PULTE HOMES, INC.

 

100 Bloomfield Hills Parkway, Suite 300

Bloomfield Hills, Michigan 48304

 

NOTICE OF 2008 ANNUAL MEETING OF SHAREHOLDERS

 

Dear Shareholder:

 

We will hold our annual meeting of shareholders at The Community House, 380 South Bates Street, Birmingham, Michigan, on Thursday, May 15, 2008, at 8:30 a.m., Eastern Time. At this meeting, shareholders will vote on:

 

 

You can vote if you were a shareholder of record at the close of business on March 18, 2008. You may vote by internet, telephone, written proxy or written ballot at the meeting.

 

This proxy statement and the enclosed form of proxy, as well as our 2007 annual report, are first being mailed to shareholders beginning on April 7, 2008. We encourage you to sign and return the accompanying proxy card in the enclosed envelope or instruct us via the internet or by telephone as to how you would like your shares voted.

 

By Order of the Board of Directors

 

STEVEN M. COOK

Vice President, General Counsel

and Secretary

 

Bloomfield Hills, Michigan

April 7, 2008

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 15, 2008.

 

The Company’s Proxy Statement for the 2008 Annual Meeting of Shareholders and the Annual Report to Shareholders for the fiscal year ended December 31, 2007 are available at:
http://phx.corporate-ir.net/phoenix.zhtml?c=77968&p=irol-disclaimerHome

 

PROXY STATEMENT

 

The Board of Directors is soliciting proxies to be used at the annual meeting of shareholders to be held on Thursday, May 15, 2008, beginning at 8:30 a.m., Eastern Time, at The Community House, 380 South Bates Street, Birmingham, Michigan. This proxy statement and the enclosed form of proxy are first being mailed to shareholders beginning April 7, 2008.

 

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIAL AND THE ANNUAL MEETING:

 

What am I voting on?

 

You are voting on nine proposals:

 

 

What are the voting recommendations of the Board?

 

The Board recommends the following votes:

 

 

 

Will any other matter be voted on?

 

We are not aware of any other matters on which you will be asked to vote at the meeting. If you have completed and mailed your proxy card and any other matter is properly brought before the meeting, William J. Pulte and Richard J. Dugas, Jr., acting as your proxies, will vote for you in their discretion.

 

How do I vote my shares?

 

If you are a shareholder of record as of the close of business on March 18, 2008 (the record date), you can give a proxy to be voted at the meeting either:

 

 

If you complete and mail in your proxy card, your shares will be voted as you indicate. If you do not indicate your voting preferences, William J. Pulte and Richard J. Dugas, Jr., acting as your proxies, will vote your shares FOR Items 1, 2 and 3 and AGAINST Items 4, 5, 6, 7, 8 and 9.

 

The telephone and internet voting procedures have been set up for your convenience and have been designed to authenticate your identity, to allow you to give voting instructions and to confirm that those instructions have been recorded properly. If you are a shareholder of record and you would like to vote by telephone or by using the internet, please refer to the instructions on the enclosed proxy card.

 

If you hold your shares in “street name,” you must vote your shares in the manner prescribed by your broker or nominee. Your broker or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee on how to vote your shares.

 

What is the difference between a shareholder of record and a “street name” holder?

 

If your shares are registered directly in your name with Computershare Trust Company, N.A. (“Computershare”), the Company’s stock transfer agent, you are considered the shareholder of record with respect to those shares.

 

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of these shares, and your shares are held in “street name.”

Can I change my vote?

 

Yes. You can change your vote or revoke your proxy before the meeting in any of three ways:

 

 

What percentage of the vote is required for a proposal to be approved?

 

The five director nominees receiving the greatest number of votes will be elected. The service of such directors will be subject to the Corporate Governance Guidelines of the Company. The approval of the Pulte Homes, Inc. 2008 Senior Management Incentive Plan, the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm and the shareholder proposals each require the affirmative vote of a majority of the votes cast at the meeting.

 

Who will count the vote?

 

Computershare will act as the independent tabulator to receive and tabulate the proxies and as the independent inspector of election to certify the results.

 

What does it mean if I get more than one proxy card?

 

It means your shares are held in more than one account. You should vote the shares on all your proxy cards. To provide better shareholder service, we encourage you to have all your shares registered in the same name and address. You may do this by contacting our transfer agent, Computershare, by phone at (877) 282-1168, by mail at Computershare Trust Company, N.A., P.O. Box 43078, Providence, Rhode Island 02940-3078, or via the internet at www.computershare.com.

 

Who can attend the annual meeting?

 

All shareholders of record as of the close of business on March 18, 2008 can attend. Registration will begin at 8:00 a.m., Eastern Time. Institutional or entity shareholders are allowed to bring up to two representatives. Attendance at the meeting will be on a first-come, first-served basis, upon arrival at the meeting.

 

What do I need to do to attend the annual meeting?

 

You should plan to arrive at The Community House at 380 South Bates Street, Birmingham, Michigan, on Thursday, May 15, 2008 by 8:00 a.m., Eastern Time. Upon your arrival, please follow the signs to the registration desk where you will register for the meeting.

 

An admission ticket (or other proof of stock ownership) and a government-issued photo identification (such as a valid driver’s license or passport) will be required for admission to the annual meeting. Representatives of Pulte will be present at the registration desk to review and determine the validity of such documentation. Only shareholders who own Pulte common shares as of the close of business on March 18, 2008 will be entitled to attend the meeting. An

admission ticket or recent bank or brokerage statement will serve as verification of your ownership.

 

 

No cameras, recording devices or large packages will be permitted in the meeting room.

 

What is the quorum requirement of the annual meeting?

 

A majority of the 257,369,247 shares outstanding on March 18, 2008 constitutes a quorum for voting at the meeting. If you vote, your shares will be part of the quorum.

 

How will abstentions be treated?

 

Abstentions will be counted as shares present at the meeting for purposes of determining whether a quorum exists. You may not abstain with respect to the election of directors. With respect to the proposals to approve the Pulte Homes, Inc. 2008 Senior Management Incentive Plan and to ratify the appointment of Ernst & Young LLP and with respect to the shareholder proposals, an abstention will not be counted as a vote cast and therefore will have no effect on whether the proposal is approved.

 

How will broker non-votes be treated?

 

A broker non-vote occurs when a broker cannot vote on a matter because the broker has not received instructions from the beneficial owner and lacks discretionary voting authority with respect to that matter. Broker non-votes will be treated in the same manner, and have the same effect, as abstentions.

 

BENEFICIAL SECURITY OWNERSHIP

 

The table below shows the number of our common shares beneficially owned as of March 18, 2008 by each of our nominees for Director, Directors and Executive Officers named in the Summary Compensation Table, as well as the number of shares beneficially owned by all of our Directors and Executive Officers as a group. The table also includes information about stock options exercisable within 60 days after March 18, 2008, restricted shares, and Pulte common shares held in our 401(k) Plan.

 

 

 

Notes:

 

 

 

Beneficial Ownership of Significant Shareholders

 

The following table provides information regarding security holders that own more than 5% of all outstanding Pulte common shares:

 

 

Notes:

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Our directors and executive officers file reports with the SEC indicating the number of our common shares that they beneficially owned when they became a director or executive officer and, after that, any changes in their beneficial ownership of our common shares. They must also provide us with copies of these reports. These reports are required by Section 16(a) of the Securities Exchange Act of 1934, as amended. We have reviewed the copies of these reports that we have received and have also received and reviewed written representations of the accuracy of these reports from these individuals.

 

Based on these reports and representations, Pulte believes that during 2007 our directors and executive officers complied with all Section 16(a) reporting requirements, except that Francis J. Sehn, a member of our board of directors, filed a late Form 5 with respect to two separate transfers of Pulte common shares to a trust established for the benefit of his wife.

 

PROPOSAL ONE

 

ELECTION OF DIRECTORS

 

Our Articles of Incorporation require that we have at least three, but no more than 15, directors. The exact number of directors is set by the Board and is currently 12. The Board is divided into three classes of directors who have overlapping three year terms. Three current directors, William B. Smith, Brian P. Anderson and Patrick J. O’Leary, have terms expiring at the 2008 annual meeting and are being nominated for re-election to serve three year terms to expire in 2011. These three nominees have each agreed to serve the additional term for which they have been nominated, if elected. The terms of D. Kent Anderson and John J. Shea are also expiring at the 2008 annual meeting; however, Messrs. Anderson and Shea have decided not to run for re-election. Two nominees with no prior service to Pulte are being nominated by the Board to fill the vacancies left by Messrs. Anderson and Shea. Of these two nominees, Richard G. Wolford is being nominated to serve a one year term to expire in 2009, and Cheryl W. Grisé is being nominated to serve a three year term to expire in 2011. Richard G. Wolford and Cheryl W. Grisé were both recommended to the Nominating and Governance Committee by Spencer Stuart, a third-party search firm. The Company paid Spencer Stuart $250,000 in fees for its services. Please see below for a description of the occupations and recent business experience of the two new director nominees, along with descriptions with respect to all current director nominees and continuing directors.

 

The Corporate Governance Guidelines of the Company provide that any nominee for director who, in an uncontested election receives a greater number of votes “withheld” from his or her election than votes “for” his or her election at the annual meeting (“Majority Withheld Vote”) will promptly tender his or her resignation from the Board. The Nominating and Governance Committee, which is comprised exclusively of independent directors, will consider the resignation and recommend to the Board whether to accept the tendered resignation or reject it. The Board will act upon the Nominating and Governance Committee’s recommendation no later than the Board’s first regularly scheduled meeting following certification of the Majority Withheld Vote. The action taken by the Board will be publicly disclosed in a report filed with the SEC and may include, without limitation, acceptance or rejection of the tendered resignation or adoption of measures designed to address the issues underlying the Majority Withheld Vote. The foregoing description is qualified in its entirety by reference to our Corporate Governance Guidelines, which are available for viewing on our website at www.pulte.com.

Nominee to Serve a One Year Term Expiring at the 2009 Annual Meeting

 

Richard G. Wolford

 

 

The Board of Directors recommends a vote “FOR” the election of this nominee.

 

Nominees to Serve a Three Year Term Expiring at the 2011 Annual Meeting

 

Cheryl W. Grisé

 

William B. Smith

 

Brian P. Anderson

 

Patrick J. O’Leary

 

 

The Board of Directors recommends a vote “FOR” the election of these four nominees.

 

Directors Continuing to Serve a Three Year Term Expiring at the 2009 Annual Meeting

 

Debra J. Kelly-Ennis

 

Bernard W. Reznicek

 

Alan E. Schwartz

 

Directors Continuing to Serve a Three Year Term Expiring at the 2010 Annual Meeting

 

William J. Pulte

 

 

Richard J. Dugas, Jr.

 

David N. McCammon

 

Francis J. Sehn

 

 

If a nominee is unable to stand for election, the Board may reduce the number of directors or choose a substitute. If the Board chooses a substitute, shares represented by proxies will be voted for the substitute. If a director retires, resigns, dies, or is unable to serve for any reason, the Board may reduce the number of directors or appoint a new director to fill the vacancy. The new director would serve until the next annual meeting.

 

Independence

 

Under the Company’s Corporate Governance Guidelines, a substantial majority of the members of our Board of Directors must be independent. The Board of Directors has adopted categorical independence standards to assist the Nominating and Governance Committee in determining director independence, which standards either meet or exceed the independence requirements of the New York Stock Exchange’s (“NYSE”) corporate governance standards. Under these standards, no director can qualify as independent unless (i) the Board affirmatively determines that the director has no material relationship with the Company directly or as an officer, shareholder or partner of an organization that has a relationship with the Company, and (ii) the director meets the following categorical standards:

 

 

 

The Board considered all relevant facts and circumstances in assessing director independence and affirmatively determined that Brian P. Anderson, Debra J. Kelly-Ennis, Cheryl W. Grisé, David N. McCammon, Patrick J. O’Leary, Bernard W. Reznicek, Francis J. Sehn, William B. Smith and Richard G. Wolford are independent within the meaning of the Company’s categorical standards and the NYSE listing standards. The Board also considered all relevant facts and circumstances in assessing the director independence of D. Kent Anderson and John J. Shea, who are not running for re-election to serve on the Board, and affirmatively determined that Messrs. Anderson and Shea are also independent within the meaning of the Company’s categorical standards and the NYSE listing standards. The Board further determined that William J. Pulte and Richard J. Dugas, Jr., who are Pulte employees, and Alan E. Schwartz, who is a partner with Honigman Miller Schwartz and Cohn LLP, which provides legal services to Pulte and its subsidiaries, are not independent within the meaning of the Company’s categorical standards and the NYSE listing standards.

 

COMMITTEES OF THE BOARD OF DIRECTORS

 

The Board has four standing committees to facilitate and assist the Board in the execution of its responsibilities. The committees are currently the Audit Committee, Compensation Committee, Nominating and Governance Committee and Finance Committee. Charters for the Audit Committee, Compensation Committee, Nominating and Governance Committee are available on the Company’s website at www.pulte.com. The table below shows current membership for each of the standing Board committees.

 

 

 

Audit Committee

 

The Audit Committee met 13 times in 2007. The Committee represents and assists the Board with the oversight of: the integrity of the Company’s financial statements and internal controls, the Company’s compliance with legal and regulatory requirements, the independent auditors’ qualifications and independence, the performance of the Company’s internal audit function and the independent auditor.

 

The Audit Committee is also responsible for selecting (subject to ratification by our shareholders) the independent auditor as well as setting the compensation for and overseeing the work of the independent auditor and pre-approving all audit services to be provided by the independent auditor. Brian P. Anderson currently serves on the audit committee of more than three public companies. The Board of Directors has determined that Mr. Anderson’s simultaneous service on the audit committees of more than three public companies will not impair his ability to serve effectively on the Company’s Audit Committee. The Board of Directors has determined that each of the members of the Audit Committee is independent within the meaning of the Company’s categorical standards and the NYSE rules and financially literate as defined by the NYSE rules, and that David N. McCammon, Bernard W. Reznicek, Brian P. Anderson and Patrick J. O’Leary are audit committee financial experts for purposes of the SEC’s rules.

 

Compensation Committee

 

The Compensation Committee met ten times in 2007. The Compensation Committee is responsible for the review, approval and administration of the compensation and benefit programs for the Chief Executive Officer and the other named executive officers. It also reviews and makes recommendations regarding the Company’s incentive plans and certain other compensation plans. The Board of Directors has determined that each of the members of the Compensation Committee is independent within the meaning of the Company’s categorical standards and the NYSE rules.

 

The Compensation Committee meets regularly in person and via teleconference to discharge its duties and responsibilities. Mr. Bernard W. Reznicek is the Chair of the Compensation Committee. Mr. Reznicek works with Mr. James R. Ellinghausen, the Company’s Executive Vice President, Human Resources, to establish meeting agendas and determine whether any members of Pulte’s management or outside advisors should attend meetings. The Compensation Committee also meets regularly in executive session. At various times during the year at the request of the Compensation Committee, Mr. Steven C. Petruska, our Executive Vice President and Chief Operating Officer and Mr. Roger A. Cregg, our Executive Vice President and Chief Financial Officer, may attend Compensation Committee meetings, or portions of Compensation Committee meetings, to provide the Compensation Committee with information regarding the Company’s operational performance, financial performance, or other topics requested by the Compensation Committee.

 

The Chief Executive Officer, Mr. Richard J. Dugas, annually reviews the performance of each member of senior management (other than the Chief Executive Officer and the Chairman of the Board, whose performance is reviewed by the Compensation Committee). Recommendations based on these reviews, including salary adjustments, annual bonuses and equity grants, are presented to the Compensation Committee. All decisions for 2007 made with respect to Messrs. Petruska and Cregg and Mr. Peter J. Keane, our Senior Vice President of Operations, were made after deliberation with, and concurrence by, Mr. Dugas. Decisions regarding salary

adjustments, annual bonuses and equity grants for the Chief Executive Officer and the Chairman of the Board are made by the Compensation Committee.

 

The Compensation Committee receives and reviews materials in advance of each meeting provided by the Compensation Committee’s consultant and management. These materials include information that management believes will be helpful to the Compensation Committee, as well as materials the Compensation Committee specifically requests.

 

The Compensation Committee has the authority to hire and fire its own outside compensation consultant and any other advisors it deems necessary. In 2003, the Compensation Committee engaged Pearl Meyer & Partners to act as its independent consultant. The consultant regularly provides the Compensation Committee with information regarding market compensation levels, general compensation trends and best practices. The Compensation Committee also regularly asks the consultant to opine on the reasonableness of specific pay decisions and actions for the named executive officers, as well as the appropriateness of the design of the Company’s executive compensation programs.

 

The activities of the compensation consultant are directed by the Compensation Committee, although the consultant may communicate with members of management, as appropriate, to gather data and prepare analyses as requested by the Compensation Committee. During 2007, the Compensation Committee asked Pearl Meyer to gather executive market data from Pulte’s peers and perform an equity dilution analysis for Fortune 500 companies, among other topics. The Compensation Committee also asked Pearl Meyer to provide opinions on named executive officer pay decisions and board of director compensation.

 

The Compensation Committee has determined that Pearl Meyer & Partners is independent because it does no work for us other than that requested by the Compensation Committee. The Chairman of the Compensation Committee reviews the consultant’s invoices, which are paid by the Company.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee met five times in 2007. The Nominating and Governance Committee is responsible for matters related to the governance of the Company and for developing and recommending to the Board the criteria for Board membership, the selection of new Board members, and the assignment of directors to the committees of the Board. The Nominating and Governance Committee assures that a regular evaluation is conducted of the performance, qualifications and integrity of both the Board of Directors and the executive officers of the Company. The Board of Directors has determined that each of the members of the Nominating and Governance Committee is independent within the meaning of the Company’s categorical standards and the NYSE rules.

 

Finance Committee

 

The Finance Committee met five times in 2007. The Finance Committee reviews all aspects of the Company’s policies that relate to the management of the Company’s financial affairs. The Finance Committee also reviews the Company’s long-term strategic plans and annual budgets, capital commitments budget, and it reviews the Company’s cash needs and funding plans.

Board Meeting Information

 

The Board held a total of seven meetings in 2007. During 2007, each director attended at least 75% of the aggregate number of meetings of the Board and the committees on which such director served.

 

Pulte encourages its directors to attend each Annual Meeting of our shareholders, and all of our directors serving on the date of last year’s annual meeting attended that meeting.

 

Throughout the year, Pulte held regularly scheduled executive sessions of its non-management directors without management participation. In addition, in 2008 Pulte will hold at least one executive session of its non-management directors without the participation of management and the non-management director who is not independent within the meaning of the Company’s categorical standards and the NYSE rules. David McCammon, our Lead Director, presides at these executive sessions.

 

2007 DIRECTOR COMPENSATION

 

 

 

 

 

Director Compensation

 

The Compensation Committee, with input from the Compensation Committee’s outside compensation consultant, annually reviews the compensation of the Company’s non-employee directors. Based on such review, the Compensation Committee recommends non-employee director compensation to the entire Board for its approval.

 

Cash Compensation

 

The non-employee directors were paid the following compensation in 2007 for service as members of the Board of Directors and as members of Board committees.

 

 

The Lead Director was also paid an additional $25,000 in 2007.

 

Equity Compensation

 

Each outside non-employee director also received an annual grant of 7,000 stock options under the Pulte Homes, Inc. 2004 Stock Incentive Plan, which vested immediately upon the date of grant. The directors also received 3,600 unrestricted common shares pursuant to such plan.

 

Director Deferred Compensation

 

Non-employee directors are entitled to defer all or a portion of their cash compensation. Deferred payments are credited each year with interest at a rate equal to the five year U.S. treasury rate, plus 2%. Payments may be deferred for up to eight years, and directors may elect to receive their deferred compensation in a lump sum or in equal annual installments over a period not to exceed eight years.

Directors who also are our employees do not receive any of the compensation described above.

 

Lead Director

 

Our Corporate Governance Guidelines contemplate that the Board will designate one of the independent directors to serve as Lead Director. As noted above, David McCammon currently serves as Lead Director. The Lead Director works with the Chairman and the Chief Executive Officer to ensure that the Board discharges its responsibilities, has structures and procedures in place to enable it to function independently of management and clearly understands the respective roles and responsibilities of the Board and management. In addition to presiding at the executive sessions of the non-management and independent directors, the Lead Director, among other duties, also coordinates feedback to the Chairman and the Chief Executive Officer from the independent directors regarding business issues and management and provides input with respect to agendas for meetings of the Board.

 

CORPORATE GOVERNANCE

 

Governance Guidelines; Business Practices Policy; Code of Ethics

 

The Board of Directors has adopted Corporate Governance Guidelines, which reflect the principles by which Pulte operates. The guidelines address an array of governance issues and principles including: director independence, committee independence, management succession, annual Board evaluation, periodic director evaluation, director share ownership, director nominations, role of the Lead Director and executive sessions of the independent directors. Pulte’s Governance Guidelines are available for viewing on our website at www.pulte.com. The Board of Directors also has adopted a Business Practices Policy, which applies to all directors and employees and a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Controller and other senior officers. The Company intends to include on its website any waivers of its Business Practices Policy that relate to executive officers and directors as well as any amendments to, or waivers from, a provision of its Code of Ethics that applies to the Company’s principal executive officer, principal financial officer or controller that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K.

 

Available information about Pulte

 

The following information is available on Pulte’s website at www.pulte.com and in print for any shareholder upon written request to our Secretary:

 

 

DIRECTOR NOMINATION RECOMMENDATIONS

 

The Nominating and Governance Committee does not have a single method for identifying director candidates but will consider candidates suggested by a wide range of sources, including candidates recommended by shareholders. The Committee reviews the qualifications of various persons to determine whether they might make good candidates for consideration for membership on the Board of Directors. The Committee will review all proposed nominees, including those proposed by shareholders, in accordance with its charter and Pulte’s Corporate Governance Guidelines. While the Committee has not established specific types of experience or skills for potential candidates, the Committee will review the person’s judgment, experience, qualifications, independence, understanding of Pulte’s business or other related industries and such other factors as the Committee determines are relevant in light of the needs of the Board of Directors and Pulte. The Board of Directors believes that diversity is also an important goal, and will consider it in reviewing proposed nominees. The Committee will select qualified candidates and review its recommendations with the Board of Directors, which will decide whether to invite the candidate to be a nominee for election to the Board of Directors.

 

You may recommend a person to be nominated for director by writing to our Secretary by certified mail, return receipt requested, or by recognized overnight courier, to Steven M. Cook, Vice President, General Counsel and Secretary, Pulte Homes, Inc., 100 Bloomfield Hills Parkway, Suite 300, Bloomfield Hills, Michigan 48304.

 

Your recommendation must set forth:

 

 

2007 EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis addresses the following topics:

 

 

The Compensation Committee

 

Committee Members and Independence

 

The Compensation Committee (the “Committee”) is currently comprised of Messrs. Bernard W. Reznicek, D. Kent Anderson, Patrick O’Leary, John J. Shea and William B. Smith. Messrs. Anderson and Shea are not running for re-election to serve on the Board and, accordingly, will no longer serve on the Committee following the 2008 annual meeting. Mr. Reznicek, who has served on the Board of Directors for approximately seven years, is the Committee Chairman. Each member of the Committee qualifies as an independent director under NYSE listing standards and our Corporate Governance Guidelines.

 

Role of Committee

 

The Committee operates under a written charter adopted by the Board of Directors. A copy of the charter is available at www.pulte.com. In general, the scope of the Committee’s authority is determined by the Board of Directors, or established by formal incentive plan documents. The fundamental responsibilities of the Committee include the following, in regards to the Company’s senior executives:

 

Information on the Committee’s processes and procedures for consideration of executive compensation are addressed in Committees of the Board of Directors — Compensation Committee above.

 

Role of Executive Officers

 

As noted above, the Committee is responsible for all compensation decisions for our senior executives (which include the named executive officers). The Committee is also responsible for approving equity grants to all recipients.

 

Mr. Ellinghausen, the Company’s Executive Vice President, Human Resources, works with Mr. Reznicek to establish meeting agendas and determine whether any members of Pulte’s management or outside advisors should attend meetings. The Chief Executive Officer annually reviews the performance of each member of senior management (other than the Chief Executive Officer and the Chairman of the Board, whose performance is reviewed by the Committee). Recommendations based on these reviews, including salary adjustments, annual bonuses and equity grants, are presented to the Committee. Decisions regarding salary adjustments, annual bonuses and equity grants for the Chief Executive Officer and the Chairman of the Board are made by the Committee. All decisions for 2007 made with respect to Messrs. Petruska, Cregg and Keane were made after deliberation with, and concurrence by, Mr. Dugas.

 

At various times during the year at the request of the Committee, Mr. Steven C. Petruska, our Executive Vice President and Chief Operating Officer and Mr. Roger A. Cregg, our Executive Vice President and Chief Financial Officer, may attend Committee meetings, or portions of Committee meetings, to provide the Committee with information regarding the Company’s operational performance, financial performance, or other topics requested by the Committee.

 

Executive Compensation Philosophy

 

Our overall compensation philosophy applicable to executive officers is to provide a compensation program that is intended to attract and retain qualified executives for Pulte through fluctuating business cycles and to provide them with incentive to achieve our strategic, operational and financial goals and increase shareholder value. Specifically, our 2007 compensation programs are intended to reward short and long-term financial success, as measured by earnings growth, economic profit growth and return on equity. We define economic profit as pre-tax income less a charge for capital. As discussed in Proposal Two regarding the Pulte Homes, Inc. 2008 Senior Management Incentive Plan, for 2008 compensation decisions, the Committee will have a specific list of objective performance criteria to select from in setting performance objectives. The Committee also intends to motivate the named executive officers to achieve other non-financial objectives, including quality, customer service, people development and building and maintaining a strong culture within the organization.

 

Key principles of our executive compensation philosophy include:

 

 

Our philosophy attempts to balance cash compensation versus equity compensation in order to ensure that each executive has a significant personal financial stake in Pulte’s share price performance. We also attempt to balance short-term compensation versus long-term compensation to ensure that our senior executives are properly focused on both the achievement of short-term operational and financial goals, as well as longer-term strategic objectives. In general, we seek to provide more than 50% of total compensation to named executive officers in the form of equity (stock options and restricted shares). While our executive compensation philosophy and decisions with respect to the compensation of each of our named executive officers are not materially different, the Committee believes that, given the contributions of Mr. Dugas and Mr. Pulte to our overall strategy, as well as the requirements and responsibilities of their positions and the experience level of Mr. Pulte, having founded the Company, the total compensation levels for these executives should be higher than any other named executive officer and should compensate these executives accordingly.

 

Market Comparisons

 

The Committee does not believe that it is appropriate to establish compensation levels based only on market practices. The Committee believes that compensation decisions are complex and require a deliberate review of Company performance and industry compensation levels. While the Committee factors peer compensation levels and practices into our compensation decisions, it does not target compensation at any particular point within a range established by a comparison of the financial performance or compensation levels of our peer companies. The Committee believes, however, that information regarding pay practices at other companies is useful in two respects. First, it recognizes that Pulte’s compensation practices must be generally competitive in the homebuilding marketplace for executive talent. Second, this marketplace information is one of the many factors that the Committee considers in assessing the reasonableness of compensation.

 

The Committee compares each element of total compensation against a peer group of publicly-traded homebuilding companies (collectively, the “Compensation Peer Group”). The Compensation Peer Group, which is periodically reviewed and updated by the Committee, consists of companies against which the Committee believes we compete for talent. The companies currently comprising the Compensation Peer Group are:

 

 

For comparison purposes, our market capitalization and annual revenues are at the high end of the Compensation Peer Group. The Committee considers this factor, as well as other factors such as management ownership, founder status of named executive officers, and financial performance in evaluating market data.

Executive Compensation Program Elements

 

Base Salary

 

The Committee determines the appropriateness of executives’ salaries by considering the responsibilities of their positions, their individual performance and tenure, internal equity and by comparison to the salary levels of executives in similarly-situated companies. Salary increases are considered annually and are based upon both individual and Company performance in the prior year.

 

Senior Management Annual Incentive Plan

 

Annual incentive arrangements for our named executive officers are intended to make a substantial portion of each executive officer’s compensation dependent on Pulte’s overall performance, linking executive compensation to shareholder value creation.

 

In 2007, our named executive officers were provided with an annual incentive opportunity through the Company’s Senior Management Annual Incentive Plan (the “Plan”), approved by our shareholders in 2003. The Plan provides participants with an annual maximum incentive opportunity established as a percentage of our pre-tax income, including any gains or losses from discontinued operations and excluding the cumulative effect of accounting changes and any extraordinary gains or losses. The Committee may use negative discretion to reduce the actual amount paid to each participant. In making such determination, the Committee generally considers the following:

 

 

Each participant’s maximum award opportunity is established by the Committee within 90 days of the beginning of the fiscal year. The table below summarizes the incentive opportunities that were established for 2007:

 

Maximum Award Opportunity
		% of 2007
		Pre-Tax
Participant		Income
William J. Pulte			1.00%
Richard J. Dugas, Jr.			1.00%
Steven C. Petruska			0.70%
Roger A. Cregg			0.50%
Peter J. Keane			0.30%

The Committee determines actual incentive awards by considering the factors noted above and the objective maximum incentive levels established at the beginning of the year. As the Company’s actual Pre-Tax Income was negative for the year ended December 31, 2007, no awards were or will be paid under the Plan with respect to 2007. This Plan has now expired and will be replaced with an annual incentive program under the Pulte Homes, Inc. 2008 Senior Management Incentive Plan (the “Incentive Plan”). The Incentive Plan was adopted by the Board, subject to shareholder approval.

 

Long-Term Incentive Plan

 

In order to provide management with incentive to achieve our long-term growth and profitability goals, the Committee and the Board approved a Long-Term Incentive Plan for key employees of Pulte and its subsidiaries. The Long-Term Incentive Plan was approved by our shareholders at our 2000 annual meeting of shareholders and the performance metrics were re-approved by shareholders at our 2005 annual meeting of shareholders. Under the Long-Term Incentive Plan, performance compensation is awarded to each participant based upon the level of achievement of pre-established objective performance goals. For the January 1, 2005 through December 31, 2007 performance period, award opportunities were based two-thirds upon the achievement of cumulative earnings per share objectives and one-third upon the achievement of average return on equity objectives. The Committee generally establishes target performance goals based upon the Company’s projected financial performance over the performance period. Target earnings per share performance was established at a level that assumed 20% compound growth per year over 2004 performance.

 

The following table summarizes the performance objectives that were established for the 2005-2007 performance period. The earnings per share goal objectives have been adjusted for the 2 for 1 stock split in September 2005:

 

2005 — 2007 Performance Objectives

 

 

The table below summarizes each participant’s award opportunity established at the beginning of the 2005-2007 performance period. Peter J. Keane did not participate in the Long-Term Incentive Plan because he was promoted to his current position on January 9, 2006.

 

The Company did not achieve the earnings per share or return on equity performance objectives for the 2005-2007 performance period and, therefore, no payouts were made to our named executive officers under the Long-Term Incentive Plan for this performance period.

 

Target award opportunities under the Long-Term Incentive Plan for the 2006-2008 and 2007-2009 performance periods are based on a percentage of each participant’s base salary at the commencement of the performance period. For Messrs. Dugas and Pulte, this percentage is 200% of base salary, and for Messrs. Cregg and Keane, this percentage is 100% and 80% of base salary, respectively. For Mr. Petruska, this percentage is 100% of base salary for the 2006-2008 performance period and 120% of base salary for the 2007-2009 performance period. The threshold payout for these performance periods is 50% of the target award opportunity and the maximum payout is 200% of the target award opportunity. The performance metrics are a mix of cumulative earnings per share and average return on equity during the applicable performance period, with two-thirds of the award opportunity based on the achievement of earnings per share targets and one-third based on the achievement of average return on equity objectives. Based on the significant downturn in the homebuilding industry, at this point in time it is very unlikely that the performance objectives will be met for the 2006-2008 and 2007-2009 performance periods and, therefore, it is unlikely that awards will be paid for these performance periods.

 

If the Pulte Homes, Inc. 2008 Senior Management Incentive Plan (which was adopted by the Board, subject to shareholder approval) is approved by shareholders, no further awards will be granted under the existing Long-Term Incentive Plan.

 

Cash Bonus

 

In 2007, the Committee reviewed the performance of the Chief Executive Officer, and the Chief Executive Officer provided the Committee with a performance review of the other named executive officers. These reviews included an analysis of individual performance against pre-determined objectives such as operational efficiency, cash management and retention and development of key management talent.

 

In 2007, in light of current market conditions in the homebuilding industry, the Committee declined to award cash bonuses to Messrs. Pulte, Dugas, Petruska and Cregg, but awarded each of these four executives a greater number of restricted shares and stock options than in the prior year. The Committee awarded Mr. Keane both his recommended cash bonus as well as his recommended equity award. The compensation decision for Mr. Keane was based upon his satisfaction of individual performance goals in 2007 relating to marketing and sales effectiveness, customer relationship management and the execution of national sales events, and the desire to align his compensation with that of the Company’s field operators, as his primary duties involve oversight of certain processes relating to such operations.

 

Equity Grants

 

We make annual grants of equity to named executive officers as a means of creating a strong linkage between an executive’s long-term incentive compensation and shareholder value. We believe that equity awards:

 

 

The Company’s philosophy is to award equity grants to our executive officers in amounts reflecting the participant’s position, individual performance based on a review of our executive officers’ performance during the prior year against pre-determined objectives such as operational efficiency, cash management and retention and development of key management talent and ability to influence our overall performance. In addition, the Committee considers historical grant practices, market compensation levels and executive ownership levels in determining grants for individual executives. All stock options granted by the Company have a ten year term and vest over a four year period. Restricted share grants generally vest three years from the anniversary of the grant date. If an executive’s employment is terminated for a reason other than death, disability or cause, outstanding options and restricted shares will continue to vest after such termination if at the time of termination, the sum of the executive’s age and the executive’s 12-month periods of full-time employment with the Company equals or exceeds 70 (the “Rule of 70”). In addition, if an executive’s employment is terminated for a reason other than death, disability or cause after a minimum of five years of employment, vested stock options will continue to be exercisable by such executive until the expiration of the stock option according to the terms of its grant (the “Rule of 5”). Certain executives, including the named executive officers, are required to sign a non-competition, non-solicitation and confidentiality agreement to obtain the benefits of the Rule of 70 and the Rule of 5.

 

Stock options are generally granted on the date of the Company’s annual December Board meeting. The exercise price of stock options is fixed as of the date of grant, and cannot be lower than the fair market value of Pulte common shares, defined in the equity incentive plan documents as the average of the high and low price of Pulte’s common shares traded on the NYSE on the date of grant. Annual option grants to other employees of the Company are made at the same time as the annual option grant to the executive officers. The timing of option grants is determined pursuant to written guidelines for the granting of equity awards adopted by the Committee. The Company does not have a program, plan or practice to time option grants in coordination with the release of material non-public information. The Company may also grant stock options to a newly-hired executive at the Committee meeting following the executive’s hire date. We do not set the grant date of stock option grants to new executives in coordination with the release of material non-public information, and we do not time the release of material non-public information for the purpose of affecting the value of executive compensation. Restricted share awards based upon the prior year’s performance are generally granted after the close of the fiscal year, in February of the following year, at the time of the regular Board meeting.

 

In determining the restricted share and stock option grants for 2007, the Committee considered, the lack of a payout under the annual incentive and long-term incentive plans, the absence of a cash bonus and the need to retain talented and experienced executives. Based upon these factors, and after considering the price of the shares at the time of the grant, the Committee awarded restricted shares and stock options to Messrs. Pulte, Dugas, Petruska and Cregg in an amount greater than awarded in the prior year. In addition, Mr. Keane received his recommended restricted share and option awards.

 

Benefits

 

Executive officers participate in employee benefit plans generally available to all employees on the same terms as similarly-situated employees, including a 401(k) plan that provides for a

Company match on contributions. We do not have a defined benefit pension plan or any supplemental executive retirement arrangements. In addition, certain executive officers participate in an Annual Physical Reimbursement Plan and a Financial Counseling Reimbursement Plan. The named executive officers, as well as other Pulte executives, may also participate in the Company’s Non-Qualified Deferral Program, under which they may elect to defer the receipt of their annual and/or long-term incentive cash awards. This plan is discussed further under the section 2007 Non-Qualified Deferred Compensation Table.

 

Compensation Mix

 

As noted in the Executive Compensation Philosophy section of this Compensation Discussion and Analysis, the Committee places significant emphasis on variable, performance-based compensation. There is not a pre-established policy or target for the allocation between annual and long-term incentive compensation. In addition, because the Committee seeks to provide more than 50% of total compensation to named executive officers in the form of equity as reflected in the table below, determinations regarding the amount of stock options that are granted are based in part on the total compensation the Committee determines to provide to a named executive officer as well as the portion of any payout under the Senior Management Annual Incentive plan that the Committee determines to pay in the form of restricted shares.

 

2007 Total Compensation Percentage

 

 

 

Compliance with Internal Revenue Code Section 162(m)

 

Section 162(m) of the Internal Revenue Code of 1986, as amended, generally disallows a tax deduction to public companies for compensation over $1 million paid to any “covered employee” under section 162(m), and provides that qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met.

 

We believe that stock options currently outstanding or subsequently granted under our existing stock option plans comply with the performance-based compensation exemption from the deduction limit of section 162(m). We intend to structure future stock option grants in a manner that complies with this exemption.

 

Because the Committee also recognizes the need to retain flexibility to make compensation decisions that may not meet section 162(m) standards when necessary to enable Pulte to continue to attract, retain and motivate highly-qualified executives, it reserves the authority to approve potentially non-deductible compensation in appropriate circumstances. For instance, the cash bonus paid to Mr. Keane and the restricted stock awards granted in 2008 to all the named executive officers are not exempt from the deduction limit of section 162(m) and, accordingly, the cash bonus award and the value of the restricted stock awards in the year such awards vest may not be fully deductible by the Company. Also, because of ambiguities and uncertainties as to the application and interpretation of section 162(m) and the regulations and guidance issued thereunder, no assurance can be given, notwithstanding our efforts, that compensation intended by us to satisfy the requirements for deductibility under section 162(m) does, in fact, do so.

 

2008 Compensation Decisions

 

The Board of Directors adopted the Pulte Homes, Inc. 2008 Senior Management Incentive Plan (the “Incentive Plan”), subject to shareholder approval. If the proposed Incentive Plan is approved by shareholders, the Committee will provide both annual bonus incentives and long-term cash incentives under the Incentive Plan. The Committee, with the advice of its compensation consultant, recommended the proposed Incentive Plan to the Board of Directors in replacement of both the current annual cash bonus plan and the current long-term incentive plan in order to address the cyclical nature of Pulte’s business by having the ability to utilize an expanded list of performance measures and to set performance goals annually to provide both annual and long-term incentives for Pulte’s officers.

 

The Committee adopted the 2008 Annual Incentive Program (the “Annual Program”) under the proposed Incentive Plan. Under the Annual Program, payment of awards to participating officers for performance during Pulte’s fiscal year ending December 31, 2008 is subject to the attainment of specific performance goals. For each of our named executive officers, other than Mr. Keane, those performance goals are pre-tax income and cash flows from operations, with each such goal weighted equally in determining the named executive officer’s incentive award under the Annual Program. Mr. Keane was granted two awards under the Annual Program having equal award opportunities. One award is based on corporate performance, with pre-tax income and cash flows from operations each being assigned a 50% weight. The other award is based on Mr. Keane’s achievement of individual performance goals relating to marketing and sales effectiveness, customer relationship management and the execution of national sales events. For purposes of the Annual Program, pre-tax income excludes the impact of (i) land impairments, (ii) net realizable value impairments and forfeiture of pre-acquisition costs, (iii) gains on land sales below original basis, (iv) accounting changes, and (v) non-cash amortization. Cash flows

from operations excludes tax refunds and payments. The degree of difficulty of achieving each of the performance goals is quite challenging in light of the significant downturn in the homebuilding industry.

 

The Committee also adopted the Long-Term Incentive Program (the “LTI Program”) under the proposed Incentive Plan. Pursuant to the award opportunities granted under the LTI Program, payment of awards to participating officers for performance during Pulte’s fiscal year ending December 31, 2008 is subject to the attainment of specific performance goals established by the Committee for such year. The payment of any award earned by a participant for Pulte’s 2008 fiscal year based on the performance goals is conditioned upon the continued employment of the participant by Pulte until December 31, 2010 (subject to earlier vesting in specific circumstances), at which time the award will vest and become payable. For the fiscal year ending December 31, 2008, each participant was granted two awards under the LTI Program. For each of the named executive officers, one award is based on corporate performance and relates to cash flows from operations. The other award is based on the attainment of individual performance goals, which includes, depending on the named executive officer, achieving the 2008 business plan for earnings per share and incremental cash flows, achieving total shareholder return targets, achieving productivity, efficiency, customer satisfaction, expense management, employee retention and mortgage capture rate goals, achieving improved financial return ratios through effective capital structure management and the execution of national sales events. For each of our named executive officers, the award opportunity based on cash flows from operations comprises 70%, and the award opportunity based on individual performance comprises 30%, of the named executive officer’s aggregate award opportunities under the two awards granted under the LTI Program. For purposes of the LTI Program, cash flows from operations excludes tax refunds and payments. As noted previously, based on the significant downturn in the homebuilding industry, the degree of difficulty of achieving each of the performance goals is quite challenging.

 

The table below sets forth the annual and long-term incentive award opportunities approved for each of our named executive officers.

 

 

 

Please see Proposal Two included elsewhere in this Proxy Statement as well as the text of the proposed plan, which is set forth in Appendix I to this Proxy Statement, for further information regarding the proposed plan.

 

Compensation Committee Report

 

The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and this Proxy Statement.

 

Bernard W. Reznicek, Chair
D. Kent Anderson
Patrick O’Leary
John J. Shea
William B. Smith

2007 Summary Compensation Table

 

The following table sets forth information concerning the compensation of our Chief Executive Officer, our Chief Financial Officer and our other three most highly compensated executive officers who served in such capacities during the fiscal year that ended December 31, 2007 (the “named executive officers”):

 

 

 

 

 

 

(A) Reflects tax gross-up on (i) spousal travel and (ii) financial planning.

2007 Grants of Plan-Based Awards Table

 

The following table sets forth information concerning award opportunities under our Long-Term Incentive Plan (“LTIP”) and grants under the 2004 Stock Incentive Plan to the named executive officers during the fiscal year ended December 31, 2007, as well as estimated possible payouts under the Company’s Senior Management Annual Incentive Plan (“AIP”).