mihomes.com) and filed with the Securities and Exchange Commission as additional proxy materials.

 

It is important that your common shares be represented at the Annual Meeting. Whether or not you intend to be present at the Annual Meeting, please complete, sign, date and return the enclosed proxy card in the envelope provided or, alternatively, vote your proxy electronically via the Internet or telephonically in accordance with the instructions on your proxy card.

 

           

April 7, 2020

 

THE COMPANY’S NOTICE OF ANNUAL MEETING OF SHAREHOLDERS, PROXY STATEMENT, FORM OF PROXY AND 2019 ANNUAL REPORT TO SHAREHOLDERS ARE AVAILABLE ONLINE AT WWW.EDOCUMENTVIEW.COM/MHO.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 11, 2020.

 

The Company’s Notice of Annual Meeting of Shareholders, Proxy Statement, form of proxy and 2019 Annual Report to Shareholders are available online at www.edocumentview.com/MHO.

            

For information on how to obtain directions to the Annual Meeting and vote in person, please contact our Investor Relations department at (614) 418-8225 or investorrelations@mihomes.com.

 

ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS

 

Instead of receiving paper copies of our future proxy statements, proxy cards and annual reports to shareholders in the mail, shareholders may elect to receive such documents electronically via e-mail or the Internet. Receiving your proxy materials electronically saves us the cost of printing and mailing documents to you and reduces the environmental impact of our shareholder communications. Shareholders may sign up to receive or access future shareholder communications electronically as follows:

 

 

 

3 Easton Oval

Columbus, Ohio 43219

 

PROXY STATEMENT

for the

2020 Annual Meeting of Shareholders

 

To Be Held May 11, 2020

 

GENERAL

 

Time, Place and Purposes of Meeting

The 2020 Annual Meeting of Shareholders of M/I Homes, Inc. (the “Annual Meeting”) will be held on Monday, May 11, 2020 at 9:00 a.m., local time, at our corporate offices at 3 Easton Oval, Columbus, Ohio 43219.  The purposes of the Annual Meeting are set forth in the Notice of Annual Meeting of Shareholders to which this Proxy Statement is attached. All references in this Proxy Statement to “M/I Homes,” the “Company,” “we,” “our” or “us” refer to M/I Homes, Inc.

The Company currently intends to hold the Annual Meeting in person. However, we are actively monitoring the impact of the coronavirus (COVID-19), and we may hold the Annual Meeting solely by means of remote communication if we determine that it is not possible or advisable to hold the Annual Meeting in person. If we take this step, we will announce the decision to do so and provide information regarding how to participate in the Annual Meeting via a press release that will be posted on the “Investors” section of our website (www.mihomes.com) and filed with the Securities and Exchange Commission as additional proxy materials.

 

Solicitation of Proxies

This Proxy Statement and the accompanying form of proxy are first being sent on or about April 7, 2020 to holders of the Company’s common shares, par value $.01 per share (the “Common Shares”), as of the close of business on March 16, 2020 (the “Record Date”).  This Proxy Statement is furnished in connection with the solicitation of proxies by the Company’s Board of Directors (the “Board”) for use at the Annual Meeting and any adjournment thereof.  The Company’s 2019 Annual Report to Shareholders (the “2019 Annual Report”), which includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Form 10-K”), is being mailed together with this Proxy Statement.

Outstanding Shares and Quorum Requirements

There were 28,583,329 Common Shares outstanding on the Record Date.  The Common Shares represent our only class of voting securities entitled to vote at the Annual Meeting. Each Common Share outstanding on the Record Date entitles the holder thereof to one vote on each matter submitted to a shareholder vote at the Annual Meeting.  A quorum for the Annual Meeting is a majority of the outstanding Common Shares on the Record Date. Common Shares represented by properly executed proxies returned to the Company at or prior to the Annual Meeting or represented by properly authenticated voting instructions timely recorded electronically via the Internet or telephonically will be counted toward the establishment of a quorum for the Annual Meeting even though they are marked “Abstain” (on any or all applicable proposals) or “Withheld” (from any or all director nominees) or are not marked at all.

 

 

Voting by Proxy

A proxy card for use at the Annual Meeting is enclosed.  You may ensure your representation at the Annual Meeting by completing, signing, dating and promptly returning to the Company, at or prior to the Annual Meeting, the enclosed proxy card in the envelope provided.  Alternatively, shareholders holding Common Shares registered directly with our transfer agent, Computershare, may vote their proxies electronically via the Internet or telephonically by following the instructions on their proxy cards.  The deadline for voting electronically via the Internet or telephonically is 1:00 a.m., local time, on May 11, 2020.  There are no fees or charges associated with voting electronically via the Internet or telephonically, other than fees or charges, if any, that shareholders may pay for access to the Internet and for telephone service. A record holder of Common Shares may also attend the Annual Meeting and vote in person. Beneficial owners of Common Shares held in “street name” by a broker, bank or other nominee may also be eligible to vote their proxies electronically via the Internet or telephonically. Beneficial owners should review the information provided to them by their broker, bank or other nominee. This information will set forth the procedures to be followed in instructing their broker, bank or other nominee how to vote the Common Shares held in “street name” and how to revoke previously given instructions. Beneficial owners who desire to attend the Annual Meeting and vote in person must provide a “legal proxy” from their broker, bank or other nominee in order to vote in person at the Annual Meeting.

 

Broker/dealers who hold Common Shares for beneficial owners in “street name” may, under the applicable rules (“NYSE Rules”) of the New York Stock Exchange (the “NYSE”), sign and submit proxies for such Common Shares and may vote such Common Shares on “routine” matters, such as the ratification of the appointment of auditors, but broker/dealers may not vote such Common Shares on “non-routine” matters, such as the election of directors and the advisory vote on executive compensation, without specific instructions from the beneficial owner of such Common Shares. Proxies that are signed and submitted by broker/dealers that have not been voted on “non-routine” matters, as described in the previous sentence, are referred to as “broker non-votes.”

Revocation of Proxies

A record holder may revoke its proxy at any time before it is exercised at the Annual Meeting by (1) filing a written notice with the Company revoking the proxy, (2) duly executing and returning to the Company a proxy card bearing a later date, (3) casting a new vote electronically via the Internet or telephonically or (4) attending the Annual Meeting and voting in person. Attending the Annual Meeting without voting in person will not revoke a previously delivered proxy. Beneficial owners of Common Shares held in “street name” should follow the instructions provided by their broker, bank or other nominee to revoke a previously delivered proxy. Subject to such revocation and except as otherwise stated in this Proxy Statement or in the form of proxy, all proxies properly executed that are received prior to, or at the time of, the Annual Meeting and all proxies properly voted electronically via the Internet or telephonically before 1:00 a.m., local time, on May 11, 2020, will be voted in accordance with the instructions contained therein. If no instructions are given (excluding broker non-votes), proxies will be voted FOR the election of the director nominees identified in Proposal No. 1, FOR the approval of the compensation of the Company’s named executive officers as disclosed in this Proxy Statement (Proposal No. 2), FOR the ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 2020 (Proposal No. 3) and at the discretion of the proxy holders on all other matters that may properly be brought before the Annual Meeting or any adjournment thereof.

 

 

 

 

 

 

Proposal No. 1

 

ELECTION OF DIRECTORS

In accordance with the Company’s Amended and Restated Regulations (as amended, the “Regulations”), the Board is comprised of nine directors, divided into three classes with staggered three-year terms. A class of three directors is to be elected at the Annual Meeting.  The Board has nominated the persons set forth in the table below for election as directors of the Company at the Annual Meeting. 

The three nominees receiving the greatest number of votes cast will be elected to serve until the Company’s 2023 Annual Meeting of Shareholders and until their successors are duly elected and qualified or until their earlier death, resignation or removal. Withheld votes with respect to any nominee (or all of the nominees) and broker non-votes will be counted for purposes of establishing a quorum, but will have no effect on the election of such nominee(s). However, pursuant to the Board’s majority voting policy, any nominee for director in an uncontested election who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election shall tender his or her resignation as a director to the Board. See “Information Regarding the Board, its Committees and Corporate Governance—Majority Voting Policy” on page 9 of this Proxy Statement for more information regarding our majority voting policy.

Unless otherwise specified in your proxy, the Common Shares voted pursuant to your proxy will be voted FOR the election of the director nominees identified below. The Board has no reason to believe that any nominee will not serve as a director if elected at the Annual Meeting. If any nominee becomes unable to serve or for good cause will not serve as a director, the proxy holders reserve full discretion to vote the Common Shares represented by the proxies they hold for the election of the remaining nominees and for the election of any substitute nominee(s) designated by the Board.

Your Board of Directors unanimously recommends a vote FOR each of the director nominees named below.

 

 

BOARD OF DIRECTORS

 

 

 

 

 

INFORMATION REGARDING THE BOARD, ITS COMMITTEES AND CORPORATE GOVERNANCE

 

Board Organization, Independence and Committees

 

The Board currently has nine members. The Board has determined that six of its nine members (Friedrich K.M. Böhm, William H. Carter, Michael P. Glimcher, Elizabeth K. Ingram, Nancy J. Kramer and Norman L. Traeger) qualify as independent under NYSE Rules. When determining whether a director qualifies as independent, the Board, in accordance with NYSE Rules, broadly considers all relevant facts and circumstances to determine whether the director has any material relationship with the Company, either directly or indirectly (as a partner, shareholder or officer of an organization that has a relationship with the Company), other than serving as one of our directors. Sharen Jester Turney retired from the Board on February 8, 2019. Prior to her retirement, Ms. Turney served on the Compensation Committee and the Nominating and Governance Committee, and the Board determined that she qualified as independent under NYSE Rules.

 

Pursuant to the Company’s Corporate Governance Guidelines, each independent director is required to notify the Chairman of the Nominating and Governance Committee, as soon as practicable, in the event the director’s circumstances change in a manner that may affect the Board’s evaluation of his or her independence.

 

During 2019, the Board held four meetings, and each director attended at least 75% of the total number of meetings of the Board and the committees on which he or she served (in each case, held during the period such director served).

 

During 2019, the Board had four standing committees: the Audit Committee; the Compensation Committee; the Nominating and Governance Committee; and the Executive Committee. In accordance with the applicable rules of the Securities and Exchange Commission (the “SEC Rules”) and NYSE Rules, each of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee has its own written charter, which is available on the Company’s website at www.mihomes.com under the “Investors” heading. 

 

Audit Committee. The Audit Committee operates pursuant to a written Audit Committee Charter adopted by the Board which reflects SEC Rules and NYSE Rules relating to audit committees. The Audit Committee annually reviews and assesses the adequacy of its charter and recommends changes to the Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices. The primary purpose of the Audit Committee is to assist the Board in its oversight of: (1) the integrity of the Company’s consolidated financial statements and internal control over financial reporting; (2) the Company’s compliance with legal and regulatory requirements; (3) the Company’s independent registered public accounting firm’s qualifications, independence and performance; and (4) the performance of the Company’s internal audit function.

 

The Audit Committee’s specific responsibilities include: (1) reviewing and discussing the overall scope of the independent registered public accounting firm’s annual audit plans, including staffing, professional services, audit procedures and fees; (2) reviewing and discussing the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the Company’s financial statements; (3) reviewing and discussing the Company’s quarterly financial statements and annual audited financial statements and related disclosures; (4) discussing the assessments of the adequacy and effectiveness of the Company’s systems of disclosure controls and procedures and internal control over financial reporting; (5) discussing the guidelines and policies used by management to govern the process by which risk assessment and risk management is undertaken, paying particular attention to financial risk exposures; (6) monitoring and reporting to the Board concerning the independence, qualifications and performance of the independent registered public accounting firm; (7) reviewing and pre-approving all audit services and permitted non-audit services to be performed for the Company or its subsidiaries; (8) reviewing the internal auditors’ annual audit plans and reviewing reports concerning the results of internal audits; (9) reviewing and discussing with the internal auditors their assessments of the Company’s risk management processes and system of internal control; (10) establishing procedures for the confidential submission, receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters; (11) engaging the independent registered public accounting firm; and (12) reviewing any issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the independent registered public accounting firm or the performance of the internal audit function.

 

Each member of the Audit Committee qualifies as independent and is financially literate under the applicable SEC Rules and NYSE Rules. The Board has determined that the Audit Committee’s Chairman, William H. Carter, qualifies as an audit committee financial expert as defined by applicable SEC Rules. The Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee met eight times during 2019. The Audit Committee also met eight times with the Company’s senior financial management, including the internal auditors, and the Company’s independent registered public accounting firm, and discussed the Company’s interim and fiscal year financial information prior to public release. The Audit Committee’s report relating to the 2019 fiscal year appears on page 49 of this Proxy Statement.

 

Compensation Committee. The Compensation Committee operates pursuant to a written Compensation Committee Charter adopted by the Board which reflects NYSE Rules relating to compensation committees. The Compensation Committee annually reviews and assesses the adequacy of its charter and recommends changes to the Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices. Each member of the Compensation Committee qualifies as independent under the applicable NYSE Rules. The Compensation Committee’s primary purpose is to assist the Board in discharging its responsibilities relating to the compensation to be provided to the executive officers and directors of the Company.

 

The Compensation Committee Charter sets forth the specific responsibilities and duties of the Compensation Committee, which include: (1) establishing the Company’s executive compensation philosophy, objectives and policies; (2) reviewing, approving and determining the amount and form of compensation for the executive officers; (3) reviewing and making recommendations to the Board regarding the amount and form of non-employee director compensation; (4) reviewing and making recommendations to the Board concerning, and administering, the Company’s cash incentive and equity-based compensation plans; (5) reviewing and discussing with the Board the Company’s organizational structure and plans for management succession; (6) reviewing and discussing with management the Compensation Discussion and Analysis section of the proxy statement and recommending to the Board whether to include such Compensation Discussion and Analysis section in the proxy statement; and (7) preparing a report on executive officer compensation for inclusion in the proxy statement.

 

Our human resources department supports the Compensation Committee in its duties, and the Compensation Committee from time to time delegates to the human resources department its authority to fulfill certain administrative duties. The Compensation Committee has the sole authority under its charter to retain, terminate and approve the fees and terms of retention of any compensation consultant, legal counsel or other advisor it deems necessary to assist in the performance of its duties, but only after taking into consideration all factors relevant to such consultant’s, counsel’s or advisor’s independence from management, including any factors specified in the NYSE Rules. The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel or other advisor that it retains.

 

The Compensation Committee met five times during 2019. The Compensation Committee’s report relating to the 2019 fiscal year appears on page 36 of this Proxy Statement.  See “Compensation Discussion and Analysis” beginning on page 20 of this Proxy Statement for more information concerning the activities of the Compensation Committee with respect to the 2019 fiscal year, including the Compensation Committee’s engagement of Pearl Meyer & Partners (“Pearl Meyer”), an independent outside consulting firm, to assist the Compensation Committee in the design of the Company’s 2019 executive compensation program.

 

Nominating and Governance Committee. The Nominating and Governance Committee operates pursuant to a written Nominating and Governance Committee Charter adopted by the Board which reflects NYSE Rules relating to nominating committees. The Nominating and Governance Committee annually reviews and assesses the adequacy of its charter and recommends changes to the Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices. The Nominating and Governance Committee’s primary responsibility is to assist the Board on the broad range of issues surrounding the composition and operation of the Board, including: (1) identifying individuals qualified to become directors; (2) recommending to the Board director nominees for the next annual meeting of shareholders; and (3) developing and recommending to the Board a set of corporate governance principles. In addition, the Nominating and Governance Committee recommends to the Board committee selections and oversees the evaluation of the Board. Each member of the Nominating and Governance Committee qualifies as independent under the applicable NYSE Rules. The Nominating and Governance Committee met four times during 2019.

 

Executive Committee. When the Board is not in session, the Executive Committee may exercise those powers and carry out those duties of the Board which may lawfully be delegated by the Board. During 2019, the Executive Committee did not hold any formal meetings.

Corporate Governance Guidelines

 

In accordance with NYSE Rules, the Board operates pursuant to written Corporate Governance Guidelines which are intended to promote the effective functioning of the Board and its committees and to reflect the Company’s commitment to the highest standards of corporate governance. The Board, with the assistance of the Nominating and Governance Committee, periodically reviews the Corporate Governance Guidelines to ensure they are in compliance with all applicable requirements. The Corporate Governance Guidelines are available on the Company’s website at www.mihomes.com under the “Investors” heading. 

 

Majority Voting Policy

 

Our Corporate Governance Guidelines include a majority voting policy that applies in uncontested elections of directors (i.e., an election of directors in which the number of nominees for director does not exceed the number of directors to be elected). Under this policy, any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” his or her election shall tender his or her resignation as a director to the Board promptly following the certification of the election results. The Nominating and Governance Committee will consider each resignation tendered under the policy and recommend to the Board whether to accept or reject the resignation. The Board will act on each tendered resignation, taking into account the Nominating and Governance Committee’s recommendation, within 90 days following the certification of the election results. The Nominating and Governance Committee in making its recommendation, and the Board in making its decision, may consider any factors or other information that they deem relevant or appropriate. The Board will promptly publicly disclose its decision whether to accept or reject such tendered resignation and, if rejected, the reasons for rejecting the tendered resignation.

 

Any director who tenders his or her resignation may not participate in the Nominating and Governance Committee recommendation or Board action regarding whether to accept or reject the tendered resignation.  If, however, a majority of the members of the Nominating and Governance Committee receives a majority withheld vote in the same election, then the Board will appoint a committee comprised solely of independent directors who did not receive a majority withheld vote in that election to consider each tendered resignation and recommend to the Board whether to accept or reject it.

 

If a director’s tendered resignation is rejected by the Board, the director will continue to serve for the remainder of his or her term and until his or her successor is duly elected and qualified or his or her earlier death, resignation or removal. If a director’s tendered resignation is accepted by the Board, then the Board, in its sole discretion, may fill any resulting vacancy or may decrease the number of directors comprising the Board, in each case pursuant to the provisions of and to the extent permitted by the Company’s Regulations.

 

Neither abstentions nor broker non-votes will be deemed votes “for” or “withheld” from a director’s election and will therefore have no effect in determining whether a majority withheld vote has occurred.

 

Review, Approval or Ratification of Related Person Transactions

 

All Related Person Transactions (as defined below) are subject to our written Related Person Transaction Policy. Under this policy, the Audit Committee is responsible for reviewing and approving (or ratifying) all Related Person Transactions. In carrying out its responsibilities, the Audit Committee considers all relevant facts and circumstances relating to a Related Person Transaction and either approves (or ratifies) or disapproves the Related Person Transaction. While the relevant facts and circumstances vary depending on the transaction, they generally include:

•	the overall fairness of the transaction.

The Audit Committee will approve (or ratify) a Related Person Transaction only if it determines that it is in the best interests of the Company. No director may participate in the consideration or approval (or ratification) of a Related Person Transaction with respect to which he or she or any of his or her immediate family members is a Related Person. The Audit Committee may, from time to time, delegate its duties under the Related Person Transaction Policy to the Audit Committee Chairman.

To the extent practicable, all Related Person Transactions will be approved in advance.  If advance approval is not practicable, or if a Related Person Transaction that has not been pre-approved is brought to the attention of the Audit Committee, the Audit Committee will promptly consider all of the relevant facts and circumstances in its ratification of the transaction. Our directors, executive officers and other members of management are responsible for bringing all proposed Related Person Transactions of which they have knowledge to the attention of the Audit Committee Chairman.

Under our policy, a “Related Person Transaction” is any transaction, arrangement or relationship in which the Company or any of our subsidiaries was or is to be a participant and the amount involved exceeds $120,000 and any Related Person had or will have a direct or indirect material interest.  A “Related Person” is any person who is: (1) a director (or nominee for director) or executive officer of the Company; (2) to our knowledge, the beneficial owner of more than 5% of the Common Shares; or (3) any immediate family member of any of the foregoing persons.

 

During 2019 and the year-to-date period in 2020, the Company has not been a participant in any Related Person Transaction, except for the following transaction.

 

In March 2020, in the ordinary course of business, we purchased a parcel of real property located in Delaware County, Ohio for approximately $14.2 million from an entity in which Gary Schottenstein (the brother of Robert H. Schottenstein) owns a majority interest. This transaction was approved by the Audit Committee in accordance with our Related Person Transaction Policy.

 

Attendance at Annual Shareholder Meetings

 

The Company does not have a formal policy with respect to attendance by our directors at our annual meetings of shareholders.  However, directors are encouraged to attend, and the Board and its committees meet immediately following each annual meeting of shareholders.  All nine of our then current directors attended the 2019 Annual Meeting of Shareholders.

 

Code of Business Conduct and Ethics

 

All of the Company’s directors, officers and employees (including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions) must comply with the our Code of Business Conduct and Ethics, which meets the applicable SEC Rules and NYSE Rules.  The Code of Business Conduct and Ethics is available on the Company’s website at www.mihomes.com under the “Investors” heading or by writing to M/I Homes, Inc., 3 Easton Oval, Suite 500, Columbus, Ohio 43219, c/o Chief Legal Officer and Secretary. We intend to satisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of the Code of Business Conduct and Ethics by posting such information on our website.

 

Executive Sessions

 

In accordance with our Corporate Governance Guidelines and NYSE Rules, our non-management directors meet without management or the inside directors at every regularly scheduled Board meeting (at least twice per year) and at such other times as our Lead Independent Director or a majority of our non-management directors deem necessary or appropriate.  Our Lead Independent Director chairs each executive session.  During 2019, the non-management directors held four executive sessions.

 

Communications with the Board of Directors

 

The Board believes it is important for shareholders and other interested parties to have a process by which to communicate with the Board.  Accordingly, shareholders and other interested parties who wish to communicate with the

Board or a particular director or group of directors (including the non-management directors) may do so by sending a letter to M/I Homes, Inc., 3 Easton Oval, Suite 500, Columbus, Ohio 43219, c/o Secretary.  The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Shareholder/Interested Party-Board Communication” or “Shareholder/Interested Party-Director Communication.”  All such letters must identify the author as a shareholder or other interested party (indicating such interest) and clearly state whether the intended recipients are all members of the Board or certain specified individual directors. The Secretary will make copies of all such letters and circulate them to the appropriate director(s).

Board Leadership Structure

 

The Company does not have a fixed policy regarding whether the offices of Chairman of the Board and Chief Executive Officer should be vested in the same person or two different people.  The Board has determined that the combined role of Chairman and Chief Executive Officer, as supplemented by our Lead Independent Director (as discussed below), is the most effective leadership structure for us at the present time.  The Board believes that our Chief Executive Officer is best qualified to serve as Chairman because, as the officer ultimately responsible for our operations and performance, he is intimately familiar with our business, operations and industry and uniquely positioned to effectively identify and lead discussions concerning our strategic priorities.  The Board further believes that the combined role promotes the development and execution of our business strategy and facilitates information flow between management and the Board, which is essential to effective governance.  In addition, the Board believes that our current Chief Executive Officer’s family relationship (he is the son of our founder), previous experience as a real estate attorney and more than 30 years of service with us in various roles spanning production, sales and land acquisition/disposition and development further qualify him to serve as Chairman. 

 

To supplement our leadership structure, the Board has a Lead Independent Director position, which is currently held by Friedrich K.M. Böhm. The Lead Independent Director serves at the discretion of, and is annually elected by, our independent directors. The Lead Independent Director has the following duties and responsibilities:

 

The Board periodically reviews our leadership structure and retains the authority to modify the structure, as and when appropriate.

 

Board’s Role in Risk Oversight

 

Management is responsible for identifying and managing risk and bringing to the Board’s (or the applicable committee’s) attention the most material risks that we face. While management reviews risk on a company-wide basis, it focuses on four primary areas: (1) financial risk; (2) legal, compliance and regulatory risk; (3) cybersecurity risk; and (4) operational and strategic risk. The Board has ultimate oversight responsibility for our risk-management program and

carries this out directly and through its committees. The full Board directly oversees and reviews operational and strategic risk and receives regular reports from the committee chairs regarding risk oversight in the committees’ respective areas of responsibility.

 

The Audit Committee oversees and reviews financial risk (including our internal controls) and legal, compliance and regulatory risk. In carrying out their oversight responsibilities, the full Board and the Audit Committee receive regular reports from the appropriate members of management regarding the material risks that have been identified, including how those risks are being managed and strategies for mitigating those risks. The Audit Committee also receives an annual risk assessment report from our internal auditors and, in accordance with its charter, discusses with management the guidelines and policies that management uses to govern the process by which risk assessment and management is undertaken, with particular attention to financial risks.

   

In connection with its oversight of our executive compensation program, the Compensation Committee reviews and evaluates our compensation policies and practices relating to our employees (as well as our executive officers). During its review and evaluation, the Compensation Committee focuses on any incentives that may create, and any factors that may reduce the likelihood of, excessive risk taking by our employees to determine whether our compensation policies and practices present a material risk to us. Based on this review, the Compensation Committee has concluded that our compensation policies and practices for our employees (including our executive officers) do not create risks that are reasonably likely to have a material adverse effect on us.

 

The Nominating and Governance Committee oversees risks related to the composition and operation of our Board, including director independence and potential conflicts of interest.

 

Nomination of Directors

 

The Nominating and Governance Committee is responsible for providing oversight on the broad range of issues surrounding the composition and operation of the Board, including identifying candidates qualified to become directors and recommending director nominees to the Board.

 

When considering candidates for the Board, the Nominating and Governance Committee evaluates the entirety of each candidate’s credentials and does not have any specific eligibility requirements or minimum qualifications that must be met by a Nominating and Governance Committee-recommended nominee. The Nominating and Governance Committee considers those factors it deems appropriate, including judgment, skill, independence, diversity, character, experience with organizations comparable in size or scope, experience as an executive of, or advisor to, a publicly-traded company, experience and skill relative to our other directors and specialized knowledge or experience. The Nominating and Governance Committee does not have a formal policy with regard to the consideration of diversity in identifying nominees. Instead, the Nominating and Governance Committee considers diversity, including diversity of gender, race, ethnicity, education, professional experience, viewpoints, backgrounds and skills, but does not assign a specific weight to particular factors and, depending upon the then current needs of the Board, may weigh certain factors more or less heavily. The Nominating and Governance Committee does, however, believe that all directors should have the highest character and integrity, a reputation for working constructively with others, sufficient time to devote to the Board and no conflict of interest that would materially interfere with performance.   

 

The Nominating and Governance Committee considers candidates for the Board from any reasonable source, including shareholder recommendations, and does not evaluate candidates differently based on who has made the recommendation. Shareholders may recommend director candidates for consideration by the Nominating and Governance Committee by giving written notice of the recommendation to M/I Homes, Inc., 3 Easton Oval, Suite 500, Columbus, Ohio 43219, c/o Secretary. The recommendation must include the candidate’s name, age, business address, residence address and principal occupation or employment, as well as a description of the candidate’s qualifications, and a written statement from the candidate consenting to serve as a director, if so nominated and elected.

 

Pursuant to its written charter, the Nominating and Governance Committee has the authority to retain consultants and search firms to assist in the process of identifying and evaluating candidates and to approve the fees and other retention terms for any such consultant or search firm. No such consultant or search firm has been used to date.

 

The Board, taking into account the recommendations of the Nominating and Governance Committee, selects the nominees for election as directors at the annual meeting of shareholders. In addition, shareholders who wish to nominate one

 

or more persons for election as a director at the annual meeting of shareholders may do so, provided they comply with the nomination procedures set forth in the Company’s Regulations. To nominate one or more persons for election as a director at an annual meeting, the Company’s Regulations require that a shareholder give written notice of such shareholder’s intent to make such nomination(s) by personal delivery or by United States mail, postage pre-paid, to the Secretary of the Company not less than 60 days nor more than 90 days prior to the first anniversary of the date of the preceding year’s annual meeting (or, if the date of the annual meeting is changed by more than 30 days from the anniversary date of the preceding year’s annual meeting or, in the case of a special meeting, within seven days after the date the Company mails or otherwise gives notice of the date of the meeting). Such notice shall set forth: (1) the name and address of the shareholder intending to make the nomination and the person(s) to be nominated; (2) a representation that the shareholder is a holder of record entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person(s) specified in the notice; (3) a description of all arrangements or understandings between the shareholder and each nominee and any other person(s) (naming such person(s)) pursuant to which the nomination(s) is to be made by the shareholder; (4) such other information regarding each nominee proposed by the shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC had the nominee been nominated, or intended to be nominated, by the Board; and (5) the consent of each nominee to serve as a director, if so elected. The Chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedures.

Proposal No. 2

ADVISORY VOTE ON EXECUTIVE COMPENSATION

Pursuant to SEC rules and our Board policy requiring an annual “say-on-pay” vote, we are asking our shareholders to approve the following non-binding resolution on the compensation of our executive officers identified in the Summary Compensation Table on page 37 of this Proxy Statement (the “Named Executive Officers”):

RESOLVED, that the shareholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and all related disclosures.

Compensation Objectives.            Through a mix of base salary, annual cash performance bonus and long-term equity awards, we seek to (1) attract and retain exceptional executives, (2) motivate our executives, (3) align the interests of our executives and our shareholders and (4) reward performance. We are committed to a pay-for-performance philosophy. As a result, a significant majority of each Named Executive Officer’s compensation is at risk or variable and dependent upon our performance and/or appreciation in the price of our Common Shares. The “Compensation Discussion and Analysis” beginning on page 20 of this Proxy Statement describes our executive compensation program and how and why the Compensation Committee determined 2019 compensation. We urge shareholders to read the “Compensation Discussion and Analysis” as well as the Summary Compensation Table and other related compensation tables on pages 37 – 46 of this Proxy Statement.

2019 Goals/Executive Compensation Program. Our principal goals for 2019 were to (1) increase our profitability (as measured by our pre-tax income from operations, excluding extraordinary items (“Adjusted Pre-Tax Income”)), new contracts and homes delivered and (2) maintain our high customer service and quality scores. Since 2012, we have annually focused on continuing to increase our profitability (as measured by Adjusted Pre-Tax Income), designed our executive compensation program in a manner intended to achieve this goal and annually increased our profitability. Based on this success and our continued focus on growing our profitability in 2019, the Compensation Committee designed our 2019 executive compensation program in a manner substantially similar to our 2018 program:

 

2019 Performance. We achieved record results on numerous fronts in 2019. Highlights of our 2019 performance include:

This vote on our executive compensation program is advisory which means that it is not binding on us. However, the Compensation Committee values the opinions of our shareholders. If there is a significant vote against this proposal, the Committee will consider our shareholders’ concerns and evaluate what actions are necessary to address those concerns.

The affirmative vote of holders of a majority of the outstanding Common Shares entitled to vote at the Annual Meeting is required to approve this proposal. Abstentions and broker non-votes will be counted for purposes of establishing a quorum and will have the same effect as a vote against this proposal.

Your Board of Directors unanimously recommends a vote FOR the approval of the compensation of our Named Executive Officers as disclosed in this Proxy Statement.

Proposal No. 3

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Audit Committee has appointed Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020. Deloitte & Touche LLP served as the Company’s independent registered public accounting firm for the 2019 fiscal year. Although action by our shareholders is not required with respect to this matter, we are seeking shareholder ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020 as a matter of good corporate governance. A representative of Deloitte & Touche LLP will be present at the Annual Meeting. The representative will have an opportunity to make a statement, if he or she desires, and will be available to respond to appropriate questions.

 

The affirmative vote of holders of a majority of the outstanding Common Shares entitled to vote at the Annual Meeting is required to ratify the appointment of Deloitte & Touche LLP. Abstentions will be counted for purposes of establishing a quorum and will have the same effect as a vote against the proposal. In the event that the shareholders do not ratify the appointment of Deloitte & Touche LLP, the Audit Committee will reconsider (but may decide to maintain) its appointment of Deloitte & Touche LLP.

 

Your Board of Directors unanimously recommends a vote FOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm.

 

 

 

 

 

EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES

 

The executive officers of the Company are Robert H. Schottenstein, Phillip G. Creek and J. Thomas Mason. Biographical information with respect to the executive officers is set forth under “Board of Directors” beginning on page 4 of this Proxy Statement. The executive officers are elected by, and serve at the pleasure of, the Board. The following table sets forth biographical information with respect to certain key employees of the Company:

 

 

 

PRINCIPAL SHAREHOLDERS

 

The following table sets forth, as of March 16, 2020, the number and percentage of our outstanding Common Shares beneficially owned by (1) each person who, to the knowledge of the Company, beneficially owns more than five percent of the outstanding Common Shares, (2) each of the Company’s directors, nominees for director and Named Executive Officers and (3) all of the current directors and executive officers of the Company as a group.  Except as set forth in the footnotes to the table, the shareholders have sole voting and dispositive power with respect to such Common Shares:

 

*     Less than 1.0% of the outstanding Common Shares

 

 

 

COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis describes our executive compensation philosophy and objectives, our Named Executive Officers’ 2019 compensation and how and why the Compensation Committee (the “Committee”) determined that compensation.

Executive Summary

Compensation Objectives. Through a mix of (1) base salary, (2) annual cash performance bonus and (3) long-term equity awards, the Committee seeks to: (a) attract and retain exceptional executives; (b) motivate our executives; (c) align the interests of our executives and our shareholders; and (d) reward performance.

2019 Goals. Our principal goals for 2019 were to (1) increase our (a) profitability (as measured by Adjusted Pre-Tax Income (as defined on page 14 and described in detail on page 27 of this Proxy Statement)), (b) new contracts and (c) homes delivered and (2) maintain our high customer service and quality scores.

2019 Executive Compensation Program. Since 2012, we have annually focused on continuing to increase our profitability (as measured by Adjusted Pre-Tax Income), designed our executive compensation program in a manner intended to achieve this goal and annually increased our profitability. Based on this success and our continued focus on growing our profitability in 2019, the Committee designed our 2019 executive compensation program in a manner substantially similar to our 2018 program:

2019 Performance.  We achieved record results on numerous fronts in 2019. Highlights of our 2019 performance include:

•	Revenue. Revenue increased 9% to a Company record $2.5 billion;
•	Net Income. Net income increased 19% to $127.6 million;
•	Diluted Earnings Per Share. Diluted earnings per share increased 21% to $4.48 per share;

 

•	New Contracts. New contracts increased 16% to a Company record 6,773;
•	Homes Delivered. Homes delivered increased 9% to a Company record 6,296;
•	Backlog. At December 31, 2019, backlog units and sales value increased 22% and 18%, respectively, and the average sales price in backlog decreased 3% to $396,000;
•	Average Sale Price. The average sale price of homes delivered remained at $384,000;
•	Balance Sheet. Shareholders’ equity at December 31, 2019 increased 17% to a Company record $1.0 billion;
•	Active Communities.  Active communities at December 31, 2019 increased 7% to a Company record 225;
•	Land Position. We invested $600.4 million in land acquisitions and development and increased our controlled lots to 33,300; and
•	Total Shareholder Return. For the year ended December 31, 2019, our total shareholder return was 87%.

Additionally, we achieved homebuyer satisfaction ratings of 92% and 83% on the 30-day and six-month surveys, respectively, and a home readiness score of 90%.

Pay-for-Performance. We are committed to a pay-for-performance philosophy. As a result, a significant majority of each Named Executive Officer’s compensation is at risk or variable and dependent on our performance and/or stock price appreciation (i.e., performance-based). The charts below set forth the percentage of each Named Executive Officer’s 2019 total compensation that was performance-based:

2019 TOTAL COMPENSATION

(from Summary Compensation Table on page 37)

Compensation Best Practices.  We incorporate a number of best practices into our executive compensation program, including:

 

 

2019 Advisory Vote on Executive Compensation

At our 2019 Annual Meeting of Shareholders, our shareholders approved the compensation of our Named Executive Officers, with more than 96% of the votes cast in favor of our “say-on-pay” resolution. Since 2011 (when we first asked our shareholders to approve our executive compensation), our annual “say-on-pay” vote has received an average of 97% support from our shareholders.  The Committee considered the results of the 2019 “say-on-pay” vote as part of its review of our 2020 executive compensation program. The Committee believes that our 2019 “say-on-pay” results are an affirmation of our executive compensation program. As a result, it did not make any changes to our 2020 executive compensation program based on the 2019 vote.

Compensation Philosophy and Objectives

We design our executive compensation program to promote the following philosophy and objectives:

 

The Committee believes that the structure of our compensation program should be fundamentally the same across our entire management team. As a result, while individual compensation levels vary, each member of our management team (including the Named Executive Officers) generally receives the same components of compensation (i.e., base salary, annual cash performance bonus and long-term equity awards). In addition, the same or similar performance goals apply to their annual performance bonuses. In the Committee’s view, this consistency fosters teamwork, ensures that the entire management team focuses on the same corporate goals and shares in the risks and rewards of our performance in a similar manner and reduces the likelihood of excessive risk taking.

Role of Executive Officers

At the request of the Committee, our Chief Executive Officer, with the assistance of other members of management, made initial recommendations to the Committee regarding the 2019 executive compensation program. Thereafter, the Committee from time to time solicited further input from the Chief Executive Officer and such other members of management. Also at the request of the Committee, the Chief Executive Officer and certain of such other members of management participated in the Committee meetings. The Committee sought this input because of the Chief Executive Officer’s close working relationship with the other Named Executive Officers and to ensure that its decisions aligned with our financial and strategic goals. The Committee has the exclusive authority to determine all elements of executive compensation and makes all final decisions.

Role of Independent Compensation Consultant

The Committee engaged Pearl Meyer to serve as its independent compensation consultant for 2019. Pearl Meyer’s engagement focused on: (1) reviewing our executive compensation program as a whole, each principal component and the mix of compensation; (2) analyzing the competitiveness of our executive compensation program (by pay component and in total) relative to our Peer Group (as defined on page 24 of this Proxy Statement); (3) reviewing the composition of our Peer Group; (4) advising on executive compensation trends and best practices; (5) analyzing the dilution and overhang of our equity grants; and (6) reviewing our non-employee director compensation program as a whole, each principal component and the competitiveness of such compensation relative to our Peer Group. At the request of the Committee, Pearl Meyer discussed with management the recommendations that management planned to make to the Committee regarding 2019 compensation.

During 2019, Pearl Meyer did not provide any services to us beyond its support of the Committee. The Committee assessed the independence of Pearl Meyer and concluded that Pearl Meyer’s work for us did not raise any conflict of interest.

Setting Executive Compensation

In the first quarter of each year, the Committee evaluates the Named Executive Officers’ performance, determines whether they will receive cash performance bonuses for the prior year and whether the PSUs for the recently completed three-year performance period have vested and establishes the compensation program for the current year.

During the course of establishing the 2019 executive compensation program, the Committee reviewed:

 

	available for grant under the 2018 LTIP;
•	tally sheets prepared by our human resources department setting forth for each Named Executive Officer the (1) dollar value of each component of compensation and total compensation for 2018 and, on an estimated basis, for 2019, (2) realizable value (i.e., the difference between the then-current market price of our Common Shares on the NYSE and the exercise price) of all outstanding stock options (on an exercisable and unexercisable basis), (3) estimated fair value of all outstanding PSUs (assuming achievement of the target performance goals for the PSUs awarded in 2017 and 2018 and based on estimated actual results for the PSUs awarded in 2016) and (4) potential payments upon a change of control;
•	the individual performance of each Named Executive Officer; and
•	a report prepared by Pearl Meyer analyzing: (1) our executive compensation program as a whole, each principal component and the mix of compensation; (2) the competitiveness of our executive compensation program (by pay component and in total) relative to the peer group of publicly-traded homebuilders set forth below (the “Peer Group”); (3) the composition of our Peer Group; (4) executive compensation trends and best practices; and (5) the dilution and overhang of our equity grants.

The Peer Group consisted of the following companies:

The Committee, with input from management and Pearl Meyer, selected our Peer Group. The Committee selected these companies because they are generally our principal competitors for personnel, customers, land and investment. In 2019, the Peer Group remained the same as in 2018, except that (1) CalAtlantic Group, Inc., which was in the Peer Group in 2018, merged with and into Lennar Corporation in February 2018 and (2) at the recommendation of Pearl Meyer, we added William Lyon Homes based on its relative size, including revenue and market capitalization, and comparable business profile.

The Committee utilized the Peer Group data to understand our competitors’ compensation levels and practices and ensure that our executive compensation was generally consistent and competitive with the components, forms and amounts of compensation paid by our competitors (i.e., reasonable on a relative basis). The Committee did not benchmark our compensation, or any component thereof, to a specific percentile within our Peer Group. Instead, the Committee used the Peer Group data only as a point of reference and one of several factors in setting executive compensation.

When setting compensation, the Committee also takes into account that the homebuilding industry is highly competitive and cyclical and our Named Executive Officers have considerable tenure with us, experience in both up and down homebuilding cycles and delivered strong results during their tenure. The Committee believes that this continuity of management and experience is valuable.

2019 Executive Compensation

For 2019, the principal components of our executive compensation program were:

•	base salary;

 

•	annual cash performance bonus; and
•	long-term equity-based compensation in the form of (1) stock options and (2) PSUs.

The Committee recognizes the need for cash and equity-based compensation and short- and long-term compensation. The Committee believes that a mix of compensation is necessary to strike an appropriate balance between short- and long-term financial and strategic goals, discourage excessive risk taking and align the interests of our executives and our shareholders. We do not have a pre-established formula or target for the allocation between cash and equity-based compensation or short- and long-term compensation. Instead, the Committee subjectively determines the mix of compensation based on input from Pearl Meyer, the Peer Group data, individual and corporate performance, each executive’s experience and responsibilities, our short- and long-term financial and strategic goals, conditions in the homebuilding industry and the general economy and our past practices.

Base Salary

Base salary is the only fixed component of compensation. As such, we intend for base salary to provide a competitive, stable level of compensation so that executives do not feel pressured to take unnecessary or excessive risks or overly focus on the price of our Common Shares. The Committee annually reviews and subjectively determines each Named Executive Officer’s base salary.

When determining the Named Executive Officers’ 2019 base salaries, the Committee considered:

•	the base salaries of similarly-positioned executives in our Peer Group;
•	individual and corporate performance in 2018;
•	the executive’s scope of responsibility, level of experience and tenure;
•	input from Pearl Meyer; and
•	homebuilding and general economic conditions.

The Committee did not assign a specific weighting to any of these factors.

The Committee elected not to change the Named Executive Officers’ base salaries in 2019 (which remained at $900,000, $600,000, and $500,000 for Messrs. Schottenstein, Creek and Mason, respectively). The Committee determined that, while each Named Executive Officer performed well in 2018, no changes were necessary to achieve our compensation objectives. Messrs. Schottenstein’s and Creek’s base salaries were last increased in 2013 and Mr. Mason’s in 2016.

In the course of its review of individual performance, the Committee noted Mr. Schottenstein’s strategic leadership and our record financial and operating results in 2018, including our record revenue, net income and new contracts. For Mr. Creek, the Committee noted our record financial and operating results in 2018 and his management of our balance sheet, including the implementation of a share repurchase program and the repurchase of 1.1 million Common Shares thereunder in 2018 and our record shareholders’ equity at December 31, 2018. For Mr. Mason, the Committee noted his leadership with respect to the continued expansion of our investment in land acquisitions and development and controlled lots in 2018.

Annual Cash Performance Bonus

The annual cash performance bonus is designed to motivate our Named Executive Officers and reward them based on our achievement of one or more pre-determined, objective performance goals that are directly related to our financial and strategic goals for the year. The annual cash performance bonus opportunity represents the most significant portion of each Named Executive Officer’s potential total compensation. The Committee believes this fosters a pay-for-performance culture and ensures that our executives are accountable for our performance. The bonus is awarded pursuant to our shareholder-approved 2009 Annual Incentive Plan, a cash-based incentive plan. Under this Plan, the Committee has the express authority to reduce the amount paid to a participant with respect to an award.

During the first quarter of 2019, the Committee established the 2019 annual cash performance bonus program, including (1) the performance goals and award formula to be measured to determine the bonus (if any) that each Named

Executive Officer would earn and (2) the maximum bonus that each Named Executive Officer would be eligible to earn. For 2019, the maximum potential performance bonuses for Messrs. Schottenstein, Creek and Mason were 350%, 250% and 200%, respectively, of their respective 2019 base salaries (the same maximum percentages that have applied to them since 1999, 2006 and 2013, respectively). The Committee subjectively determined these maximums after considering the annual performance bonus opportunities for similarly-positioned executives in our Peer Group, our past practices, the executive’s scope of responsibility (i.e., as the scope of responsibility increases, the proportion of compensation that is performance-based increases) and input from Pearl Meyer.

The Committee subjectively established the 2019 performance goals and award formula based on:

•	our 2018 performance;
•	our 2019 budget and financial and strategic goals;
•	the annual bonus programs for similarly-positioned executives in our Peer Group;
•	homebuilding and general economic conditions;
•	our past practices; and
•	input from Pearl Meyer.

The Committee did not assign a specific weighting to any of these factors.

The Committee selected Adjusted Pre-Tax Income as the sole performance goal for the 2019 annual performance bonus program based on several considerations. First, our principal financial goal in 2019 remained to continue to increase our profitability (as measured by Adjusted Pre-Tax Income). Second, based on our past annual cash performance bonus programs and historical financial results, the Committee continued to believe that the Adjusted Pre-Tax Income metric was an effective driver of our financial and operational performance. For each year since 2012, our principal financial goal has been to continue to increase our Adjusted Pre-Tax Income, we have annually increased our Adjusted Pre-Tax Income and Adjusted Pre-Tax Income has been the sole performance goal for our annual cash performance bonus program. Third, the Adjusted Pre-Tax Income metric focused our executives in a balanced manner on increasing revenue, margin expansion and controlling costs and provided a clear connection between pay and performance. The Committee also believed that by achieving strong Adjusted Pre-Tax Income, we would also achieve strong operating results. Fourth, more than 75% of the companies in our Peer Group used pre-tax income as a performance metric in their annual bonus program. Finally, Pearl Meyer supported the selection of this metric.

For 2019, the Committee established threshold and maximum Adjusted Pre-Tax Income goals of $50 million and $200 million, respectively, and designed the award formula so that each Named Executive Officer would earn 30% and 100% of his maximum bonus opportunity at the threshold and maximum performance levels, respectively. This design was substantially the same as the design of our 2018 annual cash performance bonus program, except for three changes.

First, the Committee increased the threshold level of Adjusted Pre-Tax Income to $50 million in 2019 from $45 million in 2018. Second, the Committee increased the maximum level of Adjusted Pre-Tax Income to $200 million in 2019 from $175 million in 2018. Finally, the Committee increased the amount payable at the threshold performance level to 30% of each Named Executive Officer’s maximum bonus opportunity. The Committee made these changes to drive performance and increase profitability relative to both 2018 and our internal budget for 2019. For example, (1) if we earned the same amount of Adjusted Pre-Tax Income in 2019 as in 2018, the bonuses earned in 2019 would be 8% less than those earned in 2018, (2) if we achieved our budgeted Adjusted Pre-Tax Income for 2019 ($150 million), the bonuses earned in 2019 would be 5% less than those earned in 2018 and (3) we needed to increase our Adjusted Pre-Tax Income by 6% in 2019 for the Named Executive Officers to earn the same percentage bonuses in 2019 that they earned in 2018. While the Committee was focused on driving profitability, it was also mindful that, during the second half of 2018, the homebuilding industry generally experienced a softening in demand as a result of higher home prices and interest rates, and there was some uncertainty as to how long these conditions would persist.

Consistent with the previous three annual cash performance bonus programs, the Committee structured the 2019 award formula so that the amount earned for Adjusted Pre-Tax Income that (1) fell between (a) $50 million and (b) $150

million (our 2019 budgeted Adjusted Pre-Tax Income) increased proportionately and (2) fell between (a) $150 million and (b) $200 million increased proportionately. The Committee incorporated this leveraged design feature to further drive performance relative to our budget and reward performance that exceeded our expectations.

To foster teamwork and cohesion, the Committee continued to align the payout opportunities for the Named Executive Officers so that each would earn the same percentage of his maximum performance bonus opportunity at all performance levels.

The following table sets forth the amount that each Named Executive Officer was eligible to earn based on our achievement of the threshold and maximum performance levels and the actual amount earned based on our 2019 performance:

Adjusted Pre-Tax Income Performance Goal⁽¹⁾

In 2019, we achieved Adjusted Pre-Tax Income of $169.9 million, an increase of $22.8 million, or 15%, from 2018. As a result, Messrs. Schottenstein, Creek and Mason earned performance bonuses of $2,562,210, $1,220,100 and $813,400, respectively. In each case, the bonus represented 81% of his maximum performance bonus opportunity. After considering these results and our overall 2019 performance, the Committee believes that the 2019 bonus program was an effective driver of growth in our profitability.

Equity-Based Compensation

Our equity-based compensation is designed to reward long-term performance, align the interests of our Named Executive Officers and our shareholders, promote retention and balance short-term financial goals with long-term operating decisions. To achieve these objectives, the Committee annually grants our Named Executive Officers (1) service-based stock options and (2) PSUs. As a result, 100% of each Named Executive Officer’s equity-based compensation is dependent on our long-term performance or stock price appreciation before any value is realized.

2019 Awards.  The Committee subjectively determined the number of stock options and the target number of PSUs to grant to the Named Executive Officers in 2019 based on:

 

•	the number of options and PSUs previously granted to each Named Executive Officer; and
•	input from Pearl Meyer.

The Committee did not assign a specific weighting to any of these factors.

Stock Options. In February 2019, the Committee awarded Messrs. Schottenstein, Creek and Mason options to purchase 96,000, 55,000 and 27,500 Common Shares, respectively. These awards represented the same number of service-based stock options that the Named Executive Officers received in 2018. The Committee last increased the number of options annually awarded to Messrs. Schottenstein, Creek and Mason in 2018, 2013 and 2013, respectively. The 2019 options vest and become exercisable in 20% increments on the first five anniversaries of the date of grant, subject to the Named Executive Officer’s continued employment on the applicable vesting date, and expire ten years after the date of grant.

Because stock options have value only if the price of our Common Shares increases, the Committee believes that options are inherently tied to shareholder return and align the interests of our Named Executive Officers and our shareholders. The Committee further believes that the five-year vesting schedule focuses our Named Executive Officers on our long-term performance and is consistent with the nature of the homebuilding business (i.e., the business requires a relatively long time horizon before a financial benefit is realized), mitigates excessive risk taking in the short-term and serves as a retention tool (unvested options are forfeited if an executive voluntarily terminates his employment).

PSUs. In February 2019, the Committee awarded Messrs. Schottenstein, Creek and Mason 27,154, 14,482 and 12,056 target number of PSUs, respectively, with the underlying Common Shares having a respective aggregate market value on the grant date of approximately $750,000, $400,000 and $333,000 (the “2019-2021 PSUs”). In each case, this aggregate grant date market value was approximately the same as the aggregate grant date market value of the Common Shares underlying the target number of PSUs awarded to such Named Executive Officer in 2018. The Committee last increased the aggregate grant date market value of the Common Shares underlying the target number of PSUs annually awarded to Messrs. Schottenstein, Creek and Mason in 2018, 2014 and 2016, respectively.

The actual number of 2019-2021 PSUs that will vest and be earned (if any) by each Named Executive Officer will be based (1) 80% on our cumulative annual Adjusted Pre-Tax Income (the “2019-2021 Adjusted Pre-Tax Income Performance Goal”) over the three-year performance period commencing on January 1, 2019 and ending on December 31, 2021 (the “2019-2021 Performance Period”) and (2) 20% on our relative total shareholder return compared to our Peer Group (the “2019-2021 Relative TSR Performance Goal”) over the 2019-2021 Performance Period, and on continued employment. For each performance goal, the Committee established threshold, target and maximum performance levels and the 2019-2021 PSUs will vest, if at all, after completion of the 2019-2021 Performance Period, based upon our actual level of achievement of such performance goal, at the following percentage levels of the target number of 2019-2021 PSUs allocated to such performance goal:

 

Additionally, the Named Executive Officer must remain employed by us through the end of the 2019-2021 Performance Period for the 2019-2021 PSUs to vest and be earned, except in the case of termination due to death, disability or retirement or involuntary termination without cause by us. Any vested 2019-2021 PSUs will be settled on a one-for-on

basis in Common Shares. Any 2019-2021 PSUs that do not vest will be forfeited. The 2019-2021 PSUs have no dividend or voting rights.

The Committee selected Adjusted Pre-Tax Income as the primary performance goal (weighted 80%) because this metric (1) is a key metric in our internal, long-term financial plan, (2) provides a balanced approach to focusing our executives on achieving our long-term objectives and maximizing performance and (3) is consistent with the long-term incentive plan practices of our Peer Group. The Committee subjectively established the threshold, target and maximum performance levels based on our projections and strategic plan covering the 2019-2021 Performance Period and current and expected homebuilding industry conditions.

The target level approximates our projected cumulative annual Adjusted Pre-Tax Income for the 2019-2021 Performance Period. It was designed to be reasonably achievable and provide a meaningful opportunity for reward with strong performance but requires our average annual Adjusted Pre-Tax Income for the 2019-2021 Performance Period to materially exceed our 2018 Adjusted Pre-Tax Income ($147.1 million). The maximum level was set at approximately 115% of the target level and was designed to incentivize and reward superior performance. The threshold level was set at approximately 81% of the target level and was designed to provide a reasonable vesting opportunity if our performance falls short of the target but remains generally consistent with historical performance over the past few years.

Historically, the threshold and maximum levels have generally been set at approximately 90% and 110% of the target level, respectively. When the Committee established the 2019 performance levels, it took into account that, during the second half of 2018, the homebuilding industry generally experienced a softening in demand as a result of higher home prices and interest rates, and there was some uncertainty as to how long these conditions would persist. As a result of this uncertainty, the Committee, in 2019, (1) reduced the threshold level (to 81% of target) to provide a reasonable amount of downside protection against a continued downturn in industry conditions and (2) increased the maximum level (to 115% of target) to require significant outperformance relative to budget to realize the maximum vesting level.

The Committee selected relative total shareholder return as the secondary performance goal (weighted 20%) because this metric (1) directly aligns the interests of our executives and our shareholders by measuring performance based on changes in our share price, (2) assesses performance relative to our Peer Group and (3) is consistent with the long-term incentive plan practices of our Peer Group. Relative total shareholder return will be calculated based on changes in the market price of our Common Shares (plus dividends paid on the Common Shares (if any)) over the 2019-2021 Performance Period compared to each company in our Peer Group. Consistent with past practice, the Committee set the threshold, target and maximum performance levels at the 25th, 50th and 75th percentiles of the Peer Group, respectively. The Committee subjectively established these performance levels taking into consideration our past practices, market practices for a relative total shareholder return performance metric and input from Pearl Meyer.

Results/Payment for 2017-2019 PSU’s. As described in our 2018 Proxy Statement, in February 2017, the Committee awarded Messrs. Schottenstein, Creek and Mason 25,706, 17,137 and 14,267 target number of PSUs, respectively (the “2017-2019 PSUs”). Pursuant to the 2017-2019 PSUs, each Named Executive Officer was entitled to a grant of our Common Shares ranging from 0% to 150% of his target number of 2017-2019 PSUs based (1) 80% on our cumulative annual Adjusted Pre-Tax Income over the three-year performance period commencing on January 1, 2017 and ending on December 31, 2019 (the “2017-2019 Performance Period”) and (2) 20% on our relative total shareholder return compared to our 2017-2019 PSU Peer Group (as defined below) over the 2017-2019 Performance Period, and on continued employment.

At the time of grant of the 2017-2019 PSUs, the Committee established threshold, target and maximum performance levels for each performance goal. The actual number of PSUs that would vest and Common Shares that would be earned by each Named Executive Officer would be equal to (1) 50% of his target number if we achieved the threshold level for both performance goals, (2) 100% of his target number if we achieved the target level for both performance goals, (3) 150% of his target number if we achieved the maximum level for both performance goals and (4) zero if we failed to achieve the threshold level for both performance goals (with the percentage vesting increasing proportionately between performance levels based on our actual performance). The same threshold, target and maximum performance levels applied to each Named Executive Officer.

The following table sets forth the threshold, target and maximum performance levels for each performance goal for the 2017-2019 PSUs and our actual results with respect to such goals:

2017-2019 PSU Award Results

For the 2017-2019 Performance Period, (1) we achieved cumulative annual Adjusted Pre-Tax Income of $453.5 million and (2) our relative total shareholder return ranked in the 49th percentile of the 2017-2019 Peer Group. Based on these results, the Committee certified a vesting level of 116% of each Named Executive Officer’s target number of 2017-2019 PSUs and approved grants of 29,789, 19,859 and 16,533 Common Shares to Messrs. Schottenstein, Creek and Mason, respectively.

Equity Grant Practices. The Committee grants all equity-based awards (including awards to our non-employee directors) pursuant to the 2018 LTIP. Except in the case of grants for new hires (which are generally made at the first Committee meeting following the hiring date), the Committee grants all stock options and PSUs at its first regularly scheduled Committee meeting of the year (typically in February). Our Board generally establishes the date of this meeting many months in advance, and the meeting follows our release of earnings for the prior year. We do not have any program, plan or practice to time the grant of equity-based awards with the release of material non-public information. All stock options are awarded at the closing price of our Common Shares on the NYSE on the date of grant (i.e., the date the Committee approves the grant).

Benefits and Perquisites

In 2019, we provided our Named Executive Officers with the following benefits and perquisites (in addition to those received by all employees in general). The Named Executive Officers, along with certain other members of management, receive a monthly automobile allowance (with the amount based on position). For security and efficiency reasons, we allow our Chief Executive Officer to use our corporate airplane for personal use. The Committee reviews the extent of personal usage on a quarterly basis and retains the authority to discontinue such usage at any time. Mr. Schottenstein was assessed income for all personal use of the plane in 2019 in accordance with the applicable Internal Revenue Service regulations. The amount shown in the Summary Compensation Table represents the incremental cost to us for his personal use of the plane.

We also maintain a $1.0 million supplemental split-dollar life insurance policy for Mr. Creek. Under this arrangement, we have an obligation to pay a portion of the premium and he has an obligation to pay the balance. In addition to paying our portion of the premium, we pay his portion and reimburse him for the taxes he incurs as a result of our payment of his portion. Prior to 2002, we provided this benefit to each of our executive officers. Since 2002, we have not provided this benefit to any of our new executive officers and have continued (on the same terms without any material modification) only those split-dollar policies that were in effect for our executive officers at the time of the adoption of the Sarbanes-Oxley Act and that have not otherwise been surrendered and terminated.

Payments in Connection with Termination of Employment or Change in Control

We do not have employment or severance agreements with any of our Named Executive Officers, other than the change in control agreements described below (the “CIC Agreements”). As a result, we are not obligated to pay any severance or other enhanced benefits to our Named Executive Officers upon termination of employment or a change in control, except, under certain circumstances, for the benefits provided under the CIC Agreements, our equity compensation plans and our annual performance bonus plan. The Committee believes these benefits are generally consistent with market practice within our Peer Group, help us attract and retain exceptional executives and, in the case of change in control benefits pursuant to the CIC Agreements, align executive and shareholder interests by enabling the executives to pursue corporate transactions without a concern for job security.

CIC Agreements. We are a party to a CIC Agreement with each Named Executive Officer. The CIC Agreements are identical in all respects, except for the amounts payable thereunder, and remain in effect for so long as we employ the applicable Named Executive Officer or until we mutually agree to terminate his CIC Agreement.

As previously reported, the Committee determined that it was in our best interests to enter into the CIC Agreements in 2008 based on several considerations, including to: (1) serve as a retention tool and incentivize the Named Executive Officers to continue focusing on our business in the event of a potential change in control transaction; (2) focus the Named Executive Officers on leading our business through the then ongoing, severe recession in the homebuilding industry; (3) ensure the Named Executive Officers pursue business alternatives that maximize shareholder value without a concern for job security; and (4) ensure our compensation practices remained competitive.

The CIC Agreements provide the Named Executive Officers with a level of financial protection only upon a loss of employment in connection with a change in control (i.e., a “double trigger”). Under the CIC Agreements, if (1) we terminate a Named Executive Officer’s employment without cause within six months prior to, or twenty-four months after, a change in control or (2) a Named Executive Officer terminates his employment for good reason within twenty-four months after a change in control, such Named Executive Officer will be entitled to:

 

•	continued coverage (at no cost) in all of our programs that are subject to the benefit provisions of COBRA for up to a maximum of 24 months unless he obtains replacement coverage.

The pre-determined payment multiples are 2.99 for Mr. Schottenstein and 2 for each of Messrs. Creek and Mason. These multiples were selected based primarily on a review of market data for our Peer Group.

Additionally, under the CIC Agreements, if the payments to be received by a Named Executive Officer constitute “excess parachute payments” under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and are subject to excise tax under Section 4999 of the Code, such Named Executive Officer will be entitled to a gross-up payment in an amount necessary to ensure that he does not bear the cost of the excise tax, unless a cut-back by less than 10% of the total amount payable would make the excise tax inapplicable (in which case the amount payable to him will be reduced to the extent necessary to make the excise tax inapplicable). This modified gross-up provision was included to balance protecting the Named Executive Officers from any excise tax and limiting our exposure to the cost of a gross-up if the excise tax is triggered by a minimal amount.

2018 LTIP and 2009 LTIP. Under the 2018 LTIP (our current equity compensation plan) and the 2009 LTIP (our former equity compensation plan and under which awards remain outstanding) and the respective form of award agreement that applies to all outstanding stock options thereunder, if a participant’s employment is terminated for any reason other than death, disability, retirement or cause, his or her stock option privileges will be limited to the options then exercisable on the date of termination and expire unless exercised within 60 days after such date. In the case of termination due to death, disability or retirement, all options will become immediately exercisable and expire unless exercised by the applicable expiration date of the option. In the case of termination for cause, a participant will forfeit all of his or her options (whether or not exercisable). In the case of a change in control of M/I Homes, the Committee may take such actions as it deems necessary or desirable with respect to outstanding stock options. However, if in connection with a change in control, the Committee elects to (1) cancel any option, the participant will be entitled to receive a cash payment equal to the excess, if any, of the value of the consideration to be paid in the change in control to holders of the same number of Common Shares as the number of Common Shares underlying the option being cancelled over the aggregate exercise price of the option being cancelled or (2) cause a substitute award to be issued with respect to any option, the substitute award must substantially preserve the value, rights and benefits of the option being substituted.

Pursuant to the 2018 LTIP and the 2009 LTIP and the respective form of award agreement that applies to all outstanding PSUs thereunder, if a participant’s employment is terminated before the end of the performance period for any reason other than death, disability, retirement or involuntary termination by us without cause (i.e., termination by us for cause or voluntary termination by the participant), the participant will forfeit all of his or her PSUs. In the case of termination due to death or disability, the number of PSUs that would have vested had the participant remained employed through the end of the performance period (based on our actual performance as of the end of the performance period) will vest and be earned. In the case of termination due to retirement or involuntary termination by us without cause, a prorated portion of the PSUs that would have vested (based on our actual performance as of the end of the performance period) will vest and be earned. The prorated amount will be based on the full number of months that the participant remained employed during the performance period. In the case of a change in control of M/I Homes, the Committee may take such actions as it deems necessary or desirable with respect to outstanding PSUs. However, if in connection with a change in control, the Committee elects to (1) cancel any PSU award, then the target number of PSUs subject to such award will vest and the participant will be entitled to receive a cash payment equal to the product of (a) the value of the consideration to be paid for each Common Share in connection with the change in control and (b) the number of vested PSUs or (2) cause a substitute award to be issued with respect to any PSUs, the substitute award must substantially preserve the value, rights and benefits of the PSUs being substituted.

2009 Annual Incentive Plan. Under our 2009 Annual Incentive Plan, if a participant’s employment is terminated before the end of the performance period for any reason other than death, disability, retirement or involuntary termination by us without cause (i.e., termination by us for cause or voluntary termination by the participant), he or she will not be eligible to receive any compensation under the Plan for such performance period. In the case of termination due to death, disability, retirement or involuntary termination by us without cause, he or she will be eligible to receive a pro-rated portion (based on the number of whole calendar months that the participant was employed by us during the performance period) of the compensation that would have been payable (based on our actual performance as of the end of the performance period) if he or she had remained employed for the full performance period. If a participant’s employment is terminated after the end of a performance period but prior to the related payment date, he or she will be entitled to receive any compensation earned for such performance period, except in the event of a termination for cause, in which case he or she will not receive any

compensation for such performance period. In the case of a change in control of M/I Homes, each outstanding award under the 2009 Annual Incentive Plan will be deemed earned and payable at its “target” level.

For more information concerning the Named Executive Officers’ rights (including quantification of the amounts that would be payable) upon termination of employment or a change in control, see the “Potential Payments Upon Termination of Employment or Change in Control” section on page 42 of this Proxy Statement.

Deferred Compensation Plan

The Named Executive Officers may elect to defer payment of all or part of their annual cash performance bonus (if any) to a later date under our Executives’ Deferred Compensation Plan. The deferred amount is allocated to the Named Executive Officer’s deferred compensation account, where the deferred amount is converted into that number of whole phantom stock units determined by dividing the deferred amount by the closing price of our Common Shares on the NYSE on the date of such conversion (which is the same day the bonus is paid and the allocation is made). Each executive’s deferred compensation account is credited in an amount equal to any cash dividends paid on our Common Shares based on the phantom stock units then held by the executive. The amount so credited for dividends is also converted into phantom stock units. Subject to Section 409A of the Code, the phantom stock units held by a Named Executive Officer are distributed in the form of whole Common Shares within 60 days of the earlier of the date specified by the Named Executive Officer in his deferral notice for the applicable plan year or the date his employment terminates for any reason other than retirement or, in certain cases, disability (in which case, the date set forth in his deferral notice applies), except that, in the event of a change in control of M/I Homes, the phantom stock units are distributed in whole Common Shares within 60 days of the date of the change in control if an executive has so elected in his deferral notice. We make no contributions under the Executives’ Deferred Compensation Plan (matching or otherwise), and the future payment obligations under the Plan are our general unsecured obligations.

The Committee believes that, by encouraging ownership of our Common Shares, the Executives’ Deferred Compensation Plan further aligns the interests of our Named Executive Officers and our shareholders. None of the Named Executive Officers elected to defer any portion of his 2019 bonus. For more information concerning the Named Executive Officers’ participation in the Executives’ Deferred Compensation Plan and their respective aggregate account balances thereunder as of December 31, 2019, see the Nonqualified Deferred Compensation table on page 41 of this Proxy Statement.

Share Ownership Guidelines

We do not require our Named Executive Officers to own a minimum number of our Common Shares. However, equity-based compensation is a significant percentage of their total compensation, and as of the Record Date, Messrs. Schottenstein, Creek and Mason beneficially owned 576,964, 119,892 and 36,596 Common Shares, respectively. For more information concerning the Named Executive Officers’ beneficial ownership of our Common Shares, see the “Principal Shareholders” section on page 18 of this Proxy Statement.

Anti-Hedging/Pledging

Our officers (including the Named Executive Officers), directors and employees are subject to our Insider Trading Policy. This Policy sets forth rules governing transactions in our securities and the handling of confidential information. The Policy prohibits certain transactions which we believe create a heightened risk and/or the appearance of inappropriate conduct, including the purchase of financial instruments or other transactions that hedge or offset (or are designed to hedge or offset) a decrease in market value of our securities. Specifically, the Policy prohibits our officers (including the Named Executive Officers), directors and employees from (1) engaging in hedging or monetization transactions, including prepaid variable forward contracts, equity swaps, collars and exchange funds, (2) buying or selling publicly traded-options, including put options, call options and other derivative securities, (3) engaging in short sales, (4) holding securities in a margin account and (5) pledging securities as collateral for a loan, in each case with respect to our securities. These prohibitions apply to securities acquired by an officer, director or employee as part of his or her compensation and securities otherwise held by him or her. The prohibitions also apply to the family members of an officer, director or employee (and any other persons) who reside in the officer’s, director’s or employee’s household as well as any family members whose transactions are directed by, or subject to the influence or control of, such officer, director or employee.

 

Tax Implications

Section 162(m) of the Code generally prohibits a public company from deducting compensation paid to certain covered employees (including our Named Executive Officers) in excess of $1 million in any taxable year. Prior to the passage of The Tax Cuts and Jobs Act (the “TCJA”) in December 2017, compensation that qualified as performance-based compensation under Section 162(m) could be excluded from this $1 million limit and the Committee had historically considered the deductibility of our executive compensation under Section 162(m) and generally structured the annual cash performance bonus and equity-based compensation in a manner intended to qualify as performance-based compensation.

 

The TCJA substantially modified Section 162(m) and, among other things, repealed the performance-based compensation exemption for taxable years beginning after December 31, 2017. The TCJA provides limited transition relief for certain compensation paid pursuant to a written binding contract which was in effect on November 2, 2017 and has not been materially modified. Due to the uncertainty of the application of Section 162(m) as a result of the TCJA (including this limited transition relief), there can be no assurance that historical compensation intended to satisfy the performance-based requirements for exemption will be deductible. The Committee remains committed to paying performance-based compensation. However, compensation awarded to our executive officers in 2019 (and future years) in excess of $1 million generally will not be deductible (regardless of whether all or a portion of such excess is performance-based compensation).

Looking Forward—2020 Compensation

After reviewing our executive compensation program and data provided by Pearl Meyer, consulting with Pearl Meyer and receiving input from our Chief Executive Officer and certain other members of management, in the first quarter of this year, the Committee established our 2020 executive compensation program. The 2020 program is substantially similar in design to our 2019 program. At the recommendation of Pearl Meyer, the Committee added Century Communities, Inc. to our Peer Group for 2020 based on its relative size, including revenue and market capitalization, and comparable business profile. Set forth below is a summary of the principal components of the 2020 executive compensation program.

Base Salary. The Committee increased the base salaries of Messrs. Schottenstein and Creek from $900,000 to $1,000,000 and $600,000 to $650,000, respectively, and did not change Mr. Mason’s base salary ($500,000). The Committee increased Messrs. Schottenstein’s and Creek’s base salaries based on our corporate and their individual performance in 2019 and the base salaries of similarly-situated executives in our Peer Group and noted that neither had received a salary increase since 2013.

Annual Performance Bonus. Each Named Executive Officer is eligible to receive an annual cash performance bonus that is based on our 2020 Adjusted Pre-Tax Income. The maximum cash performance bonuses that Messrs. Schottenstein, Creek and Mason may receive for 2020 are 350%, 250% and 200%, respectively, of their respective 2020 base salaries (the same maximum percentages that applied in 2019).

Equity-Based Compensation. In February 2020, the Committee awarded Messrs. Schottenstein, Creek and Mason stock options to purchase 100,000, 55,000 and 27,500 Common Shares, respectively. In the case of Messrs. Creek and Mason, this represents the same number of service-based stock options that they received in 2019. In the case of Mr. Schottenstein, the Committee increased the number of service-based stock options by 4,000 (4%) based on the value of his long-term equity-based compensation ranking in the bottom quartile for chief executive officers in our Peer Group. The options vest and become exercisable in 20% increments on the first five anniversaries of the date of grant, subject to the Named Executive Officer’s continued employment on the applicable vesting date.

In February 2020, the Committee also awarded Messrs. Schottenstein, Creek and Mason 23,679, 14,207 and 7,885 target number of PSUs, respectively, with the underlying Common Shares having a respective aggregate market value on the date of grant of approximately $1,000,000, $600,000 and $333,000. In the case of Messrs. Schottenstein and Creek, the Committee increased the aggregate grant date market value of the Common Shares underlying their target 2020 PSU awards by $250,000 (33%) and $200,000 (50%), respectively. The Committee increased these awards based on the value of their respective long-term equity-based compensation ranking in the bottom quartile for similarly-situated executives in our Peer Group. In the case of Mr. Mason, this aggregate grant date market value was approximately the same as the aggregate grant date market value of the Common Shares underlying the target number of PSUs awarded to him in 2019.

The PSUs will vest and be earned, if at all, after the completion of the performance period, which is the three-year period commencing on January 1, 2020 and ending on December 31, 2022, based (1) 80% on our cumulative annual Adjusted Pre-Tax Income and (2) 20% on our relative total shareholder return compared to our Peer Group over the

performance period, and on continued employment. The actual number of PSUs that will vest and be earned by each Named Executive Officer may be increased by up to 50% (from the target number) if we achieve the maximum performance level for both of the performance goals and be decreased to zero if we fail to achieve the threshold performance level for both of the performance goals. If we achieve the threshold performance level for both of the performance goals, 50% of each Named Executive Officer’s target number of PSUs will vest and be earned. The percentage of the target number of PSUs that will vest and be earned for performance between (1) the threshold and target performance levels will increase proportionately from 50% to 100% based on our actual performance and (2) the target and maximum performance levels will increase proportionately from 100% to 150% based on our actual performance. The same threshold, target and maximum performance levels apply to each Named Executive Officer. The vested PSUs will be settled on a one-for-one basis in whole Common Shares. The PSUs have no dividend or voting rights. Any portion of the PSUs that do not vest will be forfeited.

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board (and the Board approved) that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s 2019 Form 10-K.

 

Compensation Committee:

Friedrich K. M. Böhm (Chairman)

Michael P. Glimcher

Norman L. Traeger

 

 

 

COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation Table for 2019

The following table summarizes the total compensation for the fiscal years ended December 31, 2019, 2018 and 2017 for the Company’s Chief Executive Officer, Chief Financial Officer and Chief Legal Officer during the 2019 fiscal year:

 

 

	Discussion and Analysis—Benefits and Perquisites” on page 30 of this Proxy Statement for more information concerning this benefit.
(e)	The amounts shown reflect profit-sharing contributions made by the Company to the Named Executive Officers pursuant to the Company’s 401(k) Plan.

Grants of Plan-Based Awards for 2019

 

		Estimated Future Payouts Under Non-Equity Incentive Plan Awards			Estimated Future Payouts Under Equity Incentive Plan Awards			All Other Option Awards: Number of Securities Underlying Options (#)(3)	Exercise or Base Price of Option Awards         ($/Share)	Grant Date Fair Value of Stock and Option Awards ($)
Name	Grant Date	Threshold ($) (1)	Target ($)	Maximum ($) (1)	Threshold (#) (2)	Target (#) (2)	Maximum (#) (2)
Robert H. Schottenstein	-	945,000		3,150,000
	2/19/2019				13,577	27,154	40,731			776,605 (4)
	2/19/2019							96,000	27.62	869,760 (5)
Phillip G. Creek	-	450,000		1,500,000
	2/19/2019				7,241	14,482	21,723			414,183(4)
	2/19/2019							55,000	27.62	498,300(5)
J. Thomas Mason	-	300,000		1,000,000
	2/19/2019				6,028	12,056	18,084			344,801(4)
	2/19/2019							27,500	27.62	249,150(5)

 

Outstanding Equity Awards at 2019 Fiscal Year-End

 

 

Option Exercises and Stock Vested in 2019

 

Nonqualified Deferred Compensation for 2019

 

 

Potential Payments Upon Termination of Employment or Change in Control

As described in “Compensation Discussion and Analysis—Payments in Connection with Termination of   Employment or Change in Control” on page 31 of this Proxy Statement, we are a party to a CIC Agreement with each Named Executive Officer that provides certain severance and other enhanced benefits if we experience a change in control and the executive’s employment is terminated in connection with that change in control.  Other than the benefits that may be payable to the Named Executive Officers under the CIC Agreements, the accelerated vesting under certain circumstances of stock options and PSUs granted to the Named Executive Officers under the 2018 LTIP and the 2009 LTIP and certain payments that may be payable to the Named Executive Officers under the 2009 Annual Incentive Plan, we do not currently have employment or severance agreements or other plans or arrangements that provide payments or enhanced benefits to our Named Executive Officers in connection with a termination of employment or change in control.

The following table summarizes the potential payments to our Named Executive Officers upon a termination of employment and/or a change in control of the Company (assuming that the triggering event occurred on December 31, 2019):