UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No._____)

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Cavco Industries, Inc.

(Name of Registrant as Specified in Its Charter)

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Cavco INDUSTRIES, INC. 2019 NOTICE OF ANNUAL MEETING & PROXY STATEMENT investor.cavco.com

CAVCO INDUSTRIES, INC.

PROXY STATEMENT

Annual Meeting of Stockholders to be held July 9, 2019

Introduction

The accompanying proxy, mailed together with this definitive proxy statement (collectively, the “proxy”), is solicited by and on behalf of the Board of Directors (the “Board”) of Cavco Industries, Inc. (“Cavco” or the “Company”), a Delaware corporation, for use at the Annual Meeting of Stockholders (the “annual meeting”) of Cavco to be held on July 9, 2019, at 9:00 AM, (local time), and at any adjournment thereof. The mailing address of the Company’s corporate offices is: 3636 North Central Avenue, Suite 1200, Phoenix, Arizona 85012.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDER MEETING TO BE HELD ON JULY 9, 2019:

The notice of meeting, proxy statement, annual report and sample proxy card are available for review at http://investor.cavco.com/annualmeeting.

Purposes of the Annual Meeting

At the annual meeting, the Company will ask its stockholders to:

Our Board does not know of any matters that may be acted upon at the annual meeting other than the matters as set forth above and in the subsequent pages.

This proxy is first being mailed to stockholders on or about June 7, 2019.

About the Meeting

Who Can Vote

Record holders of common stock, par value $.01 per share, of Cavco at the close of business on May 24, 2019. On that date, the issued and outstanding capital stock of Cavco entitled to vote at the annual meeting consisted of 9,098,320 shares of common stock. Each stockholder will be entitled to one vote per share on the election of Directors and each other matter that is described above or that may be properly brought before the meeting. Shares that may be voted include shares that are held:

How Do I Vote?

Stockholders can vote their shares of common stock at the annual meeting by voting and submitting the accompanying proxy or voting instruction card by telephone, via the Internet, or by completing, signing, dating and returning the proxy or voting instruction card in the enclosed envelope.

What is the Difference Between Holding Shares as a “Registered Owner” and a “Beneficial Owner”?

Most of Cavco’s stockholders hold their shares through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between registered shares and those owned beneficially:

What is a Broker Non-Vote?

Generally, a “broker non-vote” occurs when a broker, bank or other nominee that holds shares in “street name” for a customer is precluded from exercising voting discretion on a particular proposal because the: (i) beneficial owner has not provided instructions on how to vote; and (ii) brokerage account, bank or other nominee lacks discretionary voting power to vote on such issues. Under the rules of The Nasdaq Stock Market, a brokerage account, bank or other nominee does not have discretionary voting power with respect to the approval of “non-routine” matters absent specific voting instructions from the beneficial owners of such shares.

About The Meeting

How will Proxies be Voted?

If you are a registered owner, your shares represented by valid proxies received by telephone, via the Internet or by mail will be voted at the annual meeting in accordance with the directions given. If no specific choice is indicated, the shares represented by all valid proxies received will be voted: (i) FOR the election of the three (3) non-employee nominees for Director named in the proxy; (ii) FOR the ratification of the appointment of RSM US LLP ("RSM") as the Company’s independent registered public accounting firm for fiscal year 2020; and (iii) FOR approval of the advisory vote on the compensation of our named executive officers. In the event you specify a different choice by means of the enclosed proxy, your shares will be voted in accordance with those instructions.

If you hold your shares in “street name”, the record holder does not have discretionary voting power with respect to non-routine matters absent specific voting instructions from you.  Other than the proposal to ratify the appointment of RSM, all of the proposals at this year’s annual meeting are considered non-routine matters.  Therefore, your shares will not be voted without your specific instructions on those non-routine matters.  If you provide voting instructions to the record holder of your shares, the record holder will vote in accordance with the instructions given.  The record holder of your shares will, however, continue to have the ability to vote your shares in its discretion on the ratification of Proposal No. 2 (Ratification of Appointment of Independent Auditor).  

The Board does not intend to present, and has no information that others will present, any other business at the annual meeting except as set forth in the attached notice. However, if other matters requiring the vote of stockholders come before the Board at the annual meeting, the persons named in the accompanying proxy intend to vote the proxies held by them from record holders in accordance with their best judgment in such matters.

Quorum and Required Vote

The presence at the annual meeting, in-person or by proxy, of the majority shares of common stock entitled to vote at the annual meeting is necessary to constitute a quorum. Abstentions and broker non-votes will be counted as present for the purpose of establishing a quorum.

With respect to Proposal No. 1 (Election of Directors), in order to be elected as a Director a nominee must receive affirmative votes of the holders of a plurality in the shares of common stock present, either in-person or by proxy, and entitled to vote on the election of Directors. The three (3) Director-nominees receiving the highest number of votes will be elected. Abstentions and broker non-votes are not treated as votes cast and will have no effect on Proposal No. 1.

An affirmative vote of the majority votes duly cast is required to approve Proposal No. 2 (Ratification of Appointment of Independent Auditors).  Abstentions and broker non-votes are not treated as votes cast (only a majority of votes cast affirmatively or negatively will be counted as votes cast) and will have no effect on Proposal No. 2.

For Proposal No. 3 (Advisory Vote on the Compensation of the Named Executive Officers), the affirmative vote of the holders of a majority of the shares entitled to vote and represented by person or by proxy at the annual meeting is required for approval.  Broker non-votes are not treated as votes cast and abstentions will have the effect of a vote against Proposal No. 3.

The Company encourages you to vote your shares before the annual meeting either by returning your proxy or voting instruction card by mail, voting by telephone or voting via the Internet so that your shares will be adequately represented and voted at the meeting if you cannot personally attend.

About The Meeting

In the event the requisite votes for approval of the matters to be considered at the annual meeting are not received prior to the annual meeting date, the Company may postpone or adjourn the annual meeting in order to solicit additional votes. The form of proxy being solicited by this proxy statement provides the authority for the proxy holders, in their discretion, to vote the stockholders’ shares with respect to a postponement or adjournment of the annual meeting. At any postponed or adjourned meeting, proxies received pursuant to this proxy statement will be voted in the same manner described in this proxy statement with respect to the original meeting.

How do I Revoke My Proxy?

You have the unconditional right to revoke your proxy at any time prior to tabulation by either submitting a later-dated proxy by written notice addressed to: Mickey R. Dragash, General Counsel & Secretary, Cavco Industries, Inc., 3636 North Central Avenue, Suite 1200, Phoenix, Arizona 85012 or attending the annual meeting and voting in-person. However, no such revocation will be effective unless received by Cavco at or prior to commencement of the annual meeting. Attending the annual meeting without voting in-person does not revoke your proxy.

Expenses of Soliciting Proxies

The Company will bear the cost of soliciting proxies for the annual meeting. Solicitation may be made by mail, personal interview, telephone or other electronic means by our officers and other employees, who will receive no additional compensation.

Stock Ownership

The Board and Management

The following table sets forth information, as of May 24, 2019, with respect to the beneficial ownership of shares of Cavco common stock by each Director, Director nominee and executive officer named in the Summary Compensation Table under “Executive Compensation,” individually itemized, and by all Directors, Director nominees and executive officers of Cavco as a group. The percentages of class amounts set forth in the table below are based upon 9,098,320 shares of common stock outstanding on May 24, 2019. Except as otherwise indicated, all shares are owned directly. Each owner has sole voting and investment power.

Stock Ownership

Principal Stockholders

The following table sets forth information with respect to individuals or entities that have reported beneficial ownership of more than five percent of the outstanding shares of Cavco common stock according to statements on Schedule 13D or 13G as filed by such individuals or entities with the Securities and Exchange Commission (“SEC”) on or before May 24, 2019. The percentages of class amounts set forth in the table below are based on 9,098,320 shares of common stock outstanding on May 24, 2019.

PROPOSAL NO. 1: Election of Directors

The Company’s Restated Certificate of Incorporation and Amended and Restated Bylaws provide for the division of the Board into three classes, with the Directors in each class holding office for staggered terms of three (3) years each. Each class of Directors is to consist, as nearly as possible, of one-third of the total number of Directors constituting the entire Board. There are presently three (3) Directors in Class I whose terms expire at the 2019 annual meeting (Messrs. Greenblatt and Kerley and Ms. Sze); two (2) Directors in Class II whose terms expire at the 2020 annual meeting (Ms. Blount and Mr. Boor); and two (2) Directors in Class III whose terms expire at the 2021 annual meeting (Messrs. Bunger and Hanna). Each Director holds office until his or her successor has been elected and qualified or until the Director’s earlier resignation or removal.

David A. Greenblatt, Richard A. Kerley and Julia W. Sze, members of the Board whose terms expire at the annual meeting, will stand for re-election. Messrs. Greenblatt and Kerley and Ms. Sze have been nominated for service as Directors by our independent Directors and the full Board pursuant to the procedures described under “Director Nominating Process” below. Unless contrary instructions are indicated on the proxy, it is intended that the shares represented by the accompanying proxy will be voted for the election of these nominees or, if a nominee becomes unavailable (which the Company does not anticipate), for such substitute nominee as the Board shall designate. A plurality of votes cast at the annual meeting, in person or by proxy is required to elect a Board nominee. The nominees and the continuing Directors furnished to Cavco the biographical information appearing below.

The Board has determined that all the members of the Board, other than William C. Boor who is an employee of Cavco, are “independent” in accordance with: (1) the applicable requirements of the Exchange Act, and the rules adopted by the SEC; and (2) the applicable Nasdaq rules, including Rule 5605(a)(2).

Recommendation of the Board

PROPOSAL NO. 1: Election of Directors

Nominees for Director Standing for Election in Class I

PROPOSAL NO. 1: Election of Directors

PROPOSAL NO. 1: Election of Directors

Class II Directors

Terms Expiring in 2020

PROPOSAL NO. 1: Election of Directors

Class III Directors

Terms Expiring in 2021

PROPOSAL NO. 1: Election of Directors

Director Compensation

Fiscal Year 2020 Changes

In December 2018, the Compensation Committee engaged Pearl Meyer & Partners, LLC (“Pearl Meyer”) to conduct a competitive review of our non-employee Director compensation program levels and practices. As a result of this review, the Company has significantly revised its non-employee Director compensation program for fiscal 2020:

These revisions reflect the Board’s desire to align our non-employee Director compensation levels and program structure more closely with market levels and corporate governance best practices.

Fiscal Year 2019 Non-employee Director Compensation

As previously stated, effective at the start of fiscal year 2020, the Board substantially revised the compensation to be paid to non-employee Directors.  The following describes the Director Compensation program in place prior to March 30, 2019:  

PROPOSAL NO. 1: Election of Directors

During fiscal year 2019, the Audit Committee had the following number of Special Meetings and Sessions relating to the SEC Investigation that were attended by all members of the Audit Committee:

There were a total of thirty-three (33) Audit Committee meetings in fiscal year 2019 for both regular or SEC Investigation matters. Of that total, there were: (i) five (5) regularly scheduled quarterly Committee meetings; (ii) ten (10) special meetings relating to the SEC Investigation; and (iii) eighteen (18) sessions relating to the SEC Investigation.

During fiscal year 2019, the attendance fees for Audit Committee Special Meetings and Audit Committee Sessions totaled $114,000.  The Directors were paid as follows: (i) Messrs. Bunger and Greenblatt, $38,000; (ii) Mr. Boor, $36,500; and (iii) Mr. Kerley, $1,500.  Mr. Boor’s fee amounts were less than Messrs. Bunger and Greenblatt due to resigning from the Audit Committee upon appointment as the Company’s new President and CEO.

PROPOSAL NO. 1: Election of Directors

With the substantial wind-down of the work of the Audit Committee on the SEC Investigation, the Audit Committee terminated the attendance fees for Audit Committee Special Meetings and for Audit Committee Sessions, effective on March 30, 2019 (the last day of the 2019 fiscal year).

The Audit Committee, under delegated authority from the Board, reserved the right to re-consider future compensation for Special Meetings and Sessions for Audit Committee members depending on the time requirements required by Audit Committee members regarding the SEC Investigation during fiscal year 2020.

Director Compensation Table

The following table provides information regarding compensation paid to each non-employee Director during the year ended March 30, 2019.

Committee Composition

The Board has three (3) standing committees: (1) Audit; (2) Compensation and (3) Corporate Governance and Nominating. Also, it has one (1) special committee, Legal & Compliance Oversight. Each committee operates under a written charter adopted by the Board and reviews each charter at least annually. The Composition of the current standing committees as of the date of this Proxy Statement appear in the table below.

Director Compensation

Board and Committee Meetings

Annual Meeting Attendance

All Board members are expected to attend our annual meeting, unless an emergency or unavoidable conflict prevents them from doing so. All Directors attended the Company’s 2018 annual meeting held on July 10, 2018.

Director Compensation

Director Nominating Process

Selection by Independent Directors.

Director Compensation

Other Board Matters

Board Leadership Structure

In November 2018, the Board adopted a policy separating the Chairman and President and Chief Executive Officer positions in order to align the Chairman role with the Company’s independent Directors and enhance the independence of the Board from management.

The Board’s Role in Risk Oversight

Management of risk is the responsibility of the Company’s executive officers and senior management team. The Board has oversight responsibility and has designated the Audit Committee to oversee the Company’s processes to manage business and financial risk. The Audit Committee reports to the Board regarding the adequacy of the Company’s risk management processes. To assist the Audit Committee in overseeing risk management, the Company’s Director of Internal Audit is directly accessible by the Audit Committee and reports to the Audit Committee upon request. Additionally, the Board encourages management to promote a corporate culture that incorporates risk management into the Company’s corporate strategy and day-to-day business operations. With the input of the Company’s executive officers, the Board regularly assesses and analyzes the most likely areas of future risk to the Company.

The Legal & Compliance Oversight Committee (“LCO”) is a committee created by the Board that has general responsibility to oversee the Company’s legal, compliance and ethics programs, policies and procedures. The purpose of the Committee is to: (i) oversee the Company’s implementation of compliance programs, policies and procedures that are designed to respond to the various compliance and regulatory risks facing the Company; (ii) assist the Audit Committee in fulfilling its oversight responsibility for the Company’s compliance and ethics programs, policies and procedures; and (iii) perform any other duties as directed by the Board or the Audit Committee.

Stock Ownership and Retention

The Board recently adopted Stock Ownership Guidelines (“Guidelines”) for all non-employee Directors and key executives, as defined pursuant to the Guidelines, to meet certain minimum stock ownership requirements.

Director Compensation

On or before the last day of fiscal year 2024, or the fifth full fiscal year after the year of appointment or election, Directors must retain stock ownership of at least five times (5x) the annual cash retainer.  

On or before the last day of fiscal year 2024, or the fifth full fiscal year after the year of appointment or designation, Executive Officer must retain stock ownership as follows:

Anti-Hedging, Anti-Pledging, No Short-Selling & Buying and No Selling Derivatives

In addition to the Guidelines, the Board has also approved a new Securities Trading Policy (“STP”) that prohibits hedging, pledging, short selling and buying or selling derivatives related to the Company’s securities.  The STP does not have a hardship exemption for Directors or Executives as it pertains to these prohibitions. The new STP is posted on the Cavco website at https://investor.cavco.com/general-documents.

Compensation Committee Consultant

Pursuant to the authority granted to it in its Charter, in December 2018, the Compensation Committee engaged Pearl Meyer as an independent compensation consultant to provide advice to the Compensation Committee related to the Company’s executive compensation programs.

None of the Company’s management participated in the Compensation Committee’s decision to retain Pearl Meyer. Pearl Meyer reports directly to the Compensation Committee and the Compensation Committee may replace Pearl Meyer or hire additional consultants at any time. Pearl Meyer attends meetings of the Compensation Committee, as requested, and communicates with the Compensation Committee Chairman between meetings; however, the Compensation Committee ultimately has responsibility to make suggestions and recommendations to the Board related to potential compensation for the Company’s executive officers.

Pearl Meyer provides various compensation services to the Compensation Committee pursuant to a written consulting agreement (the “Agreement”). The services Pearl Meyer provides under the agreement include advising the Compensation Committee on the principal aspects of the Company’s executive and non-employee Director compensation program and evolving best practices as well as providing market information and analysis regarding the competitiveness of the Company’s compensation program design.

The Compensation Committee regularly reviews the services provided by its outside consultants and believes that Pearl Meyer is independent in providing executive compensation consulting services. The Compensation Committee conducted a review of its relationship with Pearl Meyer in April 2019, and determined that Pearl Meyer’s work for the Compensation Committee had not raised any conflicts of interest consistent with the guidance provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd Frank Act”) or by the SEC and Nasdaq.

In making this determination, the Compensation Committee noted that during fiscal 2019:

Director Compensation

The Compensation Committee continues to monitor the independence of its compensation consultant on a periodic basis. of rectors Audit Committee Director of Internal Audit

Oversight responsibility and regularly works with input of the Company’s executive officers to assess and analyze the most likely areas of future risk. Designated to oversee the Company’s processes to manage business and financial risk and compliance with significant applicable legal, ethical and regulatory requirements. Reports to the board regarding adequacy of the Company’s risk management processes. To assist Audit Committee in overseeing risk management Directly accessible by the Audit Committee and reports to Audit Committee upon request.

Audit Committee

As of March 30, 2019 (the end of our 2019 fiscal year), the Company’s Audit Committee was composed of three Directors, Messrs. Bunger, Greenblatt and Kerley, who satisfy the independence requirements set forth in: (1) Section 10A(m) of the Exchange Act and the rules adopted by the SEC thereunder; and (2) applicable Nasdaq Rules. The Audit Committee functions under a charter, which was initially adopted by the Board on September 22, 2003 and was most recently amended on May 22, 2018. The Audit Committee Charter is posted on our website at https://investor.cavco.com/general-documents.

The Board has determined that Richard A. Kerley, the Chairman of the Audit Committee, meets the definition of “Audit Committee financial expert” as such term is defined under SEC rules. Mr. Kerley’s qualifications are described in his biography.

The Audit Committee Charter provides that the Audit Committee shall perform the following key tasks:

Director Compensation

The Audit Committee meets separately with the independent auditors outside the presence of the Company’s management or other employees, to discuss: (i) matters of concern; (ii) recommendations or suggestions for change; and (iii) relevant views and information.

AUDIT FEES

The Audit Committee has adopted policies and procedures pre-approving all audit and permissible non-audit services performed by RSM US LLP (“RSM”). Under these policies, the Audit Committee pre-approves the use of audit as well as permissible audit-related and non-audit services up to certain dollar amounts. Services that do not come under this authority must be separately pre-approved by the Audit Committee. In determining whether or not to pre-approve services, the Audit Committee determines whether the service is a permissible service under the SEC’s rules and, if permissible, the potential effect of such services on the independence of RSM.

The following table represents aggregate fees billed to the Company for professional services provided by RSM in the last two fiscal years.

As used in the foregoing tables:

The Audit Committee approved all audit and non-audit services provided by RSM during the 2018 and 2019 fiscal years pursuant to its Charter. All work performed during the 2019 fiscal year audit was completed by full-time employees of RSM.

Audit Fees

Report of the Audit Committee

In accordance with its written charter, the primary function of the Audit Committee is to assist the Board in fulfilling its responsibility for oversight of: (i) the quality and integrity of Cavco’s accounting, auditing and financial reporting practices and processes; (ii) the financial information to be provided to the stockholders of Cavco; (iii) the systems of disclosure controls and procedures and internal control over financial reporting established by management, the Committee and the Board; (iv) compliance with the Company’s Code of Conduct; (v) the independent auditors’ qualifications and independence; (vi) the performance of the Company’s independent auditors; and (vii) the internal audit process.

Management is responsible for the Company’s financial reporting process including the system of internal controls along with the preparation of financial statements in accordance with generally accepted accounting principles. The independent accountants are responsible for auditing and rendering an opinion on the Company’s consolidated financial statements including auditing certain aspects of the Company’s internal controls. The Audit Committee’s responsibility is to monitor these processes.

In discharging its duties, the Audit Committee has: (i) reviewed and discussed the Company’s audited Consolidated Financial Statements as of, and for the year ended, March 30, 2019 with management; (ii) discussed with the independent registered public accounting firm the matters required to be discussed by the Public Company Accounting oversight board Auditing Standard No. 16, Communications with Audit Committees; (iii) received and reviewed the written disclosures along with the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence; (iv) discussed with the independent registered public accounting firm such independent registered public accounting firm’s independence; and (v) discussed with management critical accounting policies and the processes and controls related to the President and Chief Executive Officer’s and the Chief Financial Officer’s financial reporting certifications required by the SEC and the Sarbanes-Oxley Act of 2002 to accompany the Company’s periodic filings with the SEC. Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the Consolidated Financial Statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended March 30, 2019.

Audit Committee

Richard A. Kerley, Chair

Steven G. Bunger

David A. Greenblatt

PROPOSAL NO. 2: Ratification of Appointment of Independent Auditor

The Audit Committee has appointed RSM as the Company’s independent registered public accounting firm for fiscal year 2020.

If the stockholders do not ratify the appointment, the Audit Committee will reconsider the retention of RSM but may still engage RSM. Even if the appointment is ratified, the Audit Committee in its discretion may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.

Recommendation of the Board

Compensation Discussion and Analysis

Fiscal Year 2019 – A Year of Transition

Fiscal 2019 was a year of transition for the Company in terms of executive and Board leadership, governance and executive compensation philosophy and practices.

Leadership

On November 8, 2018, pursuant to a Transition Agreement dated November 8, 2018 (the “Transition Agreement”) the Company’s former Chairman of the Board, President and CEO, Joseph H. Stegmayer, stepped down from all executive roles at the Company. At that time, Mr. Stegmayer became the Company’s Director, Strategic Initiatives. The Board then appointed Daniel L. Urness, formerly Executive Vice President, Chief Financial Officer and Treasurer, as President and Acting CEO. Long-time Director William C. Boor assumed the duties of non-executive Chairman of the Board. Mr. Urness remained in the role of President and Acting CEO for the remainder of fiscal 2019.

Compensation Discussion and Analysis

Effective April 15, 2019, the Board appointed William C. Boor as the Company’s President and CEO. Another experienced Director, Steven G. Bunger, assumed the role of non-executive Chairman. Also, effective April 15, 2019, Mr. Urness resumed his prior role as Executive Vice President, Chief Financial Officer and Treasurer. Mr. Urness’ service as President and Acting CEO and Mr. Boor’s subsequent appointment as President and CEO provided continuity of leadership possessing substantial history with, and knowledge of, the Company ensuring a seamless leadership transition.

Governance

The Board has taken several important steps to strengthen and reinforce the Company’s governance practices, including:

These changes reflect our ongoing commitment to adopting best practices in governance, compliance and risk management.

Compensation Discussion and Analysis

Executive Compensation

As previously stated, in December 2018, the Compensation Committee engaged Pearl Meyer to conduct a competitive review of the Company’s executive compensation program and practices. As a result of this review, Pearl Meyer recommended that the Company significantly revise its executive compensation program for fiscal year 2020, and on a going-forward basis, to consist of the following elements:

The Company intends to follow the advice of Pearl Meyer in designing its executive compensation programs for fiscal 2020.

Generally, the Company does not offer perquisites to its NEOs. Consistent with prior years, the Company does not have a defined benefit pension plan or any other similar retirement plan. The Company’s NEOs are permitted to participate in the Company’s 401(k) plan and other health and welfare programs that are generally available to all other full-time employees.

Overview of the Company’s Compensation Program

The Company’s fiscal 2019 compensation programs, as in previous years, consisted of cash compensation comprised of base salary and either a cash bonus or non-equity incentive compensation. In addition, it included awards of options to purchase shares of the Company’s common stock pursuant to the Company’s 2005 Stock Incentive Plan, as amended (the “2005 Plan”).

Overview and Philosophy of Compensation Committee

The Compensation Committee reviews and approves, or recommends to the Board for approval, all salary and other remuneration for our NEOs as well as overseeing matters relating to our employee compensation and benefit programs. The Compensation Committee operates pursuant to a written charter that sets forth its functions and responsibilities. The Compensation Committee Charter is posted on our website at http://investor.cavco.com/general-documents.

Compensation Discussion and Analysis

The Compensation Committee is charged with assisting the Board in:

Stockholder Approval of our Compensation Decisions

At the 2018 Annual Meeting of Stockholders, the Company’s stockholders approved the advisory (non-binding) vote on executive compensation with approximately 98% of the votes cast in favor of the proposal regarding the Company’s executive compensation program. The Compensation Committee considered this vote an endorsement of its fiscal 2018 executive compensation decisions. As discussed previously, the executive compensation program is significantly changing for fiscal 2020 as a result of discussions with Pearl Meyer.

Objectives of the Company’s 2019 Compensation Programs

The Company’s executive compensation program was structured to achieve the following objectives:

Role of Compensation Consultants

Pursuant to its charter, the Compensation Committee has authority to retain compensation consultants in determining or recommending NEO or Director compensation. As previously discussed, the Compensation Committee engaged Pearl Meyer during fiscal 2019 to review and assist in redesigning the executive compensation program for fiscal 2020 and beyond.

Role of Management in Establishing and Awarding Compensation

The Compensation Committee annually reviews and approves the base salary levels and incentive opportunity levels for the Company’s NEOs. Prior to the 2019 fiscal year the Company’s President and CEO, with the assistance of the Company’s management, provided information and recommendations to the Compensation Committee on the performance of the Company’s NEOs. This information and recommendations included: the appropriate levels and components of proposed compensation; equity grants; and any other information requested by the Compensation Committee.  Additionally, prior to fiscal 2019, to assist the Compensation Committee with its reviews, the Company’s management provided the Compensation Committee with peer group performance results, compensation data and any other information requested by the Compensation Committee.  

Compensation Discussion and Analysis

Following the conclusion of the 2018 fiscal year, in December 2018, the Compensation Committee solely assumed determination of compensation awards for NEOs, including awards under short-term and long-term incentive compensation plans. As of fiscal 2019, Pearl Mayer now assists the Compensation Committee in providing the Compensation Committee with peer group performance results, compensation data and any other information requested by the Compensation Committee.

Benchmarking

Market pay levels are one of many elements used by the Company to maintain competitive pay opportunities for our executive officers. For fiscal year 2019, the Company considered its compensation peer group for benchmarking the NEOs compensation to include manufactured housing industry participants Skyline Corporation and Nobility Homes, Inc. Because manufactured housing peer group compensation data is limited, the Company also considered the following companies with whom it may compete for executives and which were selected because, during fiscal year 2019, each was publicly traded and roughly similar in size to the Company in terms of annual revenue: AV Homes, Inc.; Bassett Furniture Industries, Inc.; Century Communities, Inc.; The Dixie Group Inc.; Ethan Allen Interiors, Inc.; Green Brick Partners, Inc.; Hooker Furniture Corp.; LGI Homes, Inc.; Lifelock, Inc.; Mobile Mini, Inc.; and William Lyon Homes.

For the design of the Company’s 2020 executive and non-employee Director compensation programs, Pearl Meyer utilized an updated peer group including many of the prior peers as well as housing-related and selected Arizona-based companies that the Company would compete with for talent:

This new peer group, in addition to compensation survey data provided by Pearl Meyer, was used to identify compensation improvements to the Company’s fiscal 2020 program as well as on a going forward basis.

In connection with its compensation decisions for fiscal year 2019, peer group compensation information was used as guidance to ascertain whether the Company’s executive officers’ base salaries and incentive compensation programs are generally aligned with those similar positions in the peer group. While the Compensation Committee reviewed peer group compensation information, it was not the primary factor it considered in setting fiscal 2019 executive compensation. The Compensation Committee also took into account other factors, including the responsibilities of the executive’s position, the executive’s compensation history, experience, performance, tenure and the Company’s performance. The Compensation Committee did not set compensation programs for 2019 to be a specified percentage above or below, or equal to, the comparable compensation for the peer group. In setting compensation for Messrs. Urness, Like, Lott, Keener and Barsetti the Compensation Committee considered the input by the CEO, the historical compensation paid to such executive officers and certain historical compensation paid to operating executives of peer companies.

Compensation Discussion and Analysis

Joseph Stegmayer Employment Agreement

Mr. Stegmayer’s compensation program was materially altered in November 2018, when he resigned as the Company’s Chairman of the Board, President and CEO after an internal investigation, conducted by independent legal counsel, identified certain violations of Company policy related to securities trading activities. From April 1, 2018 to November 7, 2018 Mr. Stegmayer’s compensation was governed by an Employment Agreement that was replaced with a Transition Agreement effective November 8, 2018.  The Transition Agreement is described below under Other Employment, Severance and Change of Control Agreements.

Mr. Stegmayer’s Employment Agreement, which served as the basis for his fiscal 2019 compensation until his resignation, provided for: (a) a minimum base annual salary of $500,000, subject to periodic review and adjustment by the Compensation Committee, but in no event could the base salary be reduced without Mr. Stegmayer’s consent; (b) cash incentive compensation in an amount equal to (i) 5% of the first $4 million of pre-tax income of the Company for the fiscal year, plus (ii) 6% of the next $16 million of pretax income of the Company for the fiscal year, plus (iii) 3% of pretax income of the Company for the fiscal year above $20 million, provided that the pretax earnings relating to any material assets or businesses acquired after June 30, 2011 were determined by the Compensation Committee in its sole discretion, in good faith and in consultation with Mr. Stegmayer; and (c) an annual grant of options to acquire shares of the common stock of the Company, the value of which shall equal 100% of Mr. Stegmayer’s then base salary using the Black-Scholes option value model (with vesting criteria and vesting timing at the sole discretion of the Compensation Committee). The cash incentive compensation paid, if any, to Mr. Stegmayer was to be paid pursuant to previously established performance goals.

Components of Executive Compensation

In structuring the specific components of the Company’s fiscal 2019 executive compensation program, the Company was guided by the following principles:

Prior to the passage of the Tax Cuts and Jobs Act, the Compensation Committee attempted to structure its compensation programs for the NEOs as performance-based compensation that was fully tax deductible for purposes of Section 162(m) of the Code. However, the Compensation Committee retained the right to make awards that were or could become non-deductible if making such awards was in the best interests of the Company. The Tax Cuts and Jobs Act eliminated the exception for performance-based compensation with respect to 2018 and future years, subject to limited transition relief. As a result, the Company expects that, except to the extent compensation is eligible for transition relief for contracts in effect on November 2, 2017, compensation over $1,000,000 per year paid to each of our NEOs will be non-deductible under Section 162(m) of the Code.

Compensation Discussion and Analysis

Base Salary

The Compensation Committee is responsible for recommending to the Board the base salary levels for the NEOs. In developing salary amounts for 2019, the Compensation Committee conducted a general review of salaries for similar positions in the Company’s peer group. In setting base salary levels, the Compensation Committee also considered an executive’s compensation history, experience, performance, tenure and potential for significant contributions to the Company’s profitability.

The minimum base salary level payable to Mr. Stegmayer pursuant to his Employment Agreement after March 31, 2015 was $500,000. For fiscal year 2019, the Compensation Committee had set Mr. Stegmayer’s base salary at $540,000 pursuant to his Employment Agreement. However, as set forth in the Transition Agreement, Mr. Stegmayer’s annual base salary was reduced to $150,000 for his new, non-executive role as Director of Strategic Initiatives.

Mr. Urness, who briefly left his executive role during a portion of the fiscal year to work more closely with the Company's home building production operations, was paid $211,486 in base salary and hourly wages. A base salary of $255,000 was established for him by the Compensation Committee at the beginning of the fiscal year based upon their consideration of, among other things: past base salaries, peer group analysis and the recommendations of the CEO. See the Summary Compensation Table.

Following the March 30, 2019 year-end, Mr. Urness received a base salary adjustment payment of $149,342 for fiscal 2019 reflecting the pay differential between the base salary he received while serving as President and Acting CEO and the amount the Compensation Committee determined would fairly compensate him for his service to the Company in that role.

Messrs. Barsetti, Keener, Like and Lott were paid base salaries of $155,000, $240,000, $145,000, and $235,000 respectively for fiscal 2019. These officers’ base salaries were established by the Compensation Committee based upon consideration of, among other things: past base salaries, peer group analysis and the recommendations of the CEO. See the Summary Compensation Table.

Short-Term Annual Cash Bonus Compensation

As described above under the heading “Joseph Stegmayer Employment Agreement,” Mr. Stegmayer’s Employment Agreement provided that he was eligible to receive short-term cash compensation based on varying levels of pre-tax income of the Company. Pursuant to the terms of Mr. Stegmayer’s Transition Agreement, he is eligible for a discretionary bonus and a pro-rated annual bonus determined by using the formula in the Employment Agreement, pro-rated based on the number of days he served as President and CEO during fiscal 2019. Based upon this formula, for fiscal 2019, Mr. Stegmayer received a pro-rated annual bonus in the amount of $1,918,749. For fiscal 2019, the Compensation Committee elected not to pay a discretionary bonus to Mr. Stegmayer. See the Summary Compensation Table.

Mr. Urness was eligible to receive incentive compensation based upon the Company’s pre-tax income for the fiscal year ended March 30, 2019 equal to: (i) 0.4% of the first $70 million in pre-tax income of the Company; (ii) 1.2% of pre-tax income in excess of $70 million up to $80 million; and (iii) 2.0% of pre-tax income in excess of $80 million up to $84 million. Based on this formula, for fiscal 2019, Mr. Urness would have been eligible to receive short-term annual cash bonus compensation in the amount of $480,000. This sum was pro-rated to the days he served as CFO and Mr. Urness received the sum of $201,758. For his service as President and Acting CEO, Mr. Urness received a short-term annual cash bonus of $259,726 to fairly compensate him for his service to the Company in that role. Under his short-term annual cash incentive program, Mr. Urness was also eligible for an additional discretionary bonus of up to $100,000 awarded at the discretion of the Compensation Committee. For fiscal 2019, the Compensation Committee elected not to pay a discretionary bonus to Mr. Urness. See the Summary Compensation.

Compensation Discussion and Analysis

Mr. Like was eligible to receive incentive compensation based upon the Company’s pre-tax income for the fiscal year ended March 30, 2019 equal to (i) 0.1% of the first $70 million in pre-tax income of the Company; (ii) 0.3% of pre-tax income of the Company in excess of $70 million up to $80 million; and (iii) 1.3% of pre-tax income of the Company in excess of $80 million up to $84 million. Based on this formula, for fiscal 2019, Mr. Like received short-term annual cash bonus compensation in the amount of $152,000. In addition, Mr. Like was eligible for an additional discretionary bonus of up to $50,000 awarded at the discretion of the Compensation Committee. However, due to the executive leadership changes within the Company, Mr. Like assumed more responsibilities throughout the year. Consequently, for fiscal 2019, the Compensation Committee felt it appropriate to approve a discretionary bonus for Mr. Like that exceeded the eligible plan amount.  Thus, the Compensation Committee awarded Mr. Like a discretionary bonus of $75,000 due for his successful management of various operations and business projects during the executive leadership transition period. See the Summary Compensation Table.

Mr. Lott was eligible to receive incentive compensation consisting of a Target Bonus and an Improvement Bonus. Under the Target Bonus, he was eligible to receive a cash payment equal to 1.75% of fiscal 2019 combined pre-tax income for the business operations he directly oversees and 0.5% of fiscal 2019 combined pre-tax income for the business operations for which he has executive oversight. Under the Improvement Bonus, Mr. Lott was eligible to receive a cash payment based upon various percentages of revenue or pre-tax earnings improvement at certain business operations. For fiscal year ended March 30, 2019, Mr. Lott received short-term annual cash bonus compensation in the amount of $561,338, of which $473,638 was Target Bonus and $87,700 was Improvement Bonus. In addition, Mr. Lott was also eligible for a bonus of up to $100,000 awarded at the discretion of the Compensation Committee. For fiscal 2019, the Compensation Committee approved a discretionary bonus for Mr. Lott in the amount of $75,000. This bonus was based upon the Company’s positive operational results. See the Summary Compensation Table.

Mr. Keener was eligible to receive incentive compensation consisting of: (i) 5% of the pre-tax earnings of Palm Harbor Villages, Inc. (“PHV”) paid on a semi-annual fiscal year basis; and (ii) 10% of improvement in pre-tax income as a percentage of total sales of PHV. For fiscal year ended March 30, 2019, Mr. Keener received a pre-tax earnings bonus of $425,293 and improvement bonus of $225,978. See the Summary Compensation Table.

Mr. Barsetti was eligible to receive incentive compensation consisting of the following: (1) a target bonus of $40,000 paid semi-annually by the Company ($20,000 mid-year and $20,000 at year end); and (2) a cash payment of up to $30,000 as follows: (i) $15,000 for pre-tax income of the Company in a range between $60 million and $70 million; (ii) an additional $5,000 for pre-tax income in a range of $70 million to $80 million; (iii) an additional $5,000 for pre-tax income in a range of $80 million to $85 million; and (iv) an additional $5,000 for pre-tax income above $85 million. The Compensation Committee awarded Mr. Barsetti an additional discretionary bonus of $50,000 consisting of $25,000 paid in cash and a non-qualified option to purchase 600 shares of common stock, which, as of the date of grant, carried a Black-Scholes value of $25,000. The shares are subject to a time-based vesting schedule such that 33% of the shares vest on each anniversary of the grant date until fully vested.  The Compensation Committee felt it appropriate to award Mr. Barsetti this additional amount due to his role as the Principal Financial and Accounting Officer during the transitionary executive leadership period.  See the Summary Compensation Table.

Long-Term Equity Compensation

For fiscal 2019, each NEO was granted options to purchase shares of the Company’s common stock under the 2005 Plan. In granting such options, the Compensation Committee intended to provide an incentive to focus the NEOs on maximizing the Company’s return to stockholders and to plan and prepare properly for the Company’s future.

On July 10, 2018, consistent with the terms of Mr. Stegmayer’s Employment Agreement, the Company granted Mr. Stegmayer a non-qualified option to purchase 7,500 shares of common stock which, as of the date of grant, carried a Black-Scholes value of 100% of Mr. Stegmayer’s then base salary. Such shares

Compensation Discussion and Analysis

are subject to a time-based vesting schedule such that 25% of the shares vest on each anniversary of the grant date until fully vested.

On July 10, 2018, the Company granted Mr. Urness a non-qualified option to purchase 2,000 shares of common stock.  As previously discussed, Mr. Urness briefly left his executive role during a portion of the 2019 fiscal year to work more closely with the Company’s home building production operations.  As a result of the transition to this non-executive role, the terms of Mr. Urness’ Stock Option Agreement provided that these options terminated at the time of transition and were subsequently cancelled by the Company.  Similarly, options to purchase 3,500 shares granted to Mr. Urness in fiscal 2017 were also terminated and cancelled in connection with this transition.

On July 10, 2018, the Company granted Mr. Barsetti a non-qualified option to purchase 2,000 shares of common stock. Such shares are subject to a time-based vesting schedule such that 10% of the shares vest on the second anniversary of the grant date and 30% on each anniversary thereafter until fully vested.

Messrs. Like, Lott, and Keener did not receive any long-term equity compensation grants in fiscal year 2019.

Perquisites and Other Compensation

Cavco does not offer perquisites to its NEOs. The NEOs may participate in the Company’s 401(k) plan and other health and welfare programs that are available to all other full-time employees.

Other Employment, Severance and Change in Control Agreements

Effective November 8, 2018 upon his resignation as President and CEO, Mr. Stegmayer’s Employment Agreement was terminated and replaced with a Transition Agreement. The Transition Agreement provided for certain compensation and benefits upon resigning his position as Chairman of the Board, President and CEO and assuming the role of Director, Strategic Initiatives, including:

Consistent with Mr. Stegmayer’s Employment Agreement, the Transition Agreement also provides that: (i) Mr. Stegmayer will not disclose any confidential information of the Company during or after the term of the Employment Agreement; and (ii) during his employment with the Company and for a period of two years following his resignation or termination (and in no event for a period of less than four (4) years from the effective date of the Transition Agreement), Mr. Stegmayer is precluded from engaging in any business or associating with any entity that is actively engaged in any competitive business with the Company or any of its affiliates, in any geographic area in which the Company conducts business or sells products. The Transition Agreement was subject to Mr. Stegmayer’s execution of a release of claims, and the continuation of the confidentiality, non-competition and non-disparagement restrictions outlined in Mr. Stegmayer’s Employment Agreement.

At the commencement of fiscal 2020, the Company entered into Employment Agreements with Messrs. Boor, Urness and Dragash effective as of April 15, 2019. For more information, please see the Form 8-K filed on April 2, 2019.

Compensation Discussion and Analysis

During fiscal 2019 the Company did not have written or oral employment, severance or change in control agreements with Messrs. Barsetti, Keener, Like or Lott.

CEO Pay Ratio Disclosure

In accordance with Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, the Company is providing the ratio of the annual total compensation of our CEO to the annual total compensation of our median employee, which is a reasonable estimate calculated in a manner consistent with the requirements of Item 402(c)(2)(x) of Regulation S-K. In calculating this ratio, SEC rules allow companies to adopt a variety of methodologies, apply certain exclusions, and make reasonable estimates and assumptions reflecting their unique employee populations. Therefore, our reported pay ratio may not be comparable to that reported by other companies due to differences in industry, business models and scale, as well as the different estimates, assumptions, and methodologies applied by other companies in calculating their respective pay ratios.

The Company is using the same median employee as identified for our fiscal year 2018 pay ratio calculation because there has been no change in our employee population or employee compensation arrangements that the Company reasonably believes would result in a significant change in our 2019 pay ratio disclosure. During our fiscal year 2019, the Company experienced a CEO transition whereby our CFO assumed the role of interim CEO part way through the year. Per Instruction 10 to Item 402(u), our CEO compensation was calculated using the combined compensation provided to each person who served as CEO during the year for the time serving in that position. In addition, like last year, our pay ratio calculation includes the value of employer-paid health benefits.

Based upon the estimates, assumptions and methodology described above, the fiscal 2019 annual total compensation of our CEO role was $3,295,926. The fiscal 2019 annual total compensation of our median employee was $39,326. The ratio between these two amounts was 84:1.

Compensation Policies and Practices as they relate to Risk Management

The Compensation Committee believes that the Company’s compensation policies and practices do not encourage excessive or unnecessary risk-taking. The level of risk that the policies and practices do encourage is not reasonably likely to have a material adverse effect on the Company.

The Compensation Committee has reviewed the Company’s compensation policies and practices for its employees as they relate to risk management and has determined that such policies and practices are not reasonably likely to have a material adverse effect on the Company.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and included in the Proxy Statement for the 2019 Annual Meeting of Stockholders. Based on such review and discussions with management, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Compensation Committee

Richard A. Kerley, Chair

David A. Greenblatt

Susan L. Blount

Summary Compensation Table

The table below sets forth information concerning the compensation and benefits of the Company’s Named Executive Officers during fiscal years 2019, 2018 and 2017.