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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

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KB HOME
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Dear Fellow Stockholder:
Together with the Board of Directors and the management team of KB Home, I am pleased to invite you to our 2017 Annual Meeting of Stockholders. The meeting will be held at 9:00 a.m., Pacific Time, on Thursday, April 13, 2017, at our Corporate Office, which is located at 10990 Wilshire Boulevard in Los Angeles, California.
2016 in Review
Overall, 2016 was a strong year for KB Home, as we generated healthy growth in revenues, profitability and returns. As a result, our stock was one of the top performers in our industry group for the year.
Housing market conditions remained favorable and relatively stable throughout 2016, continuing along a path of steady, but moderate, growth. Demand continued to be fueled by a combination of positive demographic and economic factors, while supply remained limited, with housing starts below historically normalized levels and existing home inventory generally insufficient to meet demand.
Despite this modest housing environment, we produced a strong acceleration in our results with 25% growth in net income and 32% growth in diluted earnings per share. We delivered 9,829 homes in 2016, a 20% increase from 2015, which was the primary driver behind our 23% year-over-year growth in housing revenues. With solid operational execution, we leveraged our revenue growth, resulting in an 18% year-over-year increase in pretax income to $149 million. Our performance also generated improvements in both our return on invested capital and return on equity.
We operate our business using a balanced approach to the continued growth of our Company and further improvement in our returns, both of which are important to our long-term success. With our growth in profits and improving returns last year, we internally generated a significant level of cash. In 2016, our strong cash flow enabled us to invest nearly $1.4 billion in land acquisition and development, complete an opportunistic repurchase of approximately $86 million of our common stock early in the year at prices well below book value, and continue to pay our quarterly dividend.
We increased our year-over-year net order value by 17% to $3.8 billion in 2016, as our net orders rose 11% to 10,283. Our strong net order growth contributed to our year-end backlog value expanding by 19% to $1.5 billion, our highest year-end level in a decade.
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For additional details on our 2016 performance as well as our outlook for 2017 and related business risk factors, please refer to our Annual Report on Form 10-K for the fiscal year ended November 30, 2016.
Last year was notable for both the solid performance we achieved across our key financial and operational metrics, and the foundation we laid for 2017 and beyond. During the year, we established new three-year goals, reflecting our strategy of expanding scale in our served markets, increasing operating margins and improving asset efficiency to drive higher revenues, profitability and returns. We believe this strategy will also result in stronger cash flows to support our objectives of reducing our debt balance and improving our leverage ratio. We have a roadmap in place, and we are making progress on our goals. In January 2017, we completed the early redemption of $100 million of our senior notes using internally generated cash, marking the initial step in our commitment to reducing both our debt and our leverage ratio.
In 2016, we also continued our leadership in sustainability. We constructed our 100,000th ENERGY STAR® certified home, and were recognized by the U.S. Environmental Protection Agency (EPA) for achieving this significant milestone. We also received our sixth consecutive Sustained Excellence award, third Climate Communications award, second WaterSense® Sustained Excellence award, and 17 ENERGY STAR Certified Homes Market Leader awards from the EPA, acknowledging our work in building high-efficiency homes that will help lower the total cost of ownership for our customers.
Technology and innovation were also at the forefront for us last year. We were proud to team up with a distinguished group of experts on an initiative called the Greenbuild KB Home ProjeKt. We built a demonstration model home that, through its structure and design, explored how people will want to live in the future. The model received much acclaim while on display at the 2016 Greenbuild Show and Expo.
On a final note, we made a transition in our financial services business in 2016, and established a new joint venture with Stearns Lending to provide mortgage banking services to our homebuyers. The transition is progressing well and we are enthusiastic about the opportunity to provide a higher level of customer service, better consistency and, eventually, an additional income stream for our Company.
In Closing
In 2017, we celebrate the 60th anniversary of the founding of KB Home. It will be a year of reflection on our rich history and legacy, and another year of moving forward, as we continue to grow our business, revenues, profitability and returns.
We remain committed to increasing stockholder value, and thank you for your continued support of KB Home. We hope to see you on April 13.

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JEFFREY T. MEZGER
Chairman, President and Chief Executive Officer
March 3, 2017


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NOTICE OF 2017 ANNUAL MEETING OF STOCKHOLDERS
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Time and Date
 
9:00 a.m., Pacific Time, on Thursday, April 13, 2017.
 
 
 
 
 
 
 
 
Location
 
KB Home Corporate Office, 10990 Wilshire Boulevard, Los Angeles, CA 90024.
 
 
 
 
 
 
 
 
Items of Business
 
(1) Elect nine directors, each to serve for a one-year term.
 
 
 
(2) Advisory vote to approve named executive officer compensation.
 
 
 
(3) Advisory vote on frequency of the named executive officer compensation advisory vote.
 
 
 
(4) Ratify Ernst & Young LLP’s appointment as KB Home’s independent registered public accounting firm for the fiscal year ending November 30, 2017.
 
 
 
 
 
 
 
 
 
 
The accompanying Proxy Statement describes these items in more detail. We have not received notice of any other matters that may be properly presented at the meeting.
 
 
 
 
Record Date
 
You are entitled to vote at the meeting and at any adjournment or postponement of the meeting if you were a stockholder on February 10, 2017.
 
 
 
 
 
 
 
 
 
 
 
Voting
 
Please vote as soon as possible, even if you plan to attend the meeting, to ensure your shares will be represented. You do not need to attend the meeting to vote if you vote before the meeting. If you are a holder of record, you may vote your shares via the Internet, telephone or mail. If your shares are held by a broker or financial institution, you must vote your shares using a method the broker or financial institution provides.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Attending the Meeting
 
Only stockholders on February 10, 2017, authorized proxy holders of such stockholders and invited guests of the Board of Directors (“Board”) may attend the meeting in person. Picture identification and an admission ticket will be required to attend. The accompanying Proxy Statement describes how to request an admission ticket. We must receive written ticket requests by March 31, 2017.
 
 
 
 
 
 
 
 
 
 
 
Annual Report
 
Copies of our Annual Report on Form 10-K for the fiscal year ended November 30, 2016 (“Annual Report”), including audited financial statements, are being made available to stockholders concurrently with the accompanying Proxy Statement. We anticipate these materials will first be made available on or about March 3, 2017.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting To Be Held on April 13, 2017: Our Proxy Statement and Annual Report are available at www.kbhome.com/investor/proxy.
 
BY ORDER OF THE BOARD OF DIRECTORS,
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WILLIAM A. (TONY) RICHELIEU
Vice President and Corporate Secretary
Los Angeles, California
March 3, 2017


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KB HOME
10990 Wilshire Boulevard
Los Angeles, CA 90024
(NYSE:KBH)
 
PROXY STATEMENT
Your Board is furnishing this Proxy Statement and a proxy/voting instruction form or a Notice of Internet Availability, as applicable, to you to solicit your proxy for our 2017 Annual Meeting of Stockholders (“Annual Meeting”). We anticipate these proxy materials will first be made available on or about March 3, 2017. Stockholders can vote via the Internet, telephone or mail or in person at the Annual Meeting, as described under “Annual Meeting, Voting and Other Information.”
 
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ANNUAL MEETING OVERVIEW

This overview provides a brief summary of the items of business for the Annual Meeting. Please review the more detailed information in this Proxy Statement and our Annual Report before voting.
Items of Business
Key Meeting Information
 
 
 
 
Ø
Ø
Ø
Ø
Elect nine directors, each to serve for a one-year term.
Advisory vote to approve named executive officer (“NEO”) compensation.
Advisory vote on frequency of the NEO compensation advisory vote.
Ratify Ernst & Young LLP’s appointment as our independent registered public accounting firm (“Independent Auditor”) for the fiscal year ending November 30, 2017.
Date
Time
Location

To Attend
Thursday, April 13, 2017.
9:00 a.m., Pacific Time.
KB Home Corporate Office
Los Angeles, CA 90024.
You must request an admission ticket to attend the Annual Meeting in person. We must receive written ticket requests by March 31, 2017, as described under “Admission to the Annual Meeting.”
Board of Directors Nominees
As discussed under “Election of Directors,” below are the nominees for election to the Board at the Annual Meeting.
Name
Year First Elected
Primary Occupation
Committee Membership
Timothy W. Finchem
2005
Board Chair, The First Tee; Former PGA TOUR Commissioner
MDCC
NCGC (Chair)
Dr. Stuart A. Gabriel
2016
Director, Richard S. Ziman Center for Real Estate at UCLA; and Professor of Finance and Arden Realty Chair, UCLA Anderson School of Management
ACC
Dr. Thomas W. Gilligan
2012
Director, Hoover Institution on War, Revolution and Peace
ACC
NCGC
Kenneth M. Jastrow, II
2001
Former Chairman and CEO, Temple-Inland Inc.
MDCC (Chair)
Robert L. Johnson
2008
Founder and Chairman, The RLJ Companies
MDCC
NCGC
Melissa Lora
2004
President, Taco Bell International
ACC (Chair)
MDCC
Jeffery T. Mezger
2006
Chairman, President and Chief Executive Officer (“CEO”), KB Home
N/A
Robert L. Patton, Jr.
2015
Partner, Guggenheim Baseball Management LLC
ACC
NCGC
Michael M. Wood
2014
Founder and Chairman, Redwood Investments LLC
ACC
NCGC
Committee Key: “ACC”=Audit and Compliance; “MDCC”=Management Development and Compensation; “NCGC”=Nominating and Corporate Governance

Your Board recommends a vote “FOR” the election of each director nominee



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Advisory Vote to Approve NEO Compensation
As shown below, and as discussed under “Compensation Discussion and Analysis,” we believe we have a strong alignment of our executive compensation with performance that supports advisory approval of our NEOs’ 2016 fiscal year compensation.
2016 Key Financial Results
Total Revenues
Homebuilding Operating Income
Total Pretax Income
Net Income
ñ
  19%
  10%
  18%
  25%
• 2016 Fiscal Year Total Stockholder Return (“TSR”): 13%
• 2016 CEO Compensation Increased 1% Year Over Year
• 90% of 2016 CEO Compensation Performance-Based
• 2016 Say-On-Pay Result: 95% Approval
2016 Key Operating Results
Annual Net Orders
Year-End Backlog Value
ñ
  11%
  19%
 
 
 
 
Stockholder Returns
Common Stock Repurchases
Cash Dividends
 
 $85.9M
 $8.6M
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Your Board recommends an advisory vote “FOR” approval of NEO compensation
Advisory Vote on Frequency of the NEO Compensation Advisory Vote
As discussed under “Advisory Vote on Frequency of the Named Executive Officer Compensation Advisory Vote,” the Board believes it is appropriate for the NEO compensation advisory vote to continue to be held annually, though you have the option to vote for an annual, biennial or triennial frequency.
Your Board recommends an advisory vote for an “ANNUAL” NEO compensation advisory vote
Independent Auditor Appointment
As discussed under “Audit Matters,” we are seeking stockholder ratification of the Audit and Compliance Committee’s appointment of Ernst & Young LLP as our Independent Auditor for the fiscal year ending November 30, 2017.
Your Board recommends a vote “FOR” ratifying Ernst & Young LLP’s appointment

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CORPORATE GOVERNANCE AND BOARD MATTERS
The Board is elected by our stockholders to oversee the management of our business and to assure that our stockholders’ long-term interests are being served. The Board carries out this role subject to Delaware law (our state of incorporation), and in accordance with our Corporate Governance Principles. The Board held five meetings during 2016.
Corporate Governance Highlights
• All directors are independent, except our CEO, and elected annually under a majority voting standard.
• There is Board-level oversight of our political contributions.
• Our three standing Board committees are entirely composed of independent directors.
• All directors, senior executives and employees must comply with the standards of conduct in our Ethics Policy.
• Non-employee directors meet in executive sessions at each in-person Board meeting, and any non-employee director can request additional executive sessions.
• Each director attended at least 75% of the meetings of the Board and Board committees on which they served during 2016, except Mr. Patton.
• All directors, senior executives and employees are prohibited from pledging or hedging their holdings of our securities.
• We expect all directors to attend our annual meeting of stockholders. All directors serving at the time attended our 2016 Annual Meeting of Stockholders on April 7, 2016.
• Directors and senior executives are subject to strong stock ownership requirements.
• We have one class of voting securities and no supermajority voting requirements (except as provided by Delaware law).
Board Leadership
The Board believes that having an independent director serve as Chairman or Lead Independent Director is the most appropriate Board leadership structure to effectively carry out its role and responsibilities. In August 2016, the non-employee directors elected Mr. Mezger, our CEO, to the additional position of Chairman, succeeding Mr. Stephen F. Bollenbach. The Board also elected Mr. Bollenbach as Lead Independent Director and established the position’s duties, which are listed below and are designed to maintain the Board’s steady independent oversight of our business. The non-employee directors determined that with Mr. Mezger’s fundamental understanding of our business model, consistently strong operational leadership and dedicated service as a director since 2006, his election as Chairman would further enhance the execution of our core strategies to achieve our long-term growth goals, with Board governance balanced by having a robust Lead Independent Director.
Lead Independent Director Duties
• Preside at all meetings of the Board at which the Chairman is not present, and at all executive sessions of the non-employee directors.
• Serve as liaison between the Chairman and the non-employee directors.
• Consult with the Chairman, Board committee chairs and other non-employee directors (as appropriate) regarding meeting agendas and schedules to assure that there is sufficient time for discussion of all agenda items, and regarding the content and flow of information to the Board.
• Organize and preside at meetings of the non-employee directors at any time and for any purpose.
• Provide Board leadership if there is (or there is perceived to be) a conflict of interest with respect to the role of a Chairman who is also the Chief Executive Officer.
• If requested by major stockholders, being available to them for consultation and communication as appropriate.
• Any such additional responsibilities, duties and functions as set forth in our Corporate Governance Principles or By-Laws, or as may otherwise be determined by the Board from time to time.
Mr. Bollenbach passed away in October 2016. In November 2016, the Board elected Ms. Lora as Lead Independent Director.
Director Independence
We believe that a substantial majority of our directors should be independent. To be independent, the Board must affirmatively determine that a director does not have any direct or indirect material commercial or charitable relationship with us based on all relevant facts and circumstances. The Board makes independence determinations from information supplied by directors, director nominees and other sources, the Nominating and Corporate Governance Committee’s prior review and recommendation, and certain categorical standards contained in our Corporate Governance Principles that are consistent with New York Stock Exchange (“NYSE”) listing standards. The Board has determined that, other than Mr. Mezger, all directors who served in 2016 and all director nominees are independent. In making its independence determinations, the Board found

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that Mr. Wood’s independence was not impaired by, and he did not have a direct or indirect material interest in, our receipt of consulting services and research data in 2016 from a firm in which he owns a <1% passive equity interest.
Board Committee Information
The Board has three standing committees — Audit and Compliance (“Audit Committee”); Management Development and Compensation (“Compensation Committee”); and Nominating and Corporate Governance (“Nominating Committee”) — to which it has delegated various duties. The Board appoints the members of and has adopted a charter for each committee. At each regular Board meeting, the committee chairs report to the Board on their particular committee’s activities. The Board and each committee conduct an annual evaluation of their respective performance. Each committee member served during all of 2016, other than Dr. Gabriel, who joined the Audit Committee upon his election to the Board at the 2016 Annual Meeting of Stockholders, and Mr. Bollenbach, who served on his respective committees until his death in October.
 
 
Audit Committee
 
Compensation Committee
 
Nominating Committee
Members
 
Lora (Chair)
Gabriel
Gilligan
Patton
Wood
 
Jastrow (Chair)
Bollenbach
Finchem
Johnson
Lora
 
Finchem (Chair)
Bollenbach
Gilligan
Johnson
Patton
Wood
FY2016 Meetings
 
6
 
6
 
5
Key Duties
 
– Oversees our corporate accounting and reporting practices and audit process, including our Independent Auditor’s qualifications, independence, retention, compensation and performance.
– Is authorized to approve our incurring, guaranteeing or redeeming debt, and our entry into certain transactions.
 
– Evaluates and determines our CEO’s compensation.
– Determines the compensation of our CEO’s direct reports.
– Oversees an annual review of leadership development and workforce succession plans at all management levels, including for the CEO.
– Evaluates and recommends non-employee director compensation and benefits.
 
– Oversees our corporate governance policies and practices.
– Reviews “related party transactions,” as discussed below.
– Oversees annual Board and committee performance evaluations.
– Identifies, evaluates and recommends qualified director candidates to the Board.
Other Items
 
– Each member is financially literate. Ms. Lora, Dr. Gabriel, Dr. Gilligan and Mr. Wood are each an “audit committee financial expert,” per NYSE listing standards and Securities and Exchange Commission (“SEC”) rules.
– It is a separately designated standing audit committee as defined in Section 3(a)(58)(A) of the Securities Exchange Act of 1934.
– The Board determined that Dr. Gabriel’s simultaneous service on the audit committees of three other public companies does not impair his ability to serve effectively on the Audit Committee.
 
– Each member is a “non-employee director” under SEC rules and an “outside director” under Internal Revenue Code (“Code”) Section 162(m).
– Is assisted with its duties by our management and an outside consultant, Frederic W. Cook & Co., Inc. (“FWC”).
– May delegate its duties to our management, except the authority to grant equity-based awards, or to a Board subcommittee.
 
– Regularly evaluates the skills and characteristics of current and potential directors, and identified for each individual the Board has nominated for election at the Annual Meeting certain specific skills and qualifications that led to the Board’s determination that each such nominee should serve as a director, as described under “Election of Directors.”

 
 
Compensation Committee Interlocks and Insider Participation
None of our directors or executive officers had any relationship that would constitute a “compensation committee interlock” under SEC rules.
 

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Board Role in Risk Oversight
As described below, the Board oversees our management’s plans, policies and processes for identifying, assessing and addressing business risks while advancing our strategic goals. The Board has delegated its risk oversight responsibilities to the Audit Committee, except for employee compensation-related risks that are under the Compensation Committee’s purview.
Audit Committee Role. The Audit Committee oversees our management’s performance of an annual enterprise risk management assessment that identifies significant risks in our business and operations, along with corresponding mitigating factors, and receives periodic updates upon request or as deemed appropriate. The Audit Committee chair reports to the Board on significant risks as deemed appropriate. In addition, at each of its regular meetings, the Audit Committee receives reports from our senior finance, accounting, legal and internal audit executives, and conducts separate executive sessions with each of those executives and with our Independent Auditor to discuss matters relevant to their respective duties and roles, including risk areas.
Compensation Committee Role. The Compensation Committee oversees an annual employee compensation risk assessment performed by FWC together with our management that largely focuses on potential policy and program design and implementation risks. The Compensation Committee also reviews and, as appropriate, approves compensation arrangements developed by our senior human resources personnel. The Compensation Committee chair reports to the Board on significant risks as deemed appropriate. Based on this oversight approach and our most recent annual risk assessment, we do not believe that our present employee compensation policies and programs are likely to have a material adverse effect on us.
Certain Relationships and Related Party Transactions
The Nominating Committee reviews any transactions, arrangements or relationships in which we participate and in which a director, director nominee, executive officer or beneficial owner of five percent or more of our common stock (or, in each case, an immediate family member) had or will have a direct or indirect material interest (a “Covered Transaction”), except transactions described at right or as the Board otherwise determines. Covered individuals and stockholders are expected to inform our Corporate Secretary of Covered Transactions, and we collect information from our directors, director nominees and executive officers about their and their family members’ affiliations so that we can review our records for any such transactions. The Nominating Committee will approve or ratify a Covered Transaction if, based on a review of all material facts and feasible alternatives, it deems the transaction to be in our and our stockholders’ best interests.
During 2016, the Nominating Committee approved our sale of a home to a trust of which Mr. Mezger is co-trustee for approximately $647,000. The trust did not receive any special terms or consideration with respect to the home sale, other than the standard employee purchase discount for employees with Mr. Mezger’s tenure with us. This home sale was the only Covered Transaction during the year.
Pre-Approved Transaction Categories
• Any transaction in which the total amount involved is less than or equal to $120,000.
• The employment and compensation (a) of a director or executive officer if the individual’s compensation is reported in our annual proxy statement, or (b) of any other executive officer who is not an immediate family member of one of the foregoing individuals or a director nominee if such executive officer’s compensation was approved, or recommended for approval, by the Compensation Committee.
• Any transaction that would not (a) need to be reported under federal securities laws, (b) be deemed to impair a director’s independence under our Corporate Governance Principles or (c) be deemed to be a conflict of interest under our Ethics Policy.
• Any transaction where an individual’s interest therein arises solely from ownership of our common stock and all holders of our common stock received the same benefit on a pro-rata basis.
Director Qualifications and Nominations
The Nominating Committee evaluates and recommends individuals for election to the Board at regular or special meetings and at any point during the year, taking into consideration the attributes listed in our Corporate Governance Principles and diversity of background and personal experience, among other factors. Diversity may encompass race, ethnicity, national origin and gender, geographic residency, educational and professional history, community or public service, expertise or knowledge base and/or other tangible and intangible aspects of an individual in relation to the personal characteristics of current directors and other potential director nominees. There is no formal policy as to how diversity is applied, and an individual’s background and personal experience, while important, do not necessarily outweigh any other factors.
Individuals may be nominated by current directors, and the Nominating Committee has retained professional search firms from time to time to assist with director recruitment. Security holders may propose director nominees by following the procedures set forth in our By-Laws, which require, among other things, timely advance written notice to our Corporate Secretary of any potential nominee that contains specified information about the nominee and the nominating stockholder. Director nominees proposed by security holders are considered in the same manner as any other potential nominees.

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DIRECTOR COMPENSATION
Our directors (other than Mr. Mezger, who is not paid for his Board service) are primarily compensated under a plan the Board approved in October 2014, as described below. Director compensation is based on service for a “Director Year,” a period that begins on the date of an annual meeting of stockholders and ends on the day before the next annual meeting.
Non-Employee Director Compensation
Board Retainer
$100,000
Equity Grant (value)
$145,000
Lead Independent Director Retainer
$40,000*
Committee Chair Retainers
$25,000 (Audit Committee)
$18,000 (Compensation Committee)
$15,000 (Nominating Committee)
Committee Member Retainers
$10,000 (Audit Committee)
$7,000 (Compensation Committee)
$5,000 (Nominating Committee)
Meeting Fees
$1,500 (for each additional meeting)
* The Board established the Lead Independent Director retainer in August 2016.
Non-Employee Director Compensation Components.
Retainers. Each director may elect to receive their respective retainers in equal quarterly cash installments, as a grant of unrestricted shares of our common stock and/or as a grant of deferred common stock awards (“stock units”), with any such equity-based grants made as described below. Committee retainer differences reflect relative workloads.
Equity Grant. Each director may generally elect to receive their equity grant in unrestricted shares of our common stock and/or in stock units. Grants are made and vest on the first date of a Director Year, with the rounded number of shares/units granted based on our common stock’s closing price on that date. Directors will receive a share of our common stock for each stock unit they hold on the earlier of a change in control or leaving the Board. Directors receive cash dividends on their common stock and equivalent cash payments on their stock units. Stock units have no voting rights. If a director has not satisfied the stock ownership requirement by the applicable time (as described under “Stock Ownership Requirements”), the director can only receive stock units for the equity grant, and cannot dispose of any shares of our common stock until the director satisfies the ownership requirement or leaves the Board.
Meeting Fees. These fees are payable to directors who attend any Board or committee meeting that is not a regularly-scheduled meeting and have also attended the Board’s or the applicable committee’s prior Director Year meetings. In 2016, such fees were paid to certain directors who attended an additional Board meeting and an additional Nominating Committee meeting.
Directors elected to the Board other than at an annual meeting receive prorated compensation, with equity grants made on their election date. We also pay directors’ travel-related expenses for Board meetings and Board activities.
Director Compensation During Fiscal Year 2016
Name
Fees Earned or 
Paid in Cash
($)(a)
Stock
Awards
($)(b)
All Other
Compensation
($)
Total
($)
Mr. Bollenbach
$
263,000

$
245,000

$

$
508,000

Mr. Finchem
1,500

267,000


268,500

Dr. Gabriel
84,000

145,000


229,000

Dr. Gilligan
116,500

145,000


261,500

Mr. Jastrow
119,500

145,000


264,500

Mr. Johnson
103,000

157,000


260,000

Ms. Lora
1,500

277,000


278,500

Mr. Patton
28,750

260,000


288,750

Mr. Wood
106,750

160,000


266,750

(a)
Fees Earned or Paid in Cash. These amounts represent the cash retainers paid to directors per their elections and the additional meeting fees described above. The fee amount for Mr. Bollenbach also includes the Board Chairman and Lead Independent Director

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retainers he was paid for the periods he served in those roles during 2016. Mr. Bollenbach’s annual Board Chairman retainer was $300,000. He was not eligible for any committee retainers while he served as Chairman.
(b)
Stock Awards. These amounts represent the aggregate grant date fair value of the unrestricted shares of our common stock or stock units granted to our directors on April 7, 2016 computed as described in Note 19 — Employee Benefit and Stock Plans in the Notes to the Consolidated Financial Statements in our Annual Report, except that estimates of forfeitures related to service-based vesting conditions have been disregarded. The table below shows the respective grants of unrestricted shares of our common stock and/or stock units to our directors in 2016 and each director’s total holdings of equity-based compensation awards as of February 24, 2017.
Name
2016 Common Stock Grants
(#)
2016 Stock Unit Grants
(#)
Total Holdings
(#)(i)
Mr. Finchem

18,476

166,854

Dr. Gabriel
10,034


10,034

Dr. Gilligan
10,034


58,272

Mr. Jastrow
10,034


145,801

Mr. Johnson
10,864


148,868

Ms. Lora

19,168

207,972

Mr. Patton

17,992

22,412

Mr. Wood
1,038

10,034

36,351

(i)
Total Holdings. These amounts reflect the directors’ total respective outstanding holdings of equity-based compensation awards, consisting of grants of unrestricted shares of our common stock, stock units and stock options in the following amounts: Mr. Finchem 0, 111,504 and 55,350; Dr. Gabriel 10,034, 0 and 0; Dr. Gilligan 10,034, 21,349 and 26,889; Mr. Jastrow 10,034, 80,417 and 55,350; Mr. Johnson 20,756, 34,769 and 93,343; Ms. Lora 0, 141,402 and 66,570; Mr. Patton 4,420, 17,992 and 0; and Mr. Wood 1,038, 23,935 and 11,378. Mr. Bollenbach was granted 16,954 unrestricted shares of our common stock and no stock units on April 7, 2016 based on his elections. At the time of his passing in October 2016, Mr. Bollenbach held 26,090 shares of our common stock, 54,264 stock units, which have since been paid out in shares of our common stock, and 144,103 stock options that in each case had been granted to him as compensation during his Board service. Director stock options were last granted in April 2014, as they ceased being a component of director compensation after that date; accordingly, no director stock options have been granted to Dr. Gabriel or Mr. Patton. Some director stock options held by Mr. Johnson (37,993) and Ms. Lora (11,220) have 15-year terms. The remainder have ten-year terms. For directors who leave the Board due to retirement or disability (in each case as determined by the Compensation Committee), or death, their stock options will be exercisable for the options’ respective remaining terms. Otherwise, director stock options must be exercised by the earlier of their respective terms or the first anniversary of a director’s leaving the Board (for 15-year stock options), or the third anniversary of leaving the Board (for ten-year stock options). Based on the directors’ respective elections, each director stock option represents a right to receive shares of our common stock equal in value to the positive difference between the option’s stated exercise price and the fair market value of our common stock on an exercise date, and are therefore settled in a manner similar to stock appreciation rights (and are referred to in this Proxy Statement as “Director SARs”). No Director SARs have been so settled.
Indemnification Agreements. We have agreements with our directors that provide them with indemnification and advancement of expenses to supplement what our Certificate of Incorporation and insurance policies provide, subject to certain limitations.
Directors’ Legacy Program. We established the Directors’ Legacy Program in 1995 to recognize our and our directors’ interests in supporting educational institutions and other charitable organizations. The Board closed the program to new participants in 2007. As a result, Messrs. Finchem and Jastrow and Ms. Lora are the only current directors who are participants in the program. All program participants have fully vested in their donation amount; however, neither they nor their families receive any proceeds, compensation or tax savings associated with the program. Under the program, we will make a charitable donation on each participant’s behalf of up to $1 million to up to five participant-designated, qualifying institutions or organizations. Donations are paid in ten equal annual installments directly to the designated recipient institutions or organizations after a participant’s death. We maintain life insurance policies to help fund these donations, but no premium payments for the policies were required to be made in 2016. Premium payments, where required, vary depending on participants’ respective ages and other factors. The total amount payable under the program at November 30, 2016 was $15.1 million.

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ELECTION OF DIRECTORS
The Board will present as nominees at the Annual Meeting, and recommends our stockholders elect to the Board, each of the individuals named below for a one-year term ending at the election of directors at our 2018 Annual Meeting of Stockholders. Each nominee has consented to being nominated and has agreed to serve as a director if elected. Each nominee is standing for re-election. Should any of the nominees become unable to serve as a director prior to the Annual Meeting, the individuals named as proxies for the meeting will, unless otherwise directed, vote for the election of another person as the Board may recommend. On the date of the Annual Meeting, if the Board’s nominees are elected, the Board will have nine directors. There are no term limits for directors.
Voting Standard
To be elected, each nominee must receive a majority of votes cast in favor (i.e., the votes cast for a nominee’s election must exceed the votes cast against their election).
 
Director Resignation Policy. Our Corporate Governance Principles provide that a director nominee who fails to win election to the Board in an uncontested election is expected to tender their resignation from the Board (or to have previously submitted a conditional tender). An “uncontested election” is one in which there is no director nominee that has been nominated by a stockholder in accordance with our By-laws. This election is an uncontested election. If an incumbent director fails to receive the required vote for election in an uncontested election, the Nominating Committee will act promptly to determine whether to accept the director’s resignation and will submit its recommendation for the Board’s consideration. The Board expects the director whose resignation is under consideration to abstain from participating in any decision on that resignation. The Nominating Committee and the Board may consider any relevant factors in deciding whether to accept a director’s resignation.
BOARD RECOMMENDATION: FOR THE ELECTION OF EACH DIRECTOR NOMINEE
Provided below is information on each director nominee’s skills and qualifications, and current and former professional experience, including current and any former (within the past five years) public company directorships.
 
 
 
 
 
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Timothy W. Finchem
Board Chair, The First Tee; Former PGA TOUR Commissioner
Age: 69
Director Since: 2005
Other Professional Experience:
–PGA TOUR Commissioner (1994-2016)
–Deputy Advisor to the President, White House Office of Economic Affairs (1978-1979)
–Co-founder, National Marketing and Strategies Group (1980-1986)
 
Public Company Directorships:
–KB Home
 
 
Mr. Finchem has been Board Chair of The First Tee, a nonprofit youth development organization providing educational programs through the game of golf, since it was founded in 1997. He previously served as Commissioner of the PGA TOUR, a membership organization for professional golfers, from 1994 until his retirement in December 2016. He joined the PGA TOUR in 1987, and was promoted to Deputy Commissioner and Chief Operating Officer in 1989. Mr. Finchem has demonstrated success in broadening the popularity of professional golf among the demographic groups that make up our core homebuyers, and has experience in residential community development. He also has a substantial presence in Florida, one of our key markets.
 
 
 
 
 
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Dr. Stuart A. Gabriel
Director, Richard S. Ziman Center for Real Estate at UCLA; and Professor of Finance and Arden Realty Chair, UCLA Anderson School of Management
Age: 63
Director Since: 2016
Other Professional Experience:
–Director and Lusk Chair, USC Lusk Center for Real Estate (1997-2007)
–Associate Professor/Professor, Finance and Business Economics, USC Marshall School of Business (1990-1997)
–Economics Staff Member, Federal Reserve Board (1986-1990)
 
Public Company Directorships:
–KB Home
–KBS Real Estate Investment Trust, Inc.
–KBS Real Estate Investment Trust II, Inc.
–KBS Real Estate Investment Trust III, Inc.
 
 
Dr. Gabriel has been since 2007 the director of the Richard S. Ziman Center for Real Estate at UCLA, and Professor of Finance and Arden Realty Chair at the UCLA Anderson School of Management. With Dr. Gabriel’s significant professional experience in and distinguished study of macroeconomics and real estate, mortgage and finance markets, he has considerable knowledge and insight with respect to the economic, regulatory and financial drivers that affect housing and homebuilding at local, regional and national levels. In addition, with his nearly two decades of service in leadership roles at two of the most preeminent academic institutions in the country—UCLA and USC—he has substantial management and administrative expertise, and is highly respected for his perspective on housing and land use matters in California, an important market for us, and nationally.
 
 
 
 
 

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Dr. Thomas W. Gilligan
Director, The Hoover Institution on War, Revolution and Peace 
Age: 62
Director Since: 2012
Other Professional Experience:
–Dean, McCombs School of Business (2008-2015)
–Interim Dean, USC Marshall School of Business (2006-2007)
–Staff Economist, White House Council of Economic Advisors (1983-1984)
 
Public Company Directorships:
–KB Home
–Southwest Airlines Co.
 
 
Dr. Gilligan has been the Tad and Dianne Taube Director of The Hoover Institution on War, Revolution and Peace at Stanford University since September 2015. The Hoover Institution is a public policy research center devoted to the advanced study of economics, politics, history and political economy, as well as international affairs. Dr. Gilligan has deep knowledge of and significant academic credentials in the fields of finance, economics and business administration, and brings extensive leadership skills and experience from his many years of service as a dean at two of the premier post-graduate business schools in the country and his current position as the head of a prominent public policy institution. In addition, he is well-known and highly regarded, professionally and personally, in both Texas and California, which are key markets for us.
 
 
 
 
 
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Kenneth M. Jastrow, II
Former Chairman and CEO, Temple-Inland Inc.
Age: 69
Director Since: 2001
Other Professional Experience:
–Non-Executive Chairman, Forestar Group Inc., a real estate and natural resources company (2007-2015)
–Chairman and Chief Executive Officer, Temple-Inland Inc., a paper, forest products and financial services company (2000-2007)
 
Public Company Directorships:
–KB Home
–MGIC Investment Corporation
–Genesis Energy, LLC
–Forestar Group Inc. (2007-2015)
 
 
Kenneth M. Jastrow, II has extensive experience and leadership in the paper, building products, forestry, real estate and mortgage lending industries, enabling him to provide critical perspective on businesses that impact the homebuilding industry, and on sustainability practices. He also brings significant corporate governance expertise from his service on several public company boards, and has a substantial presence in Texas, a key market for us.
 
 
 
 
 
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Robert L. Johnson
Founder and Chairman, The RLJ Companies
Age: 70
Director Since: 2008
Other Professional Experience:
–Founder and Chief Executive Officer, Black Entertainment Television (BET), a television and entertainment network (1979-2006)
–Museum Council Member, Smithsonian Institution’s National Museum of African American History and Culture
 
Public Company Directorships:
–KB Home
–Lowe’s Companies, Inc.
–RLJ Entertainment, Inc.
–RLJ Lodging Trust
–RLJ Acquisition, Inc. (2011-2012)
–Strayer Education, Inc. (2003-2016)
 
 
Robert L. Johnson is founder and chairman of The RLJ Companies, an innovative business network that owns or holds interests in a diverse portfolio of companies in the consumer financial services, private equity, investment banking, real estate, hospitality, professional sports, film production, gaming and automobile dealership industries. Prior to forming The RLJ Companies in 2004, Mr. Johnson was founder and chief executive officer of BET, which was acquired by Viacom Inc. in 2001. He continued to serve as chief executive officer of BET until 2006. Mr. Johnson has significant experience in real estate, finance, mortgage banking and brand-building enterprises and a unique and diverse background in a number of industry sectors.
 
 
 
 
 
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Melissa Lora 
President, Taco Bell International
Age: 54
Director Since: 2004
Lead Independent Director Since: 2016
Other Professional Experience:
–Global Chief Financial and Development Officer, Taco Bell Corp. (2012-2014)
–Chief Financial Officer, Taco Bell Corp. (2001-2012)
–Regional Vice President and General Manager, Taco Bell Corp. (1998-2000)
 
Public Company Directorships:
–KB Home
 
 
Melissa Lora has been since 2013 the President of Taco Bell International, a segment of Taco Bell Corp., which is a division of Yum! Brands, Inc., one of the world’s largest restaurant companies. Ms. Lora is very knowledgeable of and has substantial experience and expertise in financial matters as well as in managing real estate assets. She has made significant contributions to the work of the Audit Committee since joining the Board and has provided strong leadership as its chair since 2008. In November 2016, the Board elected Ms. Lora as Lead Independent Director.
 
 
 
 
 

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Jeffrey T. Mezger
Chairman, President and Chief Executive Officer,
KB Home
Age: 61
Director Since: 2006
Chairman Since: 2016
Other Professional Experience:
–Executive Board Member, USC Lusk Center for Real Estate (2000-present)
–Policy Advisory Board Member, Fisher Center for Real Estate and Urban Economics at UC Berkeley Haas School of Business (2010-present)
–Policy Advisory Board Member, Harvard Joint Center for Housing Studies (2004 to present; Board Chair 2015-2016)
–Founding Chairman, Leading Builders of America (2009-2013; Executive Committee member until 2016)
 
Public Company Directorships:
–KB Home
 
 
Jeffrey T. Mezger has been our President and Chief Executive Officer since November 2006, and was elected Chairman of the Board in 2016. Prior to becoming President and Chief Executive Officer, Mr. Mezger served as our Executive Vice President and Chief Operating Officer, a position he assumed in 1999. From 1995 until 1999, Mr. Mezger held a number of executive posts in our southwest region, including Division President, Arizona Division, and Senior Vice President and Regional General Manager over Arizona and Nevada. Mr. Mezger joined us in 1993 as president of the Antelope Valley Division in Southern California. In 2012, Mr. Mezger was inducted into the California Homebuilding Foundation Hall of Fame. As our CEO, Mr. Mezger has demonstrated consistently strong operational leadership, and ownership of our business strategy and its results. He has also established himself as a leading voice in the industry through his nearly 40 years of experience in the public homebuilding sector.
 
 
 
 
 
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Robert L. Patton, Jr.
Partner, Guggenheim Baseball Management LLC
Age: 54
Director Since: 2015
Other Professional Experience:
–Board Member, Security Benefit Corporation, a life insurance services company (2010-present)
–Advisory Council Member, University of Texas, College of Liberal Arts (2010-present)
 
Public Company Directorships:
–KB Home
 
 
Robert L. Patton, Jr. has been a partner of Guggenheim Baseball Management LLC since 2012. He became part owner of the Los Angeles Dodgers in 2012. Mr. Patton principally operates oil and gas properties in Texas and Kansas and has additional investments in many other sectors, including ranching and insurance. Mr. Patton has several years of experience in a wide range of industries as well as in real estate development, providing significant expertise and insight on investment management, financial planning, operational execution and regulatory compliance. He also has a substantial presence in Southern California and Texas, which are key markets for us.
 
 
 
 
 
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Michael M. Wood
Founder and Chairman, Redwood Investments LLC
Age: 69
Director Since: 2014
Other Professional Experience:
–Chairman, Winsight, LLC, a business-to-business publishing company (2012-2017)
–U.S. Ambassador to Sweden (2006-2009)
–Co-Founder and Chief Executive Officer, Hanley Wood LLC, a business-to-business publishing company (1976-2005)
 
Public Company Directorships:
–KB Home
 
 
Michael M. Wood is founder and chairman of Redwood Investments LLC, a Washington, D.C.-based investment company established in 2005 and concentrating in media, real estate and alternative energy. In 2009, Mr. Wood received from the King of Sweden the insignia of Commander Grand Cross, Order of the Polar Star medal given by Sweden’s Royal Family to people of foreign birth who make significant contributions to Sweden. Prior to becoming the U.S. Ambassador to Sweden, Mr. Wood was co-founder and CEO of Hanley Wood LLC, the leading media company in the construction industry and one of the ten largest business-to-business media companies in the U.S. Mr. Wood has extensive knowledge of the homebuilding industry and significant experience in real estate and alternative energy investing, providing substantial insight and expertise with respect to our business operations and our longstanding commitment to sustainability. He also has a distinguished policymaking background.


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OWNERSHIP OF KB HOME SECURITIES
The table below shows the amount and nature of our non-employee directors’ and NEOs’ respective beneficial ownership of our common stock as of February 24, 2017. Except as otherwise indicated below, the beneficial ownership is direct and each owner has sole voting and investment power with respect to the reported securities holdings.
Non-Employee Directors
Total Ownership(a)
Stock Options(b)
Restricted Stock(b)
Timothy W. Finchem
166,854

55,350


Dr. Stuart A. Gabriel
10,034



Dr. Thomas W. Gilligan
58,272

26,889


Kenneth M. Jastrow, II
145,801

55,350


Robert L. Johnson
148,868

93,343


Melissa Lora
210,015

66,570


Robert L Patton, Jr.
222,412



Michael M. Wood
36,351

11,378


Named Executive Officers
 
 
 
Jeffrey T. Mezger
5,124,347

4,540,599


Jeff J. Kaminski
581,849

448,615

64,482

Albert Z. Praw
382,762

266,580

45,716

Nicholas S. Franklin
88,079

38,334

39,751

Brian J. Woram
560,916

417,109

44,636

All directors and executive officers as a group (15 people)
8,717,989

6,785,811

242,406

(a)
No non-employee director or NEO owns more than 1% of our outstanding common stock, except for Mr. Mezger, who owns 5.2%. All non-employee directors and executive officers as a group own 8.6% of our outstanding common stock. The total ownership amounts reported for each non-employee director includes their respective aggregate equity-based compensation awards, as described under “Director Compensation.” Dr. Gabriel, Ms. Lora, Mr. Wood and Mr. Kaminski each hold their respective reported total ownership amounts in family trusts over which they have shared voting and investment control with their respective spouses. The amounts reported in this column for directors include the following directly owned shares of our common stock: Ms. Lora 2,043; and Mr. Patton 200,000.
(b)
The reported stock option amounts are the shares of our common stock that can be acquired within 60 days of February 24, 2017 through the exercise of Director SARs (as described under “Director Compensation”), or common stock option awards (for the NEOs). The respective reported Director SAR/stock option and restricted common stock amounts are included in the total ownership amounts reported for each non-employee director and NEO.
The table below shows the beneficial ownership of each stockholder known to us to beneficially own more than five percent of our common stock. Except for the Grantor Stock Ownership Trust (“GSOT”), the below information (including footnotes) is based solely on the stockholders’ respective Schedule 13G or Schedule 13G/A filings with the SEC, and reflect their respective determinations of their and/or their respective affiliates’ and subsidiaries’ ownership as of December 31, 2016. Some of the percentage ownership figures below have been rounded.
Stockholder(a)
Total Ownership
Percent of Class
FMR LLC
245 Summer Street, Boston, MA 02210
11,714,176

14%
BlackRock, Inc.
  55 East 52nd  Street, New York, NY 10055
9,703,137

11%
KB Home Grantor Stock Ownership Trust(b)
Wells Fargo Retirement and Trust Executive Benefits, One West Fourth Street, Winston-Salem, NC 27101
9,431,756

10%
Donald Smith & Co., Inc.
152 West 57th Street, New York, NY 10019
6,760,767

8%
The Vanguard Group, Inc.
100 Vanguard Blvd., Malvern, PA 19355
6,148,279

7%
AQR Capital Management, LLC
Two Greenwich Plaza, Greenwich, CT 06830
5,913,630

7%

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(a)
The stockholders’ respective voting and dispositive power with respect to their reported ownership is presented below, excluding the GSOT.
 
FMR LLC(i)
Blackrock, Inc.(ii)
Donald Smith & Co., Inc.(iii)
The Vanguard Group, Inc.(iv)
AQR Capital Management, LLC(v)
Sole voting power
254,076

9,517,953

6,445,867

113,666


Shared voting power



11,562

5,696,868

Sole dispositive power
11,714,176

9,703,137

6,760,767

6,027,414


Shared dispositive power



120,865

5,913,630

(i)
FMR LLC is a parent holding company. A wholly-owned FMR LLC subsidiary, Fidelity Management & Research Company, an investment adviser to various investment companies (“Fidelity Funds”), votes the shares of our common stock held by the Fidelity Funds under guidelines established by their Boards of Trustees.
(ii)
Blackrock, Inc. is a parent holding company. A BlackRock, Inc. subsidiary, BlackRock Fund Advisors, beneficially owned five percent or more of our outstanding shares.
(iii)
Donald Smith & Co., Inc. is an investment adviser to various institutional clients. Of the reported amount, the Donald Smith Long/Short Equities Fund, L.P. had sole voting power as to 28,318 shares and had sole dispositive power as to 6,760,767 shares.
(iv)
The Vanguard Group, Inc. is an investment adviser to various investment companies. Its subsidiaries, Vanguard Fiduciary Trust Company and Vanguard Investments Australia, Ltd., beneficially own 109,303 and 15,925 shares, respectively.
(v)
AQR Capital Management, LLC is an investment adviser and wholly-owned subsidiary of AQR Capital Management Holdings, LLC, a parent holding company. The companies jointly reported the beneficial ownership and the voting and dispositive power as shown above.
(b)
The GSOT’s percent of class figure is relative to the total number of shares of our common stock entitled to vote at the Annual Meeting, as described under “Annual Meeting, Voting and Other Information.” The GSOT holds these shares pursuant to a trust agreement with Wells Fargo Bank, N.A. as trustee. Both the GSOT and the trustee disclaim beneficial ownership of the shares. Under the trust agreement, our employees who hold unexercised common stock options under our employee equity compensation plans determine the voting of the GSOT shares. The number of GSOT shares that any one employee can direct the vote of depends on how many eligible employees submit voting instructions to the trustee. Employees who are also directors cannot vote GSOT shares; therefore, Mr. Mezger cannot direct the vote of any GSOT shares. If all eligible employees submit voting instructions, our other NEOs can direct the vote of the following amounts of GSOT shares: Mr. Kaminski 969,577; Mr. Praw 605,446; Mr. Franklin 287,022; and Mr. Woram 826,936; and all current executive officers as a group (excluding Mr. Mezger) 4,063,674.
Stock Ownership Requirements. Our non-employee directors and senior executives are subject to stock ownership requirements to better align their interests with those of our stockholders. Our Corporate Governance Principles require each of our non-employee directors to own at least five times the Board retainer (currently $500,000) in value of our common stock or common stock equivalents by the fifth anniversary of joining the Board (the directors serving on the Board on October 9, 2014 must meet the ownership threshold by the fifth anniversary of that date). Our executive stock ownership policy requires designated senior executives, including our NEOs, to own a certain number of shares within five years of becoming subject to the policy. The policy is discussed under “Equity Stock Ownership Policy.” Each of our non-employee directors and NEOs is in compliance with their respective requirements.
Section 16(a) Beneficial Ownership Reporting Compliance. Based solely on written representations furnished to us from reporting persons and our review of Forms 3, 4 and 5 and any amendments thereto furnished to us, we believe all such Forms required to be filed during 2016 under Section 16(a) of the Securities Exchange Act, as amended, were filed on a timely basis by our reporting persons.

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COMPENSATION DISCUSSION AND ANALYSIS
2016 Fiscal Year Performance Highlights
As a national homebuilder, we operate in a dynamic, complex and challenging business environment, and we produced solid results in our 2016 fiscal year against our aggressive performance goals.
These results were achieved across several short-term and long-term metrics, and demonstrate strong growth compared to the previous year and over the last three years. We also returned a significant amount of capital to stockholders with an opportunistic stock repurchase program and by maintaining our regular quarterly dividend.
Short-Term Operating Results
Total Revenues
Homebuilding Operating Income
Total Pretax Income
Net Income
ñ
 19%
 10%
 18%
 25%
Strategic Performance Indicators
 
 
 
Annual Net Orders
Year-End Backlog Value
ñ
 11%
 19%
Long-Term Performance Results
3-Yr. Revenue Growth
3-Yr. Cumulative Operating Income
3-Yr. Cumulative Net Income
Up
 71%
$407M
$1.1B
 
 
 
 
Stockholder Returns
TSR
Common Stock Repurchases
Cash Dividends
 
 13%
 $85.9M
 $8.6M
 
Pay for Performance — CEO Compensation
 
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• Our 2016 fiscal year TSR was 13%, while our CEO’s total 2016 compensation increased only 1% from 2015.
• Our CEO’s compensation was 90% performance-based.
• Our CEO’s long-term incentives were solely performance-oriented equity awards — performance-based restricted stock units (“PSUs”) and common stock options. PSUs constituted 60% of the total grant date fair value (up from 52% in 2015).
• Our CEO’s annual incentive award of $3.77 million was performance-based and formula-driven, and reflected our profitability growth and improved asset efficiency in 2016.
• Our CEO’s base salary has not changed since 2006.
 
Listening to our Stockholders — 95% Say on Pay Approval
At our 2016 Annual Meeting of Stockholders, approximately 95% of the shares of our common stock present or represented at the meeting supported our advisory vote on NEO compensation. We believe this high level of support reflected a substantial degree of stockholder confidence in our performance and executive compensation programs, as well as recognition of the positive steps we have taken to modify the design and implementation of our programs over the past few years in response to stockholder feedback. In 2016, we continued our longstanding practice of reaching out to our stockholders, including nearly all of our 25 largest stockholders, and directly engaged with stockholders representing over 50% of our outstanding shares.
In evaluating our executive compensation programs during 2016, the Compensation Committee took into account our engagements with stockholders and the support they expressed for our approach to linking executive compensation to our strategic and operational goals as well as to stockholder value creation. As a result, in our 2016 fiscal year, the Compensation Committee decided to retain the core components of our executive compensation programs and to apply the same general principles and philosophy as in the prior fiscal year with respect to its executive compensation decisions. The Compensation Committee welcomes and will continue to consider stockholders’ perspectives on executive compensation in the future.

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Compensation Governance
KEY FEATURES OF OUR EXECUTIVE COMPENSATION PROGRAMS
What We Do
What We Don’t Do
ü
Engage with and consider stockholder input in designing our executive pay programs.
×
Do not allow re-pricing of stock options without stockholder approval.
ü
Grant all of our CEO’s total long-term incentives in performance-oriented vehicles.
×
Do not provide new excise tax “gross-ups” to any officer or employee.
ü
Perform, under Compensation Committee oversight, annual risk assessments to determine that our employee compensation policies and programs are not likely to have a material adverse effect on us.
×
Do not, without stockholder approval, enter into new severance arrangements with executive officers above the limits specified in a longstanding policy, as described under “Severance Arrangements.”
ü
Link annual NEO incentive pay to objective, pre-established financial performance goals.
×
Do not allow our NEOs (or any employees or non-employee directors) to hedge or pledge their holdings of our securities.
ü
Engage at the sole direction of the Compensation Committee an independent compensation consultant.
×
Do not provide excessive perquisites; generally limited to market-competitive medical benefits and the opportunity to participate in a deferred compensation plan.
ü
Maintain robust stock ownership requirements for all NEOs.
×
Do not pay dividends or dividend equivalents on performance-based equity awards before they vest.
ü
Maintain a relevant peer group.
 
 
ü
Maintain clawback policies consistent with current federal law.
 
 

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Pay Program Overview
The components of, and rationale for, each element of our executive compensation program are described in the table below.
REWARD TYPE
DESCRIPTION
RATIONALE
BASE SALARY
• Fixed compensation delivered in cash on a semi-monthly basis.
• A market-aligned component of the overall pay package to provide a baseline level of pay; key to attracting and retaining highly-qualified executives.
ANNUAL INCENTIVE PROGRAM
• Our NEOs’ 2016 annual incentive payouts were performance-based and formula-driven, focused on pretax income and asset efficiency measures.
• Motivates achievement of core strategic short-term financial results.
LONG-TERM INCENTIVE PROGRAM
PSUs
• Constituted 60% of total grant date fair value for our CEO, and 25% for our other NEOs, both of which increased from 2015.
• 2016 grants have three separate three-year performance measures: cumulative adjusted earnings per share, average adjusted return on invested capital, and revenue growth versus our peer group.
• Focuses executives on achievement of long-term operating results and encourages retention.
• Establishes strong alignment with long-term stockholder interests through performance-based payouts in shares of our common stock.
Stock Options
• 40% of total grant date fair value for our CEO and for our other NEOs.
• Value realized only with share price appreciation, which is strongly influenced by performance.
Restricted Stock
• 35% of total grant date fair value for our NEOs other than our CEO.
• Encourages retention and provides additional alignment with stockholder interests in conjunction with stock ownership requirements.
RETIREMENT PROGRAMS AND PERQUISITES
• A 401(k) plan in which all eligible employees may participate.
• Legacy executive retirement and death benefit plans have been closed to new participants for over a decade.
• Market-competitive medical, dental and vision benefits and the opportunity to participate in a deferred compensation plan.
• Programs are aligned with market practices.
• Focuses executives on earning rewards through performance pay elements, not through entitlements.
As outlined above, we place a significant emphasis on at-risk, performance-based pay. As shown below, in 2016, our CEO received nearly 90% of his direct compensation (i.e., base salary and annual and long-term incentives) in performance-based and/or at-risk vehicles. For our other NEOs, such vehicles made up, on average, more than 75% of their direct compensation.
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NEO Compensation Components
Base Salaries. The Compensation Committee annually reviews and approves the base salaries of our CEO and our other NEOs. The Compensation Committee approves NEO base salaries after considering several factors, including an NEO’s experience, specific responsibilities, capabilities, individual performance and expected future contributions; our current and expected financial and operational results; and market rates to ensure competitiveness. In July 2016, each of our NEOs, except for our CEO, received a base salary increase, ranging from 1.8% to 2.7%, based on our growth over the prior 12 months, an evaluation of the factors listed above and our CEO’s recommendations.
2016 Annual Incentives. Our annual incentive program is structured to drive performance within a fiscal year period. As with our 2015 program, if a minimum total adjusted pretax income (“API”) was achieved, the 2016 program’s formula-driven funding would be determined based on two components: (a) API performance relative to threshold and target goals; and (b) API performance relative to an asset efficiency measure. API is our total pretax income excluding incentive and variable compensation expense and inventory impairment and land option contract abandonment charges. We view API as a comprehensive short-term measure of our executive officers’ performance, as it reflects their ability to generate profits by driving revenue, managing expenses and controlling fixed costs.
For the first component, the applicable threshold performance goal was considered reasonably achievable, yet uncertain to be met under then-expected market and business conditions in 2016. The target performance goal was designed to require significant management effort to achieve. The asset efficiency measure was selected to motivate our executive officers to generate profitable growth while increasing our return on inventory in 2016 in alignment with our core KB 2020 business strategy, which is described in our Annual Report.
As in 2015, the 2016 target payouts were set at 150% of base salary for our CEO and at 100% of base salary for each of our other NEOs. Maximum payouts were limited to a multiple of target, with our CEO at four times, our CFO at three times and our other NEOs at two times. The target and maximum annual incentive opportunities were designed to generate cash payout levels that, if achieved, would appropriately reward strong performance for 2016, and together with base salary and long-term incentives, provide competitive total direct compensation.
2016 Annual Incentive Program Component Determination. Because our 2016 API exceeded the applicable $100 million minimum amount, our NEOs became eligible to receive annual incentive payouts based on our performance under the two components of the 2016 program, as discussed below.
API Performance Relative to Goals Component. The Compensation Committee set a challenging API performance target of $183.0 million, which was approximately 10% higher than our actual 2015 API performance. Under the 2016 program, the Compensation Committee limited potential payouts under this component to no more than the NEOs’ individual target amounts, even if our actual API exceeded the target performance level. This was done to ensure that our NEOs focused on advancing both program components — pretax income and asset efficiency — to be able to earn above their target annual incentive amount under the program as a whole.
We achieved API of $234.1 million in 2016, or approximately 128% of target, which represented a robust 41% year-over-year increase in API. As explained above and shown in the table below, this performance led to strictly formula-based payouts of 100% of target to our NEOs, or $3.9 million in total, which constituted approximately 53.5% of total 2016 NEO annual incentive payouts.
2016 API Performance Levels and Payout Summary
 
Threshold
Target
Actual Result
API Performance Levels
$137.3 million
$183.0 million
$234.1 million
API Performance Levels Relative to Target
75%
100%
128%
Payout Level Ratios
50%
100%
100%
Participating executive officers could earn annual incentive payouts above their respective individual target payout levels (but limited to each such officer’s respective maximum payout level) only if and to the extent our API performance exceeded a minimum asset efficiency objective, as described below.
API Performance Relative to Asset Efficiency Component. Under this component, two percent of each dollar of API over our minimum asset efficiency objective, and three percent of each dollar of API above the 115% of target level, funded an additional annual incentive pool to be allocated among the participating executive officers. The Compensation Committee set the 2016 minimum asset efficiency objective at a one percent return on inventory for 2016, which was approximately $33.6 million. With the difference between our API and the minimum asset efficiency objective equal to $200.5 million, the asset efficiency performance pool was funded at a total level of approximately $4.2 million.

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The Compensation Committee determined the allocation of the asset efficiency performance pool among the participating executive officers based on pre-established potential payout ranges for each officer that took into consideration the officer’s 2016 annual incentive payout opportunities; historical relative annual incentive payouts by functional role/seniority level; and competitive market pay information. The potential payout range for our CEO was 0% — 60% of the additional annual incentive pool; for each of our other NEOs, the range was 0% — 12% of the pool. In determining allocations of the pool, the Compensation Committee considered the above factors as well as the NEOs’ individual performance contributions, which, other than for our CEO, were informed by our CEO’s assessment of their performance, and established a corresponding individual performance factor (“IPF”) within the above-described ranges. The table below summarizes the contributions of the NEOs that achieved an IPF.
NEO
2016 NEO Individual Performance Contributions
IPF
Mr. Mezger
Mr. Mezger once again provided excellent leadership in setting and driving performance against our top strategic objectives. In 2016, our pretax income grew by 18%, our net income rose 25%, and total revenues and year-end backlog value each increased by 19% (in each case compared to 2015 levels). Mr. Mezger also continued to play a critical role in promoting the KB Home brand as both a premier homebuilder and company in sustainability and innovation.
53.5%
Mr. Kaminski
Mr. Kaminski effectively managed our corporate liquidity and balance sheet as evidenced by the successful execution of our stock repurchase program in the 2016 first quarter, while we exceeded our target of maintaining a cash neutral position for the year. He also led the development of our comprehensive three-year strategic plan for returns-focused growth, and he improved and refined our investor relations strategy.
9.9%
Mr. Praw
Mr. Praw led our efforts in driving land investment and asset management, allowing us to achieve 20% growth in deliveries as compared to 2015, and positioning us to meet our 2017 delivery goals. He also successfully negotiated several land transactions on favorable terms.
9.1%
Mr. Woram
Mr. Woram achieved significant cost recoveries via settlements and mediations and ensured responsive and skillful transactional support to our divisions. He also improved our insurance programs both to better mitigate and manage risk, and to help expand our sub-contractor base company-wide.
8.1%
As a group, our NEOs received approximately $3.4 million under this component of the 2016 annual incentive program, which constituted approximately 46.5% of total 2016 NEO annual incentive payouts.
2016 Annual Incentive Payouts. The 2016 fiscal year annual incentive payouts the Compensation Committee approved for our NEOs are presented in the following table, which shows each NEO’s pre-established target and maximum payout levels, actual payout under each component of the program, and actual total 2016 annual incentive payout.
2016 Annual Incentive Program Payout Levels and Actual Payouts
NEO
Target
Maximum
API Performance Component Payout(a)
Asset Efficiency Component Payout
Total Payout
Mr. Mezger
$
1,500,000
 
$
6,000,000
 
$
1,500,000
 
$
2,271,237
 
$
3,771,237
 
Mr. Kaminski
680,000
 
2,040,000
 
680,000
 
420,285
 
1,100,285
 
Mr. Praw
565,000
 
1,130,000
 
565,000
 
386,323
 
951,323
 
Mr. Franklin
615,000
 
1,230,000
 
615,000
 
 
615,000
 
Mr. Woram
570,000
 
1,140,000
 
570,000
 
343,869
 
913,869
 
(a)
Annex 1 to this Proxy Statement contains a reconciliation of our pretax income calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) to the non-GAAP financial measure of API.
2017 Annual Incentive Program. The 2017 annual incentive program will be similar to our 2016 program, including a formula-driven funding structure determined by API and asset efficiency performance measures, and a minimum API performance level for our participating executive officers to qualify for any annual incentive payouts. The target performance level for the pretax income measure will require a double-digit percentage improvement over our actual 2016 performance.
Long-Term Incentives. In October 2016, the Compensation Committee approved long-term incentive awards to our NEOs consisting of PSUs, common stock options and shares of time-vesting restricted common stock, as shown in the table below. Largely to reinforce the alignment of pay with our performance and stockholder value creation, the long-term incentive awards granted to our CEO consisted solely of performance-oriented vehicles: PSUs and common stock options. In addition, most of the long-term incentive awards granted to our other NEOs consisted of these vehicles.

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NEO Long-Term Incentives Granted in 2016
NEO
PSUs
Restricted Stock
Stock Options
Total ($)
#
$
#
$
#
$
Mr. Mezger
148,057

$
2,400,004


$

274,952
 
$
1,600,001
 
$
4,000,005
 
Mr. Kaminski
18,507

299,998

25,910

420,001

82,486
 
480,003
 
1,200,002
 
Mr. Praw
12,724

206,256

17,813

288,749

56,709
 
330,001
 
825,006
 
Mr. Franklin
16,965

275,003

23,751

385,004

75,612
 
440,001
 
1,100,008
 
Mr. Woram
11,952

193,742

16,733

271,242

53,272
 
310,000
 
774,984
 
Performance-Based Restricted Stock Units. We have granted PSUs to our executive officers each year since 2012. As with prior PSU grants, the PSUs granted in 2016 (“2016 PSUs”) are designed to focus our executive officers on achieving important long-term financial objectives over a three-year period. The 2016 PSU measures described below are a combination of absolute and relative metrics that we believe are strong drivers of stockholder value creation and, if achieved, should generate positive outcomes for our business.
• Cumulative Adjusted Earnings Per Share (“AEPS”):
50% weight, measures profitability trajectory over the period
• Average Adjusted Return on Invested Capital (“AROIC”):
20% weight, measures profitability relative to capital deployed
• Revenue Growth Rank Versus Peers:
30% weight, measures ability to grow top-line relative to peers
The 2016 PSU amounts shown in the table above reflect a target award of shares of our common stock (“Award Shares”). Each 2016 PSU entitles a recipient to a grant of 0% to 200% of his Award Shares. The 2016 PSUs will vest based on our achieving, over the three-year period commencing on December 1, 2016 and ending on November 30, 2019, specified levels of performance against the three performance measures noted above. Vesting is generally subject to a recipient’s continued employment with us up to and including a date that is no later than 90 days after the end of the performance period (“Determination Date”). The performance for both the AEPS and AROIC measures will be determined on a tax-effected basis that excludes only pre-specified categories of compensation expense/charges; inventory impairment and land option contract abandonment charges; and other extraordinary items that are subject to Compensation Committee approval.
Performance for each measure is to be determined by the Compensation Committee on the Determination Date. In addition, as with prior PSU grants, each recipient of a 2016 PSU will be credited with an amount equal to the cash dividends that are paid in respect of one share of our common stock with a record date between the grant date and the Determination Date (“Dividend Equivalent”). At vesting, each recipient will receive a cash payment equal to the credited Dividend Equivalent in proportion to the Award Shares approved for grant to the recipient, if any. If performance over the performance period for all three 2016 PSU measures is below specific thresholds, recipients will not be granted any shares of common stock and will not receive a cash Dividend Equivalent payment. Except for death, disability or certain retirement circumstances, a recipient will forfeit any rights with respect to Award Shares and to any cash Dividend Equivalent payment if the recipient terminates service prior to the Determination Date.
As described in our 2015 and 2016 Proxy Statements, we granted PSUs to our executive officers in 2014 (“2014 PSUs”) and 2015 (“2015 PSUs”), respectively, that entitle the recipients to a grant of 0% to 200% of a target award of shares of our common stock based on our achieving, over the three-year period commencing on December 1, 2014 and ending on November 30, 2017 in the case of the 2014 PSUs, and over the three-year period commencing on December 1, 2015 and ending on November 30, 2018 in the case of the 2015 PSUs, specified levels of performance against the three performance measures noted above for the 2016 PSUs with the same potential forfeiture provisions. The following tables present our goals with respect to the 2014, 2015 and 2016 PSU performance measures. As shown below, the goals for both the AEPS and AROIC measures have increased year-over-year at each performance level. The expanded relative revenue growth performance ranking scale for the 2016 PSUs reflect the larger applicable peer group, as discussed under “Peer Group.”
Performance Measure
PSU Grant Year
Threshold Goal
Target Goal
Maximum Goal
AEPS
2014
$2.52
$3.04
$4.00
2015
$2.73
$3.31
$4.36
2016
$3.00
$3.64
$4.77
AROIC
2014
2.8%
3.3%
4.0%
2015
3.0%
3.5%
4.3%
2016
3.1%
3.6%
4.4%

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2013 — 2015 PSU Awards
2016 PSU Awards
Performance Measure
Performance (Rank)
Target Award Multiplier
Performance (Rank)
Target Award Multiplier
Relative Revenue Growth
(Adjustments to ranking levels and multipliers will be made if there are changes in the peer group composition over time, per the terms of the PSUs)
1 or 2
200%
1 or 2
200%
3
178%
3
180%
4
156%
4
160%
5
134%
5
140%
6
113%
6
120%
7
90%
7
100%
8
67%
8
80%
9
44%
9
60%
10
21%
10
40%
11 or 12
0%
11
20%
 
12 or 13
0%
The threshold performance levels outlined above are designed to be reasonably achievable, yet uncertain to be met under expected market and business conditions at the time of grant. Target performance levels are designed to require significant management effort to achieve, and maximum performance levels are designed to be measurably more difficult to achieve than target performance levels. Each of these performance levels directly scale to threshold, target and maximum payout opportunities.
As vesting for the 2014-2016 PSUs will not be determined until their respective Determination Dates, we cannot predict the extent to which any shares under these awards will ultimately vest. The table below shows our performance through the end of our 2016 fiscal year for the 2014 and 2015 PSUs’ applicable AEPS and AROIC goals. Relative revenue growth rank versus the applicable peer group will not be known until after the awards’ respective three-year performance periods end.
PSU Grant Year
Performance Measure
Performance as of November 30, 2016
2014
AEPS
Between the target and maximum levels
AROIC
Below the threshold level
2015
AEPS
Approximately at the maximum level
AROIC
Between the threshold and target levels
2013 PSU Awards. As described in our 2014 Proxy Statement, we granted PSUs to our executive officers in 2013 (“2013 PSUs”) that entitled recipients to a grant of 0% to 200% of a target award of shares of our common stock based on our achieving, over the three-year period commencing on December 1, 2013 and ending on November 30, 2016, specified levels of (a) average return on equity (“ROE”) performance, and (b) revenue growth performance relative to our peer group (with the respective rankings and multipliers as shown in the above table), each of which is determined using amounts calculated in accordance with GAAP without any adjustments. The applicable ROE performance measures and goals were as follows:
Performance Measure
Performance Goals
Target Award Multiplier
ROE
20% and above
200%
15%
100%
10%
25%
Below 10%
0%
Our actual performance with respect to the 2013 PSU measures is set forth in the table below.
2013 PSU Award Determinations
Performance Measure
Average Annual Performance
Aggregate Total Performance
Target Award Multiplier
ROE (60% weight)
32.5%
N/A
200%
Relative Revenue Growth (40% weight)
N/A
4th out of 12 peer companies
156%
Cumulative Multiplier
182%
The ROE performance result for the 2013 PSUs was above the challenging 20% maximum goal level and reflected our emergence from a three-year cumulative loss position and generation of $1.11 billion in net income during the performance period, including $825.2 million from the reversal of a substantial portion of our deferred tax asset valuation allowance at the

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end of the fourth quarter of our 2014 fiscal year. This reversal, which reflected our strong, consistent profitability, significantly strengthened our balance sheet and contributed to a nearly $1.19 billion increase in our stockholders’ equity over the same three-year span. All of these outcomes were uncertain at the time the 2013 PSUs were granted, and the Compensation Committee determined that they required significant management effort to achieve and sustain through the entirety of the performance period. The relative revenue growth performance for the 2013 PSUs reflected our 71% revenue growth over the applicable period, a result that placed us in the top third of the peer group. During 2015, two of the peer companies that were part of the original peer group for this performance measure merged to form a single peer company. Our ranking in the table above reflects our position at the end of the performance period among the post-merger peer group, consistent with the terms of the 2013 PSUs and based on the relative revenue growth performance rank-to-target award multiplier table above.
With the performance period for the 2013 PSUs completed, on February 15, 2017, the Compensation Committee approved share grants with respect to the 2013 PSUs as set forth in the table below. As Mr. Franklin joined us in 2015, he did not participate in the 2013 PSU program.
2013 PSU Awards
NEO
Target Award(#)
Actual Award(#)
Mr. Mezger
100,000
182,000
Mr. Kaminski
15,000
27,300
Mr. Praw
12,500
22,750
Mr. Woram
12,500
22,750
Stock Options and Restricted Stock. Each common stock option shown above in the NEO Long-Term Incentives Granted in 2016 table will vest ratably over a three-year period. Each share of restricted common stock shown in that same table will vest in three equal annual installments on October 25, 2017, 2018 and 2019, and entitles each recipient to receive all cash dividends that are paid in respect of one share of our common stock with a record date during the period between the grant date and an applicable vesting date. As with grants of these awards in prior years, except for death, disability or certain retirement circumstances, each NEO will forfeit any unvested restricted stock or stock options if his employment with us is terminated before an applicable vesting date.
Executive Compensation Decision-Making Process and Policies
The Compensation Committee oversees the decision-making process for our executive compensation and benefits policies and programs. In making executive compensation decisions, the Compensation Committee considers a variety of factors and data, most importantly our performance and individual executives’ performance, and takes into account the totality of compensation that may be paid. Among the data the Compensation Committee considers are financial and operational performance metrics for us, including comparisons to prior years’ performance and our current business plans, and to our peer group (which is described below); surveys and forecasts of comparative general industry and peer group compensation and benefits practices; and, at least annually, management-prepared tally sheets for senior executives with up to five years of compensation data.
Role of Our Management and Compensation Consultants. Our CEO and senior human resources and legal department executives provide information and recommendations to assist the Compensation Committee’s decision-making, and also advise on compliance and disclosure requirements. FWC, which the Compensation Committee directly retains, assists the Compensation Committee in the executive compensation decision-making process, as well as on compliance and disclosure requirements. FWC attends Compensation Committee meetings as needed. To maintain its independence and avoid any conflicts of interest, FWC may not work directly for our management unless the Compensation Committee pre-approves the work, including fees. During 2016, FWC did not provide any services that would have required such pre-approval. Based on its consideration of factors under NYSE listing standards, the Compensation Committee determined that FWC’s work did not raise any conflicts of interest, and therefore considered FWC to be independent.
Peer Group. Our peer group, as shown below, is composed solely of public companies that, like us, are engaged in high production homebuilding as their primary business. We compete with these companies for both homebuyers and management talent. The competition with these companies for human resources reflects our, and their, need to attract and retain high caliber management and other personnel with strong high production homebuilding expertise and experience to execute business activities in distinct local markets. Therefore, a principal focus in designing our compensation and benefits programs is to meet this critical competitive need.
The Compensation Committee, in consultation with FWC and our management, periodically reviews and considers changes to our peer group. The Compensation Committee principally considers the competitive factors described above, as well as relative total revenues and market capitalization among the peer group companies. Based on its review in July 2016, the Compensation Committee adjusted our peer group to include two homebuilders with comparable annual revenues (Taylor

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Morrison Home Corp. and Tri Pointe Group, Inc.), and remove a smaller homebuilder (M/I Homes, Inc.). As of their most recently filed proxy statements before the date of this Proxy Statement, each member of our peer group included us in its own peer group.
Our Peer Group
• Beazer Homes USA, Inc.
• Hovnanian Enterprises, Inc.
 • Meritage Homes Corp.
 • Taylor Morrison Home Corp.
 • CalAtlantic Group, Inc.
• Lennar Corp.
• NVR, Inc.
• Toll Brothers, Inc.
• D.R. Horton, Inc.
• M.D.C. Holdings, Inc.
• PulteGroup, Inc.
• Tri Pointe Group, Inc.
As of December 31, 2016, the reported total revenues (on a trailing 12-month basis) of the companies in our peer group were within a range of approximately one-half to 3.5 times our total revenues, and our total revenues approximated the median of the peer group. Also as of December 31, 2016, the market capitalization of our peer group was within a range of approximately one-third to 6.9 times ours.
Equity Stock Ownership Policy. Our longstanding executive stock ownership policy is intended to encourage, and has encouraged, our executives to increase their ownership of our common stock over time and to align their interests with our stockholders’ interests. Under the policy, designated senior executives are expected to achieve specific levels of common stock ownership within five years of joining us and, once achieved, maintain such ownership throughout their employment with us. The targeted common stock ownership levels for our NEOs are as follows:
Executive Position
Ownership Guideline
CEO
6.0 times base salary
Other NEOs
2.0 times base salary
Common stock ownership includes shares directly owned by the NEO, and shares are valued at the greater of the most recent closing price on a valuation date, or the closing price on the date shares are acquired. Designated executives are required to hold all vested net (after-tax) shares of time-vesting and performance-vesting restricted stock and up to 100% of net shares acquired through stock option exercises until their applicable stock ownership requirement is met, absent a hardship or other qualified exception. Each of our NEOs is in compliance with the requirements of the policy.
Prohibition on Hedging/Pledging of Our Securities. To further align their interests with those of our stockholders, our employees and non-employee directors cannot engage in short sales of our securities and cannot buy or sell puts, calls or any other financial instruments that are designed to hedge or offset decreases or increases in the value of our securities (including derivatives, prepaid variable forward contracts, equity swaps, collars and exchange funds). They also cannot hold our securities in a margin account or otherwise pledge our securities as collateral for any loan.
Equity-Based Award Grant Policy. Our equity-based award grant policy governs the timing and establishes certain internal controls over the grant of equity-based awards. The policy requires that the Compensation Committee (or the Board) approve all grants of equity-based awards, and their terms. The policy does not permit any delegation of granting authority for equity-based awards to our management. Per the policy, the exercise price of any stock option award will not be less than the closing price of our common stock on the NYSE on the grant date.
Clawback.  Under his Employment Agreement, our CEO must repay certain bonus and incentive- or equity-based compensation he receives if we are required to restate our financial statements as a result of his misconduct, consistent with Section 304 of the Sarbanes-Oxley Act of 2002. We will also recoup incentive-based compensation from our NEOs to the extent required under the Dodd-Frank Act and any rules, regulations and listing standards that may be issued under that Act.
Tax Implications of our Executive Compensation Program. Section 162(m) of the Code generally disallows a tax deduction for compensation over $1.0 million paid to “covered employees” (which, under current federal tax rules, are our NEOs other than the CFO) unless it is qualifying performance-based compensation. We generally design our compensation plans in order to maintain federal tax deductibility for executive compensation under Section 162(m), and the Compensation Committee considers the potential Section 162(m) impact when approving the compensation paid to our NEOs. However, because of the fact-specific nature of the applicable rules under Section 162(m), and limited binding regulatory guidance, we cannot guarantee that any compensation intended to be deductible under Section 162(m) will qualify as such. In addition, the Compensation Committee will approve compensation that may not be deductible under Section 162(m) where it believes it is in our and our stockholders’ best interests to do so.
Indemnification Agreements. We have entered into agreements with each NEO and certain other senior executives that provide them with indemnification and advancement of expenses to supplement what our Certificate of Incorporation and insurance policies provide, subject to certain limitations.

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Severance, Change in Control and Post-Termination Arrangements and Benefits
Severance Arrangements. Mr. Mezger’s Employment Agreement and our Executive Severance Plan, in which all of our NEOs participate, provide certain severance benefits, as discussed under “Potential Payments Upon Termination of Employment or Change in Control.” In considering our stockholders’ approval of an advisory proposal, in 2008 we adopted a policy under which we will obtain stockholder approval before paying severance benefits to an executive officer under a future severance arrangement in excess of 2.99 times the sum of the executive officer’s then-current base salary and target bonus. Future severance arrangements do not include arrangements existing when we adopted the policy or that we assume or acquire unless, in each case, any such severance arrangement is changed in a manner that materially increases its severance benefits.
Change in Control Arrangements. Since 2001, we have maintained a Change in Control Severance Plan (“CIC Plan”) that provides participants with certain benefits and accelerated equity award vesting, as discussed under “Potential Payments Upon Termination of Employment or Change in Control.” The CIC Plan is intended to enable and encourage our management to focus its attention on obtaining the best possible result for our stockholders in a change in control, to promote management continuity, and to provide income protection if there is an involuntary loss of employment.
Death Benefits. Our Death Benefit Only Plan, in which Messrs. Mezger and Praw participate, provides a $1 million death benefit to a participant’s designated beneficiary (plus an additional tax restoration amount sufficient to pay taxes on the benefit and the additional amount). We closed the plan to new participants beginning in 2006. Only term life insurance, with a $750,000 benefit level, has been made available to incoming eligible executives, including Messrs. Kaminski, Franklin and Woram. We also maintain a $400,000 life insurance death benefit for designated beneficiaries of Mr. Mezger.
Other Benefits. The majority of our health and welfare benefits are made available to all full-time employees, including our NEOs. During 2016, as in prior years, our NEOs were reimbursed for qualified out-of-pocket expenses that exceed amounts payable under our standard medical, dental and vision plans. Certain of our NEOs, and other employees, also participate in our Deferred Compensation Plan (“DCP”). These market-competitive benefits are offered to attract and retain key executive talent.
Retirement Programs. The KB Home 401(k) Savings Plan (“401(k) Plan”), a qualified defined contribution plan, is the only post-employment benefit program we offer to all full-time employees. Our NEOs and certain other employees can also participate in the unfunded nonqualified DCP to defer compensation they receive. The DCP allows participants to make pretax contributions of up to 75% of their base salary and 75% of their annual incentive compensation, and to select from one or more investment options in which their deferred compensation is deemed to be invested. As we do not provide a guaranteed rate of return under the DCP, a participant’s credited earnings depend on their investment elections. We provide a dollar-for-dollar match of 401(k) Plan and DCP contributions on up to an aggregate of 6% of a participant’s base salary. Matching contributions generally fully vest after five years of service. Deferred amounts together with any credited investment returns under the DCP are paid out to participants in a lump sum or in installments, commencing either at a participant-specified date during employment or upon termination of employment. NEO deferrals under the DCP are shown in the Non-Qualified Deferred Compensation During Fiscal Year 2016 table. We also maintain a supplemental non-qualified, unfunded retirement plan (“Retirement Plan”) for certain executives, including Mr. Mezger, whose participation is shown in the Pension Benefits During Fiscal Year 2016 table. The Retirement Plan, closed to new participants since 2004 with no additional benefit accruals to participants (other than cost-of-living adjustments at the same level applied to federal social security benefits), provides each participant with specific annual payments for 20 years that begin upon the later of reaching age 55, the tenth anniversary of a participation commencement date or the termination of employment with us. Mr. Mezger’s original annual benefit amount under the Retirement Plan was $450,000.
 
MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT
The Management Development and Compensation Committee of the Board of Directors has reviewed and discussed the above “Compensation Discussion and Analysis” with KB Home management. Based on this review and discussion, the Management Development and Compensation Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this Proxy Statement.
Management Development and Compensation Committee
 
 
 
 
Kenneth M. Jastrow, II, Chair
Timothy W. Finchem
Robert L. Johnson
Melissa Lora
 
 

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Summary Compensation Table
Name and Principal Position
Fiscal
Year
Salary
($)(a)
Bonus
($)(b)
Stock
Awards
($)(c)
Option
Awards
($)(c)
Non-Equity
Incentive Plan
Compensation
($)(d)
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(e)
All Other
Compensation
($)(f)
Total
($)
Jeffrey T. Mezger
Chairman, President and
Chief Executive Officer
2016
$
1,000,000

$

$
2,400,004

$
1,600,001

$
3,771,237

$
115,539

$
70,078

$
8,956,859

2015
1,000,000


1,984,360

1,828,403

3,974,964


69,196

8,856,923

2014
1,000,000

125,000

2,860,000

2,640,000

2,824,750

830,924

68,809

10,349,483

Jeff J. Kaminski
Executive Vice President and Chief Financial Officer
2016
671,250


719,999

480,003

1,100,285


52,893

3,024,430

2015
656,250


566,960

631,431

1,386,191


51,156

3,291,988

2014
620,833

62,500

550,000

550,000

1,280,316


47,459

3,111,108

Albert Z. Praw
Executive Vice President, Real Estate and
Business Development
2016
556,250


495,005

330,001

951,323


45,585

2,378,164

2015
541,250


417,760

439,256

1,200,439


43,803

2,642,508

2014
529,167

62,500

387,500

387,500

1,123,683


42,979

2,533,329

Nicholas S. Franklin
Executive Vice President, Strategic Operations
2016
606,250


660,007

440,001

615,000


28,518

2,349,776

2015
379,615

106,400

566,960

631,431

393,600


22,861

2,100,867

Brian J. Woram
Executive Vice President and
General Counsel
2016
564,167


464,984

310,000

913,869


46,468

2,299,488

2015
554,166


417,760

439,256

1,188,560


44,731

2,644,473

2014
544,167

62,500

387,500

387,500

1,144,114


43,459

2,569,240

(a)
Salary. As discussed under “Base Salaries,” annual base salary levels were increased in July 2016 to the following amounts for the respective NEO: Mr. Kaminski $680,000; Mr. Praw $565,000; Mr. Franklin $615,000; and Mr. Woram $570,000.
(b)
Bonus. In 2015, Mr. Franklin received a bonus in recognition of his assuming additional operational leadership responsibilities for a significant division within our Southern California homebuilding business. For 2014, these amounts reflect additional payments related to a 2011 performance cash award program. Performance cash awards ceased being a component of NEO compensation after the 2012 program’s grants vested in 2015.
(c)
Stock Awards and Option Awards. These amounts represent the aggregate grant date fair value of stock awards (consisting of both restricted stock and PSUs) and common stock options computed as described in Note 19 — Employee Benefit and Stock Plans in the Notes to the Consolidated Financial Statements in our Annual Report, except that estimates of forfeitures related to service-based vesting conditions have been disregarded. They do not represent realized compensation. The 2016 stock awards represent the grant date fair value of restricted stock and the probable award of shares of our common stock underlying the PSUs granted. The grant date fair value of the PSUs if maximum performance is achieved is as follows: Mr. Mezger $4,800,008; Mr. Kaminski $599,996; Mr. Praw $412,512; Mr. Franklin $550,006; and Mr. Woram $387,484.
(d)
Non-Equity Incentive Plan Compensation. The 2016 amounts reflect only annual incentive payouts. The amounts for 2015 and 2014 include the sum of applicable annual incentive and performance cash award payouts, as summarized below.
NEO
Year
Annual Incentive Payout
($)
Performance Cash Award Payout
($)
Total Non-Equity Incentive Plan Compensation
($)
Mr. Mezger
2015
$
2,488,297

$
1,486,667

$
3,974,964

2014
2,034,750

790,000

2,824,750

Mr. Kaminski
2015
940,191

446,000

1,386,191

2014
885,316

395,000

1,280,316

Mr. Praw
2015
799,039

401,400

1,200,439

2014
728,683

395,000

1,123,683

Mr. Franklin
2015
393,600


393,600

2014



Mr. Woram
2015
787,160

401,400

1,188,560

2014
749,114

395,000

1,144,114

(e)
Change in Pension Value and Nonqualified Deferred Compensation Earnings. These amounts (as applicable) reflect the increase in the actuarial present value of accumulated benefits under our Retirement Plan. These changes are tied to interest rate fluctuations and do not reflect any cash or other compensation received by Mr. Mezger. The respective amounts attributed to the change in actuarial present value in 2016, 2015 and 2014 were $115,539, $(84,667) and $830,924.
(f)
All Other Compensation. The amounts shown consist only of the following items:
401(k) Plan and DCP Matching Contributions. The respective aggregate 2016, 2015 and 2014 401(k) Plan and DCP matching contributions we made to our NEOs were as follows: Mr. Mezger $55,900, $55,900 and $55,600; Mr. Kaminski $40,275, $39,375 and

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Table of Contents

$35,750; Mr. Praw $33,375, $32,475 and $29,125; Mr. Franklin $15,900, $15,900 and $0; and Mr. Woram $33,850, $32,950 and $31,750.
Premium Payments. The respective aggregate premiums we paid for our NEOs in 2016, 2015 and 2014 on supplemental medical expense reimbursement plans and life insurance policies, as described under “Other Benefits,” were as follows: Mr. Mezger $14,178, $13,296 and $13,209; Mr. Kaminski $12,618, $11,781 and $11,709; Mr. Praw $12,210, $11,328 and $11,241; Mr. Franklin $12,618, $6,961 and $0; and Mr. Woram $12,618, $11,781 and $11,709.
Grants of Plan-Based Awards During Fiscal Year 2016
Name
Grant
Date(a)
Type of
Award
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards
Estimated Possible Payouts Under
Equity Incentive Plan Awards(b)
All Other 
Stock 
Awards: 
Number 
of Shares 
of Stock 
or Units 
(#) 
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Exercise
or Base
Price of
Option
Awards
($/Sh)
Grant
Date
Fair
Value of
Stock and
Option
Awards
($)(c)
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Mr. Mezger
2/10/2016
Annual Incentive
$
750,000

$
1,500,000

$
6,000,000

 
 
 
 
 
 
 
10/6/2016
PSUs
 

 

 

34,793

148,057

296,114



 
 
$
2,400,004

10/6/2016
Stock Options
 
 
 
 
 
 
 

274,952

$
16.21

1,600,001

Mr. Kaminski
2/10/2016
Annual Incentive
340,000

680,000

2,040,000

 
 
 
 

 

 

 

10/16/2016
PSUs
 
 
 
4,349

18,507

37,014



 
 
299,998

10/16/2016
Restricted Stock
 

 

 

 
 
 
25,910

 
 
420,001

10/16/2016
Stock Options
 
 
 
 
 
 
 

82,486

16.21

480,003

Mr. Praw
2/10/2016
Annual Incentive
282,500

565,000

1,130,000

 
 
 
 

 

 

 

10/16/2016
PSUs
 
 
 
2,990

12,724

25,448



 
 
206,256

10/16/2016
Restricted Stock
 

 

 

 
 
 
17,813

 
 
288,749

10/16/2016
Stock Options
 
 
 
 
 
 
 

56,709

16.21

330,001

Mr. Franklin
2/10/2016
Annual Incentive
307,500

615,000

1,230,000

 
 
 
 

 

 

 

10/16/2016
PSUs
 
 
 
3,987

16,965

33,930



 
 
275,003

10/16/2016
Restricted Stock
 

 

 

 
 
 
23,751

 
 
385,004

10/16/2016
Stock Options
 
 
 
 
 
 
 

75,612

16.21

440,001

Mr. Woram
2/10/2016
Annual Incentive
285,000

570,000

1,140,000

 
 
 
 

 

 

 

10/16/2016
PSUs
 
 
 
2,809

11,952

23,904



 
 
193,742

10/16/2016
Restricted Stock
 

 

 

 
 
 
16,733

 
 
271,242

10/16/2016
Stock Options
 
 
 
 
 
 
 

53,272

16.21

310,000

(a)
Grant Date. The date shown for each award is the date the Compensation Committee approved the award.
(b)
Estimated Possible Payouts Under Equity Incentive Plan Awards. If there is a payout of the PSUs, “Threshold” represents the lowest possible payout if threshold performance is achieved for each performance measure, and “Maximum” reflects the highest possible payout (200% of the target award of shares granted). The performance measures are described under “Performance-Based Restricted Stock Units.” If threshold performance is not achieved on all three measures, the NEOs will not receive any payout of the PSUs.
(c)
Grant Date Fair Value of Stock and Option Awards. The grant date fair value for each award is computed as described in footnote (c) to the Summary Compensation Table. The 2016 stock awards represent the grant date fair value of restricted stock and the probable award of shares of our common stock underlying the PSUs granted as of the grant date.

24

Table of Contents

Outstanding Equity Awards at Fiscal Year-End 2016
Name
Grant Date
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(a)

Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number
of Shares
or Units
of Stock
That
Have
Not
Vested
(#)(b)
Market
Value of
Shares or
Units of
Stock
That
Have
Not
Vested
($)(c)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That 
Have Not
Vested
(#)(d)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)(d)
Mr. Mezger
2/13/2002
102,090

 
 
$
20.07
 
2/13/2017
 
 
 
 
5/8/2002
44,516

 
 
25.63
 
5/8/2017
 
 
 
 
10/7/2002
400,000

 
 
21.51
 
10/7/2017
 
 
 
 
10/24/2003
74,667

 
 
33.24

(e) 
10/24/2018
 
 
 
 
10/24/2003
149,333

 
 
34.05

(e) 
10/24/2018
 
 
 
 
10/22/2004
80,750

 
 
40.90
 
10/22/2019
 
 
 
 
10/22/2004
119,250

 
 
40.90
 
10/22/2019
 
 
 
 
7/12/2007
325,050

 
 
36.19
 
7/12/2017
 
 
 
 
10/4/2007
137,500

 
 
28.10
 
10/4/2017
 
 
 
 
10/1/2009
489,258

 
 
15.44
 
10/1/2019
 
 
 
 
8/13/2010
397,818

 
 
19.90
 
10/2/2018
(f) 
 
 
 
 
10/7/2010
240,000



 
11.06
 
10/7/2020
 
 
 
 
10/7/2010
260,000

 

11.06
 
10/7/2020
 
 
 
 
11/9/2010
412,500

 
 
28.10
 
10/4/2017
(f) 
 
 
 
 
10/6/2011
335,000


 
6.32
 
10/6/2021
 
 
 
 
10/6/2011
365,000


 
6.32
 
10/6/2021
 
 
 
 
10/10/2013
150,000

 
 
16.63
 
10/10/2023
 
 
 
 
10/10/2013
 
 
 
  
 
182,000

$
2,882,880





10/9/2014
346,866

173,434

 
14.62
 
10/9/2024
 
 
 
 
10/9/2014
 
 
 
 
 
 
 
195,622

$
3,098,652

10/8/2015
111,000

222,000

 
14.92
 
10/8/2025
 
 
 
 
10/8/2015
 
 
 
 
 
 
 
133,000

2,106,720

10/6/2016
 
274,952

 
16.21
 
10/6/2026
 
 
 
 
10/6/2016
 
 
 
 
 
 
 
148,057

2,345,223

Mr. Kaminski
7/15/2010
45,017


 
11.26
 
7/15/2020
 
 
 

 

10/7/2010
118,000



 
11.06
 
10/7/2020
 
 
 
 
10/6/2011
125,000



 
6.32
 
10/6/2021
 
 
 
 
10/10/2013
50,000



 
16.63
 
10/10/2023
 
 
 
 
10/10/2013
 
 
 
 
 
27,300

432,432





10/9/2014
72,264

36,132

 
14.62
 
10/9/2024
 
 
 
 
10/9/2014
 
 
 
 
 
22,572

357,540

15,048

238,360

10/8/2015
38,334

76,666

 
14.92
 
10/8/2025
 
 
 
 
10/8/2015
 
 
 
 
 
16,000

253,440

14,000

221,760

10/6/2016
 
82,486

 
16.21
 
10/6/2026
 
 
 
 
10/6/2016
 
 
 
 
 
25,910

410,414

18,507

293,151


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Table of Contents

Name
Grant Date
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)(a)

Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number
of Shares
or Units
of Stock
That
Have
Not
Vested
(#)(b)
Market
Value of
Shares or
Units of
Stock
That
Have
Not
Vested
($)(c)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That 
Have Not
Vested
(#)(d)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)(d)
Mr. Praw
10/6/2011
150,000


 
$
6.32
 
10/6/2021
 
 

 

 

10/10/2013
39,000



 
16.63
 
10/10/2023
 
 
 
 
10/10/2013
 
 
 
 
 
22,750

$
360,360





10/9/2014
50,913

25,457

 
14.62
 
10/9/2024
 
 
 
 
10/9/2014
 
 
 
 
 
15,903

251,904

10,602

$
167,936

10/8/2015
26,667

53,333

 
14.92
 
10/8/2025
 
 
 
 
10/8/2015
 
 
 
 
 
12,000

190,080

10,000

158,400

10/6/2016
 
56,709

 
16.21
 
10/6/2026
 
 
 
 
10/6/2016
 
 
 
 
 
17,813

282,158

12,724

201,548

Mr. Franklin
10/8/2015
38,334

76,666

 
14.92
 
10/8/2025
 
 
 

 

10/8/2015
 
 
 
 
 
16,000

253,440

14,000

221,760

10/6/2016
 
75,612

 
16.21
 
10/6/2026
 
 
 
 
10/6/2016
 
 
 
 
 
23,751

376,216

16,965

268,726

Mr. Woram
7/15/2010
79,529


 
11.26
 
7/15/2020
 
 
 

 

10/7/2010
111,000



 
11.06
 
10/7/2020
 
 
 
 
10/6/2011
110,000



 
6.32
 
10/6/2021
 
 
 
 
10/10/2013
39,000



 
16.63
 
10/10/2023
 
 
 
 
10/10/2013
 
 
 
 
 
22,750

360,360





10/9/2014
50,913

25,457

 
14.62
 
10/9/2024
 
 
 
 
10/9/2014
 
 
 
 
 
15,903

251,904

10,602

167,936

10/8/2015
26,667

53,333

 
14.92
 
10/8/2025
 
 
 
 
10/8/2015
 
 
 
 
 
12,000

190,080

10,000

158,400

10/6/2016
 
53,272

 
16.21
 
10/6/2026
 
 
 
 
10/6/2016
 
 
 
 
 
16,733

265,051

11,952

189,320

(a)
Number of Securities Underlying Unexercised Options-Unexercisable. Stock option awards generally vest in equal installment amounts (i.e., ratably) over a three-year period.
(b)
Number of Shares or Units of Stock That Have Not Vested. Includes restricted stock grants and the shares of our common stock the Compensation Committee approved for grant on February 15, 2017 pursuant to the 2013 PSUs based on our performance through the performance period, as described under “2013 PSU Awards.” Upon their approval for grant to the recipients, the earned 2013 PSU-related shares became fully vested, with no restrictions on transferability or otherwise. The restricted stock awards granted in 2014 will vest at the conclusion of the three-year vesting period from the grant date. The 2015 and 2016 restricted stock awards will vest in three equal annual installments on October 25, 2017 and 2018, and on October 25, 2017, 2018 and 2019, respectively.
(c)
Market Value of Shares That Have Not Vested. The market value shown is based on the price of our common stock on November 30, 2016, which was $15.84.
(d)
Equity Incentive Plan Awards: Number and Market Value of Unearned Units. The awards shown are the PSUs granted to our NEOs in 2014, 2015 and 2016, reflecting target award amounts as of November 30, 2016 and the market price of our common stock on November 30, 2016, was $15.84. These PSUs will vest based on our achievement of certain performance measures over an applicable three-year performance period.
(e)
As a result of an internal review of our employee stock option grant practices in 2006, we adjusted the exercise prices of certain of our employee stock options in order to comply with Section 409A of the Code. The exercise price for a certain portion of the stock option grant made on October 24, 2003 was not adjusted.
(f)
Through participation in two exchange offers that we conducted in 2010, these common stock options replaced cash-settled stock appreciation right awards that had been previously granted to the NEO as long-term ince