NVR: Excessive option grant to Executive Chair
Annual Meeting: May 2
The total compensation of NVR’s Executive Chairman, Paul Saville, increased by 980% last year – from $4,162,400 to $42,887,000 -- perhaps the largest percentage change in compensation we’ve seen. There are two factors that mitigate concern regarding the significant increase in compensation a bit: that prior compensation was relatively modest by S&P 500 standards and the fact that a large portion of the increase came from a stock grant that is a portion of compensation every four years. The proxy statement acknowledges, “We understand that issuing periodic block equity grants instead of annual equity grants results in the compensation for named executives appearing uneven in the Summary Compensation Table, with four years of equity compensation being disclosed in the year of the grant and no equity compensation being disclosed in the remaining years.”
Thus, the company suggests the grant of 27,500 shares, half of them time-based and half performance-based worth of $38,952,650 should be evaluated over the four year time period between grants. A closer look at the compensation package raised concerns about why Saville would need such a lucrative award, however.
While shareholders generally prefer to see the roles of Chairman and CEO to be separate, the preference is to have an independent director serve as Chair. It is not to have a position created for a retiring CEO, as seems to be partially the case here. Saville joined the company in 1981 and was President and CEO from 2005 to 2022. He assumed the position of executive chair in 2022.
He has thus had more than sufficient time to align his interests with those of shareholders. The latest proxy statement states that he owns 210,378 shares of NVR, or 6.3%. Saville has deferred compensation valued at $488,393,808. Thus, this award seems unnecessary for motivation or retention.
Saville already has an employment agreement that provides for an unusual post-employment benefit: 200% of base salary and any accrued pro-rated annual bonus (assuming that 100% of the target bonus would have been paid for that year) for situations including “voluntary with good reason.” In other words, if health concerns require him to retire he already gets a significant payout.
Finally, we note that Saville’s base salary was increased by 5%, from $2,100,000 to $2,205,000 effective April 1, 2022. This puts his salary significantly higher than most S&P 500 CEOs.
Thus, the total compensation package is excessive.