UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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D. R. Horton, Inc.

(Name of Registrant as Specified In Its Charter)

 

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On

Thursday, January 20, 2011

 

Dear Fellow Stockholder of D.R. Horton:

 

You are invited to attend the 2011 Annual Meeting of Stockholders of D.R. Horton, America’s Builder. Our 2011 Annual Meeting will be held at our corporate offices located at: D.R. Horton Tower, 301 Commerce Street, Fort Worth, Texas 76102, on Thursday, January 20, 2011, at 10:00 a.m., central time, for the following purposes:

 

 

Only stockholders of record at the close of business on Monday, November 29, 2010, are entitled to notice of and to vote at the 2011 Annual Meeting or any adjournment thereof.

 

While we would like to have each of you attend the meeting and vote your shares in person, we realize this may not be possible. However, whether or not you plan to attend the meeting, your vote is very important. For convenience of our stockholders, proxies may be given either by telephone, electronically through the Internet, or by mail.

 

A form of proxy on which to indicate your vote by mail and an envelope, postage prepaid, in which to return your proxy are enclosed. WE URGE YOU TO COMPLETE AND RETURN YOUR PROXY BY ONE OF THESE METHODS SO THAT YOUR SHARES WILL BE REPRESENTED. If you decide later to attend the 2011 Annual Meeting, you may revoke your proxy at that time and vote your shares in person. If you desire any additional information concerning the 2011 Annual Meeting, we would be glad to hear from you.

 

Very truly yours,

 

 

DONALD R. HORTON
Chairman of the Board

 

Fort Worth, Texas

December 14, 2010

 

TABLE OF CONTENTS

 

D.R. Horton Tower
301 Commerce Street
Fort Worth, Texas 76102
www.drhorton.com

 

PROXY STATEMENT
for the
2011 ANNUAL MEETING OF STOCKHOLDERS
To Be Held On January 20, 2011

 

Our 2011 Annual Meeting of Stockholders will be held on Thursday, January 20, 2011, at 10:00 a.m., central time, at our corporate offices located at D.R. Horton Tower, 301 Commerce Street, Fort Worth, Texas. The purposes of the 2011 Annual Meeting are set forth in the Notice of Annual Meeting of Stockholders to which this Proxy Statement is attached. D.R. Horton, Inc. is referred to as “D.R. Horton,” “Company,” “we,” and “our” in this Proxy Statement.

 

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of D.R. Horton. D.R. Horton expects that this Proxy Statement and the accompanying form of proxy will first be released to our stockholders of record on or about December 14, 2010. The cost of this solicitation will be paid by D.R. Horton. The solicitation of proxies will be made primarily by use of the mail. In addition, directors, officers and regular employees of D.R. Horton may make solicitations without special compensation by telephone, telegraph, e-mail or personal interview. They may request banks, brokers, fiduciaries and other persons holding stock in their names, or in the names of their nominees, to forward proxies and proxy materials to their principals and obtain authorization for the execution and return of such proxies to management. D.R. Horton will reimburse such banks, brokers and fiduciaries for their reasonable out-of-pocket expenses for this service.

 

Stockholders may vote by marking, signing and dating each proxy card received and returning it in the prepaid envelope, by telephone, or electronically through the Internet by following the instructions included on the enclosed proxy card or by casting votes in person at the meeting. The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. The procedures, which are designed to comply with Delaware law, allow stockholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded. Stockholders who hold shares in “street name” through a broker or other nominee may be able to vote by telephone or electronically through the Internet in accordance with the voting instructions provided by that institution.

 

Any proxy given may be revoked by a stockholder at any time before it is exercised by filing with D.R. Horton a notice in writing revoking it, by duly executing and returning a proxy bearing a later date or by voting by telephone or Internet. Proxies also may be revoked by any stockholder present at the 2011 Annual Meeting who expresses a desire to vote his or her shares in person. If you require directions to our meeting, please contact Investor Relations at (817) 390-8200. Subject to such revocation and except as otherwise stated herein or in the form of proxy, all proxies duly executed and received prior to, or at the time of, the 2011

Annual Meeting will be voted in accordance with the specifications of the proxies. If no specification is made, proxies will be voted as follows: FOR the nominees for election of directors (see Proposal One on page 5), FOR approval of our 2006 Stock Incentive Plan as amended and restated (see Proposal Two on page 50), FOR ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm (see Proposal Three on page 61), AGAINST the stockholder proposal concerning greenhouse gas emissions (see Proposal Four on page 62), and, at the discretion of the proxy holders, on all other matters properly brought before the 2011 Annual Meeting or any adjournment or postponement thereof.

 

November 29, 2010 has been set as the record date for the purpose of determining stockholders entitled to notice of, and to vote at, the 2011 Annual Meeting. There were 319,284,307 shares of D.R. Horton’s Common Stock, $.01 par value, issued and outstanding on the record date. On any matter submitted to a stockholder vote, each holder of Common Stock will be entitled to one vote, in person or by proxy, for each issued and outstanding share of Common Stock registered in his or her name on the books of D.R. Horton as of the record date. A list of such stockholders will be available for examination by any stockholder at the offices of D.R. Horton set forth above for at least ten days before the 2011 Annual Meeting.

 

The D.R. Horton Bylaws provide that if the holders of a majority of the issued and outstanding shares of Common Stock entitled to vote are present in person or represented by proxy, there will be a quorum. The aggregate number of votes entitled to be cast by all stockholders present in person or represented by proxy at the 2011 Annual Meeting, whether those stockholders vote for, against or abstain from voting on any matter, will be counted for purposes of determining whether a quorum exists. Broker non-votes, which are described below under “Vote Required,” will be considered present for purposes of determining whether a quorum exists.

 

 

 

 

If your shares are held in a brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in “street-name.” If a broker or bank holds your shares, you may have received this Proxy Statement directly from them, together with instructions as to how to direct the broker or bank to vote your shares. If you intend to have your vote counted, it is important that you return your voting instructions to your broker or bank. Under the rules of the New York Stock Exchange (“NYSE”), a broker or bank has the authority to vote on certain “routine” proposals without voting instructions from the beneficial owner. A “broker non-vote” occurs when the broker or bank is unable to vote on a “non-routine” proposal because it does not have discretionary authority and the beneficial owner has not provided voting instructions. Brokers or banks may not vote on Proposal One, Proposal Two or Proposal Four at the 2011 Annual Meeting without voting instructions from the beneficial owner because those proposals are non-routine proposals. Brokers and banks may vote on Proposal Three at the 2011 Annual Meeting without voting instructions from the beneficial owner because this proposal is routine.

 

The following table reflects the vote required for each proposal and the effect of broker non-votes and abstentions on the vote, assuming a quorum is present at the meeting:

 

 

The broker, bank or other nominee of any stockholder who is a beneficial owner, but not the record holder, of the Company’s Common Stock may deliver only one copy of this Proxy Statement and our Annual Report to multiple stockholders sharing an address, unless the broker, bank or nominee has received contrary instructions from one or more of the stockholders.

In addition, with respect to record holders, in some cases, only one copy of this Proxy Statement and our Annual Report will be delivered to multiple stockholders sharing an address, unless the Company has received contrary instructions from one or more of the stockholders. Upon written or oral request, the Company will deliver free of charge a separate copy of this Proxy Statement and our Annual Report to a stockholder at a shared address to which a single copy was delivered. You can notify your broker, bank or other nominee (if you are not the record holder) or the Company (if you are the record holder) that you wish to receive a separate copy of our proxy statements and annual reports in the future, or alternatively, that you wish to receive a single copy of the materials instead of multiple copies. The Company’s contact information for these purposes is: D.R. Horton, Inc., Attention: Corporate Counsel, D.R Horton Tower, 301 Commerce Street, Suite 500, Fort Worth, Texas 76102, telephone number: (817) 390-8200, or e-mail: tbmontano@drhorton.com.

 

Stockholders may elect to receive future notices of meetings, proxy materials and annual reports electronically through the Internet. The consent of stockholders who have previously consented to electronic delivery will remain in effect until withdrawn. To consent to electronic delivery:

 

 

The consent to receive stockholder communications through the Internet may be withdrawn at any time to resume receiving stockholder communications in printed form.

 

 

 

 

 

 

Our Board of Directors currently consists of seven members who were elected at the 2010 Annual Meeting and will serve until the 2011 Annual Meeting and until their successors have been elected and qualified.

 

The Nominating and Governance Committee recommended to the Board of Directors six of our current directors as director nominees, each of whom is listed below under the heading “Nominees for Director.” After review and consideration by the Board of Directors, the Board nominated the same six directors, as recommended by the Nominating and Governance Committee, for election as directors of D.R. Horton at the 2011 Annual Meeting. The Nominating and Governance Committee chose not to nominate one of our management directors to the Board for the next term to improve the ratio of independent directors to management directors and to not have the chief financial officer position also be a director position.

 

Unless otherwise specified in the accompanying proxy, the shares voted by proxy will be voted for each of the persons named below as nominees for election as directors. Nominees who are elected as directors will be elected for one-year terms and will serve until the next annual meeting of stockholders and their successors have been elected and qualified. We do not know of any reason why any of the nominees would be unable to serve. However, if any of the nominees should become unavailable to serve as a director, the Board may designate a substitute nominee or reduce the size of the Board. If the Board designates a substitute nominee, the persons named as proxies will vote “FOR” that substitute nominee.

 

The D.R. Horton Bylaws require that to be elected, a director nominee must receive a majority of the votes cast with respect to such nominee in uncontested elections (the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee). In a contested election, where the number of nominees exceeds the number of directors to be elected (which is not the case at the 2011 Annual Meeting), the directors will be elected by a plurality of the shares present in person or by proxy and entitled to vote on the election of directors. Under the Corporate Governance Principles of the Company, any director who is not elected is required to tender his or her resignation to the Chairman of the Board within a reasonable time following certification of the vote. The Nominating and Governance Committee, which is comprised of only independent directors, will consider the resignation offer and make a recommendation to the Board as to whether to accept or reject the resignation offer, or whether other action should be taken. The Board will act on the Nominating and Governance Committee’s recommendation within 90 days following certification of the election results. Thereafter, the Board will promptly publicly disclose in a report filed with the Securities and Exchange Commission (“SEC”) its decision regarding the director’s resignation offer (including the reason(s) for rejecting the resignation offer, if applicable).

 

The Board of Directors Unanimously Recommends that Stockholders Vote “FOR”
Each of the Following Director Nominees.

 

The following is a summary of certain information regarding the nominees for election as directors.

 

DONALD R. HORTON, age 60, director since 1991.  Mr. Horton has been executive Chairman of the Board of D.R. Horton since it was formed in July 1991, and he was President from July 1991 until November 1998. He has been involved in the real estate and homebuilding industries since 1972, and he was the founder, sole or principal stockholder, director and president of each of D.R. Horton’s predecessor companies since their respective organization, which date from 1978 to 1990.

 

Key Director Qualifications.  Mr. Horton’s 32 years of extensive experience in the homebuilding industry provides valuable leadership to the Board and to the Company. Mr. Horton brings to the Board his experience as founder of the Company, Chairman of the Board and former chief executive officer and president of the Company and its predecessor companies. Mr. Horton is also the largest individual stockholder of the Company. As founder of the Company, Mr. Horton has a unique understanding of all phases of the homebuilding business. Mr. Horton’s leadership and strategic vision provides the Board and the Company with unique advantages in the homebuilding industry.

 

BRADLEY S. ANDERSON, age 49, director since 1998.  Mr. Anderson has been an Executive Vice President of CB Richard Ellis, Inc., an international real estate brokerage company, since 2009, and he has held various positions in Phoenix, Arizona with its predecessor, CB Commercial Real Estate Group, Inc., since January 1987. He served as Interim Chairman of the Board of Continental Homes Holding Corp. from October 1997 through April 1998, when it merged into D.R. Horton, and he became a director of D.R. Horton at that time. Mr. Anderson has been a member of both the Audit and Compensation Committees since 1998 and he has been a member of the Nominating and Governance Committee since November 2003.

 

Key Director Qualifications.  Mr. Anderson’s extensive experience working with an international real estate brokerage company allows him to bring valuable insight and perspective to the Board as a number of factors that affect the real estate brokerage industry also affect the homebuilding industry. Mr. Anderson also brings to the Board his valuable experience of formerly serving on another homebuilding company’s board and serving on the Company’s Board and its Committees since 1998.

 

MICHAEL R. BUCHANAN, age 63, director since 2003.  Mr. Buchanan has significant commercial banking experience with several banking institutions serving the real estate and homebuilding sectors. He retired from commercial banking in March 2002. From March 2002 to March 2003, Mr. Buchanan was engaged as a senior advisor to Banc of America Securities. From 1998 to March 2002, Mr. Buchanan was a Managing Director of Bank of America, an executive officer position in which he was head of its national real estate banking group. From 1990 to 1998, Mr. Buchanan was an Executive Vice President of NationsBank, which later merged with Bank of America. Mr. Buchanan is also a member of the board of directors, chairman of the capital committee and member of the nominating and governance committee of Piedmont Office Realty Trust, Inc., a real estate investment trust publicly-traded on the NYSE. Mr. Buchanan was appointed to our Board’s Audit Committee in July 2003, Nominating and Governance Committee in November 2003 and Compensation Committee in January 2004.

 

Key Director Qualifications.  Mr. Buchanan is a highly experienced commercial banker who served the real estate and homebuilding sectors. His experience in these areas allows him to provide the Board with both a broad-based and a granular perspective on the homebuilding industry. Mr. Buchanan also brings his experience of serving on the board of a real-estate investment trust, thereby providing the Board with additional perspective on the real-estate industry and serving on a board of directors.

 

MICHAEL W. HEWATT, age 61, director since 2005.  Mr. Hewatt is a certified public accountant performing auditing and tax services as a sole practitioner. He has worked for Hewatt & Associates or its predecessor firms since 1980. From 1971 to 1979, Mr. Hewatt worked in the tax and audit areas at Coopers & Lybrand (currently PricewaterhouseCoopers LLP) and was an audit manager for five years during that period. Mr. Hewatt is a member of the American Institute of Certified Public Accountants, former member of the board of directors of the Texas Society of Certified Public Accountants and former President of the Texas Society of Certified Public Accountants — Fort Worth Chapter. Mr. Hewatt has been a director of D.R. Horton

since 2005 and has been a member of the Audit, Compensation and Nominating and Governance Committees since that time.

 

Key Director Qualifications.  Mr. Hewatt’s extensive experience working as a certified public accountant for a national and local firm enables him to provide to the Board valuable perspective on accounting, auditing and tax matters. The Board values Mr. Hewatt’s accounting experience and perspective as he provides insight in these areas to the Board and its Committees.

 

BOB G. SCOTT, age 72, director since 2007. Mr. Scott has served as a director, secretary and treasurer of Liberty Bancshares, Inc., a privately-held bank in Fort Worth, Texas, since 2007. Mr. Scott is retired from his position as chief financial officer and chief operating officer of Summit Bancshares, Inc., a NASDAQ listed company. He was with Summit Bancshares from 1994 to 2006. Mr. Scott was an insurance consultant for Alexander & Alexander from 1992 to 1994. From 1972 to 1992, he was the controller and treasurer of Texas American Bancshares / Texas American Bank, an NYSE listed company. Mr. Scott was an auditor at Ernst & Ernst (currently Ernst & Young LLP) from 1969 to 1972. Mr. Scott previously was a Captain in the U.S. Air Force. Mr. Scott has been a director of D.R. Horton since 2007 and has been a member of the Audit, Compensation and Nominating and Governance Committees since that time.

 

Key Director Qualifications.  Mr. Scott has extensive experience working in leadership positions in the banking industry. He brings to the Board his perspective as a former chief financial officer and chief operating officer of a publicly-traded bank. Mr. Scott also has in-depth operational experience as a controller and treasurer of a NYSE traded bank, and he has also worked as an auditor for a public accounting firm. The Board also values Mr. Scott’s leadership abilities gained from serving as a director of a local bank and serving as an officer in the U.S. Air Force.

 

DONALD J. TOMNITZ, age 62, director since 1995.  Mr. Tomnitz is Vice Chairman, President and Chief Executive Officer of D.R. Horton. He was a Vice President in charge of various divisions of D.R. Horton from 1983 until he was elected Vice President — Western Region of D.R. Horton in August 1994. From July 1996 until November 1998, Mr. Tomnitz was President of D.R. Horton’s Homebuilding Division; in January 1998 he was elected an Executive Vice President of D.R. Horton; in November 1998 he was elected Vice Chairman and Chief Executive Officer of D.R. Horton; and in March 2000, he became President as well. Mr. Tomnitz previously was a Captain in the U.S. Army, a Vice President of RepublicBank Dallas, N.A., and a Vice President of Crow Development Company, a Trammell Crow company.

 

Key Director Qualifications.  Mr. Tomnitz’s 27 years of extensive experience in the homebuilding industry provides valuable leadership to the Board and to the Company. Mr. Tomnitz has worked closely with Mr. Horton in the homebuilding industry since 1983. Mr. Tomnitz’s experience in key positions throughout the Company allows him to provide valuable perspective to the Board on the Company’s national, regional and local homebuilding operations. Mr. Tomnitz also brings to the Board his experience as a former banker, land developer and Captain in the U.S. Army. The Board believes the combination of these experiences provide valuable insight and perspective to the Board.

 

BILL W. WHEAT, age 44, is an Executive Vice President and the Chief Financial Officer of D.R. Horton, positions he has held since October 2003. Mr. Wheat was a Senior Vice President and Controller from 2000 until 2003. From 1998 until 2000, Mr. Wheat was an Accounting Manager with the Company. From 1991 to 1998, Mr. Wheat held financial planning and assistant controller positions with The Bombay Company. Prior to 1991, Mr. Wheat was an auditor with Price Waterhouse LLP (currently PricewaterhouseCoopers LLP). Mr. Wheat has also served as a member of the Board of Directors of the Company since October 2003. His current term as a director will expire at the 2011 Annual Meeting.

 

STACEY H. DWYER, age 44, is an Executive Vice President and Treasurer of D.R. Horton and is responsible for investor relations. She has been an employee of D.R. Horton since 1991. She was promoted from Assistant Secretary to Assistant Vice President in 1998 and from Assistant Vice President to Executive Vice President in 2000. She also became Treasurer in October 2003. Prior to 1991, Ms. Dwyer was an auditor with Ernst & Young LLP.

 

Our Board of Directors has adopted a number of standards to comply with requirements of the Sarbanes-Oxley Act of 2002, and the final rules of the NYSE and SEC relating to Sarbanes-Oxley and other corporate governance matters. Our Board has adopted the D.R. Horton Corporate Governance Principles, which contain a number of corporate governance initiatives designed to comply with the NYSE listing standards (the “NYSE Rules”), and the rules and regulations of the SEC (the “SEC Rules”) relating to corporate governance. The significant corporate governance initiatives adopted by the Board of Directors are discussed below. The Corporate Governance Principles can be found under the Investors and Corporate Governance links on our website at www.drhorton.com.

 

Qualifications and Characteristics for Directors

 

The Nominating and Governance Committee utilizes a variety of methods for identifying nominees for director, including considering potential director candidates who come to the committee’s attention through current officers, directors, professional search firms, stockholders or other persons. Once a potential nominee has been identified, the Nominating and Governance Committee evaluates whether the nominee has appropriate qualifications and characteristics to become a director in light of the current make-up of the Board of Directors. We do not have a formal or informal diversity policy regarding the selection or qualification of directors. We believe that appropriate director qualifications and characteristics include having directors with diverse backgrounds, education, experiences, expertise and perspectives. These qualifications and characteristics are discussed below.

 

Key Qualifications and Experiences.  As a leading national homebuilding company, we believe certain qualifications and experiences are important to the overall makeup of our Board. We do not require that each director possess each of the qualifications listed below, but rather we look to whether our Board as a whole possesses these qualifications.

 

Real Estate Experience.  We seek to have directors with expertise or key experience in the real estate industry, which includes experience in homebuilding, land development, real estate brokerage and sales, commercial development and leasing, financing and banking in the real estate industry, or experience in analyzing or consulting in these key areas. These key qualifications enable our Board to understand key operational aspects related to our business of running a national homebuilding company.

 

Business, Management, Accounting and Finance Experience.  We seek to have directors with expertise or key experience in business, management, accounting, finance or similar positions. We believe these key qualifications are important to the Board as it oversees risks in the Company’s key functional areas of homebuilding operations, financing and liquidity, financial reporting, internal control and regulatory compliance, and compensation.

 

Strategic Vision and Leadership.  We seek to have directors with expertise or key experiences in positions that require strategic vision, leadership and decision making. We believe directors acquire these key qualifications through experience as executives, managers, entrepreneurs, business owners, directors, consultants, analysts or advisors. We believe these key qualifications are important to the Board, as directors with these attributes provide sound business judgment, leadership and strategic vision to the Board and the Company.

 

The key qualifications possessed by our nominees are discussed under each nominee’s name and profile beginning on page 6.

 

Key Characteristics.  In addition to the key qualifications and experiences discussed above, we also believe each member of the Board of Directors should have the following minimum characteristics:

 

 

 

Ordinarily, directors who serve as chief executive officers or in equivalent positions for other companies should not serve on more than one other board of a public company in addition to the D.R. Horton Board, and other directors should not serve on more than two other boards of public companies in addition to the D.R. Horton Board. Because of the value the Board places on having directors who are knowledgeable about the Company and its operations, neither the Board nor the Nominating and Governance Committee believes that an arbitrary term limit on director service is appropriate.

 

Retirement Age Policy

 

On January 25, 2007, our Board adopted a retirement policy for directors. Under the policy, directors may not stand for reelection after they have reached the age of 75. Directors serving on the Board on January 25, 2007, which include all current directors other than Bob G. Scott, are exempt from this policy.

 

Majority Vote Standard and Resignation Policy

 

The Company’s Bylaws provide that in an uncontested election of directors, a director nominee must receive a majority of the votes cast to be elected. Any director who is not elected is required to tender his or her resignation to the Chairman of the Board within a reasonable time following certification of the vote. Details regarding the majority vote standard and the resignation policy are discussed under “Proposal One — Election of Directors” on page 5.

 

Procedures for Nominating or Recommending for Nomination Candidates for Director

 

Our Bylaws provide, any stockholder may make nominations for the election of directors if notice of such nominations is delivered to, or mailed and received at, the principal executive office of D.R. Horton not later than the close of business on the 90th calendar day or earlier than the close of business on the 120th calendar day prior to the first anniversary of the preceding year’s annual meeting. However, in the event that the date of the annual meeting is changed by more than 30 calendar days from the anniversary date of the preceding year’s meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th calendar day prior to such meeting and not later than the close of business on the later of the 90th calendar day prior to such meeting or the 10th calendar day following the day on which public disclosure of the date of such meeting is made. Such public disclosure is defined to mean a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or a document publicly filed by the Company with the SEC pursuant to Sections 13, 14 or 15(d) of the Exchange Act. In addition, the notice must include information specified in our Bylaws, including information concerning the nominee, the stockholder and the beneficial owner, as the case may be. Because no such nominations have been made in accordance with our Bylaws, only the nominations of the Board of Directors may be voted upon at the 2011 Annual Meeting.

 

In addition, the Nominating and Governance Committee has adopted a policy permitting stockholders to recommend candidates for director for consideration by the committee. The Nominating and Governance Committee will consider candidates recommended by stockholders on the same basis as candidates identified through other means. Stockholders wishing to recommend candidates for election must give notice to the Nominating and Governance Committee by following the same deadlines for notice to submit a nomination outlined in our Bylaws and described above. All recommended candidates shall, at a minimum, possess the characteristics for directors discussed above. Each notice must set forth the same information required by our Bylaws to submit a nomination. The Nominating and Governance Committee may request additional information to assist in the evaluation of the candidacy of such person.

Director Independence

 

Our Board of Directors is comprised of a majority of independent directors in accordance with the NYSE Rules. Our Board made the independence determination of its members based on the “Independence Standards” discussed below.

 

Our Board has adopted a set of “Independence Standards,” consistent with the NYSE Rules, to aid it in determining whether a member of the Board is independent under the NYSE Rules. In accordance with these Independence Standards, a director must not have a direct or indirect material relationship with the Company or its management, other than as a director. The Independence Standards specify the criteria by which the independence of our directors will be determined, including strict guidelines for directors and their immediate family members with respect to past employment or affiliation with the Company, its management or its independent auditor.

 

The Independence Standards are contained in the Corporate Governance Principles set forth on our website under the Investors and Corporate Governance links. These include the following:

 

 

For purposes of these Independence Standards, an “immediate family member” includes a director’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares the director’s home.

Audit Committee Independence, Financial Literacy and Audit Committee Financial Expert

 

In addition to being independent based on the Independence Standards, the NYSE Rules require that each member of an audit committee satisfy additional independence and financial literacy requirements, and at least one of these members must satisfy the additional requirement of having accounting or related financial management expertise. This additional requirement can be satisfied by the Board determining that at least one Audit Committee member is an “audit committee financial expert” within the meaning of the SEC Rules. Accordingly, the Corporate Governance Principles contain a set of standards that relate to audit committee independence, financial literacy and audit committee accounting and financial management expertise. Generally, the additional independence standard provides that (i) a member of the Audit Committee, or his or her immediate family members, are prohibited from receiving any direct or indirect compensation or fee from the Company, its subsidiaries or its affiliates, and (ii) he or she may not be an affiliated person of the Company or any of its subsidiaries. Generally, the financial literacy standard provides that the Board, in its business judgment, shall determine if each member is financially literate, taking into account factors such as the member’s education, experience and ability to read and understand financial statements of public companies. Also, audit committee financial experts must have five additional attributes, which are (i) an understanding of generally accepted accounting principles and financial statements, (ii) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves, (iii) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements, or experience actively supervising one or more persons engaged in such activities, (iv) an understanding of internal control over financial reporting and (v) an understanding of audit committee functions. All together, attributes (i) through (v) are referred to as the “Financial Expert Attributes.” The audit committee financial expert standards are set forth in the Corporate Governance Principles.

 

Board Determinations

 

Based on the independence, financial literacy and financial expert standards discussed above, the Board has determined that Bradley S. Anderson, Michael R. Buchanan, Michael W. Hewatt and Bob G. Scott are (i) independent, for purposes of serving as independent members of the Board of Directors, the Compensation Committee and the Nominating and Governance Committees, (ii) independent, for purposes of serving as independent members on the Audit Committee, and (iii) financially literate, for purposes of serving on the Audit Committee. The Board has also determined, as set forth below, that Mr. Hewatt, Mr. Buchanan and Mr. Scott each have the Financial Expert Attributes described above.

 

Mr. Hewatt. Mr. Hewatt acquired the Financial Expert Attributes primarily through his more than 30 years of experience working as a certified public accountant for Coopers & Lybrand LLP and Hewatt & Associates, CPAs and its predecessor and successor entities, as applicable. Mr. Hewatt’s experience as an auditor provided him active experience in conducting audits and reviewing financial statements. This active accounting experience further developed Mr. Hewatt’s understanding of generally accepted accounting principles and financial statements and his ability to assess the application of such principles in connection with accounting for estimates, accruals and reserves. Mr. Hewatt’s active status as a certified public accountant requires him to stay current on pronouncements and advisory notices issued by accounting, auditing and tax regulatory boards and organizations.

 

During his career as a certified public accountant, Mr. Hewatt has served on various management teams directly responsible for designing and conducting testing procedures on financial statements for compliance with applicable controls and procedures, such as estimates, accruals and reserves, and evaluating related internal control structures. These types of compliance reviews were documented, evaluated and used in forming audit procedures. In connection with certain audits and compliance testing, Mr. Hewatt prepared and issued reports to boards of directors, whereby he gained an understanding of the functioning of boards of directors and related committees. Mr. Hewatt has additional experience in providing management advisory services and providing tax advisory and tax preparation services, which has provided Mr. Hewatt with a strong background in the Internal Revenue Code and in dealing with the Internal Revenue Service.

Mr. Hewatt has worked with clients which include public and private companies, governmental organizations and non-profit organizations.

 

Mr. Buchanan. Mr. Buchanan acquired the Financial Expert Attributes primarily through his experience as a commercial banker in the real estate and homebuilding sectors, including serving as head of Bank of America’s national real estate group. Mr. Buchanan’s responsibilities as a banker required him to analyze and evaluate financial statements in order to make credit and lending decisions. In this regard, he developed significant expertise in understanding the integrity of the financial information used to prepare financial statements and how such information should be used to analyze and evaluate a company’s financial condition and its ability to meet the company’s debt obligations. As head of the national real estate group at Bank of America, Mr. Buchanan also actively supervised others in conducting financial statement and financial condition analysis and evaluation.

 

Mr. Scott. Mr. Scott acquired the Financial Expert Attributes through his more than 32 years of experience in various roles such as a controller and/or chief financial officer of publicly-held companies. Mr. Scott also served on the audit staff of Ernst & Ernst (a predecessor to Ernst & Young LLP) in the years of 1969-1972. Mr. Scott received his license as a Certified Public Accountant in 1970. Mr. Scott’s responsibilities provided him direct experience in preparing, analyzing, evaluating, planning, reviewing and finalizing financial statements and auditing such financial statements for publicly-traded companies. Mr. Scott, in his financial and accounting roles, directed financial systems, reporting, planning, financial controls, strategic planning, mergers and acquisitions and assisted with investor relations. Through Mr. Scott’s direct accounting experience, he developed knowledge and understanding of generally accepted accounting principles and financial statements and the ability to assess the application of such principles in connection with accounting for estimates, accruals and reserves. Mr. Scott, through his accounting experience, has also had direct responsibility for designing and conducting testing procedures on financial statements for compliance with internal controls and procedures. Through Mr. Scott’s experience as a chief financial officer of a publicly-traded company, he gained an understanding of board and audit committee functions through his direct interaction with the board and audit committees.

 

As provided by the safe harbor contained in the SEC Rules, our audit committee financial experts will not be deemed “experts” for any purpose as a result of being so designated. Such designation does not impose on such persons any duties, obligations or liabilities that are greater than the duties, obligations and liabilities imposed on such persons as members of the Audit Committee or the Board of Directors in the absence of such designation, and such designation does not affect the duties, obligations or liabilities of any other member of the Audit Committee or the Board of Directors.

 

The Board also determined that current directors, Messrs. Horton, Tomnitz and Wheat, and director nominees, Messrs. Horton and Tomnitz, are not independent directors because they are executive officers and employees of the Company.

 

Code of Ethical Conduct for the CEO, CFO and Senior Financial Officers

 

In accordance with SEC Rules, the Audit Committee and the Board have adopted the Code of Ethical Conduct for the CEO, CFO and Senior Financial Officers. The Board believes that these individuals must set an exemplary standard of conduct for D.R. Horton, particularly in the areas of accounting, internal accounting control, auditing and finance. The ethics code sets forth ethical standards the designated officers must adhere to and other aspects of accounting, auditing and financial compliance. The full text of the Code of Ethical Conduct for CEO, CFO and Senior Financial Officers has been posted to the Company’s website, and can be found under the Investors and Corporate Governance links. Information relating to any amendment to or waiver of a provision of the Code of Ethical Conduct for the CEO, CFO and Senior Financial Officers will be disclosed on the website within four business days of such amendment or waiver.

 

Corporate Code of Business Conduct and Ethics

 

The Board of Directors has adopted a Corporate Code of Business Conduct and Ethics for employees and directors of D.R. Horton in accordance with the NYSE Rules. The Board adopted the Corporate Code of

Business Conduct and Ethics to provide guidance to the Board and management in areas of ethical business conduct and risk and to provide guidance to employees and directors by helping them to recognize and deal with ethical issues including, but not limited to, (i) conflicts of interest, (ii) corporate opportunities, (iii) confidentiality, (iv) fair dealing, (v) protection of corporate assets, (vi) compliance with rules and regulations, including insider trading of securities, and (vii) confidential reporting of unethical behavior and hotline telephone numbers. The Corporate Code of Business Conduct and Ethics can be found on our website under the Investors and Corporate Governance links.

 

Complaint Procedures For Accounting, Internal Control, Auditing and Financial Matters

 

In accordance with SEC Rules, the Audit Committee has established procedures for (i) the receipt, retention and treatment of complaints regarding accounting, internal control, auditing or financial matters (collectively, “Accounting Matters”) and (ii) the confidential, anonymous submission by employees of concerns regarding questionable Accounting Matters. The Audit Committee oversees treatment of complaints and concerns in this area. The full text of the Complaint Procedures For Accounting, Internal Control, Auditing and Financial Matters has been posted to the Company’s website, and can be found under the Investors and Corporate Governance links.

 

Executive Sessions of the Board of Directors

 

In accordance with the NYSE Rules, the non-management members of the Board of Directors have held and will continue to hold regularly scheduled executive sessions of the non-management directors, each of whom is independent. Michael R. Buchanan, Chairman of the Nominating and Governance Committee, presides at these executive sessions. During fiscal 2010, the non-management directors met four times in executive session, without members of management present.

 

Communications with the Board of Directors

 

Stockholders and other interested parties can communicate with any member of our Board of Directors by sending the communication to the Chairman of the Nominating and Governance Committee, who also serves as the Presiding Director. Currently, Mr. Buchanan serves as chairman of the Nominating and Governance Committee. Send communications to: Presiding Director c/o Chief Legal Officer, D.R. Horton, Inc., 301 Commerce Street, Suite 500, Fort Worth, Texas 76102. Our Chief Legal Officer will review the communications and determine if such communications come within the purview of a Board committee or Board member(s). After such determination, these communications will be promptly forwarded to such Board member(s) or the Presiding Director as applicable. The Presiding Director reports these communications to the Board on a quarterly basis. Further information may be obtained on our website at www.drhorton.com under the Investors and Corporate Governance links.

 

Board Leadership Structure

 

Our Board of Directors operates under the leadership of our executive Chairman of the Board and founder, Mr. Donald R. Horton. Mr. Horton has been executive Chairman of the Board of the Company and its predecessor companies since 1978. We do not have a policy that requires the positions of Chairman of the Board and CEO be separated, but we have had a separate Chairman of the Board and CEO since 1998. We believe the separation of these positions is appropriate at this time as it allows our executive Chairman to focus on overall strategy and vision while leading the Board and the Company in overseeing key risk and management issues facing the Board and the Company. We further believe that Mr. Horton’s extensive experience in the homebuilding industry enables him to provide valuable insight and leadership to both the Board and the Company. Mr. Horton’s role as an executive officer also benefits the Board and the Company as he works with key officers of the Company to implement the Board’s strategies and oversight functions on a daily basis.

We are able to ensure effective corporate governance through our Nominating and Governance Committee which is composed of four independent directors. In addition, our independent directors meet regularly throughout the year in executive session to encourage open communication and discussion among the independent directors without the presence of management and the Presiding Director chairs these meetings. Overall, the Board is composed of four independent directors and three management directors; however, the Board has nominated four independent directors and two management directors for election at the 2011 Annual Meeting to improve the ratio of independent directors to management directors. The Board has designated four primary committees that are responsible for various duties of the Board or its Committees. The four committees of the Board are the Nominating and Governance Committee, Audit Committee, Compensation Committee, and Executive Committee. The Committees of the Board are discussed in more detail under the heading “Committees of the Board” on page 17. These collective measures further ensure our effective corporate governance of the Company.

 

Board’s Role in Risk Oversight

 

Our Board and Board Committees have overall risk oversight responsibility of the Company but do not provide day to day risk management of the Company, which is the responsibility of our key officers and managers. Our Board and Board Committees provide overall risk oversight through quarterly Board and Committee meetings and discussions with key officers and managers of the Company. Key officers and managers also discuss their respective functional areas with the directors at the appropriate Board and Committee meetings during the year. As a result of the manner in which the Board and Committees oversee risk, the Board’s role in risk oversight does not have an effect on the Board’s leadership structure. Risk oversight is reviewed in the following risk areas of the Company:

 

Homebuilding Operations.  Our ability to build and sell homes that meet buyer demand is determined by our ability to control (option contracts), buy and develop (with respect to unfinished land and lots) land and lots in a cost effective manner. As a result, we use substantial financial resources, such as debt and cash, to control, buy and develop land and lots. We control the amount of financial resources used in the land and lot acquisition process through our centralized process, which requires divisional, regional and corporate approval before financial resources are authorized for this purpose. Corporate approval requires approval by corporate legal and accounting and approval by our Chairman, CEO or executive officers. Our chief financial officer, controller and chief legal officer report to the Board the procedures regarding our centralized process of approving and funding land and lot acquisitions. We believe this centralized process controls the risk related to our land and lot acquisitions.

 

Financing and Liquidity.  Due to the downturn in the homebuilding industry our financing and liquidity position may be subject to fluctuations due to uncertain homes sales demand. To oversee financing and liquidity risk, our Board regularly reviews our financing and liquidity position to ensure we maintain the financial resources needed to fund our homebuilding operations and other financing and operating expenses. At each quarterly meeting, management reviews with the directors the financial and liquidity position of the Company. In this regard, short and long-term financing and liquidity is reviewed to monitor our liquidity needs. To further control risk in this area, each year, the Board approves a limit on the amount of debt that may be issued or repurchased and the amount of equity that may be repurchased. Any debt issuance, debt repurchases or equity repurchases above the approved limit must be separately approved by the Board. We believe these procedures provide adequate risk oversight on financing and liquidity matters affecting the Company.

 

Financial Reporting, Internal Control and Regulatory Compliance.

 

Audit Committee Risk Oversight.  The Audit Committee of the Board provides risk oversight with respect to financial reporting, internal control over financial reporting, internal audit and related regulatory compliance matters. Each quarter, our Audit Committee discusses with our independent auditor its review of our interim financial information and, after our fiscal year-end, discusses its audit of our annual consolidated financial statements, including its procedures on internal control over financial reporting.

Also, during the fiscal year, our Audit Committee meets in private session (without the presence of management) with our independent auditor to discuss any matters related to the audit of our annual consolidated financial statements and review of our internal control over financial reporting.

 

Each quarter, our Audit Committee meets with our director of internal audit to review the internal audit of the Company’s operating divisions and other key control areas performed during the quarter. Each year, the Audit Committee reviews and approves internal audit’s internal audit plan for the forthcoming fiscal year. The internal audit plan is designed using a risk-based approach focusing on key risk areas in the Company’s homebuilding operations and other key control areas. During the fiscal year, the Audit Committee meets in private session (without the presence of management) with our internal audit director.

 

Throughout the fiscal year, our Audit Committee has guest speakers present to them on a variety of topics related to recent or anticipated changes to accounting rules and regulations, tax laws and regulations, corporate governance and financial reform rules and regulations. In this regard, the Audit Committee is able to oversee regulatory risk compliance in these areas by discussing with the Company its processes related to the steps it will take to maintain or become compliant with such regulatory matters.

 

Compensation Risk Oversight.  The Compensation Committee provides risk oversight with respect to compensation of the Company’s employees, including the named executive officers and other key officers, with the assistance of the Board. We have reviewed the Company’s compensation policies and practices and believe that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. We believe we have established a short and long-term compensation program that properly incentivizes desired performance and mitigates inappropriate risk-taking. We believe the following compensation components help us achieve this balance of incentivizing performance and mitigating inappropriate risk-taking:

 

 

 

Board Meetings

 

During fiscal 2010, the Board of Directors of D.R. Horton held four meetings and acted three times by written consent. Each director attended all of the Board meetings and at least 94% of the total number of committee meetings on which he served during fiscal 2010. Executive sessions of our non-management directors, all of whom are independent, are regularly held. The sessions are scheduled and chaired by the Chairman of the Nominating and Governance Committee, who also acts as our Presiding Director. Although we do not have a policy with respect to director attendance at our annual meeting of stockholders, the 2010 Annual Meeting was attended by all of our directors.

Committees of the Board

 

The Board of Directors has four committees: the Executive Committee, the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. The Board of Directors has adopted governing Charters for each of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. Each of the Charters of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee is posted on the Company’s website, and can be found under the Investors and Corporate Governance links.

 

Executive Committee

 

The Executive Committee, while the Board is not in session, possesses all of the powers and may carry out all of the duties of the Board of Directors in the management of the business of D.R. Horton which by state or federal law or the NYSE Rules may be delegated to it by the Board of Directors. During fiscal 2010 and currently, the Executive Committee was and is composed of Messrs. Horton, Tomnitz and Wheat.

 

Nominating and Governance Committee

 

The members of the Nominating and Governance Committee are Michael R. Buchanan, Bradley S. Anderson, Michael W. Hewatt and Bob G. Scott, with Mr. Buchanan serving as Chairman. Each committee member has been determined by the Board to be independent in accordance with the NYSE Rules. During fiscal 2010, the Nominating and Governance Committee met three times and took no action by written consent, and each member attended in person or by telephone conference all of the meetings.

 

The Nominating and Governance Committee Charter has been posted to the Company’s website under the Investors and Corporate Governance links. The Nominating and Governance Committee’s primary purpose is to provide assistance to the Board of Directors in fulfilling its responsibility to the stockholders by:

 

 

Compensation Committee

 

The members of the Compensation Committee are Bradley S. Anderson, Michael R. Buchanan, Michael W. Hewatt and Bob G. Scott, with Mr. Anderson serving as Chairman. Each Compensation Committee member has been determined to be independent under the NYSE listing standards, an “outside director” under Section 162(m), and a “non-employee director” under Rule 16b-3 under the Securities Exchange Act. During fiscal 2010, the Compensation Committee met nine times and took no action by written consent, and each member attended in person or by telephone conference 89% or more of the meetings.

 

The Compensation Committee Charter has been posted to the Company’s website under the Investors and Corporate Governance links. The Charter provides that the Compensation Committee shall assist the Board of Directors in discharging its responsibility to the stockholders with respect to the Company’s compensation programs and compensation of the Company’s executive officers.

 

The Compensation Committee Charter also sets forth the responsibilities and duties of the committee regarding reviewing the compensation for the CEO and other executive officers, monitoring incentive and equity-based compensation plans, preparing an annual report on executive compensation and reporting to the Board of Directors.

Audit Committee

 

The members of the Audit Committee of the Board of Directors are Michael W. Hewatt, Bradley S. Anderson, Michael R. Buchanan, and Bob G. Scott, with Mr. Hewatt serving as Chairman. The Audit Committee met six times during fiscal 2010 and took no action by written consent, and each member attended in person or by telephone conference all of the meetings.

 

As discussed under the heading “Corporate Governance Standards” on page 8 of this Proxy Statement, each member of the Audit Committee has been determined by the Board to be “independent” and “financially literate” in accordance with NYSE Rules, the SEC Rules, and the corporate governance and independence standards adopted by the Board. Also, Messrs. Buchanan, Hewatt and Scott each has been determined by the Board to be an “audit committee financial expert” under such rules, regulations and standards as are set forth in the Company’s Corporate Governance Principles posted on our website.

 

The Audit Committee operates pursuant to an Audit Committee Charter, which was approved and adopted by the Board of Directors. A copy of the adopted Audit Committee Charter is posted to the Company’s website under the Investors and Corporate Governance links. The duties and responsibilities of the Audit Committee are set forth in its Charter. The Audit Committee’s primary purposes are to:

 

 

 

 

Further discussion regarding the Audit Committee’s processes and procedures regarding D.R. Horton’s audited consolidated financial statements for the year ended September 30, 2010, and other matters are discussed in the Audit Committee Report set forth on page 60 of this Proxy Statement.

 

Our Board of Directors annually approves compensation and fees paid to our non-management directors, each of whom is listed in the “Director Compensation” table. Traditionally, the Board has strived to set non-management director compensation at a level that pays reasonable cash and equity compensation. We believe that we consistently pay annual non-management director compensation that is within the range of the total compensation paid to non-management directors of companies in our peer group based on data from Salary.com. Our peer group is set forth on page 24.

 

Fees Paid in Cash.  In fiscal 2010, beginning with the January 2010 meetings, each non-management director received $15,000 per Board meeting attended in person or by tele-conference, paid quarterly and not to exceed $60,000 per year. In addition, each non-management director who served on a committee of the Board of Directors received an annual fee of $5,000 per committee paid quarterly, and each non-management director who served as the Chairman of a Committee of the Board of Directors received an annual fee of $2,500 per committee paid quarterly.

 

Stock Options.  When a new non-management director joins our Board, he or she has traditionally been awarded 10,000 stock options. These stock options have an exercise price equal to the closing price of our common stock on the date of approval and grant. Traditionally, these stock options have vested over five years and have a ten-year term. In addition to the initial grant received upon joining the Board, we have awarded stock options to non-management directors at other times that have ranged from one year to five year intervals. The non-management directors received a stock option grant in 2009, and as a result, in fiscal 2010, the Board determined not to award stock options to directors and paid them the fees discussed above and set forth in the “Director Compensation” table.

 

 

 

 

The following table shows the beneficial ownership of the Common Stock of D.R. Horton as of November 10, 2010 by (i) all D.R. Horton directors, (ii) all D.R. Horton executive officers, and (iii) all D.R. Horton directors and executive officers as a group. Unless stated otherwise, the shares are owned directly and the named beneficial owners possess sole voting and investment power with respect to the shares set forth in the table.

 

 

 

 

Based on filings under the Securities Exchange Act of 1934, as amended, available as of November 10, 2010, the only other known beneficial owners of more than 5% of D.R. Horton Common Stock outstanding were the following:

 

 

 

 

Overview

 

Our Compensation Committee has undertaken the design of a fair and competitive compensation program for executive officers that will attract, motivate and retain highly qualified and experienced executives, reward superior performance and provide incentives that are based on performance of the Company. Our executive compensation program consists of several components, including base salaries, cash bonuses, equity awards, deferred compensation plans and retirement benefits. This compensation discussion and analysis provides more information regarding our compensation objectives; the relationship between the components of our compensation program and our objectives; and factors considered by the Compensation Committee in establishing compensation levels for our named executive officers, who are:

 

 

Company Performance

 

The Company is a leader in the U.S. homebuilding industry based on its many short and long-term achievements. These achievements include:

 

 

Executive Compensation Objectives

 

Our primary compensation objectives are to:

 

 

As a leading national homebuilding company, we employ key executives who we believe have delivered strong results in a challenging homebuilding market. Our key executives and officers may encounter other professional opportunities due to the extensive national industry experience gained during their employment with us. As a result, we believe we must provide salaries and total compensation packages that are attractive and competitive in the homebuilding industry. We believe our stockholders’ interests are well-served when we can motivate and retain our key executives so they can use their national homebuilding expertise with us rather than with one of our competitors in the homebuilding or land development business.

 

Our key executives and officers have experience in both up and down cycles in the homebuilding industry. The Compensation Committee considers this type of industry experience to be very valuable in the current volatile and challenging homebuilding market. We believe that to maintain our position as a leader in the homebuilding industry, and to effectively operate through the current down market, the Company must provide executive compensation programs that continually motivate and seek to retain our experienced and talented executives.

 

We also believe it is important to have a significant portion of an executive’s overall compensation tied to his or her total value to the Company. When reviewing an executive’s value, we review factors such as the number of years with the Company, significance of job function, ability to analyze and make decisions on significant business and financial objectives, and the ability to work as an important member of executive management and serve as a leader for our employees. We believe that by placing importance on these qualities, we are aligning individual and corporate performance with the compensation that is ultimately paid for performance. Due to the significant number of years of dedicated service our executives have with us, the Board of Directors and Compensation Committee have chosen not to pursue written employment agreements with our executives. Rather than using fixed employment agreements, we believe our balanced cash and equity compensation program provides us with an effective tool in retaining and motivating our executives.

 

 

Authority and Role of Compensation Committee

 

Our Compensation Committee evaluates performance and approves compensation for our Chairman and our CEO and makes compensation recommendations to the Board with respect to other named executive officers. The Compensation Committee also administers our equity programs, which include awards under our 2006 Stock Incentive Plan and all other compensation plans that are intended to qualify as performance-based. Our equity and compensation plans are discussed under the heading “Incentive Bonus Plans — Approved by Stockholders” on page 33. The duties of the Compensation Committee are summarized under the heading “Compensation Committee” on page 17 and are more fully set forth in the Compensation Committee Charter, which is available on our website at www.drhorton.com under the Investors and Corporate Governance links.

 

Compensation Committee Risk Oversight

 

The Compensation Committee provides risk oversight with respect to compensation of the Company’s employees, including the named executive officers and other key officers, with the assistance of the Board. The Compensation Committee’s risk oversight is discussed in more detail under the heading “Board’s Role in Risk Oversight — Compensation Risk Oversight” on page 15.

 

Role of Chairman and Chief Executive Officer

 

Our Chairman and our CEO review and discuss salary and bonus compensation of our other named executive officers and our Chairman makes recommendations to the Compensation Committee regarding these executive officers. At the request of the Compensation Committee, our Chairman also provides a recommendation concerning the annual base salary and incentive bonus program for our CEO, but not for himself. For other executive officers, our Chairman and our CEO review and discuss the annual base salary and cash bonus compensation, and the Chairman makes recommendations to the Compensation Committee. The Compensation Committee considers these recommendations when making its recommendation to the Board. In addition, our Chairman and our CEO make recommendations for any new executive officers and adjustments in compensation for any other executive officers when required.

Review of Compensation

 

We review the compensation of our executive officers on a regular basis. In fiscal 2010 and the first quarter of fiscal 2011, the Compensation Committee formally met in November and December of 2009 and in January, April, July, September, October, November and December of 2010 to review and discuss compensation matters. In addition, the Compensation Committee Chairman and other members of the Compensation Committee also have discussions with management during the year and occasionally request that management gather market information regarding executive compensation matters for the Committee’s review and consideration. In fiscal 2010, the Compensation Committee Chairman, on behalf of the Compensation Committee, engaged Salary.com and Equilar, both national third-party providers of financial and executive compensation data for the purpose of securing access to their databases of financial and executive compensation data on publicly-traded companies, including our peer group and other public companies within a range of our market capitalization. The scope of Salary.com’s and Equilar’s engagement was limited to providing access to their databases. Salary.com and Equilar did not advise the Compensation Committee on its executive compensation programs or decisions.

 

The Compensation Committee believes it is appropriate to exercise its judgment when reviewing and setting the total mix of compensation related to short and long-term awards and cash and equity awards rather than relying on a set formula or percentage allocation. The Compensation Committee believes an important part of an executive’s value is helping us achieve our business plan in up and down markets. Accordingly, we exercise judgment in determining the mix of compensation we believe to be in line with our business objectives and that we believe to be appropriate for the executive under review in view of his or her industry expertise and role at the Company.

 

Use of Compensation Peer Group Data

 

The Compensation Committee utilizes compensation data of our peer group of publicly-traded homebuilding companies to analyze compensation decisions in light of current market conditions and practices, and to help ensure that our compensation decisions are reasonable in comparison to our peer group and the value of our executives to us. However, the Compensation Committee does not attempt to position compensation at any specified level or ranking within our peer group. In fiscal 2010, the peer group compensation data was compiled by the Compensation Committee Chairman and legal counsel using information from the databases of Salary.com and Equilar. The peer group compensation data reviewed by the Compensation Committee included compensation data and components as disclosed in executive compensation tables in publicly filed proxy statements. The peer group could change from year to year based on the discretion of the Compensation Committee considering factors such as market capitalization, competition in our markets, mergers, consolidations and metrics such as sales, assets, debt, cash flow and equity. For fiscal 2010, our peer group consisted of the publicly-traded homebuilding companies listed below.

 

Peer Group
Beazer Homes USA		NVR, Inc.
Hovnanian Enterprises		Pulte Homes
KB Home		Ryland Group
Lennar Corporation		Standard Pacific
M.D.C. Holdings		Toll Brothers

 

In fiscal 2010 the Compensation Committee took actions on matters related to executive compensation as outlined below. These executive compensation components are discussed in more detail under the referenced headings.

 

Base Salaries — the Compensation Committee set and paid base salaries. See the heading “Base Salaries — Named Executive Officers” on page 25.

 

Annual Incentive Bonuses — the Compensation Committee set annual incentive bonus opportunities based on quarterly pre-tax income, and based on actual pre-tax income results made payouts under these annual incentive bonus awards. See the headings “2010 Fiscal Year — Annual Incentive Bonus Opportunity” on page 26 and “2010 Fiscal Year — Annual Incentive Bonus Results and Payout” on page 27.

 

2008 Performance Units — the Compensation Committee reviewed the 33-month performance results under the terms of the performance units granted in 2008, and based on the final results made a payout on these performance units in common stock. See the heading “2008 Performance Unit Grant — Ranking Results and Vesting at September 30, 2010” on page 28.

 

2012 Performance Restricted Stock Units — the Compensation Committee granted performance restricted stock units that may vest based on performance on four goals over the performance period ending September 30, 2012. See the heading “2010 Fiscal Year — Grant of Performance Restricted Stock Units” on page 30.

 

Discretionary Bonuses — the Compensation Committee and the Board determined and paid discretionary bonuses to Mr. Bill W. Wheat and Ms. Stacey H. Dwyer. See the heading “Other Named Executive Officers — Corporate” on page 32.

 

Base Salaries — Named Executive Officers

 

Base salaries paid to our named executive officers serve to provide a fixed or base level of compensation to our executives. When reviewing and setting an executive’s base salary for fiscal 2010 and 2011, we considered the following factors:

 

 

After taking into consideration the above factors, 2010 and 2011 fiscal year base salaries for our named executive officers are set forth in the table below.

 

		Base Salary
Name		2010				2011
Donald R. Horton		$	1,000,000			$	1,000,000
Donald J. Tomnitz		$	900,000			$	900,000
Bill W. Wheat		$	250,000			$	250,000
Stacey H. Dwyer		$	250,000			$	250,000

The base salaries for Mr. Horton and Mr. Tomnitz were held at the same levels for fiscal 2011 as they were for fiscal 2010. As previously discussed in our proxy statement for last year’s annual meeting, in October 2009, prior to deciding the base salaries for fiscal 2010, the Compensation Committee reviewed the base salary data for the top two paid executive officers for each of the companies in our peer group. The data showed that base salaries ranged from $400,000 to $1,300,000, had an average of $958,872 and had a median of $1,000,000 (data used highest salary reported during the fiscal year of the named executive officer in each peer group company). The Compensation Committee’s analysis showed that the fiscal 2009 base salary of $400,000 for Mr. Horton and $300,000 for Mr. Tomnitz ranked near the bottom of the peer group base salaries. Based on the factors listed on page 25, the significant number of years of homebuilding experience in up and down markets, a review of the base salary peer group data, and considering that the base salaries have been historically well below the peer group average and median, the Compensation Committee elected to increase the base salaries of Mr. Horton and Mr. Tomnitz to $1 million and $900,000, respectively. We believe these salaries are in line with the peer group base salary average and median and reflect our executives’ significant experience in the real estate and homebuilding industry and their significant number of years with the Company. The salary increase for Mr. Horton and Mr. Tomnitz was the first salary increase each has received since fiscal 2001. In awarding the salary increase last year, the Compensation Committee did not assign specific weight to the factors listed above nor did it assign a specific ranking that base salaries should be within the peer group.

 

Because Mr. Wheat and Ms. Dwyer each received a salary increase at the beginning of fiscal 2009, their base salaries were held at the same levels in fiscal 2010 and fiscal 2011. When determining base salaries, the Compensation Committee did not assign specific weight to the factors listed above, did not assign a specific ranking that base salaries should be within the peer group and did not use a percentage or ratio that the base salaries should be in relation to total compensation.

 

2010 Fiscal Year — Annual Incentive Bonus Opportunity

 

Chairman and Chief Executive Officer.  In furtherance of our compensation philosophy to award incentive bonuses based on company performance, during fiscal 2010, Mr. Horton and Mr. Tomnitz each had the opportunity to earn an annual incentive bonus based on a pre-tax income goal under our 2000 Restated Bonus Plan, discussed in more detail on page 33.

 

We believe that Mr. Horton and Mr. Tomnitz should each be equally incentivized to generate positive pre-tax income, which is important to the Company due to the continuing difficulties in the housing market and the overall difficult financial and economic climate. We believe the pre-tax income performance goal focuses our executives on improving important components of quarterly pre-tax income, namely, revenue from home closings and controlling ordinary operating costs such as cost of sales and selling, general and administrative (“sg&a”) costs.

 

“Pre-tax income” means consolidated income before income taxes, as publicly reported by the Company in its consolidated financial statements prepared in accordance with generally accepted accounting principles. The maximum bonus that could be earned in terms of positive pre-tax income was as follows:

 

 

The hurdle or threshold for achieving a pre-tax income bonus was the attainment of positive pre-tax income for the quarter. If no positive pre-tax income was attained, then no bonus would be paid under the performance goal.

The Compensation Committee made the subjective determination to select the 2% maximum on pre-tax income as the maximum bonus under this performance goal for fiscal 2010 based on its determination that if the maximum were paid, the amount would be reasonable in relation to the goal achieved and reasonable in relation to the Company’s goal of containing overall sg&a expense.

 

The 2% maximum is not based on any formulaic methodology. When considering the reasonableness of compensation, we also consider the level of our current sg&a expense in relation to our sg&a expense in prior years and in relation to whether we believe sg&a expense will be competitive with our peer group. Sg&a expense reduction is one of the components that will help increase overall pre-tax income. The Compensation Committee also considered that in certain years prior to the recent housing downturn, the Company had used a 2% maximum which was within the range of percentage maximums used by the Company’s peer group companies who used a similar pre-tax income or earnings goal (percentages of our peers were approximately in the range of 1% to 3% in certain years). In prior years we believe our sg&a expense was competitive with our peers and we believe by using a 2% maximum for fiscal 2010 and going forward, we will be able to continue to incentivize our executives to achieve positive pre-tax income and maintain competitive levels of sg&a expense, both of which we believe align the executive’s interests with those of our stockholders. Because the selection of 2% as the maximum percentage was a subjective determination and not one based on any formulaic method or benchmark other than as described in this paragraph, the Compensation Committee maintains the right to use its discretion in adjusting downward the amount earned before it is paid.

 

For fiscal 2010, we decided to base the performance bonus on the single performance goal of pre-tax income, which is a performance goal we had historically used before the housing downturn. In fiscal 2009, we had three performance goals of adjusted pre-tax income, generation of operating cash flow and sg&a containment. We believed that because we achieved strong results in fiscal 2009 related to operating cash flow and sg&a containment that the 2010 fiscal year focus should be on achieving positive pre-tax income. We believed the performance goal of pre-tax income was an important goal for our executives because it focused them on important pre-tax income components, namely, sales revenue, cost of sales and sg&a expense and interest expense. Another consideration for using a single performance goal for the annual incentive bonus in fiscal 2010 is that we balanced the annual incentive bonus with a potential long-term incentive bonus in the form of performance units awarded in fiscal 2008 and vesting, if at all, as of September 30, 2010. The performance goals on these performance units relate to net sales gains percentage and return on investment and are discussed in more detail under the heading “2008 Performance Unit Grant — Ranking Results and Vesting at September 30, 2010” on page 28. Due to the difficult housing market during the past several years, the Company did not achieve positive pre-tax income in fiscals 2009, 2008 and 2007. At the beginning of fiscal 2010, we believed the housing market would continue to be challenging thereby making it challenging for the Company to achieve positive pre-tax income. We also believed the achievement of positive pre-tax income and returning the Company to profitability is an important factor in creating stockholder value.

 

2010 Fiscal Year — Annual Incentive Bonus Results and Payout

 

Pre-Tax Income — Results.  The table below sets forth the pre-tax income achieved and the resulting bonus earned and paid for fiscal 2010.

 

 

Under the fiscal 2010 pre-tax income bonus award, a total of $1,989,755 in cash was paid to each of Mr. Horton and Mr. Tomnitz. Each quarter, the Compensation Committee reviewed the amount of pre-tax income achieved during the quarter. Prior to paying any performance bonus based on quarterly pre-tax income, the Compensation Committee reviewed the amount of quarterly pre-tax income achieved and the resulting bonus earned. The Compensation Committee then decided whether to pay the bonus earned, if any, at that time or whether to defer the bonus earned to a later period. In fiscal 2010, the Compensation Committee paid the first and second quarterly pre-tax income bonuses after completion of the second fiscal quarter and paid the third quarterly pre-tax income bonus after completion of the fourth quarter. The total potential bonus earned based on 2% of pre-tax income for the four separate quarters was $2,023,448. However, the Compensation Committee used its discretion and reduced this amount to $1,989,755 so that the amount paid did not exceed 2% of pre-tax income calculated on an annual basis rather than on a quarterly basis. This resulted in a total bonus paid of $1,989,755 as set forth in the table on the previous page.

 

2011 Fiscal Year — Annual Incentive Bonus Opportunity

 

The Compensation Committee has decided to implement the same annual incentive bonus opportunity based on two-percent of pre-tax income for Mr. Horton and Mr. Tomnitz for fiscal year 2011.

 

2008 Performance Unit Grant — Ranking Results and Vesting at September 30, 2010

 

In February 2008, the Compensation Committee made an award to Mr. Horton and Mr. Tomnitz of long-term performance units (“Performance Units”) under the 2008 Performance Unit Plan (the “2008 Plan”), discussed on page 34. The target number of Performance Units awarded to Mr. Horton was 300,000 and to Mr. Tomnitz was 200,000. The performance period for the Performance Units was January 1, 2008 to September 30, 2010 (the “Performance Period”). The performance goals established for the Performance Units were relative return on investment (“ROI”) and relative net sales gains percentage (units) (“NSG%”). Final performance on these goals was determined by comparing and ranking the Company’s performance to our peer group’s performance, on the same performance goals of ROI and NSG%. The Company’s peer group consisted of the ten publicly-traded homebuilding companies listed on page 24, except that NVR was not a peer group member in 2008.

 

At the time of grant, the Compensation Committee made the subjective determination to set the target and maximum number of performance units based on its determination at that time that if the target or maximum amount were paid, total compensation would be within the range of total compensation paid to similar executives in the Company’s peer group and would be competitive with the Company’s goal of maintaining reasonable compensation expense, each in relation to the goal level achieved. We further believed in the importance of setting a maximum that was significantly higher than the target to incentivize superior relative performance to the top level on the two performance goals which we believed would lead to better competitive position and the creation of value for our stockholders.

 

In February 2008, when determining the target number we also reviewed the estimated grant date fair value of the target and maximum award and the related estimated annual compensation expense. The Compensation Committee chose to further incentivize the officers by potentially increasing the target up to the maximum, as set forth in the table on the next page under the heading “Potential Performance Adjustments as a Percentage of Target,” in the event that superior performance were achieved on the performance goals relative to our peer group. The Compensation Committee subjectively chose the maximum of two times target to further incentivize performance toward the top performance in the homebuilding industry. When these Performance Units were awarded, the target and maximum amounts were subjective determinations and not based on any formulaic method or benchmark; therefore, prior to paying any amount under this bonus, the Compensation Committee retained the right to use its discretion in adjusting downward the amount earned and paid.

 

The following table sets forth the potential performance adjustments that may be made to the Performance Units based on the final performance rankings of the peer group and us. ROI and NSG% were each weighted 50% of the total target award.

Potential Performance Adjustments as a Percentage of Target

 

 

“ROI” means total annual pre-tax income or loss divided by average total homebuilding assets, over the Performance Period and expressed as a percentage.

 

“NSG%” means the sum of the gross number of home sales contracts less cancellations (net sales) over the Performance Period as a percent of beginning base-line net sales contracts.

 

The following table sets forth the final peer group rankings based on ROI and NSG% for the peer group and us.

 

Final Peer Group Rankings

 

 

 

 

After evaluation of the final peer group rankings and the terms of the Performance Units, the Compensation Committee determined the final results in the table below and made a final payout of 262,500 shares of common stock to Mr. Horton and 175,000 shares of common stock to Mr. Tomnitz. The shares were valued at $11.12, the closing price of our common stock on September 30, 2010.

 

Final Results — Earned and Paid

 

 

The final payout in common stock was based on the 33-month Performance Period, which included periods in our 2008, 2009 and 2010 fiscal years.

 

The only normalization adjustment made was to include the results of discontinued operations for two peer group members in calculating ROI so that all peer group members and the Company were treated consistently. This normalization adjustment did not change the Company’s ranking on the ROI goal.

 

After determining the final results and the full value of the Performance Units earned, the Compensation Committee used its discretion and reduced the full value of the Performance Units earned by fifty percent for each of Mr. Horton and Mr. Tomnitz. In using its discretion to reduce the value of the Performance Units, the Compensation Committee considered the total compensation of each executive, and the Company’s financial and stock price performance during the 33-month Performance Period.

2010 Fiscal Year — Grant of Performance Restricted Stock Units — Potential Vesting in 2012

 

Consistent with our compensation philosophy, we balance our annual or short-term incentive bonus program by providing a long-term incentive bonus program. Under our long-term incentive bonus program, our Chairman and our CEO have the opportunity to earn incentive bonuses based on performance over a period longer than one year. We believe that by awarding a portion of compensation that may be earned over a longer time period, the interests of our executives are aligned with the interests of our stockholders.

 

In fiscal 2010, the Compensation Committee awarded performance restricted stock units (the “Performance RSUs”) to Mr. Horton and Mr. Tomnitz as follows.

 

 

The Performance RSUs will vest, if at all, after the completion of the performance period, which is the period of October 1, 2010 through September 30, 2012 (the “Performance Period”), and based on final performance rankings. The four performance goals are set forth in the table below.

 

 

The four performance goals are relative total shareholder return (“TSR”), relative return on investment (“ROI”), relative selling, general and administrative expense containment (“SG&A”) and relative gross profit (“GP”) (collectively, the “Performance Goals”).

 

 

We chose the TSR goal because TSR takes into account positive and negative movements in our stock price plus dividends paid during the Performance Period. By comparing our TSR to the S&P 500 Index’s TSR, we have a goal that incentivizes achieving a return to our stockholders that is better than a return achieved by a broad-based index of companies. We believe the three goals of ROI, SG&A and GP create important internal operating goal incentives. ROI incentivizes achieving operating homebuilding profitability relative to our total assets which measures our efficiency at using our assets to generate pre-tax income. SG&A incentivizes our executives to focus on controlling selling, general and administrative expenses in a period of uncertain revenues from home sales. GP incentivizes our executives to focus on controlling our home prices, sales incentives, and our costs of sales, which are composed of the costs of land, labor, materials and products used in building our homes. Improvement in our gross margin on home sales increases the proportion of each dollar of revenue available to cover other costs and expenses.

In fiscal 2010, when determining the target number of Performance RSUs we reviewed the estimated grant date fair value of the target award and the related estimated annual compensation expense. The Compensation Committee chose to further incentivize the officers by potentially increasing the target up to the maximum, as set forth in the tables below, in the event that superior performance were achieved on the four Performance Goals. The Compensation Committee subjectively chose the maximum of two times target to further incentivize performance toward the top performance in the homebuilding industry. When these Performance RSUs were awarded, the target and maximum amounts were subjective determinations and not based on any formulaic method or benchmark.

 

The target Performance RSUs may be increased or decreased based on relative performance over the Performance Period as set forth in the tables below.

TSR Portion of Award
(weighted 25% of target award)
Company TSR				Number of
Relative to				Performance
S&P 500 Index TSR		Payout		RSUs Awarded(1)
Percentage Points Below Index:
10 Percentage Points				zero
9 Percentage Points		Threshold		2,500
8 Percentage Points				5,000
7 Percentage Points				7,500
6 Percentage Points				10,000
5 Percentage Points				12,500
4 Percentage Points				15,000
3 Percentage Points				17,500
2 Percentage Points				20,000
1 Percentage Point				22,500
Equal to S&P 500 Index TSR		Target		25,000
Percentage Points Above Index:
1 Percentage Point				27,500
2 Percentage Points				30,000
3 Percentage Points				32,500
4 Percentage Points				35,000
5 Percentage Points				37,500
6 Percentage Points				40,000
7 Percentage Points				42,500
8 Percentage Points				45,000
9 Percentage Points				47,500
10 Percentage Points		Maximum		50,000

ROI and SG&A and GP Portions of Award
(each weighted 25% of target award)
Performance Level				Number of
Compared to				Performance
Peer Group		Payout		RSUs Awarded(2)
11thPlace				zero
10th Place		Threshold		12,500
9th Place				25,000
8th Place				37,500
7th Place				50,000
6th Place				62,500
5th Place		Target		75,000
4th Place				93,750
3rd Place				112,500
2nd Place				131,250
1st Place		Maximum		150,000

(1)		Target number listed is 25% of the total target number of 100,000 and other numbers are 25% of the other possible performance adjustments from the target.
(2)		Target number listed is 75% of the total target number of 100,000 and other numbers are 75% of the other possible performance adjustments from the target.

 

The 100,000 target Performance RSUs may be increased to a maximum of 200,000 upon maximum achievement of each of the four Performance Goals and decreased to a minimum of zero upon minimum achievement of each of the four Performance Goals. Performance and percentages that fall between the target and maximum, and the target and minimum shall be ranked using linear interpolation as set forth in the tables. For the Performance RSUs, the Company’s peer group consists of the ten publicly-traded homebuilding companies listed on page 24, except that Meritage Homes replaced Standard Pacific based on the discretion of the Compensation Committee using factors discussed on page 24. Each Performance RSU represents the contingent right to receive one share of the Company’s common stock if vesting is satisfied. The Performance RSUs have no rights to dividends or voting.

 

Vesting of the TSR Performance Goal will be determined after the Performance Period based on a comparison of the Company’s TSR to the S&P 500 Index’s TSR as computed by Standard and Poor’s using their TSR methodology. Vesting of the ROI, SG&A and GP Performance Goals will be determined after the

Performance Period based on the relative ranking of the Company’s performance on each Performance Goal to each peer group company’s performance on each Performance Goal. Any portion of the Performance RSUs that do not vest due to inadequate relative performance will be forfeited.

 

The hurdle or threshold for achieving a bonus under the TSR goal is to perform no worse than nine percentage points below the S&P 500 Index on TSR because in that event no bonus on that specific goal would be earned. The hurdle or threshold for achieving a bonus under the ROI, SG&A and GP Performance Goals is to perform no worse than tenth place because in that event no bonus on that specific goal would be earned. Additional information on the grant date fair value of the Performance RSUs is set forth in the “Summary Compensation Table” on page 38 and the “Grants of Plan-Based Awards” table on page 40.

 

At the time of grant, the Compensation Committee made the subjective determination to set the target and maximum number of Performance RSUs based on consideration that if the target or maximum amount were paid, total compensation would be within the range of estimated total compensation paid to similar executives in the Company’s peer group over the Performance Period and would be competitive with the Company’s goal of maintaining reasonable compensation expense. We further believed in the importance of setting a maximum that is significantly higher than the target to incentivize superior relative performance to the top level on the four performance goals which we believed would lead to better competitive position and the creation of value for our stockholders.

 

2011 Fiscal Year — Performance Restricted Stock Units — Potential Vesting in 2013

 

During the first quarter of fiscal 2011, the Compensation Committee approved and awarded performance restricted stock units to Mr. Horton and Mr. Tomnitz as follows:

 

 

The performance restricted stock units will vest, if at all, after the completion of the performance period, which is the period of October 1, 2010 through September 30, 2013 and based on final performance rankings that operate in a substantially similar manner to the performance restricted stock units awarded in fiscal 2010, as discussed above in the section “2010 Fiscal Year — Grant of Performance Restricted Stock Units.”

 

Other Named Executive Officers — Corporate.  For fiscal 2010, a discretionary bonus of $400,000 was awarded to each of Bill W. Wheat and Stacey H. Dwyer. At the end of the applicable performance period, which may be a fiscal year, or any period within a fiscal year, the Board of Directors approves discretionary bonuses for Mr. Wheat and Ms. Dwyer. For fiscal 2010, the performance periods were two semi-annual periods during the fiscal year. Each of Mr. Wheat and Ms. Dwyer received $175,000 for the first semi-annual period and $225,000 for the second semi-annual period. The process of awarding discretionary bonuses to Mr. Wheat and Ms. Dwyer includes review and consideration by our Chairman and our CEO, who then make a recommendation to our Compensation Committee. The Compensation Committee then considers the recommendation and makes a recommendation to the Board of Directors. The bonuses recommended by our Chairman and our CEO were not based on quantitative formulas or percentages or numerical weightings, but rather were related to the subjective evaluations of the performance of each officer’s direct or advisory responsibilities in functional areas such as financial reporting, treasury management and financial analysis, as well as the level of retention risk related to the Company’s ability to continue to employ each officer.

 

When considering discretionary bonuses for Mr. Wheat and Ms. Dwyer, we considered each officer’s level of direct responsibility and oversight over functional areas of the Company. Mr. Wheat’s areas of direct responsibilities relate to the effectiveness and integrity of the Company’s financial reporting process, both at corporate and at our regions and divisions, including the effectiveness and integrity of the Company’s financial, internal and disclosure controls and procedures. Mr. Wheat has direct responsibility over these functions in his role as Chief Financial Officer. Ms. Dwyer’s areas of direct responsibility relate to her role as head of investor relations and as treasurer, and her role in performing financial analysis related to our financial performance. In addition, both Mr. Wheat and Ms. Dwyer are responsible for providing oversight and advice

in the following functions of the Company: (i) the financial, capital, credit, treasury, information technology and other corporate management functions, (ii) analysis of and recommendations related to the Company’s operations including asset and inventory acquisitions, dispositions and valuations, (iii) contributions to the development and implementation of the Company’s strategies and (iv) the ability to work within a team of key executives and managers and to manage, develop and effectively work with direct report employees and others throughout the Company. These other functions apply to both Mr. Wheat and to Ms. Dwyer because these functions overlap or are interrelated and involve important financial and management functions of the Company. Our Chairman, our CEO and the Compensation Committee concluded that Mr. Wheat and Ms. Dwyer each performed and managed his or her primary functions and other interrelated functions in an effective manner, and as a result, the bonus recommendations resulted in the same bonus amounts for each of them.

 

The amount of bonus awarded to each of Mr. Wheat and Ms. Dwyer was not benchmarked or tied to any other performance metrics or pay of similar executives at peer companies. The final bonuses were amounts that our Board, Compensation Committee, Chairman and CEO considered to be in line with the Company’s goals of maintaining a low cost structure while allowing the Company to continue to retain each of these executives. The compensation decision processes for Mr. Wheat and Ms. Dwyer are not materially different.

 

Incentive Bonus Plans — Approved by Stockholders

 

We believe that performance-based bonuses should continue to represent a significant portion of the compensation of our Chairman and our CEO. We also believe we should seek to structure our performance-based awards in a manner to be tax deductible under Section 162(m) to the extent reasonably feasible and to the extent that such structure is in line with our operational and financial objectives. The Compensation Committee believes that a balanced executive compensation program is best served by providing compensation plans that allow for a mix and balance of short and long-term compensation components, including (i) a short-term or annual bonus performance plan, (ii) a long-term (more than one year) bonus performance plan, and (iii) a short-term and long-term equity plan. In furtherance of this objective, the Compensation Committee and our stockholders have previously approved three incentive plans:

 

 

The 2000 Restated Plan, the 2006 Stock Incentive Plan and the 2008 Performance Unit Plan were approved by our stockholders on January 31, 2008, January 26, 2006 and January 31, 2008, respectively. The Compensation Committee will continue to evaluate what it believes is an effective use of these three plans.

 

2000 Restated Bonus Plan.  The 2000 Restated Bonus Plan is the primary plan under which our Chairman and our CEO are awarded short-term or annual incentive or performance-based bonuses. We generally intend for awards issued to covered employees under the 2000 Restated Bonus Plan to qualify for the performance-based compensation deduction allowed by Section 162(m). However, there can be no assurance that these awards will satisfy the requirements for deductibility under Section 162(m), and the Company and the Compensation Committee reserve the right to pay bonuses outside of this plan.

 

2006 Stock Incentive Plan.  We use our 2006 Stock Incentive Plan to issue stock options and other equity based awards. We believe that stock options provide an important link between the performance of our employees and creation of stockholder value primarily because the stock options only have value if the stock price increases from the date of grant. Since 2000, the Compensation Committee has traditionally awarded stock options to its executive officers in twelve to twenty-four month intervals, primarily because of the other incentive bonus awards being received by executives during this time frame. Consistent with this practice, the executive officers were not granted stock options in fiscal 2010 and were last granted stock options in February 2009. The Compensation Committee will continue to evaluate when to make equity awards to its executives and other employees, which may be more frequent than in the past, based on the total mix of compensation for the executives and other factors. Generally, when the Compensation Committee decides to

grant equity awards to executive officers, in determining the number of equity awards to grant and the other material terms of the equity grants, the Compensation Committee makes a subjective evaluation of:

 

 

We do not have a program, plan or practice in place to time the grant of stock options or other equity awards in coordination with the release of material non-public information.

 

We will continue to evaluate the type and mix of equity awards to be awarded to our executives and other employees in the future. Restricted stock, restricted stock units, stock options and stock appreciation rights are among the types of equity awards to be considered in the future and may be awarded under our 2006 Stock Incentive Plan. When considering whether to issue restricted stock (including restricted stock units) or stock options (including stock appreciation rights), the Compensation Committee will review the following factors (in addition to the previously listed factors):

 

 

The Compensation Committee believes that both restricted stock and stock options should be available alternatives when considering equity awards. Restricted stock is believed to provide a strong retention incentive in an uncertain market, providing compensation in periods where there is volatility in the stock price, and resulting in fewer shares outstanding compared to the exercise of stock options. Stock options also have unique and valuable features to our company and our employees because of the potential for strong returns if the stock price increases and the ability of the recipient to defer paying the exercise price and related taxes until the stock options are exercised. The Compensation Committee has not made definitive decisions regarding the awarding of equity awards in our 2011 fiscal year, but it will continue to evaluate making such equity awards during the current fiscal year.

 

2008 Performance Unit Plan.  The purpose of the 2008 Plan is to provide the Company another means of granting executive compensation that is aligned with long-term performance goals and criteria, while at the same time aligning the interests of management with those of stockholders and maximizing the tax deductibility of the compensation under Section 162(m). The 2008 Plan allows the Compensation Committee to grant incentive awards denominated in performance units. Each performance unit awarded under the 2008 Plan has a dollar value on any given date equal to the fair market value (closing stock price) of the Company’s common stock on that date. In general, at the time of approval the Compensation Committee will determine the target number of performance units subject to an award, with the maximum amount payable under the award equal to two times the target number of units. The 2008 Plan also establishes performance-based criteria that the Compensation Committee may select in awarding performance-based bonuses to the participants under this plan. The Compensation Committee did not make any awards in fiscal 2010, and has not made any awards in fiscal 2011, under the 2008 Plan.

 

Compliance with Internal Revenue Code Section 162(m)

 

When reviewing and setting compensation awards to our executives, we consider the tax deductibility of their compensation under Section 162(m). Section 162(m) generally does not allow a tax deduction to publicly-held companies for compensation over $1 million paid for any fiscal year to the company’s named executive officers (other than the chief financial officer). However, Section 162(m) exempts qualified

performance-based compensation from this $1 million limit if certain requirements are met. We generally intend for awards to our executive officers under the 2000 Restated Bonus Plan, the 2006 Stock Incentive Plan and the 2008 Plan to qualify for the performance-based compensation exemption under Section 162(m). However, we exercise judgment and may award compensation that does not qualify for tax deductibility under Section 162(m) to meet corporate objectives or to adapt to changing circumstances. Accordingly, the Board of Directors and the Compensation Committee may award non-deductible compensation to our executive officers as the Board and Committee deem appropriate.

 

Retirement Benefits

 

Our executive officers do not participate in any qualified pension plans or defined benefit plans, but they do participate in the retirement plans below. We believe that it is important to offer these retirement plans to our executive officers as part of a competitive long-term compensation program that encourages saving for retirement and that promotes long-term retention.

 

Profit Sharing Plus Plan (“401(k) plan”).  Our executive officers participate in our Company-wide 401(k) plan. Under this plan, executive officers, like all other eligible employees, may contribute from 1% to 75%, on a pre-tax basis, of their earnings into the 401(k) plan. For 2010, the maximum that could be contributed was $16,500 ($22,000 for participants 50 years or older). The Company makes a matching contribution to the participant’s account in an amount of $0.50 for each $1.00 contributed by the participant up to 6% of his or her salary. The matching contributions made by the Company on behalf of the executive officers are listed in the “All Other Compensation” column in the “Summary Compensation Table” on page 38.

 

Deferred Compensation Plan.  The Company established the D.R. Horton Deferred Compensation Plan (the “Deferred Compensation Plan”), effective as of June 15, 2002 and amended and restated it on December 10, 2008. The Deferred Compensation Plan is a nonqualified deferred compensation plan maintained primarily to provide deferred compensation benefits for a select group of “management or highly compensated employees” as defined by the Employee Retirement Income Security Act of 1974, as amended. The Deferred Compensation Plan, as amended and restated, was adopted and approved by the Compensation Committee and ratified by the Board of Directors.

SERP 2.  The Supplemental Executive Retirement Plan 2 (“SERP 2”), as amended and restated December 10, 2008, a nonqualified plan, was originally adopted by the Company in 1994 to permit eligible participants, which include our executive officers, regional presidents, division presidents and other selected employees, to accrue supplemental Company-funded benefits payable upon retirement, separation of service, death or disability.

 

In fiscal 2010, in connection with our oversight of risk related to compensation of our named executive officers, we determined that an appropriate compensation package should include a reasonable amount of fixed compensation, such as salary and retirement compensation. We believe that this mitigates inappropriate risk taking because the executive can count on a certain level of fixed compensation. In this regard, in fiscal 2010, the Compensation Committee reviewed the amounts listed in the column titled “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” in the “Summary Compensation Table” on page 38. For the Company, these amounts represent the above-market portion of earnings on outstanding SERP 2 balances for the named executive officers. As part of this analysis, we reviewed peer group data compiled from Salary.com related to the dollar amounts disclosed in the same column titled “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” in the Summary Compensation Tables of each of our peer group members from their most recently filed proxy statements. The dollar amounts listed ranged from zero to approximately $4,000,000. The 25th percentile was approximately $28,000, the median or 50th percentile was approximately $475,000 and the maximum or 100th percentile was approximately $4,000,000. For fiscal 2010, the amount for our Chairman was $61,718 and the amount for our CEO was $44,828. These amounts ranked below the 50th percentile of approximately $475,000 and above the 25th percentile of approximately $28,000, for our peer group. We believe the amounts accrued for above-market earnings on SERP 2 balances are reasonable when compared to the amounts listed in the same column by our peer group and reasonable when considered in relation to the total compensation packages offered to our named executive officers. Also, we considered other factors such as the Company does not provide our named executive officers with employment agreements or severance agreements or other forms of guaranteed retirement benefits, other than the 401(k) matching contribution discussed above. As a result, our SERP 2 program continues to serve as a useful and reasonable fixed compensation component of our overall compensation package.

 

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based on our review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference in the Annual Report on Form 10-K of D.R. Horton, Inc. for the fiscal year ended September 30, 2010 filed with the Securities and Exchange Commission.

 

COMPENSATION COMMITTEE:

 

Bradley S. Anderson, Committee Chairman

 

Michael R. Buchanan

 

Michael W. Hewatt

 

Bob G. Scott

 

The Compensation Committee Report does not constitute soliciting material, and shall not be deemed to be filed or incorporated by reference into any other company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the company specifically incorporates the Compensation Committee Report by reference therein.

 

The following tables show, with respect to our Chief Executive Officer, our Chief Financial Officer and our other named executive officers of D.R. Horton, the compensation awarded, earned or paid for all services rendered in all capacities to D.R. Horton during our fiscal years ended September 30, 2010, 2009 and 2008.

 

 

 

 

 

 

 

 

The following table shows information about outstanding equity awards at September 30, 2010.

 

 

 

 

 

The following table shows information about option exercises and stock vested during our fiscal year ended September 30, 2010.

 

 

 

 

D.R. Horton has established the following nonqualified deferred compensation plans:

 

Deferred Compensation Plan.  The Deferred Compensation Plan permits participants, including D.R. Horton’s directors, to voluntarily defer receipt of up to 100% of bonus or director fee compensation from D.R. Horton and up to 90% of base salary from D.R. Horton. Amounts deferred are invested on behalf of the participant in investment vehicles selected from time to time by the administrators of the Deferred Compensation Plan. The participants earn a rate of return on their deferred amounts based on their selection from a variety of independently managed funds. The Company does not provide a guaranteed rate of return on these deferred amounts. The rate of return realized depends on the participant’s fund selections and market performance of these funds. Upon his or her annual election, a participant’s Deferred Compensation Plan benefit will be paid, or commence to be paid, upon separation from service or on a fixed date. Specified employees, as defined in Code Section 409A, generally cannot be paid until six months after separation from service (or, if earlier, upon a change in control.) Payment may also be made upon death, disability or an unforeseeable emergency. Payments are made in a lump sum unless installments are elected. Amounts payable under the plan are not secured or held in trust, and the plan participants’ rights to enforce payment are the same as a general unsecured creditor. However, upon a change in control (as defined in the Deferred Compensation Plan), all plan benefits will be fully funded through an irrevocable grantor trust (also known as a “Rabbi trust”). The participants, at their election, may choose to have the deferred amounts paid out through scheduled in-service distributions (in a lump sum or annual installments of between two and five years) or following the later of termination of employment or director service or attaining the age of 62. The Deferred Compensation Plan was adopted and approved by the Compensation Committee and ratified by the Board of Directors.

 

SERP 2.  Unlike the Deferred Compensation Plan, these are not elective deferrals, but rather the Company credits employer allocations to participants’ accounts. Messrs. Horton’s and Tomnitz’s participation in SERP 2 is considered by the Compensation Committee annually at the beginning of the fiscal year. Pursuant to SERP 2, if the executive is employed by the Company on the last day of a fiscal year, then the Company will establish a liability to such officer equal to 10% of his or her annual base salary as of the first day of such fiscal year. This liability will accrue earnings in future years at a rate established by the administrative committee for the SERP 2. Amounts payable under the SERP 2 are not secured or held in trust, and the plan participants’ rights to enforce payment are the same as a general unsecured creditor. A participant’s SERP 2 benefit will be paid or commence to be paid upon separation from service, or if earlier,

upon a change in control (as defined in the SERP 2). Specified employees, as defined in Code Section 409A, generally cannot be paid until six months after separation from service (or, if earlier, upon a change in control). Amounts deferred under the SERP 2 are payable within 60 days following the termination of employment of the participant, the death or disability of the participant or a change in control of the company (the definition of change in control is described in “Potential Payments Upon Termination or Change in Control” on page 44). The form of distribution may be in a lump sum, or in quarterly installments over a period not to exceed five years, as elected by the participant.

 

The following table shows, for each named executive officer, aggregate contributions, earnings and withdrawals/distributions during our 2010 fiscal year and outstanding balances as of September 30, 2010 under all of our nonqualified deferred compensation plans.

Nonqualified Deferred Compensation