UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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DEAR FELLOW
STOCKHOLDER

JEFFREY T. MEZGER

CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER

__________, 2021

 

 

 

 

 

 

FIVE-YEAR ANNUALIZED
TOTAL STOCKHOLDER RETURN

While our approach was conservative, closing our sales centers during the busiest time of the year — the industry’s Spring selling season — and reopening more slowly than some other homebuilders, we believe it was the right path. We took aggressive action in the interest of safety, while continuing to effectively run our business and prioritize cash preservation and liquidity, which we believe helped us successfully navigate the early months of the pandemic.

In May, as restrictions began to ease within many of our served markets, consumer optimism in those markets grew and our orders began to rebound significantly, steadily rising as the month progressed. Ultimately, what followed in the second half of the year, continuing into 2021, has been some of the strongest housing market demand that I have seen in my 40-year career as a homebuilder. The industry had already been poised for this, with Millennials, the nation’s largest adult population, in their prime household formation years, together with an underproduction of new homes over the last decade and a favorable mortgage interest rate environment. The pandemic played a significant role in propelling demand for homeownership and all the financial, health, safety, and emotional security it offers.

As a result, we had a strong finish to 2020 and believe we are well-positioned for an outstanding year in 2021. I want to thank our employees for their perseverance in taking care of our customers during a very fluid year, and their contributions to the solid results we produced. As to the details of our 2020 performance, we generated total revenues of $4.2 billion and diluted earnings per share of $3.13, an increase of 10% year over year. The net order momentum that we experienced throughout the second half of the year drove our 2020 ending backlog value up by over 60% year over year to $3.0 billion, its highest level in 15 years. We continued to reinvest in our Company and, despite pausing most land acquisition and development activity at the onset of the pandemic, we spent $1.7 billion to acquire and develop land in 2020, slightly higher than the previous year. We ended the year with a solid position that provides us with the lots needed to support the substantial rise in delivery volume anticipated for 2021, as well as all the lots we expect to need for further delivery growth in 2022. In addition to investing in future growth, we maintained our focus on increasing stockholder returns. We implemented another substantial increase in our quarterly cash dividend in our 2020 fourth quarter, marking the second consecutive year we have meaningfully raised our dividend, which is now six times its level from two years ago. We returned $38 million of our cash to stockholders in 2020, nearly double the prior year’s level.

We take a balanced approach to utilizing the substantial cash flow that our business generates, with the objective of expanding our scale while increasing returns. With our return on equity rising approximately 600 basis points over the past five years, we have produced an annualized total stockholder return of more than 20% during that timeframe, well above our primary industry benchmark and the broader market, and among the highest in our peer group.

BUILDING FOR THE FUTURE

Along with the healthy and profitable growth of our Company, a key priority for us is continuing to improve the satisfaction of our customers. For us, fulfilling our customers’ needs is one of the best ways we can continue to enhance our brand, as our objective is to be the most customer-obsessed homebuilder in the world. A home is the largest and most meaningful purchase most of us make in our lifetimes, and we strive to make the homebuying experience an exceptional one. I am very proud of our accomplishments relative to this objective, particularly in achieving the highest customer satisfaction ratings in our history in 2020, at a time when we were managing through the challenges posed by the pandemic. We are also the highest ranked national homebuilder on TrustBuilder^®, a third-party, industry-specific homeowner review site, earning 4.6 out of 5 stars, and achieving or tying for the top ranking in nearly every one of our markets.

Our commitment to sustainability is one more significant way we are investing for the future and creating longer-term value. When we began this journey nearly 15 years ago, sustainability was considered a luxury in homebuilding. We saw an opportunity to help protect the environment while reducing the overall cost of long-term homeownership for our customers through lower utility bills. We became the first national homebuilder to build 100% ENERGY STAR^® certified new homes, and we have delivered nearly 150,000 ENERGY STAR certified new homes to date, more than any other national homebuilder. Our sustainably designed homes are estimated to have cumulatively saved our homeowners approximately $780 million in utility bills and lowered carbon emissions by approximately 5 billion pounds, the equivalent of removing nearly 490,000 cars from the road for one year.

During 2020, we were honored to be recognized once again by the U.S. Environmental Protection Agency with the following awards, each of which represented another year of unprecedented achievement for a national homebuilder:

In addition to energy efficiency, we also advanced our efforts in the area of renewable energy, achieving the milestone of delivering over 11,000 solar-powered homes to our customers in the past 15 years, producing an estimated total of 428 million kilowatt hours of electrical power. KB Home has been a leader.

We have substantially expanded our view of sustainability beyond energy efficiency to encompass water conservation, waste reduction and healthier indoor environments. This last point has proven to be particularly relevant in the midst of the pandemic. Our homes include high-performance ventilation systems that regularly introduce fresh outdoor air, and, in our Design Studios, we offer options, from anti-microbial door handles to touchless faucets, that reduce the spread of germs. In 2020, we announced a groundbreaking healthy home research project in partnership with the Well Living Lab, which was founded as a collaboration between Delos^® and the Mayo Clinic. It is the first lab to exclusively focus on researching how indoor environments can improve human health and well-being.

Last year also marked a year of enhanced transparency about the “social” aspect of our sustainability program. We have had long-established standards and practices to guide how we conduct ourselves as a company and in relation to our employees and business partners. In 2020, we publicly articulated some of our guiding principles, publishing a Human Rights statement, a Supplier Code of Conduct, and a policy on Responsible Marketing practices. We also reviewed and updated our Ethics Policy, as we do each year, and conducted Company-wide training on this policy, which all of our employees are required to complete annually.

As a result of our leadership in ESG, we were pleased to be the only national builder to receive two distinct honors. The first was from Newsweek^®, in being named to its 2021 list of America’s Most Responsible Companies for demonstrating leading environmental, social and governance practices. We were also selected by Forbes^® for its 2021 list of America’s Best Midsize Employers. We are a people-driven business and this recognition, which is based on employee feedback about working at KB Home and the likelihood of recommending us as an employer, is very gratifying to our team.

Our 14th Annual Sustainability Report, the longest-running publication of its kind for a national homebuilder, is slated for publication in conjunction with Earth Day 2021. We encourage you to review our report and learn more about our consistent, long-term approach and vision for building for the future.

IN CLOSING

We are off to a strong start in 2021, amid a backdrop of continuing robust market conditions. We are poised for a tremendous year as we resume our growth into a larger, more profitable company, which will help drive expansion of our return on equity to an expected 17%. While we are mindful that we remain in a pandemic, with the potential to disrupt our business, we are confident in the strength of our position, which is the best it has been in over a decade. We have an experienced, dedicated team, solid balance sheet, a healthy lot position, the cash flow to invest in community count expansion and maintain a higher quarterly cash dividend, and a business model that generates high customer satisfaction and has demonstrated appeal to homebuyers.

Our team at KB Home is committed to managing our business to drive long-term stockholder value, and along with our Board of Directors, we sincerely thank you for your investment and continued support.

Sincerely,

TABLE OF CONTENTS

GRANTS OF PLAN-BASED AWARDS DURING FISCAL YEAR 2020

38

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2020

39

OPTION EXERCISES AND STOCK VESTED DURING FISCAL YEAR 2020

40

PENSION BENEFITS DURING FISCAL YEAR 2020

41

NON-QUALIFIED DEFERRED COMPENSATION DURING FISCAL YEAR 2020

41

POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT OR CHANGE IN CONTROL

42

ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

46

APPROVE THE AMENDED RIGHTS AGREEMENT

47

BACKGROUND

47

PROTECTING OUR DEFERRED TAX ASSETS

48

DESCRIPTION OF THE AMENDED RIGHTS AGREEMENT

48

CERTAIN CONSIDERATIONS REGARDING THE AMENDED RIGHTS AGREEMENT

49

RATIFY ERNST & YOUNG LLP’S APPOINTMENT AS INDEPENDENT AUDITOR

51

INDEPENDENT AUDITOR SERVICES AND FEES

51

AUDIT COMMITTEE REPORT

52

ANNUAL MEETING VOTING MATTERS AND OTHER INFORMATION

53

VOTING YOUR SHARES

53

VOTING PROCEDURES

54

PROXY SOLICITATION COSTS

54

INTERNET AVAILABILITY OF PROXY MATERIALS

54

STOCKHOLDER PROPOSALS FOR OUR 2022 ANNUAL MEETING OF STOCKHOLDERS

54

ANNEX 1: CORPORATE GOVERNANCE PROCESSES AND PROCEDURES

55

DIRECTOR INDEPENDENCE DETERMINATIONS

55

RELATED PARTY TRANSACTIONS

55

DIRECTOR QUALIFICATIONS AND NOMINATIONS

55

BOARD EVALUATION PROCESS

56

AUDIT FEE PRE-APPROVAL POLICY; AUDIT COMMITTEE DESIGNATION

56

ANNEX 2: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

57

ANNEX 3: FIRST AMENDMENT TO AMENDED AND RESTATED RIGHTS AGREEMENT

59

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PRELIMINARY PROXY STATEMENT; SUBJECT TO COMPLETION

 

 

NOTICE OF 2021 ANNUAL MEETING OF STOCKHOLDERS

THURSDAY, APRIL 8, 2021

9:00 a.m., Pacific Time

Webcast Meeting Location: www.meetingcenter.io/216002295

 

ITEMS OF BUSINESS

1.

Elect 12 directors, each to serve for a one-year term.

2.

Advisory vote to approve named executive officer compensation.

3.

Ratify Ernst & Young LLP’s appointment as KB Home’s independent registered public accounting firm for the fiscal year ending November 30, 2021.

4.

Approve the Amended Rights Agreement.

The accompanying Proxy Statement describes these items in more detail. We have not received notice of any other matters that may be properly presented at the meeting.

 

RECORD DATE

You are entitled to vote at the meeting and at any adjournment or postponement of the meeting if you were a stockholder as of the close of business on February 5, 2021.

 

By order of the Board of Directors,

WILLIAM A. (TONY) RICHELIEU

Vice President, Corporate Secretary and
Associate General Counsel

Los Angeles, California

__________, 2021

VOTING

Please vote as soon as possible to ensure your shares will be represented. Holders of record may vote via the Internet, telephone or mail. Stockholders whose shares are held by an intermediate broker or financial institution, also called beneficial holders, must vote in the way their intermediary provides. Holders with a control number from our transfer agent can vote at the Annual Meeting.

 

VIRTUAL MEETING FORMAT

Due to COVID-19-related public health restrictions and for the safety and well-being of our stockholders, the Annual Meeting will be conducted online through an audio-only webcast. The accompanying Proxy Statement contains information about participating in the Annual Meeting. There will be no physical location for the Annual Meeting.

 

ANNUAL REPORT

Copies of our Annual Report on Form 10-K for the fiscal year ended November 30, 2020 (“Annual Report”), including audited financial statements, are being made available to stockholders concurrently with the accompanying Proxy Statement on or about February 26, 2021.

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2021 ANNUAL MEETING SUMMARY

Your Board is furnishing this Proxy Statement and a proxy/voting instruction form or Notice of Internet Availability to you to solicit your proxy for KB Home's 2021 Annual Meeting of Stockholders (“Annual Meeting”). We anticipate these proxy materials will be made available on or about February 26, 2021. A brief summary of information about the Annual Meeting is presented below. Please review the more detailed information in this Proxy Statement before voting.

ANNUAL MEETING INFORMATION

MEETING AGENDA

PARTICIPATING IN THE ANNUAL MEETING WEBCAST

Online access to the Annual Meeting webcast at www.meetingcenter.io/216002295 will open at approximately 8:45 a.m., Pacific Time, on April 8, 2021. To access the meeting, vote and ask questions, you will need to have a valid control number from our transfer agent, Computershare and use the password: KBH2021. Holders of record will receive their control number on the notice or proxy card Computershare distributes to them.

If you are a beneficial holder, meaning an intermediate broker or financial institution holds your shares, you must register with Computershare no later than 5:00 p.m., Eastern Time, on April 5, 2021 to participate in the Annual Meeting. To register, please provide Computershare with proof of your KB Home stockholdings, known as a legal proxy, obtained from your intermediary, along with your name and email address. Submit these items to Computershare via email at legalproxy@computershare.com (use KB Home Legal Proxy in the subject line); or by mail to: Computershare, KB Home Legal Proxy, P.O. Box 43001; Providence, RI 02940-3001. Computershare will send an email confirmation of your registration.

Beneficial holders who cannot obtain a legal proxy can attend the Annual Meeting as a guest, though without the ability to vote or ask questions, at the Internet address and with the password noted above.

Questions may be submitted before or during the Annual Meeting. To submit a question in advance, visit www.meetingcenter.io/216002295 before 8:59 p.m., Pacific Time, on April 7, 2021 and enter a valid control number. As many stockholder questions will be answered as time permits. However, we may not respond to questions that are not pertinent to meeting matters or our business. Single responses to a group of substantially similar questions may be provided to avoid repetition. We ask that attendees please help us keep the proceedings orderly and follow the Annual Meeting rules of conduct.

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SPOTLIGHT ON SUSTAINABILITY

A key component of our focus on long-term value creation is our commitment to sustainability, which we see as encompassing our environmental, social and governance ("ESG") practices highlighted on the next few pages. This commitment flows from our core Built on Relationships^® business philosophy. Before we build a home, we seek to build a personal connection through close partnerships with our buyers, offering a compelling, simple and personalized process distinguished by phenomenal customer service. We also endeavor to create and maintain other key relationships for our operations, including with the communities we develop, suppliers, trade contractors, land sellers and team members. While financial returns are our top priority, we believe our distinctive and deeply rooted purpose-driven, people-centric approach to doing business has been the foundation of our success over the 60+ years we have been delivering homes to and serving our customers and their communities. We strive to make the communities we develop better places to live, work and play, and encourage our teams to get involved at a local level. This includes their participation in our KB Cares program, which supports several charitable activities.

ENVIRONMENTAL AND SOCIAL PRACTICES

We are proud of our nearly 15 years of leadership within the homebuilding industry in constructing communities of sustainable homes. Over their multi-decade use, our homes are designed to meaningfully conserve natural resources and reduce greenhouse gas emissions associated with day-to-day living activities compared to typical new and resale homes. We believe this is the most effective way we can make a positive contribution to the global effort to address climate change. In recent years, we have expanded our sustainability portfolio to include enhancing our homes’ indoor air environment. We also maintain a human capital strategy that supports a diverse and inclusive workforce with equal opportunity and programs with training and career advancement, strong benefits, incentives, and health, safety and wellness initiatives. Our annual sustainability reports, which we have published for 13 years, contain more information about our programs, goals and achievements.

Select attributes of our approach to sustainability, which our Board oversees as part of our overall business strategy, are summarized below.

Energy Efficiency		Water Efficiency				Impact
~150,000 U.S. EPA ENERGY STAR® certified homes built since 2000, more than any other homebuilder 100% ENERGY STAR certified home commitment since 2008 (only 10% of all new homes built in the U.S. in 2020 were ENERGY STAR certified) 11,000+ total solar homes built 32% of homes sold were all electric (i.e., without natural gas systems)		16,000+ EPA WaterSense® labeled and Water Smart homes built since 2005, more than any other homebuilder 700,000+ WaterSense labeled fixtures installed 100% WaterSense labeled fixture commitment since 2009				Approximately five billion pounds cumulative CO2 emission reduction (est.) from our ENERGY STAR certified new homes, compared to typical homes without ENERGY STAR features 1.5 billion gallons of water saved annually (est.) from our new homes and fixtures, compared to typical existing homes that do not have the same water saving items
Indoor Air Enhancement		Workforce Diversity*				Social Standards
High-efficiency air filters are standard in our homes Only homebuilder in the Well Living Lab Alliance, a global consortium of leading companies working to improve indoor air environments			Female	Minority		Publicly available policies include: ■   Ethics Policy ■   Human Rights statement ■   Supplier Code of Conduct ■   Responsible Marketing practices
		Managers	33%	21%
		Overall	42%	33%
		* Data as of December 31, 2020. Please see page 11 for Board of Director diversity.

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CORPORATE GOVERNANCE OVERVIEW

As strong corporate governance is a key factor in driving long-term stockholder value, the Board has implemented a robust governance framework and leading practices to oversee the management of our business, as highlighted below and discussed in other sections of this Proxy Statement*. Further below, we detail how the Board’s approach to corporate governance aligns with the principles of the Investor Stewardship Group, which is a coalition of some of the world’s largest investors and asset managers, including several of our top stockholders.

INVESTOR STEWARDSHIP GROUP PRINCIPLES ALIGNMENT

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BOARD AND COMMITTEE GOVERNANCE STRUCTURE

BOARD LEADERSHIP

Jeffrey T. Mezger, our CEO, has served as Chairman of the Board since 2016. The non-employee directors of the Board have elected Mr. Mezger as Chairman based on his fundamental understanding of our business model, effective operational leadership and capable service as a director since 2006, and their belief that combining the roles of Chairman and CEO enhances our ability to achieve our long-term growth goals. Board governance is balanced with a strong Lead Independent Director position, which is designed to maintain the Board’s firm independent oversight. Melissa Lora has served as Lead Independent Director since 2016. In addition, all committees are led by and composed solely of independent directors.

BOARD COMMITTEE PROFILES*

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BOARD ROLE IN RISK OVERSIGHT

The Board oversees our management’s plans, policies and processes for identifying, assessing and addressing business-related risks while advancing our strategic growth goals. To monitor COVID-19's initial impact on our business, directors held bi-monthly conference calls with management from early April through July 2020, which included presentations and discussion on the evolving risk environment for our operations and financial position. The Board has also delegated certain risk oversight responsibilities to its committees, as described below. At each Board meeting, the chair of each committee reports on the risks their committee has discussed with management, as well as their committee’s other activities.

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BOARD EXPERIENCE AND SKILLS

We have a balanced and well-diversified Board composed of actively engaged directors possessing skill sets in a range of sectors relevant to our business, as summarized in the charts below. In addition, our directors have executive management or other experience that enables them to effectively contribute business acumen, strategic insight, risk management sensibility, financial comprehension, informed counsel and practical knowledge across the operating dimensions of our enterprise. Below is a summary of some of the Board’s attributes.

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DIRECTOR COMPENSATION

Directors, other than Mr. Mezger, who is not paid for his Board service, are compensated as described below. We also pay directors’ travel-related expenses for Board meetings and Board activities. Our director compensation program is shown in the table below.

NON-EMPLOYEE DIRECTOR COMPENSATION*

Board Retainer:	$100,000
Equity Grant (grant date fair value):	$162,500
Lead Independent Director Retainer:	$40,000
Committee Chair Retainers:	$27,500 (Audit Committee) $21,000 (Compensation Committee) $20,000 (Nominating Committee)
Committee Member Retainers:	$12,500 (Audit Committee) $10,000 (Compensation Committee) $10,000 (Nominating Committee)
Meeting Fees:	$1,500   (per applicable meeting, as described below)
* Directors elected to the Board other than at an annual meeting receive prorated compensation.

RETAINERS

Each director may elect to receive retainers in equal quarterly cash installments, in unrestricted shares of our common stock or in deferred common stock awards (“stock units”). Equity-based grants are made as described below.

EQUITY GRANT

Each director may generally elect to receive their equity grant in common stock or stock units. Grants are made on election to the Board, with the rounded number of shares/units based on our common stock’s grant date closing price. Directors receive a share of our common stock for each stock unit they hold on the earlier of a change in control or leaving the Board. Directors receive cash dividends on their common stock holdings and cash dividend equivalent payments on their stock units. Stock units have no voting rights. If a director has not satisfied their stock ownership requirement (see “Stock Ownership Requirements”), they can receive only stock units for their equity grant and must hold all shares of common stock until they satisfy the requirement or leave the Board.

MEETING FEES

Directors receive fees for each non-regularly scheduled Board or committee meeting they attend if they have also attended all the same body’s prior meetings in a specified 12-month period. No meeting fees were paid in 2020.

INDEMNIFICATION AGREEMENTS

We have agreements with our directors that provide them with indemnification and advancement of expenses to supplement what our Certificate of Incorporation and insurance policies provide, subject to certain limitations.

DIRECTORS’ LEGACY PROGRAM

From 1995 to 2007, we maintained a Directors’ Legacy Program. Mr. Finchem and Ms. Lora are the only current directors who are participants, as is Director Emeritus Kenneth M. Jastrow, II. Under the program, after a participant’s death, we will make a donation on each participant’s behalf of up to $1.0 million directly to up to five participant-designated qualifying charitable institutions or organizations in 10 equal annual installments. Program participants are fully vested in their donation amount; however, neither they nor their families receive any proceeds, compensation or tax savings associated with the program. We maintain life insurance policies to help fund program donations. In 2020, no premium payments were required to be made on policies associated with current directors. The total amount payable under the program at November 30, 2020 was $14.5 million.

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DIRECTOR COMPENSATION DURING FISCAL YEAR 2020

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ELECTION OF DIRECTORS

The Board will present as nominees at the Annual Meeting, and recommends our stockholders elect to the Board, each of the individuals named below for a one-year term ending at the election of directors at our 2022 annual meeting. Each nominee has consented to being nominated and agreed to serve as a director if elected. Other than Ms. Kozlak, who was elected to the Board in January 2021, and Messrs. Collins and Eltife, who were each elected to the Board in October 2020, each nominee is standing for re-election.

Should any of the nominees become unable to serve as a director prior to the Annual Meeting, the named proxies, unless otherwise directed, may vote for the election of another person as the Board may recommend. If the Board’s nominees are elected at the Annual Meeting, the Board will have 12 directors.

BOARD RECOMMENDATION: FOR APPROVAL OF EACH DIRECTOR NOMINEE

DIRECTOR SUCCESSION AND REFRESHMENT

Although there are no term limits for directors, a director must retire from the Board as of the first annual meeting following their 75th birthday. With several long-standing directors approaching this retirement age over the next few years, the Board proactively developed and implemented in 2020 and early 2021 aspects of a plan to refresh its membership. It elected three new, highly qualified directors — Ms. Kozlak and Messrs. Collins and Eltife — who enhance its diversity and range of skills and expertise. In addition, at his suggestion to enable the Board to elect Ms. Kozlak, and to facilitate an orderly succession process where it can continue to benefit from his insight and experience from 20 years of service as a director, the Board appointed Mr. Jastrow in January 2021 to the newly created position of Director Emeritus for a one-year term. Mr. Jastrow resigned as a director in conjunction with this appointment and therefore will not be standing for election at the Annual Meeting.

MAJORITY VOTING STANDARD

Our Corporate Governance Principles provide that a director nominee who fails to win election to the Board in an uncontested election is expected to tender his or her resignation from the Board (or to have previously submitted a conditional tender). An “uncontested election” is one in which there is no director nominee that has been nominated by a stockholder in accordance with our By-Laws. This election is an uncontested election. If an incumbent director fails to receive the required vote for election in an uncontested election, the Nominating Committee will act promptly to determine whether to accept the director’s resignation and will submit its recommendation for the Board’s consideration. The Board expects the director whose resignation is under consideration to abstain from participating in any decision on that resignation. The Nominating Committee and the Board may consider any relevant factors in deciding whether to accept a director’s resignation.

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ARTHUR R. COLLINS	DORENE C. DOMINGUEZ
Age: 60 Director Since: 2020	Age: 58 Director Since: 2017
Arthur R. Collins is the founder and managing partner of theGROUP, a strategy, policy and communications firm. Prior to founding theGROUP in 2011, Mr. Collins was Chairman and CEO of Public Private Partnership, Inc., which he established in 1989. Mr. Collins has deep experience advising corporate, governmental, nonprofit and political organizations clients across a broad range of matters, including national security, energy, healthcare, agriculture, information technology, transportation, manufacturing and financial services. He also has a substantial presence in Washington, D.C. and the Southeast United States, where we have significant business operations.   SKILLS AND QUALIFICATIONS: ■   Founder and Managing Partner, theGROUP   PUBLIC COMPANY DIRECTORSHIPS: ■   KB Home ■   RLJ Lodging Trust   OTHER PROFESSIONAL EXPERIENCE: ■   Vice Chair, Brookings Institution Board of Trustees (2014-Present) ■   Chairman, Morehouse School of Medicine Board of Trustees (2008-Present) ■   Member, Meridian International Center Board of Trustees (2011-2017) ■   Chairman, Florida A&M University Board of Trustees (2001-2003)	Dorene C. Dominguez has served since 2004 as Chairwoman and Chief Executive Officer of the Vanir Group of Companies, Inc. and its subsidiaries Vanir Construction Management, Inc. and Vanir Development Company, Inc., which provide a wide range of program, project and construction management services for clients in the healthcare, education, justice, water/wastewater, public buildings, transportation and energy markets throughout the United States. Ms. Dominguez also serves as Chair of The Dominguez Dream, a nonprofit organization that provides academic enrichment programs in math, science, language arts and engineering to elementary schools in underserved communities. Ms. Dominguez has extensive experience in executive management, finance, and civic engagement, as well as significant expertise in project and asset management and real estate development. She also has a substantial presence and is well-regarded in California, an important market for us.   SKILLS AND QUALIFICATIONS: ■   Chairwoman and Chief Executive Officer, Vanir Group of Companies, Inc.   PUBLIC COMPANY DIRECTORSHIPS: ■   KB Home ■   CIT Group Inc.   OTHER PROFESSIONAL EXPERIENCE: ■   Board of Trustees Member, University of Notre Dame (2018-Present) ■   Board Member, California Chamber of Commerce (2017-Present) ■   Member, The Coca-Cola Company Hispanic Advisory Council (2016-Present) ■   Board Member, Pride Industries, nonprofit employer of individuals with disabilities (2009-Present)

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KEVIN P. ELTIFE	TIMOTHY W. FINCHEM
Age: 61 Director Since: 2020	Age: 73 Director Since: 2005
Kevin P. Eltife has been the founder and owner of Eltife Properties, Ltd., a commercial real estate investment firm, since 1996. He also has served since 2018 as the Chairman of The University of Texas System Board of Regents, following his initial appointment to that board in 2017. Previously, Mr. Eltife served as a Texas State Senator and as the Mayor of Tyler, Texas. Mr. Eltife has deep expertise in overseeing sophisticated real estate development projects, a strong background in executive leadership and governance, and considerable policymaking and civic engagement experience. In addition, he is highly regarded in Texas, which is an important market for us.   SKILLS AND QUALIFICATIONS: ■   Founder and Owner, Eltife Properties, Ltd.   PUBLIC COMPANY DIRECTORSHIPS: ■   KB Home   OTHER PROFESSIONAL EXPERIENCE: ■   Chairman, The University of Texas System Board of Regents (2018-Present; Member 2017-Present) ■   Texas State Senator (2004-2016; President pro tempore, 2015-2016) ■   Director, First Citizens Bank (2002-Present) ■   Mayor, Tyler, Texas (1996-2002)	Mr. Finchem has been Board Chair of The First Tee, a nonprofit youth development organization providing educational programs through the game of golf, since it was founded in 1997. He previously served as Commissioner of the PGA TOUR, a membership organization for professional golfers, from 1994 until his retirement in December 2016. He joined the PGA TOUR in 1987, and was promoted to Deputy Commissioner and Chief Operating Officer in 1989. Mr. Finchem has demonstrated success in broadening the popularity of professional golf among the demographic groups that make up our core homebuyers and has experience in residential community development. He also has a substantial presence in Florida, one of our key markets.   SKILLS AND QUALIFICATIONS: ■   Board Chair, The First Tee   PUBLIC COMPANY DIRECTORSHIPS: ■   KB Home   OTHER PROFESSIONAL EXPERIENCE: ■   Commissioner, PGA TOUR (1994-2016) ■   Co-founder, National Marketing and Strategies Group (1980-1986) ■   Deputy Advisor to the President, White House Office of Economic Affairs (1978-1979)

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DR. STUART A. GABRIEL	DR. THOMAS W. GILLIGAN
Age: 67 Director Since: 2016	Age: 66 Director Since: 2012
Dr. Gabriel has been since 2007 the director of the Richard S. Ziman Center for Real Estate at UCLA, and Professor of Finance and Arden Realty Chair at the UCLA Anderson School of Management. With Dr. Gabriel’s significant professional experience in and distinguished study of macroeconomics and real estate, mortgage and finance markets, he has considerable knowledge and insight with respect to the economic, regulatory and financial drivers that affect housing and homebuilding at local, regional and national levels. In addition, with more than two decades of service in leadership roles at two of the most preeminent academic institutions in the country — UCLA and USC — he has substantial management and administrative expertise and is highly respected for his perspective on housing and land use matters in California, an important market for us, and nationally.   SKILLS AND QUALIFICATIONS: ■   Director, Richard S. Ziman Center for Real Estate at UCLA; and Professor of Finance and Arden Realty Chair, UCLA Anderson School of Management   PUBLIC COMPANY DIRECTORSHIPS: ■   KB Home ■   KBS Real Estate Investment Trust II, Inc. ■   KBS Real Estate Investment Trust III, Inc. ■   KBS Real Estate Investment Trust, Inc. (2005-2018)   OTHER PROFESSIONAL EXPERIENCE: ■   Director and Lusk Chair, USC Lusk Center for Real Estate (1997-2007) ■   Associate Professor/Professor, Finance and Business Economics, USC Marshall School of Business (1990-1997) ■   Economics Staff Member, Federal Reserve Board (1986-1990)	Dr. Gilligan is currently a Senior Fellow at the Hoover Institution on War, Revolution, and Peace at Stanford University, a position he has held since September 2020. From September 2015 until September 2020, Dr. Gilligan served as the Tad and Dianne Taube Director of the Hoover Institution, which is a public policy research center devoted to the advanced study of economics, politics, history, political economy, and international affairs. Dr. Gilligan has deep knowledge of and significant academic credentials in the fields of finance, economics, and business administration. He also brings extensive leadership skills and experience from his many years of service as a dean at two of the premier post-graduate business schools in the country and his immediate past position as the head of a prominent public policy institution. In addition, he is well-known and highly regarded, professionally and personally, in both Texas and California, which are key markets for us.   SKILLS AND QUALIFICATIONS: ■   Senior Fellow, The Hoover Institution on War, Revolution and Peace   PUBLIC COMPANY DIRECTORSHIPS: ■   KB Home ■   Southwest Airlines Co.   OTHER PROFESSIONAL EXPERIENCE: ■   Director, Hoover Institution (2015-2020) ■   Dean, McCombs School of Business (2008-2015) ■   Interim Dean, USC Marshall School of Business (2006-2007; Professor 1987-2006) ■   Assistant Professor, California Institute of Technology (1984-1987) ■   Staff Economist, White House Council of Economic Advisors (1983-1984)

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ROBERT L. JOHNSON	JODEEN A. KOZLAK
Age: 74 Director Since: 2008	Age: 57 Director Since: 2021
Robert L. Johnson is founder and chairman of The RLJ Companies, an innovative business network that provides strategic investments in a diverse portfolio of companies in the consumer financial services, private equity, asset management, real estate, hospitality, gaming and automobile dealership industries. Prior to forming The RLJ Companies in 2004, Mr. Johnson was founder and chief executive officer of BET, the nation’s first and leading television network providing quality entertainment, music, news, sports and public affairs programming for the African American audience. He continued to serve as chief executive officer of Black Entertainment Television (BET) until 2006. Mr. Johnson has significant experience in real estate, finance, mortgage banking and brand-building enterprises and a unique and diverse background in a number of industry sectors.   SKILLS AND QUALIFICATIONS: ■   Founder and Chairman, The RLJ Companies   PUBLIC COMPANY DIRECTORSHIPS: ■   KB Home ■   Discovery, Inc. ■   Elevate Credit, Inc. ■   G-III Apparel Group, Ltd. ■   RLJ Lodging Trust ■   Lowe’s Companies, Inc. (2005-2018) ■   RLJ Entertainment, Inc. (2012-2018) ■   Strayer Education, Inc. (2003-2016)   OTHER PROFESSIONAL EXPERIENCE: ■   Museum Council Member, Smithsonian Institution’s National Museum of African American History and Culture (2004-Present) ■   Founder and Chief Executive Officer of BET, a television and entertainment network (1979-2006)	Jodeen A. Kozlak is the founder and CEO of Kozlak Capital Partners, LLC, a private consulting firm. Ms. Kozlak previously served as the Global Senior Vice President of Human Resources of Alibaba Group, a multinational conglomerate. Ms. Kozlak also previously served as the Executive Vice President and Chief Human Resources Officer of Target Corporation, one of the largest retailers in the U.S., and held other senior roles in her 15-year career at the company. Prior to joining Target, Ms. Kozlak was a partner in a private law practice. Ms. Kozlak has significant experience and insight into human capital management, talent development and executive compensation across a variety of organizational structures, as well as a strong background in executive leadership. In addition, she is well-known and highly respected in California, which is a significant market for us.   SKILLS AND QUALIFICATIONS: ■   Founder and CEO, Kozlak Capital Partners, LLC   PUBLIC COMPANY DIRECTORSHIPS: ■   KB Home ■   C.H. Robinson Worldwide, Inc. ■   Leslie’s, Inc. ■   MGIC Investment Corporation   OTHER PROFESSIONAL EXPERIENCE: ■   Global Senior Vice President of Human Resources of Alibaba Group (2016-2017) ■   Executive Vice President and Chief Human Resources Officer of Target Corporation (2007-2016)

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MELISSA LORA	JEFFREY T. MEZGER
Age: 58 Director Since: 2004 Lead Independent Director Since: 2016	Age: 65 Director Since: 2006 Chairman Since: 2016

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JAMES C. WEAVER	MICHAEL M. WOOD
Age: 45 Director Since: 2017	Age: 73 Director Since: 2014
James C. “Rad” Weaver is CEO and Chairman of CW Interests, LLC, an investment management firm in San Antonio, Texas. He oversees the implementation of the company’s investment strategies, including management of direct investments in private operating businesses. Mr. Weaver is the former CEO of McCombs Partners. He also serves as a director of several private companies including Cox Enterprises, Inc., Circuit of the Americas and Milestone Brands. In 2017, he was appointed to the University of Texas System Board of Regents. Mr. Weaver has considerable experience in executive leadership, business strategy and execution, financial planning and analysis, and asset/investment management across a broad range of industries and brings critical insight on governance and economic and regulatory policymaking. In addition, with his professional achievements and significant community involvement, he has a substantial presence and is well-regarded in Texas, a core market for us.   SKILLS AND QUALIFICATIONS: ■   Chief Executive Officer and Chairman, CW Interests, LLC   PUBLIC COMPANY DIRECTORSHIPS: ■   KB Home   OTHER PROFESSIONAL EXPERIENCE: ■   Member, The University of Texas System Board of Regents (2017-Present) ■   Board Member and Current Chair Pro Tem, San Antonio Branch, Federal Reserve Bank of Dallas (Member 2014-Present; Chair Pro Tem 2016-Present) ■   Member, The McCombs School of Business Advisory Council (2014-Present) ■   San Antonio Chamber of Commerce Board of Directors (Member 2014-2017; Chairman 2016-2017) ■   McCombs Partners (2000-2020; Chief Executive Officer 2006-2020)	Michael M. Wood is founder and chairman of Redwood Investments LLC, a Washington, D.C.-based investment company established in 2005 and concentrating in media, real estate and alternative energy. From 2006-2009 he was US Ambassador to Sweden. In 2009, Mr. Wood received from the King of Sweden the insignia of Commander Grand Cross, Order of the Polar Star medal given by Sweden’s Royal Family to people of foreign birth who make significant contributions to Sweden. Prior to becoming the U.S. Ambassador to Sweden, Mr. Wood was co-founder and CEO of Hanley Wood LLC, the leading media company in the construction industry and one of the 10 largest business-to-business media companies in the U.S. Mr. Wood has extensive knowledge of the homebuilding industry and significant experience in real estate and alternative energy investing, providing substantial insight and expertise with respect to our business operations and our longstanding commitment to sustainability. He also has a distinguished policymaking background.   SKILLS AND QUALIFICATIONS: ■   Founder and Chairman, Redwood Investments LLC   PUBLIC COMPANY DIRECTORSHIPS: ■   KB Home   OTHER PROFESSIONAL EXPERIENCE: ■   Chairman, Winsight, LLC, a business-to-business publishing company (2012-2017) ■   U.S. Ambassador to Sweden (2006-2009) ■   Co-Founder and Chief Executive Officer, Hanley Wood LLC, a business-to-business publishing company (1976-2005)

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OWNERSHIP OF KB HOME SECURITIES

The table below shows the amount and nature of our non-employee directors’ and NEOs’ respective beneficial ownership of our common stock as of February 16, 2021. Except as otherwise indicated below, the beneficial ownership is direct and each owner has sole voting and investment power with respect to the reported securities holdings.

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The following table shows the beneficial ownership of each stockholder known to us to beneficially own more than five percent of our common stock. Except for the GSOT, the below information (including footnotes) is based solely on the stockholders’ respective Schedule 13G or Schedule 13G/A filings with the SEC and reflect their respective determinations of their and/or their respective affiliates’ and subsidiaries’ ownership as of December 31, 2020. Some percentage ownership figures below have been rounded.

STOCK OWNERSHIP REQUIREMENTS

Our non-employee directors and senior executives are subject to stock ownership requirements to better align their interests with those of our stockholders. Our Corporate Governance Principles require each of our non-employee directors to own at least five times the Board retainer (which currently equates to $500,000) in value of our common stock or common stock equivalents by the fifth anniversary of joining the Board. The executive stock ownership policy requires designated senior executives, including our NEOs, to own a certain number of shares within a specified period. The policy is discussed under “Equity Stock Ownership Policy.” Each of our non-employee directors and NEOs is in compliance with their respective policy requirements.

DELINQUENT SECTION 16(a) REPORTS

Under Section 16 of the Exchange Act of 1934, as amended, our directors, executive officers and any persons holding more than 10% of our common stock are required to report to the SEC initial ownership of our common stock and any subsequent changes in ownership. The SEC has established specific filing due dates, and we are required to disclose any failure to file required ownership reports by these dates. Based solely upon a review of forms filed with the SEC and the written representations of such persons, we are aware of no late Section 16(a) filings other than a late Form 4 filed by Matthew W. Mandino reporting the disposition of shares to us to cover tax withholding obligations arising from the vesting of a restricted stock award in October 2020 due to our administrative oversight.

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COMPENSATION DISCUSSION AND ANALYSIS

FINANCIAL PERFORMANCE AND COMPENSATION HIGHLIGHTS

The COVID-19 pandemic and related governmental control measures severely disrupted global and national economies, the U.S. housing market and our business during our 2020 second quarter. With the easing to varying degrees of restrictive public health orders in our served markets beginning in May, our net orders began to rebound significantly following a low point in April as housing demand fueled by the combination of historically low mortgage interest rates, a limited supply of resale inventory and consumers’ increasing desire to own a single-family home drove our third- and fourth-quarter net orders to 15-year highs. Though this sharp rise in net orders in the second half of 2020 generated a substantial expansion in backlog, and positioned us for considerable top-line and bottom-line growth in 2021, our deliveries and revenues for our full 2020 fiscal year reflected the negative effects from the early stages of the pandemic.

Though the COVID-19 pandemic had a negative impact on our business, we made no changes to our executive compensation programs in 2020 due to the pandemic. Specifically:

ANNUAL ACHIEVEMENTS

Even with the challenges we faced in 2020, we increased our quarterly cash dividend more than 66% and had another year of strong performance, including the following (comparisons are to the prior year):

Over the 2018 – 2020 period, we significantly improved our business in a number of areas, including the following:

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TOTAL STOCKHOLDER RETURN

For the five-year period concluding in 2020, we achieved exceptional total stockholder return (“TSR”) results (including reinvestment of dividends), ranking at the 88th percentile of our peer group, and exceeding the returns of the S&P 500 Index and the Dow Jones US Home Construction Index.

Our five-year TSR results placed us second in our peer group, and our three-year annualized TSR ranks at the median of our peer group. With the volatility that we faced during 2020, and in the context of our business and its typical investment, development and product delivery cycle, we consider these longer-term measurement periods of TSR as generally more indicative of our performance than are shorter measurement periods.

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PAY FOR PERFORMANCE — 2020 FISCAL YEAR CEO COMPENSATION

The following table compares our CEO’s total direct compensation for 2020 and 2019, which increased approximately 3.6% year over year:

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LISTENING TO OUR STOCKHOLDERS

In 2020, we continued our longstanding practice of reaching out to our stockholders, including all of our 25 largest stockholders, and we directly engaged with holders representing over 50% of our outstanding shares ahead of our 2020 annual meeting. We conducted additional post-meeting proactive outreach in the fall and winter to approximately one-third of our 25 largest stockholders, and we engaged in telephonic meetings with several of them to discuss our approach to dealing with the challenges of the COVID-19 pandemic as well as our practices and their views regarding compensation, sustainability and governance matters. In our conversations, stockholders expressed general support for our compensation and ESG programs and policies and provided feedback that we have incorporated or are considering incorporating into our programs or public disclosures. We value our stockholders’ opinions, and in part based on discussions with them, the Compensation Committee over the past few years established tighter change in control vesting provisions in our equity award agreements and adopted an executive officer incentive compensation claw-back policy. In evaluating our executive compensation programs during 2020, the Compensation Committee considered the strong support stockholders have expressed through our annual NEO compensation advisory votes over the past few years for our approach to executive compensation, including a 92% level of support at our 2020 annual meeting. As a result, for 2020, the Compensation Committee decided to retain the core components of our executive compensation programs and to apply the same general principles and philosophy as in the prior fiscal year in its executive compensation decisions.

COMPENSATION GOVERNANCE

What We Do			What We Don't Do
	Engage with and consider stockholder input in designing our executive pay programs.			No re-pricing or cash-out of underwater stock options without stockholder approval.
	Link annual NEO incentive pay to objective, pre-established financial performance goals, which are three-year goals for long-term incentives.			We prohibit our NEOs (and our other employees and non-employee directors) from hedging or pledging their holdings of our securities.
	Grant all of our NEOs’ long-term incentives in performance-based restricted stock units.			No new excise tax “gross-ups” for any officer or employee.
	Since 2017, require double-trigger vesting of employee equity awards in a change in control.			No new executive officer severance arrangements without stockholder approval (see “Severance Arrangements”).
	Subject our executive officers to an incentive compensation claw-back policy.			No payments of dividends or dividend equivalents on performance-based equity awards before they vest.
	Perform, under Compensation Committee oversight, annual risk assessments to determine that our employee compensation policies and programs are not likely to have a material adverse effect on us.			Avoid excessive perquisites. Perquisites are generally limited to market-competitive medical benefits and the opportunity to participate in a deferred compensation plan.
	Engage, at the sole direction of the Compensation Committee, an independent compensation consultant.
	Maintain robust stock ownership requirements for all NEOs.
	Maintain a relevant industry peer group.

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PAY PROGRAM OVERVIEW

The table sets forth the components of, and rationale for, each element of our executive compensation program.

As outlined above, we place a significant emphasis on at-risk, performance-based pay. As shown below, in 2020, our CEO received over 90% of his total direct compensation in performance-based and/or at-risk vehicles. For our other NEOs, such vehicles, on average, approximated 80% of their total direct compensation.

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NEO COMPENSATION COMPONENTS

BASE SALARIES 

The Compensation Committee annually reviews and approves the base salaries of our CEO and our other NEOs. The Compensation Committee approves NEO base salaries after considering several factors, including an NEO’s experience, specific responsibilities, capabilities, individual performance and expected future contributions; our current and expected financial and operational results; and market pay levels and trends to ensure competitiveness. During 2020, the Compensation Committee elected to hold base salaries flat with their 2019 levels for all NEOs.

2020 ANNUAL INCENTIVES

Our annual incentive program is structured to drive performance within a single fiscal year period. As with our 2016 – 2019 programs, the 2020 program’s formula-driven funding would be determined based on two components: (a) total adjusted pretax income (“API”) performance relative to threshold and target goals set relative to then-expected market and business conditions in 2020; and (b) API performance relative to an asset efficiency measure. API is our total pretax income excluding certain compensation expense and certain inventory-related charges.

We view API as a comprehensive short-term measure of our senior officers’ performance, as it reflects their ability to generate profits by growing revenues, managing expenses and controlling fixed costs. The combination of the API and asset efficiency measures was designed to motivate our senior officers to generate profitable growth in alignment with our strategic goals.

The 2020 target payout opportunities were set at 150% of base salary for our CEO, 120% for our Chief Operating Officer and 100% for the remainder of our NEOs. As outlined in the Grants of Plan-Based Awards During Fiscal Year 2020 table, maximum payouts were limited to a multiple of target. The target and maximum annual incentive opportunities were designed to generate payout levels that, if achieved, would appropriately reward strong performance for 2020, and together with base salary and long-term incentives, provide competitive total direct compensation.

2020 ANNUAL INCENTIVE PROGRAM COMPONENT DETERMINATIONS

With our 2020 API performance, our NEOs became eligible to receive annual incentive payouts under the 2020 program.

API Performance Relative to Goals Component

The Compensation Committee set an API performance target of $440.0 million, an increase of 14% over our 2019 target API performance goal of $385.0 million, and approximately 4% over our 2019 actual API performance. The 2020 performance target was determined prior to the declaration of the COVID-19 global pandemic and was based on then current and expected housing market conditions. Despite incredible volatility during 2020, we achieved API of $442.7 million, a 4% increase from our actual 2019 API result of $424.3 million. Although our actual 2020 API exceeded the target performance level, payouts were limited under this component of the program to each NEO’s individual target amount.

As explained above and shown in the table below, this performance led to strictly formula-based payouts of 100% of target to our NEOs under the API performance component.

2020 API PERFORMANCE LEVELS AND PAYOUT SUMMARY

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Our NEOs could earn annual incentive payouts above their respective individual target payout levels (but limited to each such officer’s respective maximum payout level) only if and to the extent our API performance exceeded a minimum asset efficiency objective, as described below.

API Performance Relative to Asset Efficiency Component

Under this component, two and one quarter percent of each dollar of API over our minimum asset efficiency objective, and three and one quarter percent of each dollar of API above the level of 110% of that target, funded an additional annual incentive pool to be allocated among the participating officers. The Compensation Committee set the 2020 minimum asset efficiency objective at a one percent return on inventory for 2020, which was approximately $38.0 million, a 4.3% increase over our 2019 objective for this measure ($36.4 million). With the difference between our API and the minimum asset efficiency objective equal to about $404.7 million, the asset efficiency performance pool was funded at a total level of approximately $9.1 million.

The Compensation Committee determined the allocation of the asset efficiency performance pool based on pre-established potential payout ranges (0% — 60% for our CEO; 0% — 15% for our other NEOs) that took into consideration each officer’s 2020 annual incentive payout opportunities at threshold, target and maximum levels; historical relative annual incentive payouts by functional role; and competitive market pay information. In determining allocations of the pool to our NEOs, the Compensation Committee also considered each NEO’s individual performance contributions, which, other than for our CEO, were informed by our CEO’s assessment of their performance, and established a corresponding individual performance factor (“IPF”) within the above-described ranges. The Compensation Committee determined our CEO’s award by also considering the CEO’s leadership of our strategy and his significant contribution to the growth of our business in 2020. The table below summarizes our NEOs’ individual performance contributions.

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2020 ANNUAL INCENTIVE PROGRAM PAYOUT LEVELS AND ACTUAL PAYOUTS^(a)

2021 ANNUAL INCENTIVE PROGRAM

The 2021 annual incentive program will be similar to our 2020 program, including a formula-driven funding structure determined by API and asset efficiency performance measures. The pre-established 2021 annual incentive program’s API target performance goal is higher than our 2020 actual result and is based on expected market and business conditions for the current year. In addition, the asset efficiency objective will be increased for 2021.

LONG-TERM INCENTIVES

In October 2020, for the fourth consecutive year, the Compensation Committee approved long-term incentive awards to our NEOs consisting solely of PSUs to reinforce the alignment of pay with our performance and stockholder value creation. The target values of these awards were set at the same values as the October 2019 awards, and were again based on peer group and market data analysis. In order to maintain commensurate pay arrangements intended to reward strong long-term performance and help retain key talent, the following awards were made to our NEOs:

NEO LONG-TERM INCENTIVES GRANTED IN 2020

PERFORMANCE-BASED RESTRICTED STOCK UNITS

We have granted PSUs to our executive officers each year since 2012. As with prior PSU grants, the PSUs granted in 2020 are designed to focus our executive officers on achieving important long-term financial objectives over a three-year period. The 2020 PSU measures described below are a combination of absolute and relative metrics that should generate positive outcomes for our business, and, if achieved, are expected to be strong drivers of stockholder value creation.

The 2020 PSU amounts shown in the table above reflect a target award of shares of our common stock and their grant date fair value. Each 2020 PSU entitles a recipient to a grant of 0% to 200% of his target award depending on our performance relative to the above-noted performance measures over the three-year period of December 1, 2020 to November 30, 2023. The AEPS and AROIC measures‘ performance will be determined on a tax-effected basis that excludes only pre-specified categories of compensation expense; certain inventory-related charges; and other extraordinary items approved by the Compensation Committee. Upon vesting, each 2020 PSU recipient is

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entitled to receive a proportionate amount of credited cash dividends that are paid in respect of one share of our common stock with a record date between the grant date and the date the Compensation Committee determines the applicable performance achievements, if any. Except for death, disability or certain retirement circumstances, a recipient will forfeit any rights to a 2020 PSU payout if the recipient terminates service before the date the Compensation Committee determines the applicable performance achievements. The following tables present our goals with respect to the 2018 – 2020 PSU performance measures. As shown below, the goals for both the AEPS and AROIC measures have increased year over year at both target and maximum performance level, reflecting the consistent improvement in our performance in the prior-year periods and stockholder feedback. Specifically, comparing the respective corresponding 2018 – 2020 PSUs target goals to those for the 2017 PSUs, the AEPS measure is up 60%, 71% and 76%, and the AROIC measure is 100, 220 and 290 basis points higher. Due to the continuing uncertainty from the COVID-19 pandemic at the time 2020 PSU goals were determined, the Compensation Committee established threshold goals for both AEPS and AROIC that were lower than the threshold goals for the same measures under the 2019 PSUs along with lower threshold payout levels than those prior-year PSUs.

The relative revenue growth performance ranking scale shown below applies only to the 2017 PSU grants.

For our 2018, 2019 and 2020 PSU grants, we adopted a percentile rank approach to determine the target award multiplier for the relative revenue growth measure as outlined in the table below. Payouts for performance between the levels shown below are determined by straight-line interpolation.

As with our annual incentive program, the Compensation Committee intends the threshold performance levels outlined above to be reasonably achievable, yet uncertain to be met under expected market and business conditions at the time of grant. Target performance levels are designed to require significant management effort to achieve, and maximum performance levels are designed to be measurably more difficult to achieve than target

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performance levels. Each of these performance levels directly scale to threshold, target and maximum payout opportunities. As vesting for the PSUs granted in 2018 – 2020 will not be determined until after their respective performance periods end, we cannot predict the extent to which any shares under these awards will ultimately vest.

2017 PSU AWARDS

The PSUs granted to our executive officers in 2017 entitled recipients to a grant of 0% to 200% of a target award of shares of our common stock based on our AEPS performance, AROIC performance, and relative revenue growth performance (with the respective rankings and multipliers as shown in the above table) over the three-year period of December 1, 2017 to November 30, 2020. The applicable AEPS and AROIC performance measures and goals are set forth below.

2017 PSU AWARD DETERMINATIONS

The cumulative AEPS performance result for the 2017 PSUs exceeded the challenging $6.19 maximum goal level set at the time of grant and reflected our emphasis on and success at growing our diluted earnings per share by 69% during the performance period even amid a volatile housing market during 2020. Strong, consistent profitability and cumulative net income of approximately $735 million, as well as our substantial reduction of nearly $578 million in notes payable over this period, contributed to a significant increase in our adjusted return on invested capital, exceeding our maximum goal for this measure. The relative revenue ranking for the 2017 PSUs reflected our revenue performance over the applicable period, and placed us 11th within the peer group. Our ranking in the above table reflects our position at the end of the performance period among the applicable peer group, consistent with the 2017 PSUs’ terms and based on the relative revenue growth performance rank-to-target award multiplier table. All of these outcomes were uncertain at the time the 2017 PSUs were granted, and the Compensation Committee determined that they required significant management effort to achieve and sustain through the entirety of the performance period.

We anticipate that on February 18, 2021, the Compensation Committee will certify the performance we achieved for the period ended November 30, 2020 and approve share grants with respect to the 2017 PSUs as set forth in the table below. Mr. Mandino was not a participant in the 2017 PSU program because he was not an eligible executive officer at the time the 2017 PSUs were granted.

2017 PSU AWARDS

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EXECUTIVE COMPENSATION DECISION-MAKING PROCESS AND POLICIES

Pursuant to its charter, the Compensation Committee oversees the decision-making process for our executive compensation and benefits policies and programs. In making executive compensation decisions, the Compensation Committee considers a variety of factors and data, most importantly our performance and individual executives’ performance, and the totality of compensation that may be paid. Among the data the Compensation Committee considers are financial and operational performance metrics for us, including comparisons to prior years’ performance and our current business plans and to our peer group; surveys and forecasts of comparative general industry and peer group compensation and benefits practices; and, at least annually, management-prepared tally sheets for senior executives with up to six years of compensation data.

ROLE OF OUR MANAGEMENT AND COMPENSATION CONSULTANTS

Our CEO, senior human resources and legal department executives, and FWC provide information and recommendations to assist the Compensation Committee’s decision-making, and also advise on compliance and disclosure requirements. FWC, which the Compensation Committee directly retains, attends Compensation Committee meetings as needed. To maintain its independence and avoid any conflicts of interest, FWC may not work directly for our management unless the Compensation Committee pre-approves the work, including fees. During 2020, FWC did not provide any services that would have required such pre-approval. Based on its consideration of factors under New York Stock Exchange (“NYSE”) listing standards, the Compensation Committee determined that FWC’s work did not raise any conflicts of interest, and therefore considered FWC to be independent.

PEER GROUP

Our peer group is composed solely of U.S. public companies that, like us, are engaged in high production homebuilding as their primary business. We compete with all of these companies for both homebuyers and management talent. The competition with these companies for human resources reflects our, and their, need to attract and retain high caliber management and other personnel with strong high production homebuilding expertise and experience to execute business activities nationally as well as in specific local markets. Therefore, a principal focus in designing our compensation and benefits programs is to meet this critical competitive need. The Compensation Committee, in consultation with FWC and our management, periodically reviews and considers changes to our peer group. The Compensation Committee principally considers the competitive factors described above, as well as relative total revenues and market capitalization among the peer group companies. The Compensation Committee, which considers the composition of our peer group at least annually, last adjusted the group’s members, which are shown below, during 2016. As of their most recently filed proxy statements before the date of this Proxy Statement, each member of our peer group included us in its own peer group.

OUR PEER GROUP

As of December 31, 2020, the reported total revenues (on a trailing 12-month basis) of the companies in our peer group were within a range of approximately 0.5 to 5.4 times our total revenues, and our total revenues of $4.18 billion placed us in the middle-third of the peer group. Also, as of December 31, 2020, the market capitalization of our peer group was within a range of approximately 0.1 to 8.3 times our market capitalization, and our market capitalization of $3.04 billion was approximately 6% below the median of the peer group of $3.24 billion.

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EQUITY STOCK OWNERSHIP POLICY

Our longstanding executive stock ownership policy is intended to encourage, and has encouraged, our executives to increase their ownership of our common stock over time and to align their interests with our stockholders’ interests. Under the policy, designated senior executives are expected to achieve specific levels of common stock ownership within five years of joining us or being promoted to a position with a higher ownership guideline and, once achieved, maintain such ownership throughout their employment with us. The targeted common stock ownership levels for our NEOs are as follows:

Common stock ownership includes shares directly owned by the NEO, and shares are valued at the greater of the most recent closing price on a valuation date and the closing price on the date shares are acquired. Designated executives are required to hold all vested net (after-tax) shares of time-vesting and performance-vesting restricted stock and up to 100% of net shares acquired through stock option exercises until their applicable stock ownership guideline is met, absent a hardship or other qualified exception. Each of our NEOs is in compliance with the requirements of the policy.

PROHIBITION ON HEDGING/PLEDGING OF OUR SECURITIES

To further align their interests with those of our stockholders, our employees and non-employee directors cannot engage in short sales of our securities and cannot buy or sell puts, calls or any other financial instruments that are designed to hedge or offset decreases or increases in the value of our securities (including derivatives, prepaid variable forward contracts, equity swaps, collars and exchange funds). They also cannot hold our securities in a margin account or otherwise pledge our securities as collateral for any loan.

EQUITY-BASED AWARD GRANT POLICY

Our equity-based award grant policy governs the timing and establishes certain internal controls over the grant of equity-based awards, including stock options, restricted stock and PSUs. The policy requires that the Compensation Committee (or the Board) approve all grants of equity-based awards and their terms, and does not permit delegation of this authority to our management. Per the policy, the exercise or grant price of any relevant equity-based award cannot be less than the closing price of our common stock on the grant date.

CLAW-BACK POLICY

The Board adopted a policy in 2018 to recoup compensation if our financial statements must be restated due to an executive officer’s intentional misconduct or grossly negligent conduct. Under the policy, the Board (or a designated committee) can, to the extent permitted by applicable law (including California law), require an officer to reimburse or forfeit to us the excess bonus or incentive compensation (whether cash- or equity-based) such officer received during the three fiscal years preceding the year the restatement is determined to be required relative to an applicable restated performance measure or target. In addition, our CEO must repay certain bonus and incentive- or equity-based compensation he receives if we are required to restate our financial statements as a result of his misconduct consistent with Section 304 of the Sarbanes-Oxley Act of 2002. We will also recoup incentive-based compensation from our NEOs to the extent required under the Dodd-Frank Act and any rules issued under that Act.

TAX IMPLICATIONS OF OUR EXECUTIVE COMPENSATION PROGRAM

In past years, we have generally designed our incentive compensation plans in order to maintain federal tax deductibility for executive compensation under Section 162(m) of the Internal Revenue Code (“Code”), and the Compensation Committee considered the potential Section 162(m) impact when approving the compensation paid to our NEOs. Prior to the Tax Cuts and Jobs Act of 2017 (“TCJA”), Section 162(m) generally disallowed a tax deduction for compensation over $1.0 million paid to certain executive officers unless it qualified as performance-based compensation. The TCJA effectively repealed the exemption for performance-based

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compensation with respect to tax years beginning after December 31, 2017, other than for arrangements in place on November 2, 2017 that are not later modified in any material respect. As such, with respect to our 2020 fiscal year, we will not be able to deduct compensation above $1.0 million awarded to certain of our executive officers. While we intend for our PSU grants made prior to November 2, 2017 to qualify for deductibility under Section 162(m), we cannot guarantee that any compensation intended to be deductible under Section 162(m) will qualify as such. In addition, the Compensation Committee will approve compensation that may not be deductible under Section 162(m) where it believes it is in our and our stockholders’ best interests to do so.

INDEMNIFICATION AGREEMENTS

We have entered into agreements with each NEO and certain other senior executives that provide them with indemnification and advancement of expenses to supplement what our Certificate of Incorporation and insurance policies provide, subject to certain limitations.

SEVERANCE, CHANGE IN CONTROL AND POST-TERMINATION ARRANGEMENTS

SEVERANCE ARRANGEMENTS

Mr. Mezger’s Employment Agreement and our Executive Severance Plan, in which all of our NEOs participate, provide certain severance benefits, as discussed under “Potential Payments Upon Termination of Employment or Change in Control.” In considering our stockholders’ approval of an advisory proposal, in 2008 we adopted a policy under which we will obtain stockholder approval before paying severance benefits to an executive officer under a future severance arrangement in excess of 2.99 times the sum of the executive officer’s then-current base salary and target bonus. Future severance arrangements do not include arrangements existing when we adopted the policy or that we assume or acquire unless, in each case, any such arrangement is changed in a manner that materially increases its severance benefits.

CHANGE IN CONTROL ARRANGEMENTS

Since 2001, we have maintained without modification the terms of a Change in Control Severance Plan (“CIC Plan”) that provides participants with certain benefits, as discussed under “Potential Payments Upon Termination of Employment or Change in Control.” The CIC Plan is intended to enable and encourage our management to focus its attention on obtaining the best possible result for our stockholders in a change in control, to promote management continuity, and to provide income protection if there is an involuntary loss of employment. All unvested employee equity awards require double-trigger vesting in a change in control.

DEATH BENEFITS

Our Death Benefit Only Plan, in which Messrs. Mezger and Praw participate, provides a $1.0 million death benefit to a participant’s designated beneficiary (plus an additional tax restoration amount sufficient to pay taxes on the benefit and the additional amount). We closed the plan to new participants beginning in 2006. Since then, only term life insurance, with a $750,000 benefit level, has been made available to incoming eligible executives, including Messrs. Kaminski, Mandino and Woram. We also maintain a $400,000 life insurance death benefit for designated beneficiaries of Mr. Mezger.

OTHER BENEFITS

The majority of our health and welfare benefits are made available to all full-time employees, including our NEOs. During 2020, as in prior years, our NEOs were eligible to participate in a supplemental plan that reimburses them for qualified out-of-pocket expenses that exceed amounts payable under our standard medical, dental and vision plans. Certain of our NEOs, and other employees, also participate in our unfunded nonqualified Deferred Compensation Plan (“DCP”), which is described below. These market-competitive benefits are offered to attract and retain key executive talent.

RETIREMENT PROGRAMS

The 401(k) Plan, a qualified defined contribution plan, is the only post-employment benefit program we offer to all full-time employees. We provide a dollar-for-dollar match of 401(k) Plan and DCP contributions up to an aggregate of 6% of a participant’s base salary. Matching contributions generally vest after five years of service.

The DCP allows participants to make pretax contributions of up to 75% of their base salary and 75% of their annual incentive compensation, and to select from one or more investment options in which their deferred compensation is deemed to be invested. As we do not provide a guaranteed rate of return under the DCP, a participant’s credited earnings depend on their investment elections. Deferred amounts together with any credited investment returns

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under the DCP are paid out to participants in a lump sum or in installments, commencing either at a participant-specified date during employment or upon termination of employment, subject to certain limitations. NEO deferrals under the DCP are shown in the Non-Qualified Deferred Compensation During Fiscal Year 2020 table.

We also maintain a supplemental non-qualified, unfunded retirement plan (“Retirement Plan”) for certain executives, including Mr. Mezger, whose participation is shown in the Pension Benefits During Fiscal Year 2020 table. The Retirement Plan, closed to new participants since 2004 with no additional benefit accruals to participants (other than the same cost-of-living adjustments applied to federal social security benefits), provides each participant with specific annual payments for 20 years that begin upon the later of reaching age 55, the tenth anniversary of a participation commencement date or the termination of employment with us. Mr. Mezger’s original annual benefit amount under the Retirement Plan was $450,000. The change in our CEO’s pension value shown in the Summary Compensation Table for 2020 is a required reporting item and represents only the actuarial increase in our CEO’s Retirement Plan benefits based on interest rate fluctuations. It does not reflect any new plan benefits, cash or other compensation granted to or received by our CEO in 2020.

MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT

The Management Development and Compensation Committee of the Board of Directors has reviewed and discussed the above “Compensation Discussion and Analysis” with KB Home management. Based on this review and discussion, the Management Development and Compensation Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement.

Management Development and Compensation Committee

Melissa Lora, Chair
Timothy W. Finchem
Robert L. Johnson
Jodeen A. Kozlak
James C. Weaver

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EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

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GRANTS OF PLAN-BASED AWARDS DURING FISCAL YEAR 2020

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2020

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OPTION EXERCISES AND STOCK VESTED DURING FISCAL YEAR 2020