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.)
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
Check the appropriate box:
☐ | Preliminary Proxy Statement |
☐ | Confidential, for Use of the Commission Only (as permitted by Rule14a-6(e)(2)) |
☒ | Definitive Proxy Statement |
☐ | Definitive Additional Materials |
☐ | 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)
Payment of Filing Fee (Check the appropriate box):
☒ | No fee required. |
☐ | Fee computed on table below per Exchange Act Rules14a-6(i)(4) and0-11. |
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3 Easton Oval
Columbus, Ohio 43219
April 3, 20187, 2020
To Our Shareholders:
The 20182020 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 Tuesday,Monday, May 8, 2018,11, 2020 at the offices of the Company, 3 Easton Oval, Columbus, Ohio 43219. Holders of record of our common shares as of March 12, 201816, 2020 are entitled to notice of, and to vote at, the Annual Meeting.
Enclosed is a copy of our 20172019 Annual Report to Shareholders, which includes our Annual Report on Form10-K for the fiscal year endedDecember 31, 2017,2019, 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.
Sincerely, | |
| |
Robert H. Schottenstein, | |
Chairman and Chief Executive Officer |
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 8, 201811, 2020
To Each Shareholder of M/I Homes, Inc.:
Notice is hereby given that the 20182020 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 Tuesday,Monday, May 8, 2018,11, 2020, at the offices of the Company, 3 Easton Oval, Columbus, Ohio 43219, for the following purposes:
1) | To elect three directors to serve until the Company’s |
2) | To consider and vote upon anon-binding, advisory resolution to approve the compensation of the Company’s named executive officers; |
3) |
To consider and vote upon a proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the |
4) | To transact such other business as may properly be brought before the Annual Meeting or any adjournment thereof. |
Only holders of record of our common shares at the close of business onMarch 12, 201816, 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.
By Order of the Board of Directors, | |
/s/ J. Thomas Mason | |
J. Thomas Mason, | |
Secretary |
April 3, 20187, 2020
THE COMPANY’S NOTICE OF ANNUAL MEETING OF SHAREHOLDERS, PROXY STATEMENT, FORM OF PROXY AND 20172019 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 8, 2018.11, 2020.
The Company’s Notice of Annual Meeting of Shareholders, Proxy Statement, form of proxy and 20172019 Annual Report to Shareholders are available online atwww.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 orinvestorrelations@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 viae-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:
• | Shareholders of Record. If you are a registered shareholder, you may consent to electronic delivery when voting for the Annual Meeting on the Internet atwww.envisionreports.com/MHO. |
• | Beneficial Holders. If your common shares are not registered in your name, check the information provided to you by your bank, broker or other nominee or contact your bank, broker or other nominee for information on electronic delivery service. |
3 Easton Oval
Columbus, Ohio 43219
PROXY STATEMENT
for the
2018 ANNUAL MEETING OF SHAREHOLDERS2020 Annual Meeting of Shareholders
To Be Held May 8, 201811, 2020
GENERAL
GENERAL
Time, Place and Purposes of Meeting
The 20182020 Annual Meeting of Shareholdersof M/I Homes, Inc. (the “Annual Meeting”) will be held on Tuesday,Monday, May 8, 201811, 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 3, 20187, 2020 to holders of the Company’s common shares, par value $.01 per share (the “Common Shares”), as of the close of business onMarch 12, 201816, 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 20172019 Annual Report to Shareholders (the “2017“2019 Annual Report”Report”), which includes our Annual Report on Form10-K for the fiscal year endedDecember 31, 20172019 (the “2017“2019 Form 10-K10-K””), is being mailed together with this Proxy Statement.
Outstanding Shares and Quorum Requirements
There were 28,562,75328,583,329 Common Shares issued and 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 8, 2018.11, 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” “non-routine” matters, such as the election of directors andthe advisory vote on executive compensation and the approval of the adoption of the M/I Homes, Inc. 2018 Long-Term Incentive Plan,, 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” “non-routine” matters, as described in the previous sentence, are referred to as “brokernon-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 8, 2018,11, 2020, will be voted in accordance with the instructions contained therein. If no instructions are given (excluding brokernon-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 approval of the adoption of the M/I Homes, Inc. 2018 Long-Term Incentive Plan (Proposal No. 3), FOR the ratification of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for 20182020 (Proposal No. 4)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.
2
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 20212023 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 brokernon-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 directorin an uncontested election whoreceives 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 voteFOR each of the director nominees named below.
3
BOARD OF DIRECTORS
Name | Age | Current Position(s) with the Company and/or Business Experience | Director Since | |||||||
Director Nominees - Term to Expire at 2021 Annual Meeting of Shareholders |
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Michael P. Glimcher* | 50 | Chief Executive Officer of Starwood Retail Partners, LLC, a developer and operator of retail malls and shopping centers in the United States, since September 2017. Mr. Glimcher served as Principal of Glimcher Legacy, an independent commercial real estate firm, from June 2016 to September 2017. Mr. Glimcher served as Vice Chairman and Chief Executive Officer of WP Glimcher, a real estate investment trust formed through the merger of Washington Prime Group, Inc. and Glimcher Realty Trust, from January 2015 to June 2016. Mr. Glimcher served as Chairman of the Board of Glimcher Realty Trust from September 2007 to January 2015 and Chief Executive Officer of Glimcher Realty Trust from January 2005 to January 2015. Mr. Glimcher serves on the Governing Committee of the Columbus Foundation and the Board of Trustees of the Wexner Center for the Arts. He is also a member of the International Council of Shopping Centers, the Columbus Partnership and serves as Vice Chairman of the Board of Trustees at the Columbus School for Girls.
Committee Membership: Nominating and Governance | 2013 | |||||||
As the Chief Executive Officer of a developer and operator of retail malls and shopping centers across the United States and a former Vice Chairman and Chief Executive Officer of a publicly-traded real estate investment trust with real estate projects across the United States, Mr. Glimcher brings the Board management, public company, risk management, corporate governance and real estate development and construction experience. |
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J. Thomas Mason | 60 | Chief Legal Officer of the Company since November 2011, Executive Vice President of the Company since February 2008 and Secretary of the Company since July 2002. Mr. Mason served as Senior Vice President of the Company from July 2002 until February 2008 and as General Counsel of the Company from July 2002 until November 2011. Prior to July 2002, Mr. Mason was a partner with the law firm of Vorys, Sater, Seymour and Pease LLP in Columbus, Ohio.
Committee Membership: None | 2006 | |||||||
Mr. Mason has practiced law for over 34 years, including 18 years in private practice, with an emphasis on land acquisition/disposition and development. As Chief Legal Officer and Secretary of the Company, Mr. Mason is actively involved in the Company’s risk management, land acquisition/disposition and development and human resources functions. Mr. Mason provides the Board with insight into legal issues affecting the Company as well as valuable real estate expertise and detailed knowledge of many areas of our business. |
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Director Nominees - Term to Expire at 2023 Annual Meeting of Shareholders
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Phillip G. Creek |
| 67 |
| Chief Financial Officer of the Company since September 2000, Executive Vice President of the Company since February 2008 and Chief Financial Officer of M/I Financial LLC, a wholly-owned subsidiary of the Company (“M/I Financial”), since September 2000. |
| 2002 |
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Mr. Creek has served in various management positions with the Company since 1993 and has worked in the homebuilding industry for over 40 years. Mr. Creek has extensive experience in finance, accounting, strategic planning, homebuilding operations, investor relations and capital markets and provides the Board with valuable knowledge of the homebuilding industry and the Company’s operations. | ||||||
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Nancy J. Kramer* |
| 64 |
| Founder of Resource/Ammirati, a digitally led creative agency established in 1981 that was acquired by IBM in 2016, and is now Global Chief Evangelist for IBM iX. Ms. Kramer also serves on the Board of Trustees of The Columbus Foundation, the Wexner Center for the Arts and The Wellington School. |
| 2015 |
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| Committee Membership: Nominating and Governance |
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Ms. Kramer has more than 30 years of experience in the technology, marketing and advertising industries. Her extensive experience provides the Board with valuable expertise with digital technology transformation, interactive marketing and advertising. | ||||||
Norman L. Traeger* |
| 80 |
| Founded United Skates of America, a chain of family fun centers, in 1971 and The Discovery Group, a venture capital firm, in 1983. Mr. Traeger currently owns and manages industrial, commercial and office real estate. Mr. Traeger currently serves as a director of The Discovery Group. |
| 1997 |
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| Committee Memberships: Audit; Compensation; Nominating and Governance (Chairman) |
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Mr. Traeger’s diverse background as a business owner and operator, venture capitalist and real estate developer provides the Board with significant experience in sales, marketing, strategic planning and capital formation, as well as entrepreneurial and operational expertise. |
Name | Age | Current Position(s) with the Company and/or Business Experience | Director Since | |||||||
Sharen Jester Turney* | 61 | President and Chief Executive Officer of Victoria’s Secret, a division of L Brands, Inc., a publicly-traded national retailer, from 2006 until February 2016. Ms. Turney served as President and Chief Executive Officer of Victoria’s Secret Direct, the brand’s catalogue ande-commerce arm, from 2000 until 2006. Before joining Victoria’s Secret, Ms. Turney served for 10 years in various executive roles, including President and Chief Executive Officer of Neiman Marcus Direct, with Neiman Marcus Group, Inc., a publicly-traded national luxury retailer. Ms. Turney currently serves as Chairman of the Board of Directors for the Research Institute at Nationwide Children’s Hospital. She also served on the Board of Directors for Full Beauty Brands, a national retailer. Ms. Turney is an advisor to the Board of London-based Marks and Spencer, a publicly-traded company, and technology companies Feedvisor, New Retail and Joox.
Committee Memberships: Nominating and Governance; Compensation | 2011 | |||||||
Ms. Turney’s service as an executive officer of Fortune 500 publicly-traded companies provides the Board with diverse and valuable experience in numerous areas, including business management, strategic planning, retailing, finance, marketing, understanding the customer, brand management and sourcing. |
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Directors - Term to Expire at 2019 Annual Meeting of Shareholders |
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Friedrich K.M. Böhm* | 76 | Consultant for large real estate development projects. Mr. Böhm was a partner of White Oak Partners, a private equity firm, from 2008 to 2015 and Chairman of White Oak Partners from 2008 to 2013. Mr. Böhm served as Chairman Emeritus of NBBJ, an international architectural firm, from 2006 to 2008, Chairman of NBBJ from 1997 until 2006 and Managing Partner and Chief Executive Officer of NBBJ from 1987 until 1997. He currently serves as a director of The Daimler Group and White Oak Partners and was formerly a director of TRC Companies, Inc., Huntington National Bank and NBBJ. In November 2013, Mr. Böhm was appointed as the Company’s Lead Independent Director.
Committee Memberships: Audit; Compensation (Chairman); Executive | 1994 | |||||||
For nearly 20 years, Mr. Böhm served in an executive role with NBBJ, a leading international architectural firm that has designed communities, buildings, products, environments and digital experiences, including designing over 300,000 housing units. Mr. Böhm provides the Board with extensive and broad-based operating, design, strategic planning and management experience. |
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Name | Age | Current Position(s) with the Company and/or Business Experience | Director Since | |||||||
William H. Carter* | 64 | Executive Vice President and Chief Financial Officer of Hexion Inc. (formerly known as Momentive Specialty Chemicals Inc.), an international specialty chemicals and materials company, from April 1995 until December 2015, and a director of Hexion Inc. from November 2001 until December 2015. Mr. Carter also served as Executive Vice President and Chief Financial Officer and a director of Momentive Performance Holdings LLC and its wholly-owned subsidiary Momentive Performance Materials Inc. from October 2010 until October 2014. Prior to joining Hexion Inc., Mr. Carter was a partner with Price Waterhouse LLP, which he joined in 1975. He currently serves on the Board of Directors of Lancaster Colony Corporation and Vectra Corporation.
Committee Membership: Audit (Chairman) | 2012 | |||||||
Mr. Carter has more than 40 years of finance and accounting experience, including having served as a chief financial officer of a public-reporting company and a partner for an independent registered public accounting firm. Through this extensive experience, he provides the Board with valuable expertise in numerous financial areas, including accounting, tax, treasury, capital markets and strategic planning. |
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Robert H. Schottenstein | 65 | Chairman of the Company since March 2004, Chief Executive Officer of the Company since January 2004 and President of the Company since May 1996. Mr. Schottenstein currently serves as a director of L Brands, Inc. and Installed Building Products, Inc. Mr. Schottenstein also serves on The Ohio State University Wexner Medical Center board and is also a board member of The Ohio State University Foundation. In addition, Mr. Schottenstein serves on the Executive Committee of The Harvard University Joint Center for Housing. Mr. Schottenstein served as a Trustee of The Ohio State University (“OSU”) from 2005 to 2014 and as the Chair of the Board of Trustees of OSU from 2012 to 2014. Mr. Schottenstein formerly served as a director of Huntington Bancshares Incorporated.
Committee Membership: Executive (Chairman) | 1993 | |||||||
Mr. Schottenstein’sday-to-day leadership as Chief Executive Officer of the Company, more than 25 years of service with the Company in various roles spanning production, sales and land acquisition/disposition and development, family relationship (he is the son of the founder of the Company) and previous experience as a real estate attorney provides the Board with extensive knowledge of our operations, business, industry and history. |
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Directors - Term to Expire at 2020 Annual Meeting of Shareholders |
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Phillip G. Creek | 65 | Chief Financial Officer of the Company since September 2000, Executive Vice President of the Company since February 2008 and Chief Financial Officer of M/I Financial Corp., a wholly-owned subsidiary of the Company (“M/I Financial”), since September 2000.
Committee Membership: Executive | 2002 | |||||||
Mr. Creek has served in various management positions with the Company since 1993 and has worked in the homebuilding industry for over 30 years. Mr. Creek has extensive experience in finance, accounting, strategic planning, homebuilding operations, investor relations and capital markets and provides the Board with valuable knowledge of the homebuilding industry and the Company’s operations. |
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Name | Age | Current Position(s) with the Company and/or Business Experience | Director Since | |||||||
Norman L. Traeger* | 78 | Founded United Skates of America, a chain of family fun centers, in 1971 and The Discovery Group, a venture capital firm, in 1983. Mr. Traeger currently owns and manages industrial, commercial and office real estate. Mr. Traeger currently serves as a director of The Discovery Group.
Committee Memberships: Audit; Compensation; Nominating and Governance (Chairman) | 1997 | |||||||
Mr. Traeger’s diverse background as a business owner and operator, venture capitalist and real estate developer provides the Board with significant experience in sales, marketing, strategic planning and capital formation, as well as entrepreneurial and operational expertise. |
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Nancy J. Kramer* | 62 | Founder of Resource/Ammirati, a digitally led creative agency established in 1981 that was acquired by IBM in 2016, and is now Chief Evangelist for IBM iX. Ms. Kramer also serves on the Board of The Columbus Foundation, the Wexner Center for the Arts and The Wellington School.
Committee Membership: Nominating and Governance | 2015 | |||||||
Ms. Kramer has more than 30 years of experience in the marketing and advertising industry. Her extensive experience provides the Board with valuable expertise with digital and interactive marketing and advertising. |
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Directors - Term to Expire at 2021 Annual Meeting of Shareholders | ||||||
Michael P. Glimcher* |
| 52 |
| Chief Executive Officer of Starwood Retail Partners, LLC, a developer and operator of retail malls and shopping centers in the United States, since September 2017. Mr. Glimcher served as Principal of Glimcher Legacy, a privately-held non-retail real estate firm, from June 2016 to September 2017. Mr. Glimcher served as Vice Chairman and Chief Executive Officer of WP Glimcher, a real estate investment trust formed through the merger of Washington Prime Group, Inc. and Glimcher Realty Trust, from January 2015 to June 2016. Mr. Glimcher served as Chairman of the Board of Glimcher Realty Trust, a real estate investment trust, from September 2007 to January 2015 and Chief Executive Officer of Glimcher Realty Trust from January 2005 to January 2015. Mr. Glimcher serves on the Governing Committee of The Columbus Foundation and the Board of Trustees of the Wexner Center for the Arts. He is also a member and past Trustee of the International Council of Shopping Centers and a member of The Real Estate Roundtable and serves as Chairman of the Board of Trustees of the Columbus School for Girls. |
| 2013 |
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| Committee Membership: Compensation; Nominating and Governance |
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As the Chief Executive Officer of a developer and operator of retail malls and shopping centers across the United States and a former Chairman and Chief Executive Officer of a publicly-traded real estate investment trust with real estate projects across the United States, Mr. Glimcher brings the Board management, public company, risk management, corporate governance and real estate development, investment and construction experience. | ||||||
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Elizabeth K. Ingram* |
| 49 |
| Chief Executive Officer of White Castle System, Inc., a restaurant chain with approximately 360 locations and a manufacturing business that sells products to retailers in all 50 states, since 2015. Ms. Ingram has also served as President of White Castle System, Inc. since 2013 and is a member of its Board of Directors. Ms. Ingram currently serves on the Board of Trustees of United Way of Central Ohio and on the Board of Directors of OhioHealth. Ms. Ingram is also a member of the Columbus Partnership. |
| 2019 |
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| Committee Membership: Nominating and Governance |
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As the Chief Executive Officer of a restaurant chain and manufacturing business with extensive operations across the United States, Ms. Ingram provides the Board with diverse and valuable experience in numerous areas, including business management, sales, marketing, customer service and strategic planning. | ||||||
J. Thomas Mason |
| 62 |
| Chief Legal Officer of the Company since November 2011, Executive Vice President of the Company since February 2008 and Secretary of the Company since July 2002. Mr. Mason served as Senior Vice President of the Company from July 2002 until February 2008 and as General Counsel of the Company from July 2002 until November 2011. Prior to July 2002, Mr. Mason was a partner with the law firm of Vorys, Sater, Seymour and Pease LLP in Columbus, Ohio. |
| 2006 |
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| Committee Membership: None |
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Mr. Mason has practiced law for over 35 years, including 18 years in private practice, with an emphasis on land acquisition/disposition and development. As Chief Legal Officer and Secretary of the Company, Mr. Mason is actively involved in the Company’s risk management, land acquisition/disposition and development and human resources functions. Mr. Mason provides the Board with insight into legal issues affecting the Company as well as valuable real estate expertise and detailed knowledge of many areas of our business. | ||||||
7
Name |
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Directors - Term to Expire at 2022 Annual Meeting of Shareholders | ||||||
Friedrich K.M. Böhm*
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| 78 |
| Consultant for large real estate development projects. Mr. Böhm was a partner of White Oak Partners, a private equity firm, from 2008 to 2015 and Chairman of White Oak Partners from 2008 to 2013. Mr. Böhm served as Chairman Emeritus of NBBJ, an international architectural firm, from 2006 to 2008, Chairman of NBBJ from 1997 until 2006 and Managing Partner and Chief Executive Officer of NBBJ from 1987 until 1997. He currently serves as a director of The Daimler Group and White Oak Partners and was formerly a director of TRC Companies, Inc., Huntington National Bank and NBBJ. In November 2013, Mr. Böhm was appointed as the Company’s Lead Independent Director. |
| 1994 |
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| Committee Memberships: Audit; Compensation (Chairman); Executive |
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For nearly 20 years, Mr. Böhm served in an executive role with NBBJ, a leading international architectural firm that has designed communities, buildings, products, environments and digital experiences, including designing over 300,000 housing units. Mr. Böhm provides the Board with extensive and broad-based operating, design, strategic planning and management experience. | ||||||
William H. Carter* |
| 66 |
| Executive Vice President and Chief Financial Officer of Hexion Inc. (formerly known as Momentive Specialty Chemicals Inc.), an international specialty chemicals and materials company, from April 1995 until December 2015, and a director of Hexion Inc. from November 2001 until December 2015. Mr. Carter also served as Executive Vice President and Chief Financial Officer and a director of Momentive Performance Holdings LLC and its wholly-owned subsidiary, Momentive Performance Materials Inc., from October 2010 until October 2014. Prior to joining Hexion Inc., Mr. Carter was a partner with Price Waterhouse LLP, which he joined in 1975. He currently serves as a director of Lancaster Colony Corporation. |
| 2012 |
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| Committee Membership: Audit (Chairman) |
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Mr. Carter has more than 40 years of finance and accounting experience, including having served as a chief financial officer of a public-reporting company and a partner for an independent registered public accounting firm. Through this extensive experience, he provides the Board with valuable expertise in numerous financial areas, including accounting, tax, treasury, capital markets and strategic planning. | ||||||
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Robert H. Schottenstein |
| 67 |
| Chairman of the Company since March 2004, Chief Executive Officer of the Company since January 2004 and President of the Company since May 1996. Mr. Schottenstein currently serves as a director of L Brands, Inc. and served as a director of Installed Building Products, Inc. from April 2014 until March 2020. Mr. Schottenstein also serves on the Board of Trustees of The Ohio State University Wexner Medical Center and on the Board of Directors of The Ohio State University Foundation. In addition, Mr. Schottenstein serves on the Executive Committee of The Harvard University Joint Center for Housing. Mr. Schottenstein served as a Trustee of The Ohio State University (“OSU”) from 2005 to 2014 and as the Chair of the Board of Trustees of OSU from 2012 to 2014. |
| 1993 |
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| Committee Membership: Executive (Chairman) |
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Mr. Schottenstein’s day-to-day leadership as Chief Executive Officer of the Company, more than 30 years of service with the Company in various roles spanning production, sales and land acquisition/disposition and development, family relationship (he is the son of the founder of the Company) and previous experience as a real estate attorney provides the Board with extensive knowledge of our operations, business, industry and history. | ||||||
* Independent director under the NYSE Rules. |
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(Friedrich K.M. Böhm, William H. Carter, Michael P. Glimcher, Elizabeth K. Ingram, Nancy J. Kramer and Norman L. Traeger and Sharen Jester Turney)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 2017,2019, 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 2017,2019, 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 atwww.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 asoff-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 andpre-approving all audit services and permittednon-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
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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 accordanceinaccordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee met nineeight times during 2017.2019. The Audit Committee also met nineeight 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 20172019 fiscal year appears on page 6349 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 (cash, equity and otherwise) 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 ofnon-employee director compensation; (4) developing and administering plans to qualify the compensation paid to the executive officers for tax deductibility to the extent feasible; (5) reviewing and making recommendations to the Board concerning, and administering, the Company’s cash incentive and equity-based compensation plans; (6)(5) reviewing and discussing with the Board the Company’s organizational structure and plans for management succession; (7)(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 (8)(7) preparing a report on executive officer compensation for inclusion in the proxy statement. The
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 sixfive times during 2017.2019. The Compensation Committee’s report relating to the 20172019 fiscal year appears on page 5036 of this Proxy Statement. See “Compensation Discussion and Analysis” beginning on page 3320 of this Proxy Statement for more information concerning the activities of the Compensation Committee with respect to the 20172019 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 20172019 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
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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 2017.2019.
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 2017,2019, the Executive Committee did not hold any formal meetings; however, the Executive Committee approved two actions by unanimous written consent.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 atwww.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 whoreceives a greater number of votes “withheld” from his or her election than votes “for” his or her electionshall tender his or her resignation as a director to the Boardpromptly 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 oneach 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 benefits to the Company of the transaction; |
• | the terms of the transaction; |
• | the interest of the Related Person (as defined below) in the transaction; |
• | the alternatives to entering into the transaction; |
• | whether the transaction is on terms comparable to those available from third parties; and |
• | 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.
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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 beenpre-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 20172019 and theyear-to-date period in 2018,2020, the Company has not been a participant in any Related Person Transaction, except for the following transaction.
In February 2018, we entered into an agreementMarch 2020, in the ordinary course of business, to purchasewe purchased a parcel of real property located in Dublin,Delaware County, Ohio for approximately $4.65$14.2 million from an entity in which Gary Schottenstein (the brother of Robert H. Schottenstein) owns a majority interest. The transaction is currently expected to close during the fourth quarter of 2018. 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 20172019 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 adhere tocomply with the Company’sour Code of Business Conduct and Ethics, which complies withmeets the applicable SEC Rules and NYSE Rules and is intended to reinforce our commitment to maintaining the highest ethical standards in operating our business.Rules. The Code of Business Conduct and Ethics is available on the Company’s website atwww.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 Form8-K regarding disclosure of amendments to, or waivers from, provisions of the Code of Business Conduct and Ethics that relate to elements listed under Item 406(b) of RegulationS-K and apply to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on our website.
Executive Sessions
In accordance with our Corporate Governance Guidelines and NYSE Rules, ournon-management directors meet without management or the inside directors present 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 ournon-management directors deem necessary or appropriate. Each executive session is chaired by ourOur Lead Independent Director.Director chairs each executive session. During 2017,2019, thenon-management directors held four executive sessions.
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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 send communications tocommunicate 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 thenon-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 or directors.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 of Chairman and Chief Executive Officer promotes the development and execution of our business strategy and facilitates information flow between management and the Board, which areis essential to effective governance. In addition, the Board believes that our current Chief Executive Officer’s family relationship (he is the son of the founder of the Company)our founder), previous experience as a real estate attorney and more than 2530 years of service with the Companyus 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:
• | review with the Chairman and approve the agenda for meetings of the Board; |
• | review with the Chairman and approve the schedule for meetings of the Board to assure there is sufficient time for discussion of all agenda items; |
• | review with the Chairman and approve information provided to the Board; |
• | call executive sessions or meetings of the independent or non-management directors, as he or she deems necessary or appropriate, and preside at all such executive sessions or meetings; |
• | preside at all meetings of the Board at which the Chairman is not present; |
• | meet separately with the Chairman after executive sessions of the independent or non-management directors to review matters considered during such sessions; |
• | serve as the liaison between the Chairman and the independent directors; |
• | be available for consultation and direct communication with our shareholders, if requested; and |
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perform such other duties as the Board may from time to time delegate. |
The Board periodically reviews our leadership structure and retains the authority to modify the structure, as and when appropriate, to address our then current circumstances.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 risks in threefour primary areas: (1) financial risk; (2) legal, compliance and regulatory risk; (3) cybersecurity risk; and (3)(4) operational and strategic risk. The Board has ultimate oversight responsibility for our risk-management program and
carries out this responsibilityout 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
As described above, the Company has a standing
The Nominating and Governance Committee that 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, strength of character, experience with businesses and organizations comparable in size or scope, experience as an executive of, or advisor to, a publicly-traded or private company, experience and skill relative to our other Board members,directors and specialized knowledge or experience and desirability of the candidate’s membership on the Board.experience. The Nominating and Governance Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees. However,Instead, the Nominating and Governance Committee considers diversity, including diversity of gender, race, and ethnicity, education, professional experience, viewpoints, backgrounds and skills. The Nominating and Governance Committeeskills, but does
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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 members of the Boarddirectors should have the highest character and integrity, a reputation for working constructively with others, sufficient time to devote to the Board matters and no conflict of interest that would materially interfere with performance as a director.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. 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.
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, attributes and other skills. Aa written statement from the candidate consenting to serve as a director, if so nominated and elected, must accompanyelected.
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 recommendation.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 or nominationsnomination(s) by personal delivery or by United States Mail,mail, postagepre-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 or personsperson(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 or personsperson(s) specified in the notice; (3) a description of all arrangements or understandings between the shareholder and each nominee and any other person or personsperson(s) (naming such person or persons)person(s)) pursuant to which the nomination or nominations arenomination(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, of the Company, 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.
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Proposal No. 2
ADVISORY VOTE ON EXECUTIVE COMPENSATION
WePursuant to SEC rules and our Board policy requiring an annual “say-on-pay” vote, we are asking our shareholders to approve athe following non-binding advisory resolution on the compensation of our executive officers identified in the Summary Compensation Table on page 5137 of this Proxy Statement (the “Named Executive Officers”)––commonly referred to as a“say-on-pay” vote. Our Board has adopted a policy providing for an annual“say-on-pay” vote. In accordance with this policy, we are asking our shareholders to vote FOR the following resolution::
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 promote four primary objectives with(1) attract and retain exceptional executives, (2) motivate our executive compensation program: (1) attracting and retaining exceptional executives; (2) motivating our executives;executives, (3) aligningalign the interests of our executives and our shareholders;shareholders and (4) rewarding short-term and long-termreward performance. We are committed to apay-for-performance philosophy. As such, our executive compensation program is designed so thata result, a significant majority of each Named Executive Officer’s compensation is at risk or variable and dependent upon our performance and/or long-term appreciation in the price of our Common Shares.
Consistent with prior recent years, our principal financial goal in 2017 was to continue to increase our profitability (as measured by ourpre-tax income from operations, excluding extraordinary items (“AdjustedPre-Tax Income”)). We also sought to increase our new contracts and homes delivered as well as improve our customer service scores—each of which we believe is a key to increasing profitability. The “Compensation Discussion and Analysis” beginning on page 3320 of this Proxy Statement describes our executive compensation program and how and why the Compensation Committee determined that2019 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 51-6037 – 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 increasinggrowing our profitability in 2017,2019, the Compensation Committee designed our 20172019 executive compensation program in a manner substantially similar manner asto our 2016 program. Highlights of our 2017 executive compensation program and the Committee’s decisions include:2018 program:
• | Base |
• | Annual Cash Performance | ||
In 2019, we |
In 2017, we increased our AdjustedPre-Tax Income by 18% and each Named Executive Officer received a cash performance bonus that represented 75% of his maximum annual performance
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bonus opportunity. Because of the leveraged design of the 2017 bonus program, the 2017 bonuses constituted only a 1% increase from the 2016 bonuses despite our 18% increase in AdjustedPre-Tax Income.
• | Equity-Based Compensation. Consistent with past practice, the Committee awarded our Named Executive Officers equity-based compensation in the form of (1) service-based stock options and (2) performance share units (“PSUs”) in 2019. Each Named Executive Officer received the same number of stock options as he received in |
2017 marked another year
2019 Performance. We achieved record results on numerous fronts in 2019.Highlights of increased profitability and overall growth for us. Among other things, we increased our (1) net income by $15.5 million, or 27%, to $72.1 million, (2) Adjusted2019 performance includePre-Tax: Income by $21.3 million, or 18%, to $136.5 million, (3) revenues by 16% to nearly $2 billion, (4) new contracts by 11% to a company record 5,299 new contracts, (5) homes delivered by 14% to a company record 5,089 homes, (6) controlled lots by 24% to 28,531 and (7) shareholders’ equity by 14% to $747 million. We also finished 2017 with backlog units and sales value that were 12% and 15% greater than a year earlier, respectively, and the average sales price in our backlog was the highest level in our history.
• | 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 |
• | Balance Sheet. Shareholders’ equity at December 31, 2019 increased 17% to a Company record $1.0 billion. |
TheThis 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 brokernon-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 voteFOR the approval of the compensation of our Named Executive Officers as disclosed in this Proxy Statement.
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Proposal No. 3
APPROVAL OF THE ADOPTION OF THE M/I HOMES, INC. 2018 LONG-TERM INCENTIVE PLAN
On February 15, 2018, the Board unanimously adopted the M/I Homes, Inc. 2018 Long-Term Incentive Plan (the “2018 LTIP”), subject to approval by our shareholders at the Annual Meeting. In this Proposal No. 3, we are asking our shareholders to approve the adoption of the 2018 LTIP.
The purpose of the 2018 LTIP is to promote our long-term financial success and increase shareholder value by motivating performance through incentive compensation. We believe that equity-based awards are a competitive necessity in our industry and essential to our continued ability to recruit and retain the individuals needed to successfully execute our business plan. The 2018 LTIP serves these purposes by making equity- and cash-based awards available for grant to eligible participants in the form of:
The 2018 LTIP is intended to replace our existing long-term incentive plan, the M/I Homes, Inc. 2009 Long-Term Incentive Plan, as amended (the “2009 LTIP”), which expires by its terms on May 5, 2019. If our shareholders approve the adoption of the 2018 LTIP, the Board intends to terminate the 2009 LTIP immediately following the Annual Meeting, no new awards will be granted under the 2009 LTIP and the 983,845 Common Shares remaining available as of the Record Date for future awards under the 2009 LTIP will no longer be available for issuance under the 2009 LTIP. Awards outstanding under the 2009 LTIP will remain in effect in accordance with their respective terms.
As of the Record Date, there were (1) 2,238,198 outstanding options under the 2009 LTIP and its predecessor plans, (2) 84,559 outstanding director stock units under the 2009 LTIP and its predecessor plans, (3) 182,662 outstanding PSUs under the 2009 LTIP (assuming achievement of the performance goals at the target level), (4) 56,614 outstanding phantom stock units under our deferred compensation plans and (5) 28,562,753 outstanding Common Shares. The outstanding options have a weighted average exercise price of $22.73 and a weighted average term to expiration of 7.33 years. With respect to the outstanding PSUs, the actual number of PSUs that will vest and be earned depends upon our future performance and may be increased by up to 50% from the target number if we achieve the maximum performance level for all of the applicable performance goals and be decreased to zero if we fail to achieve the threshold performance level for all of the applicable performance goals.
As described in further detail below, the 2018 LTIP provides for equity-based awards covering up to 2,250,000 Common Shares. Because we believe equity compensation is a valuable tool to attract and retain exceptional personnel, motivate performance and align the interests of our personnel with the interests of our shareholders, we believe that the 2018 LTIP is critically important to our future success. We estimate, based on
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our historical grant practices over the past three years, that the 2018 LTIP will provide a sufficient number of Common Shares to meet our equity-based compensation needs for approximately the next four years. If our shareholders do not approve the adoption of the 2018 LTIP, our future ability to issue equity-based compensation would be materially limited, which we believe would place us at a competitive disadvantage.
We recognize that equity awards dilute existing shareholders. The Compensation Committee annually reviews our equity compensation program to ensure that we balance the goals of attracting, retaining and motivating our personnel with our shareholders’ interest in limiting dilution. In determining the number of Common Shares to make available for issuance under the 2018 LTIP, we reviewed, among other measures, our burn rate. Burn rate measures how rapidly a company is depleting its shares reserved for equity compensation, and is commonly used by investors and proxy advisory firms to evaluate proposals relating to equity compensation plans.
We manage our burn rate over time to levels that we believe are reasonable and appropriate. We have a three-year average burn rate as of December 31, 2017 of 2.38%, which is below the Institutional Shareholder Services (“ISS”) burn rate benchmark of 3.80% applied to our ISS industry classification (consumer durables and apparel). Our burn rate was calculated as the three-year average of the total number of options, PSUs (assuming achievement of the performance goals at the target level) and director stock units awarded during each year divided by the weighted average Common Shares outstanding for each such year (assuming a 2.50x volatility multiplier for the PSUs and director stock units).
The following table summarizes the number of equity awards granted and our burn rate for each of the last three fiscal years:
2015 | 2016 | 2017 | ||||||||||
Options | 386,500 | 399,500 | 408,000 | |||||||||
PSUs(1) | 56,389 | 79,108 | 57,110 | |||||||||
Director Stock Units | 15,000 | 15,000 | 18,000 | |||||||||
Total | 457,889 | 493,608 | 483,110 | |||||||||
Total (assuming 2.50 volatility multiplier) | 564,973 | 634,770 | 595,775 | |||||||||
Weighted average Common Shares outstanding | 24,575,000 | 24,660,000 | 26,319,226 | |||||||||
Burn rate(2) | 2.30 | % | 2.57 | % | 2.26 | % |
The Compensation Committee retained Pearl Meyer & Partners (“Pearl Meyer”), its independent compensation consultant, to analyze the 2018 LTIP, including the number of Common Shares available for issuance thereunder. Pearl Meyer reviewed, among other things, the terms of the 2018 LTIP, our burn rate and our historical grant practices. Based on its analysis, Pearl Meyer expressed its support for the 2018 LTIP, including the number of Common Shares available for issuance thereunder.
For more information concerning the number of Common Shares available for issuance under the 2009 LTIP and the outstanding awards under the 2009 LTIP and its predecessor plans, see “Equity Compensation Plan Information” on page 28 of this Proxy Statement.
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Corporate Governance Practices
The 2018 LTIP includes a number of provisions that we believe reflect best corporate governance practices and protect the interests of our shareholders:
No Discounted Options or SARs. Options and SARs may not be granted with an exercise price less than the fair market value of our Common Shares on the date of grant.
No Repricing Without Shareholder Approval. We cannot, without shareholder approval, “reprice” an outstanding Option or SAR by reducing the exercise price of such Option or SAR, exchanging such Option or SAR for a new Option or SAR with a lower exercise price or, in the case of an underwater Option or SAR, cancelling such Option or SAR for cash or other awards.
No TaxGross-Ups. The 2018 LTIP does not provide for any taxgross-ups.
No Automatic Grants. The 2018 LTIP does not provide for automatic grants to any participant.
Independent Committee Administration. The 2018 LTIP is administered by the Compensation Committee, whose members satisfy the NYSE standards for independence and the disinterested administration requirements of Rule16b-3 under the Exchange Act.
Minimum Vesting Requirement. No award (including Options) may vest (in full or in part) prior to the first anniversary of the date of grant, subject to a 5%carve-out and certain limited exceptions in the case of a Change in Control or a participant’s death, termination due to Disability and/or Retirement (as such capitalized terms are defined in the 2018 LTIP).
No Liberal Share Recycling. Unissued Common Shares resulting from the net settlement of an Option or SAR, Common Shares used to pay the exercise price or withholding taxes of an award and Common Shares repurchased on the open market with the proceeds of an Option exercise will not again be available for issuance under the 2018 LTIP.
Fungible Share Design. Upon the grant of an award, other than an Option or a SAR, that is to be settled by the issuance of Common Shares (a “Full Value Award”), we will reduce the number of Common Shares available for issuance under the 2018 LTIP by an amount equal to the number of Common Shares subject to such award multiplied by 1.50.
No Annual “Evergreen” Provision. The 2018 LTIP does not provide for an annual, automatic increase in the number of Common Shares available for future awards.
Annual Limit on Awards toNon-Employee Directors. The value of equity-based awards granted to anon-employee director during any fiscal year under the 2018 LTIP may not exceed $350,000.
Summary of the 2018 LTIP
The material features of the 2018 LTIP are summarized below. This summary is qualified in its entirety by reference to the complete text of the 2018 LTIP, which is attached to this Proxy Statement asAppendixA.
Available Common Shares
Subject to the adjustments discussed below, the aggregate number of Common Shares available for the grant of awards under the 2018 LTIP will be 2,250,000. Common Shares issued under the 2018 LTIP may consist of: (1) treasury shares; (2) authorized but unissued Common Shares; or (3) Common Shares purchased by us in the open market.
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Upon the grant of an Option or a SAR, we will reduce the number of Common Shares available for issuance under the 2018 LTIP by an amount equal to the number of Common Shares subject to such award. Upon the grant of a Full Value Award, we will reduce the number of Common Shares available for issuance under the 2018 LTIP by an amount equal to the number of Common Shares subject to such award multiplied by 1.50. Common Shares not issued as a result of the net settlement of an Option or SAR that is settled in Common Shares, Common Shares tendered or withheld to pay the exercise price or the withholding taxes related to an award and Common Shares repurchased on the open market with the proceeds of an Option exercise will not again be available for issuance under the 2018 LTIP.
The following Common Shares may be awarded under the 2018 LTIP and do not count against the 2,250,000 share limit:
During any fiscal year, the Compensation Committee may not grant any participant:
These limits are the same as the limits that applied under the 2009 LTIP.
In addition, under the 2018 LTIP, the aggregate number of Common Shares with respect to which awards may be granted to anon-employee director during any fiscal year may not exceed that number of Common Shares having a fair market value on the date of grant equal to $350,000.
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In the event of any Common Share dividend or split, recapitalization, merger, reorganization, consolidation, combination,spin-off, distribution of assets to shareholders, exchange of Common Shares or any other change affecting the Common Shares, the Compensation Committee will make such substitutions and adjustments as it deems equitable and appropriate to: (1) the number of Common Shares that it may issue under the 2018 LTIP; (2) any Common Share-based limits imposed under the 2018 LTIP; and (3) the exercise price, number of Common Shares and other terms or limitations applicable to outstanding awards.
Administration
The Compensation Committee will administer the 2018 LTIP. The Compensation Committee will be comprised of at least two directors, each of whom will be independent under the NYSE Rules and a“non-employee” director (within the meaning of Rule16b-3 under the Exchange Act).
As plan administrator, the Compensation Committee will determine which eligible participants will be granted awards, the type of each award granted and the terms and conditions of each award. The Compensation Committee will also have full power and authority to: (1) establish, amend and rescind rules and regulations relating to the 2018 LTIP; (2) interpret the 2018 LTIP and all related award agreements; and (3) make any other determinations that it deems necessary or desirable for the administration of the 2018 LTIP. Any action taken by the Compensation Committee will be final, binding and conclusive on all parties.
Each award granted under the 2018 LTIP will be evidenced by a written or electronic award agreement which specifies the terms and conditions of the award, including: (1) the type of award and when and how it may be exercised or earned; (2) any exercise price associated with the award; (3) how the award will or may be settled; and (4) any other applicable terms and conditions affecting the award.
Eligibility
The Compensation Committee may select any of our employees, non-employee directors and consultants to receive awards under the 2018 LTIP. As of the Record Date, we have sixnon-employee directors and approximately 1,308 employees. We are unable to reasonably estimate the number of third-party consultants who will be eligible to receive awards under the 2018 LTIP.
Types of Awards
Options. The Compensation Committee may grant Options in such number, and upon such terms and conditions, as it determines. The exercise price of any Option will be at least equal to the fair market value of the Common Shares (i.e., the closing price of the Common Shares on the NYSE) on the date of grant. The exercise price must be paid in cash, or in such other form if and to the extent permitted by the Compensation Committee, including (1) by tendering previously-acquired Common Shares, (2) by a cashless exercise or (3) by a combination of cash and the methods described in clauses (1) and/or (2). The Compensation Committee will also determine the term of the Option (which may not exceed ten years), the vesting terms and conditions and any other terms and conditions of the Option, all of which will be reflected in the related award agreement. Except as otherwise set forth in the 2018 LTIP with respect to a Change in Control or described in the related award agreement in connection with a participant’s death, termination due to Disability and/or Retirement, no Option may vest, in full or in part, prior to the first anniversary of the date of grant. Notwithstanding the foregoing, the Committee may grant awards covering up to 5% of the Common Shares available for issuance under the 2018 LTIP without regard to any minimum vesting requirement (the “5%Carve-Out”). In no event will dividends or dividend equivalents be payable or credited in respect of Options.
The award agreement will specify whether the Option is intended to be an ISO or a NQSO. The Compensation Committee may grant all of the Common Shares available for issuance under the 2018 LTIP as ISOs. However, the Compensation Committee may only grant ISOs to our employees, and ISOs will be subject to certain additional restrictions, including, without limitation, compliance with the requirements of Section 422 of the Code.
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Stock Appreciation Rights. The Compensation Committee may grant SARs in such number, and upon such terms and conditions, as it determines. The exercise price of any SAR will be at least equal to the fair market value of the Common Shares on the date of grant. The Compensation Committee will also determine the term of the SAR (which may not exceed ten years), the vesting terms and conditions and any other terms and conditions of the SAR, all of which will be reflected in the related award agreement. Subject to the 5%Carve-Out, no SAR may vest, in full or in part, prior to the first anniversary of the date of grant, except as otherwise set forth in the 2018 LTIP with respect to a Change in Control or described in the related award agreement in connection with a participant’s death, termination due to Disability and/or Retirement.
Upon exercise of a SAR, a participant will be entitled to receive an amount equal to any excess of (1) the fair market value of a Common Share on the exercise date over (2) the exercise price per Common Share, multiplied by the number of Common Shares with respect to which the SAR is exercised. A SAR may be settled in Common Shares, cash or a combination thereof, as specified by the Compensation Committee in the related award agreement. In no event will dividends or dividend equivalents be payable or credited in respect of SARs.
Restricted Stock. The Compensation Committee may grant shares of Restricted Stock in such number, and upon such terms and conditions, as it determines. Restricted Stock consists of Common Shares that are issued to a participant but are subject to forfeiture based upon satisfaction of certain terms, conditions and restrictions which may include, without limitation: (1) a requirement that participants pay a purchase price for each share of Restricted Stock; (2) restrictions based on the achievement of specific performance goals; (3) time-based restrictions; or (4) holding requirements or sale restrictions upon vesting. The Compensation Committee will determine the terms, conditions and restrictions applicable to each Restricted Stock award, all of which will be reflected in the related award agreement. Subject to the 5%Carve-Out, no Restricted Stock award may vest, in full or in part, prior to the first anniversary of the date of grant, except as otherwise set forth in the 2018 LTIP with respect to a Change in Control or described in the related award agreement in connection with a participant’s death, termination due to Disability and/or Retirement.
During the period that the shares of Restricted Stock remain subject to forfeiture: (1) a participant may not sell, pledge or otherwise transfer such shares; and (2) unless otherwise provided in the related award agreement, a participant will generally be entitled to exercise full voting rights and receive all dividends paid with respect to such shares, provided that payment of any such dividends will be subject to the same terms, conditions and restrictions (including risk of forfeiture) as apply to such shares and in no event will any such dividends be paid until such shares have vested.
At the end of the restriction period: (1) the participant will forfeit the shares of Restricted Stock if the applicable terms, conditions and restrictions specified in the related award agreement have not been met; or (2) we will distribute the shares of Restricted Stock to the participant if such terms, conditions and restrictions have been met.
Other Stock-Based Awards. The Compensation Committee may grant Other Stock-Based Awards in such number, and upon such terms and conditions, as it determines. The Compensation Committee will also determine the form of any such Other Stock-Based Award, which may include, without limitation: (1) unrestricted Common Shares; or (2) time-based or performance-based restricted stock units that are settled in Common Shares and/or cash. The award agreement relating to each Other Stock-Based Award will specify the terms and conditions upon which the award will vest, the form of settlement (which may be cash, Common Shares or a combination thereof) and any other terms and conditions of the award. Other Stock-Based Awards may include dividend equivalents, provided that payment of any such dividend equivalents will be subject to the same terms, conditions and restrictions (including risk of forfeiture) as apply to the Other Stock-Based Award to which they relate and in no event will any such dividend equivalents be paid until such Other Stock-Based Award has vested.
Subject to the 5%Carve-Out, no Other Stock-Based Award may vest, in full or in part, prior to the first anniversary of the date of grant, except as otherwise set forth in the 2018 LTIP with respect to a Change in
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Control or described in the related award agreement in connection with a participant’s death, termination due to Disability and/or Retirement.
Cash-Based Awards. The Compensation Committee may grant Cash Awards in such amounts, and upon such terms and conditions, as it determines. The award agreement relating to each Cash Award will specify the payment amount or payment range, any applicable performance objectives and any other terms and conditions of such award.
Performance-Based Awards. Under the 2018 LTIP, the Compensation Committee may grant any award as a performance-based award (each, a “Performance-Based Award”). Specifically, the Compensation Committee will condition the grant, vesting, exercisability and/or settlement of each Performance-Based Award on the attainment during a specified performance period of performance goals based on one or more performance criteria established by the Compensation Committee. As determined by the Compensation Committee, the selected performance criteria may relate to the individual participant, the Company, one or more affiliates of the Company and/or one or more divisions or business units of the Company or its affiliates, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices. The Compensation Committee may calculate the performance criteria relating to any Performance-Based Award without regard to extraordinary items, unusual ornon-recurring events and/ or changes in applicable tax laws or accounting principles. After the end of the performance period, the Compensation Committee will determine whether the performance goals and other material terms imposed on the Performance-Based Award have been satisfied. The Compensation Committee has the authority to exercise negative discretion and reduce (but not increase) the amount of a Performance-Based Award actually paid to a participant.
Termination of Employment or Service
The Compensation Committee will determine the extent to which each award granted under the 2018 LTIP will vest and the participant will have the right to exercise and/or settle the award in connection with the participant’s termination of employment or service. Such provisions, which will be reflected in the related award agreement, need not be uniform among all awards and may reflect distinctions based on the reasons for termination. However, the Compensation Committee may generally only accelerate the vesting conditions of an award upon a participant’s termination in the case of a termination due to death, Disability or Retirement.
Change in Control
Except as otherwise provided in the related award agreement, in the event of a Change in Control, the Compensation Committee may take such actions, if any, as it deems necessary or desirable with respect to any outstanding award as of the date of the consummation of such Change in Control. Such actions may include, without limitation: (1) the acceleration of the vesting, settlement and/or exercisability of an award; (2) the payment of a cash amount in exchange for the cancellation of an award; and/or (3) the issuance of a substitute award that substantially preserves the value, rights and benefits of an award.
Transferability
Except as otherwise provided in a related award agreement: (1) a participant may not sell, transfer, pledge, assign or otherwise alienate or hypothecate an award, except by will or the laws of descent and distribution; and (2) during a participant’s lifetime, only the participant or his or her guardian or legal representative may exercise an award.
No Rights as a Shareholder
Except as otherwise provided in the 2018 LTIP or in a related award agreement, a participant will not have any rights as a shareholder with respect to Common Shares covered by an award unless and until the participant becomes the record holder of such Common Shares.
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Repricing
The 2018 LTIP expressly prohibits the Board or the Compensation Committee from (1) amending the terms of an outstanding Option or SAR to reduce the exercise price of such Option or SAR, (2) cancelling an outstanding Option or SAR in exchange for a new Option or SAR with a lower exercise price or (3) cancelling an underwater Option or SAR in exchange for cash or other awards, in each case without shareholder approval.
Effective Date and Term
The 2018 LTIP will become effective upon its approval by our shareholders and, unless earlier terminated, will continue until May 8, 2028 (except that the Compensation Committee may not grant any ISOs after February 15, 2028).
Amendment or Termination
The Board or the Compensation Committee may amend or terminate the 2018 LTIP or any award agreement at any time, except that no amendment or termination may be made without shareholder approval if: (1) the amendment materially increases the benefits accruing to participants; (2) the amendment increases the aggregate number of Common Shares authorized for grant under the 2018 LTIP; (3) the amendment materially modifies the eligibility requirements for participation; or (4) such approval is required by any law, regulation, stock exchange rule or other provision of the 2018 LTIP.
In addition, no such amendment or termination may materially adversely affect any outstanding award without the consent of the participant holding such award, except that no such consent will be required with respect to any amendment or termination that the Board or the Compensation Committee determines is necessary or advisable to satisfy or conform to any law or regulation or meet the requirements of any accounting standard.
U.S. Federal Income Tax Consequences
The following is a brief summary of the general U.S. federal income tax consequences relating to participation in the 2018 LTIP. This summary is based on U.S. federal tax laws and Treasury Regulations in effect on the date of this Proxy Statement and does not purport to be a complete description of the U.S. federal income tax laws. In addition, this summary does not constitute tax advice or describe federal employment, state, local or foreign tax consequences. Each participant should consult with his or her tax advisor concerning the U.S. federal income tax and other tax consequences of participating in the 2018 LTIP.
Incentive Stock Options. The Company intends for ISOs to qualify for special treatment available under Section 422 of the Code. A participant will not recognize taxable income when an ISO is granted, and we will not receive a deduction at that time. A participant will not recognize ordinary income upon the exercise of an ISO, provided that the participant was, without a break in service, an employee of the Company or a subsidiary during the period beginning on the grant date of the ISO and ending on the date three months prior to the date of exercise (one year prior to the date of exercise if the participant’s employment is terminated due to Disability).
If the participant does not sell or otherwise dispose of the Common Shares acquired upon the exercise of an ISO within two years from the grant date of the ISO or within one year after the participant receives the Common Shares, then, upon disposition of such Common Shares, any amount realized in excess of the exercise price will be taxed to the participant as a capital gain, and we will not be entitled to a corresponding deduction. The participant generally will recognize a capital loss to the extent that the amount realized is less than the exercise price.
If the foregoing holding period requirements are not met, the participant generally will recognize ordinary income at the time of the disposition of the Common Shares in an amount equal to the lesser of: (1) the
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excess of the fair market value of the Common Shares on the date of exercise over the exercise price; or (2) the excess, if any, of the amount realized upon disposition of the Common Shares over the exercise price, and we will be entitled to a corresponding deduction. Any amount realized in excess of the value of the Common Shares on the date of exercise will be capital gain. If the amount realized is less than the exercise price, the participant generally will recognize a capital loss equal to the excess of the exercise price over the amount realized upon the disposition of the Common Shares.
The rules that generally apply to ISOs do not apply when calculating any alternative minimum tax liability. The rules affecting the application of the alternative minimum tax are complex, and their effect depends on individual circumstances, including whether a participant has items of adjustment other than those derived from ISOs.
Nonqualified Stock Options. A participant will not recognize any income when a NQSO is granted, and we will not receive a deduction at that time. However, when a NQSO is exercised, a participant will recognize ordinary income equal to the excess, if any, of the fair market value of the Common Shares that the participant purchased on the date of exercise over the exercise price. If a participant uses Common Shares or a combination of Common Shares and cash to pay the exercise price of a NQSO, the participant will recognize ordinary income equal to the value of the excess of the number of Common Shares that the participant purchases over the number of Common Shares that the participant surrenders, less any cash the participant uses to pay the exercise price. When a NQSO is exercised, we will be entitled to a deduction equal to the ordinary income that the participant recognizes.
If the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a NQSO is greater than the sum of the aggregate exercise price that the participant paid plus the amount of ordinary income recognized by the participant upon exercise, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the NQSO. Conversely, if the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a NQSO is less than the sum of the aggregate exercise price the participant paid plus the amount of ordinary income recognized by the participant upon exercise, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the NQSO.
Stock Appreciation Rights. A participant will not recognize taxable income when a SAR is granted, and we will not receive a deduction at that time. When a SAR is exercised, a participant will recognize ordinary income equal to the excess of the cash and/or the fair market value of the Common Shares the participant receives over the aggregate exercise price of the SAR, if any, and we will be entitled to a corresponding deduction. If the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a SAR is greater than the sum of the aggregate exercise price that the participant paid plus the amount of ordinary income recognized by the participant upon exercise, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the SAR. Conversely, if the amount a participant receives upon disposition of the Common Shares that the participant acquired by exercising a SAR is less than the sum of the aggregate exercise price that the participant paid plus the amount of ordinary income recognized by the participant upon exercise, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the participant acquired them by exercising the SAR.
Restricted Stock. Unless a participant makes an election under Section 83(b) of the Code (a “Section 83(b) Election”), the participant generally will not recognize taxable income when Restricted Stock is granted, and we will not receive a deduction at that time. Instead, a participant will recognize ordinary income when the Restricted Stock vests (i.e., when the underlying Common Shares are freely transferable or not subject
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to a substantial risk of forfeiture) equal to the fair market value of the Common Shares that the participant receives when the terms, conditions and restrictions have been met, less any consideration paid for the Restricted Stock, and we generally will be entitled to a deduction equal to the income that the participant recognizes.
If the amount a participant receives upon disposition of these Common Shares is greater than the fair market value of the Common Shares when the Restricted Stock vested, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the Restricted Stock vested. Conversely, if the amount the participant receives upon disposition of these Common Shares is less than the fair market value of the Common Shares when the Restricted Stock vested, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the Restricted Stock vested.
If a participant makes a Section 83(b) Election, the participant will recognize ordinary income on the grant date equal to the fair market value of the Common Shares subject to the Restricted Stock award on the grant date, and we will be entitled to a deduction equal to the income that the participant recognizes at that time.
However, the participant will not recognize income when (and if) the Restricted Stock vests. If a participant who has made a Section 83(b) Election earns the Common Shares subject to a Restricted Stock award, any appreciation between the grant date and the date the participant disposes of the Common Shares will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after the grant date. Conversely, if the amount the participant receives upon disposition of these Common Shares is less than the fair market value of the Common Shares on the grant date, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after the grant date. Also, if a participant forfeits his or her Restricted Stock, the participant cannot take a tax deduction in connection with the forfeiture of the Restricted Stock subject to a Section 83(b) Election.
Other Stock-Based Awards. Generally, a participant will not recognize taxable income when an Other Stock-Based Award is granted, and we will not receive a deduction at that time. However, upon the settlement of an Other Stock-Based Award, the participant will recognize ordinary income equal to the cash and/or fair market value of the Common Shares that the participant receives, less the aggregate exercise price of the Other Stock-Based Award, if any. We generally will be entitled to a deduction equal to the income that the participant recognizes.
If the participant receives Common Shares upon the settlement of an Other Stock-Based Award and the amount the participant receives upon disposition of the Common Shares acquired upon the settlement of the Other Stock-Based Award is greater than the fair market value of the Common Shares when they were issued to the participant, the excess will be treated as a long-term or short-term capital gain, depending on whether the participant held the Common Shares for more than one year after they were issued. Conversely, if the amount the participant receives upon disposition of these Common Shares is less than the value of the Common Shares when they were issued, the difference will be treated as a long-term or short-term capital loss, depending on whether the participant held the Common Shares for more than one year after they were issued.
Cash-Based Award. A participant will not recognize taxable income at the time a Cash Award is granted, and we will not be entitled to a deduction at that time. In general, a participant will recognize ordinary income when the Cash Award is settled equal to the amount of the cash received, and we will be entitled to a corresponding deduction.
Section 409A. Section 409A of the Code imposes certain restrictions on amounts deferred undernon-qualified deferred compensation plans and a 20% additional tax on amounts that are subject to, but do not comply with, Section 409A. Section 409A includes a broad definition ofnon-qualified deferred compensation plans, which includes certain types of equity incentive compensation. The Company intends for the awards
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granted under the 2009 LTIP to comply with or be exempt from the requirements of Section 409A and the Treasury Regulations promulgated thereunder.
Section 162(m) of the Code. Section 162(m) of the Code generally prohibits a public company from deducting compensation paid to a “covered employee” in excess of $1 million in any taxable year. Prior to the enactment of The Tax Cuts and Jobs Act of 2017 (the “Tax Cuts and Jobs Act”) on December 22, 2017, compensation that qualified as “performance-based” compensation under Section 162(m) could be excluded from this $1 million limit. The Tax Cuts and Jobs Act repealed the “performance-based” compensation exemption for taxable years beginning after December 31, 2017 (subject to a transition rule for written binding contracts which were in effect on November 2, 2017 and are not modified in any material respect on or after such date). As a result of the repeal of the “performance-based” compensation exemption, no awards under the 2018 LTIP, whether performance-based or otherwise, will be eligible to be excluded from the $1 million limit on deductible compensation under Section 162(m).
New Plan Benefits
Awards granted under the 2018 LTIP will be at the discretion of the Compensation Committee. As a result, the specific number and terms of awards that (1) will be granted to participants or (2) would have been granted to participants during 2017 had the 2018 LTIP been in place, are not determinable. Consistent with our annual compensation program for ournon-employee directors, if the shareholders approve the adoption of the 2018 LTIP at the Annual Meeting, the Compensation Committee plans to grant in 2018 3,500 director stock units under the 2018 LTIP to eachnon-employee director in respect of his or her service as a director in 2018. See “Compensation of Directors” beginning on page 61 of this Proxy Statement for information regarding ournon-employee director compensation program.
For more information concerning the number of Common Shares available for issuance under the 2009 LTIP and the outstanding awards under the 2009 LTIP and its predecessor plans, see “Equity Compensation Plan Information” on page 28 of this Proxy Statement.
As of the Record Date, the closing price of the Common Shares on the NYSE was $31.36.
Vote Required
The affirmative vote of holders of a majority of the outstanding Common Shares entitled to vote at the Annual Meeting is required to approve the adoption of the 2018 LTIP. Abstentions and brokernon-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 voteFOR the approval of the adoption of the 2018 LTIP.
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EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of December 31, 2017 with respect to the Common Shares issuable under our equity compensation plans:
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||
Equity compensation plans approved by shareholders | 2,196,286(1) | $20.48(2) | 1,504,487(3) | |||
Equity compensation plans not approved by shareholders | 68,728(4) | — | — | |||
Total | 2,265,014 | $20.48 | 1,504,487 |
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Proposal No. 4
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 endingDecember 31, 2018.2020. Deloitte & Touche LLP served as the Company’s independent registered public accounting firm for the 20172019 fiscal year. Although action by theour shareholders in this matter is not required the Audit Committee believes thatwith respect to this matter, we are seeking shareholder ratification of itsthe appointment of Deloitte & Touche LLP is appropriate because ofas the Company’s independent registered public accounting firm’s role in reviewingfirm for the quality and integrityfiscal year endingDecember 31, 2020as a matter of the Company’s internal control over financial reporting.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 voteFOR the ratification of Deloitte & Touche LLP as our independent registered public accounting firm.
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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:
Name | Age | Current Positions with Company/Business Experience | Year Started | Name |
| Age |
| Current Positions with Company/Business Experience |
| Year Started | |||||||||||||
Paul S. Rosen | 67 | Chief Executive Officer of M/I Financial since February 1994 and Senior Vice President of the Company since February 1999. | 1993 | ||||||||||||||||||||
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|
|
| |||||||||||||||||
Derek J. Klutch | 54 | President of M/I Financial since November 2016 and Chief Operating Officer of M/I Financial since September 1993. | 1993 | Derek J. Klutch |
| 56 |
| Chief Executive Officer of M/I Financial since April 2019 and President of M/I Financial since November 2016. |
| 1993 | |||||||||||||
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|
|
|
|
|
| |||||||||||||||||
Fred J. Sikorski | 63 | Region President overseeing our Tampa and Orlando Divisions since December 2006, our Raleigh and Charlotte Divisions since May 2008, our Cincinnati Division since September 2011, our Washington D.C. Division since April 2012 and our Sarasota Division since April 2016. | 1998 | Fred J. Sikorski |
| 65 |
| Region President overseeing our Tampa and Orlando Divisions since December 2006, our Raleigh and Charlotte Divisions since May 2008, our Cincinnati Division since September 2011, our Sarasota Division since April 2016 and our Columbus Division from September 2010 to July 2016 and since February 2019. |
| 1998 | |||||||||||||
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|
|
| |||||||||||||||||
Thomas W. Jacobs | 52 | Region President overseeing our Austin, Dallas, Houston and San Antonio Divisions since January 2016. Prior to January 2016, Mr. Jacobs served in a regional role with Ryland Homes overseeing 10 divisions, including Austin, Dallas, Houston, and San Antonio. | 2016 | Thomas W. Jacobs |
| 54 |
| Region President overseeing our Austin, Dallas, Houston and San Antonio Divisions since January 2016 and our Chicago, Minneapolis/St. Paul, Indianapolis and Detroit Divisions since February 2019. Prior to January 2016, Mr. Jacobs served in a regional role with Ryland Homes overseeing ten divisions, including Austin, Chicago, Dallas, Houston and San Antonio. |
| 2016 | |||||||||||||
|
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|
|
|
|
| |||||||||||||||||
Ronald H. Martin | 49 | Region President overseeing our Chicago Division since May 2007, our Indianapolis Division since January 2013, our Minneapolis/St. Paul Division since December 2015, our Columbus Division since July 2016 and our Detroit Division since March 2018. | 2007 | ||||||||||||||||||||
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PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 12, 2018,16, 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:
Name of Beneficial Owner | Number of Common Shares | Percent of Class | Number of Common Shares |
|
| Percent of Class | |||||||
Friedrich K. M. Böhm | 53,434 | (1) | * | 60,934 | (1) | * | |||||||
William H. Carter | 26,633 | (1)(2) | * | 34,133 | (1)(2) | * | |||||||
Phillip G. Creek | 190,393 | (1) | * | 119,892 | (1) | * | |||||||
Michael P. Glimcher | 12,000 | (1) | * | 19,500 | (1) | * | |||||||
Elizabeth K. Ingram | 4,000 | (1) | * | ||||||||||
Nancy J. Kramer | 5,500 | (1) | * | 13,000 | (1) | * | |||||||
J. Thomas Mason | 124,291 | (1)(2) | * | 36,596 | (1)(2) | * | |||||||
Robert H. Schottenstein | 661,897 | (1)(3) | 2.2 | % | 576,964 | (1)(3) | 2.0 | % | |||||
Norman L. Traeger | 38,558 | (1) | * | 44,058 | (1) | * | |||||||
Sharen Jester Turney | 14,000 | (1) | * | ||||||||||
All current directors and executive officers as a group (9 persons) | 1,126,706 | 3.9 | % | 909,077 |
| 3.2 | % | ||||||
BlackRock, Inc. 55 East 52ndStreet New York, NY 10022 | 4,097,303 | (4) | 14.3 | % | |||||||||
Donald Smith & Co., Inc. 152 West 57th Street. 22nd Floor New York, NY 10019 | 2,246,377 | (5) | 7.9 | % | |||||||||
Franklin Advisory Services, LLC 55 Challenger Road, Suite 501 Ridgefield, NJ 07660 | 2,171,812 | (6) | 7.6 | % | |||||||||
BlackRock, Inc. 55 East 52ndStreet New York, NY 10055 | 4,958,817 | (4) | 17.3 | % | |||||||||
Dimensional Fund Advisors LP 6300 Bee Cave Road – Building One Austin, TX 78746 | 2,092,992 | (7) | 7.3 | % | 2,006,595 | (5) | 7.0 | % | |||||
The Vanguard Group 100 Vanguard Boulevard Malvern, PA 19355 | 1,467,908 | (8) | 5.1 | % | 1,863,133 | (6) | 6.5 | % |
* Less than 1.0% of the outstanding Common Shares
(1) |
The amounts shown include |
(2) | The amounts shown include 13,633 and 3,596 Common Shares held by William H. Carter and J. Thomas Mason, respectively, under the terms of the Amended and Restated Director Deferred Compensation Plan (the “Director Deferred Compensation Plan”) and the Amended and Restated Executives’ |
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Deferred Compensation Plan (the “Executives’ Deferred Compensation Plan”), respectively. Under the terms of the Director Deferred Compensation Plan and the Executives’ Deferred Compensation Plan, a participant does not beneficially own, or have voting or dispositive power with respect to, Common Shares acquired under the plan, until such Common Shares are distributed pursuant to the terms of the plan. |
(3) | The amount shown includes 485,400 Common Shares held of record by IES Family Holdings No. 2, LLC, an Ohio limited liability company. Robert H. Schottenstein is the sole manager of IES Family Holdings No. 2, LLC and has sole |
voting and dispositive power with respect to such 485,400 Common Shares. The amount shown also includes 10,000 Common Shares owned by Robert H. Schottenstein’s spouse, as to which Mr. Schottenstein disclaims beneficial ownership, and |
(4) | Based on information set forth in a Schedule 13G/A filed on |
(5) |
Based on information set forth in a Schedule 13G/A filed on February |
(6) | Based on information set forth in a Schedule |
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COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis describes our executive compensation philosophy objectives and policies,objectives, our Named Executive Officers’ 20172019 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 promote four primary objectives: (1) attractingto: (a) attract and retainingretain exceptional executives; (2) motivating(b) motivate our executives; (3) aligning(c) align the interests of our executives and our shareholders; and (4) rewarding short-term(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 long-term performance.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.
2017 Performance2019 Executive Compensation Program. At the beginning of 2017,Since 2012, we were coming off of our fifth consecutive year of increasing our profitability. During this five-year period, we consistentlyhave annually focused our annual financial goals on increasingcontinuing to increase our profitability (as measured by AdjustedPre-Tax Income (as defined on page 15 Income), designed our executive compensation program in a manner intended to achieve this goal and described in detail on page 44 of this Proxy Statement)), and we experienced positive results withannually increased our AdjustedPre-Tax Income increasing from $13.5 million in 2012 to $115.2 million in 2016.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:
• | Base Salary. The Named Executive Officers’ base salaries in 2019 remained at their 2018 levels. |
• | Annual Cash Performance Bonus. In 2019, each Named Executive Officer was eligible to earn an annual cash performance bonus based on our Adjusted Pre-Tax Income. The design of the 2019 annual cash performance bonus program was substantially the same as the 2018 annual 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 compared 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. |
We increased our Adjusted Pre-Tax Income by 15% to $169.9 million in 2019. 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. | |
• | Long-Term Equity-Based Compensation. Consistent with past practice, the Committee awarded our Named Executive Officers equity-based compensation, in 2019, in the form of (1) service-based stock options and (2) PSUs. In each case, the Named Executive Officer received the same number of stock options as he received in 2018 and a target number of PSUs with the underlying Common Shares having approximately the same aggregate grant date market value as the aggregate grant date market value of the Common Shares underlying the target number of PSUs he received in 2018. |
2019 Performance. We achieved record of consistent and balanced growth, our principal financial goalresults on numerous fronts in 2017 remained continuing to increase our profitability. At the same time, we also sought to increase our new contracts and homes delivered as well as improve our customer service scores.
2017 marked another year of increased profitability and overall growth for us. In 2017, we (1) increased our Adjusted2019.Pre-Tax Income by $21.3 million, or 18%, to $136.5 million, (2) entered into a company record 5,299 new contracts (an 11% increase from 2016) and (3) delivered a company record 5,089 homes (a 14% increase from 2016). Other highlightsHighlights of our 2017 financial and operating2019 performance include:
include:
• | Revenue. Revenue increased |
• | Net Income. Net income increased | ||
• | 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, |
• | Average Sale Price. The average sale price of homes delivered remained at $384,000; | ||
• | Balance Sheet. Shareholders’ equity at December 31, 2019 increased |
• | Active Communities. Active communities at December 31, 2019 increased 7% to a Company record 225; | |
• | Land Position. We invested | |
• | Total Shareholder Return. For the year ended December 31, 2019, our total shareholder return was 87%. |
2017 Executive Compensation Program. BasedAdditionally, we achieved homebuyer satisfaction ratings of 92% and 83% on our continued focus on increasing our profitability in 2017 (as measured by AdjustedPre-Tax Income)the 30-day and our results over the previous five years, the Committee designed our 2017 executive compensation program insix-month surveys, respectively, and a substantially similar manner as our 2016 program.home readiness score of 90%.
Base SalaryPay-for-Performance. The Named Executive Officers’ base salaries in 2017 remained at their 2016 levels.
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Annual Cash Performance Bonus. To directly align the executives’ compensation with our focus on increasing profitability and provide a clear connection between pay and performance, each Named Executive Officer was eligible to earn an annual cash performance bonus in 2017 based on our AdjustedPre-Tax Income for the year. The 2017 bonus program incorporated one primary change from 2016. The Committee increased the threshold performance level to $45 million (from $25 million in 2016) and the maximum performance level to $165 million (from $155 million in 2016). The Committee increased these amounts in an effort to drive performance relative to 2016. As a result, in order for the Named Executive Officers to earn the same bonuses in 2017 that they earned in 2016, we needed to increase our AdjustedPre-Tax Income by 18% in 2017, and, if we earned the same amount of AdjustedPre-Tax Income in 2017 as in 2016, the bonuses earned in 2017 would be 19% less than those earned in 2016. We increased our AdjustedPre-Tax Income by 18% in 2017 and exceeded our internal budget. As a result of our performance, Messrs. Schottenstein, Creek and Mason earned performance bonuses of $2,354,940, $1,121,400 and $747,600, respectively. In each case, the bonus represented 75% of his maximum potential performance bonus opportunity. Because of the leveraged design of the 2017 bonus program, the 2017 bonuses constituted only a 1% increase from the 2016 bonuses despite our 18% increase in AdjustedPre-Tax Income.
Long-Term Equity-Based Compensation. In 2017, each Named Executive Officer received (1) the same number of stock options as he received in 2016 and (2) a target number of PSUs with the underlying Common Shares having approximately the same grant date market value as the grant date market value of the Common Shares underlying the target number of PSUs he received in 2016.
We are committed to apay-for-performance philosophy. As such, the Committee designs our executive compensation program so thata 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 20172019 total compensation that was performance-based:
20172019 TOTAL COMPENSATION
(from Summary Compensation Table on page 51)37)
Compensation Best Practices. We incorporate a number of best practices into our executive compensation program, including:
• | Independent Compensation Committee. The Committee is comprised entirely of independent directors and has the exclusive power and authority to determine all elements of executive compensation. |
• | Independent Compensation Consultant. The Committee engages an independent compensation consultant, who performs no other work for us, to advise on executive compensation matters. |
• | Pay-for-Performance. 79%, 77% and 73% of Messrs. Schottenstein’s, Creek’s and Mason’s respective 2019 total compensation was performance-based. |
• | Long-Term Vesting. The Named Executive Officers’ equity-based compensation awards have multi-year vesting periods (five years for stock options and three years for PSUs). |
• | No Employment Agreements. None of the Named Executive Officers have employment agreements. |
• | No Pension or Special Retirement Plans. We do not maintain a defined benefit pension plan or any special retirement plans for the Named Executive Officers. |
• | No Repricing. Our equity compensation plans prohibit repricing stock options without shareholder approval. |
• | No Hedging or Pledging. Our Insider Trading Policy prohibits our executives from hedging, pledging or trading in derivatives of our Common Shares. |
• | No Dividends on Unvested Equity Awards. We do not pay dividends or dividend equivalents on unvested equity awards. |
• | Double Trigger. Under the change in control agreement that we maintain with each Named Executive Officer, the executive will not receive a cash severance unless both a change in control and a qualifying termination of employment occur. |
20172019 Advisory Vote on Executive Compensation
At our 20172019 Annual Meeting of Shareholders, our shareholders approved the compensation of our Named Executive Officers, with more than 96% of the shares votedvotes cast in favor of our“say-on-pay” “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 2017“say-on-pay”2019 “say-on-pay” vote as part of its 2018 review of our 2020 executive
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compensation program. The Committee believes that our 2017“say-on-pay”2019 “say-on-pay” results are an affirmation of our executive compensation program, philosophy and objectives, and, asprogram. As a result, it did not make any changes to our 20182020 executive compensation program based on the 20172019 vote.
Compensation Philosophy and Objectives
We design our executive compensation program to promote the following philosophy and objectives:
• | Attract and Retain. Compensation should be competitive with the compensation programs of other publicly-traded homebuilders which compete with us for talent to ensure that we attract and retain exceptional executives. |
• | Motivate. Compensation should motivate our executives to perform at the highest level and achieve our financial and strategic goals while discouraging excessive risk taking. |
• | Align Interests. Compensation should align the interests of our executives and our shareholders with the ultimate goal of creating long-term shareholder value. |
• | Reward Performance. Compensation should depend on, and reward executives on the basis of, individual and company |
The Committee believes that the structure of our compensation program should be fundamentally the same across our entire management team. WhileAs a result, while individual compensation levels vary, the Named Executive Officers and the resteach member of our management team (including the Named Executive Officers) generally receivereceives 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 annual cash performance bonuses that they are eligible to receive. For example, in 2017, each management team member’s annual cash performance bonus was based primarily on AdjustedPre-Tax Income. The Committee believesCommittee’s view, this consistency fosters team work and a collaborative approach to managing our business,teamwork, ensures that the entire management team focuses on the same corporate goals and objectives 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
Consistent with past practice, atAt the request of the Committee, our Chief Executive Officer, with the assistance of other members of senior management, made initial recommendations to the Committee regarding the 20172019 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 seekssought this input because of the Chief Executive Officer’s close working relationship with the other Named Executive Officers and management’s comprehensive knowledge ofto ensure that its decisions aligned with our business and financial and strategic goals. The Committee however, has solethe exclusive authority to determine all elements of executive compensation and makes all final decisions.
Role of Independent Compensation Consultant
The Committee retainedengaged Pearl Meyer to serve as its independent compensation consultant for 2017.2019. 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 competitivethe competitiveness of our executive compensation program (by pay data, including comparing (a) our Named Executive Officers’ compensation (total direct compensation, target annual compensation, each principal component and the mix of compensation) to the compensation of similarly-positioned executives within
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our Peer Group and (b) our annual cash incentive plan and long-term incentive plan practices with our Peer Group; (3) analyzing our performancein total) relative to our Peer Group with a focus(as defined onone-year and three-year revenue growth andone-year, three-year and five-year total shareholder return; (4) page 24 of this Proxy Statement); (3) reviewing the composition of our Peer Group; (5)(4) advising on executive compensation trends and best practices; (6) assessing(5) analyzing the dilution and overhang of our annual equity grants compared to our Peer Group;grants; and (7)(6) reviewing ournon-employee director compensation program as a whole, each principal component and the competitiveness of such compensation comparedrelative 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 20172019 compensation.
During 2017,2019, Pearl Meyer did not provide any services to us beyond its support of the Committee. The Committee assessed the independence of Pearl Meyer as required by NYSE Rules and SEC Rules 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 annual 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 20172019 executive compensation program, the Committee reviewed:
• | our 2019 financial and strategic goals; |
• | a report prepared by our human resources department summarizing (1) our financial performance, total shareholder return and share price during each of the preceding four fiscal years and (2) the annual cash performance bonuses paid and the stock options granted to our Named Executive Officers as a group and Company-wide in that same period; |
• | management’s recommendations for the 2019 (1) annual cash performance bonus program and (2) equity-based compensation; |
• | a report prepared by our human resources department setting forth (1) the number of stock options granted during each of the preceding five fiscal years to each current equity compensation plan participant (includingthe Named Executive Officers) and all participants in the aggregate, (2) our estimated burn rate for 2019 and estimated three-year average burn for 2017-2019 and (3) the total number of Common Shares that remained |