UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant☒

Filed by a Party other than the Registrant☐

Check the appropriate box:

 

 

 

 

 

 

 

 

March 23, 2016

Dear Stockholders:

It is my pleasure to invite you to TopBuild Corp.’s 2016 Annual Meeting of Stockholders.  The Annual Meeting will be held on Monday, May 2, 2016, at 10:00 AM Eastern Time, at the Hyatt Regency Orlando International Airport, 9300 Jeff Fuqua Boulevard, Orlando, Florida 32827.

We are furnishing proxy materials to our stockholders via the Internet, which we believe expedites stockholders’ receipt of proxy materials while also lowering our costs and reducing the environmental impact of our Annual Meeting.  The Notice of Internet Availability of Proxy Materials (the “Notice”) that you received in the mail provides instructions on how to access and review this Proxy Statement and our 2015 Annual Report as well as how to vote by Internet.  If you received the Notice and would still like to receive a printed copy of our proxy materials, please follow the instructions for requesting these materials included in the Notice.

Details regarding admission to the Annual Meeting and the business to be conducted are more fully described in the accompanying Notice of 2016 Annual Meeting of Stockholders and Proxy Statement.  The proxy materials also provide information about TopBuild that you should consider when voting your shares.

If your brokerage firm, bank, broker-dealer or other similar organization is the holder of record of your shares (i.e., your shares are held in “Street Name”), you will receive voting instructions from the holder of record.  You must follow these instructions in order for your shares to be voted.  Your broker is required to vote those shares in accordance with your instructions.

We hope you will be able to attend our Annual Meeting.  If you cannot attend, it is important that your shares be represented.  Your vote is very important to us.  We urge you to read the accompanying Proxy Statement carefully and vote for the Board’s nominees and in accordance with the Board’s recommendations on the other proposals.  Whether or not you are planning to attend the Annual Meeting, please vote your shares as soon as possible by telephone or Internet, or, if you requested to receive printed proxy materials, by signing, dating and returning the enclosed proxy card in the postage-paid envelope provided.  Further instructions are provided in the Notice, the proxy card or the voting instruction form provided by your broker.  Please vote promptly.

Thank you for your continued support.  If you have any questions, please contact Morrow & Co., LLC, the firm that is assisting us in connection with the Annual Meeting, at (203) 658-9400.

Sincerely yours,

Jerry Volas

Chief Executive Officer and Director

 

Table of Contents

 

 

 

 

 

 

TopBuild Corp.

260 Jimmy Ann Drive

Daytona Beach, Florida 32114

 

Notice of 2016 Annual Meeting of Stockholders

To the Stockholders of TopBuild Corp.:

The 2016 Annual Meeting of Stockholders of TopBuild Corp. will be held at the Hyatt Regency Orlando International Airport, 9300 Jeff Fuqua Boulevard, Orlando, Florida 32827 on Monday, May 2, 2016, at 10:00 AM Eastern Time, for the following purposes:

Only stockholders of record at the close of business on March 10, 2016, may vote at the meeting.

On or about March 23, 2016, we began mailing a Notice of Internet Availability of Proxy Materials (the “Notice”) to all stockholders of record as of March 10, 2016, and posted our proxy materials on the website referenced in the Notice (www.proxyvote.com).  As more fully described in the Notice, all stockholders may choose to access our proxy materials on the website referred to in the Notice or may request a printed set of our proxy materials.  In addition, the Notice and website provide information regarding how you may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

Your vote is very important.  Stockholders may vote their shares (1) in person at the Annual Meeting, (2) by telephone, (3) through the Internet, or (4) by completing and mailing a proxy card if you receive your proxy materials by mail.  Specific instructions for voting by telephone or through the Internet (including voting deadlines) are included in the Notice and in the proxy card.  For specific instructions on how to vote your shares, please refer to the instructions on the Notice in the section titled “GENERAL INFORMATION ABOUT THE MEETING AND VOTING” of this proxy statement or, if you requested to receive printed proxy materials on the enclosed proxy card.

 

 

PROXY SUMMARY

This summary highlights information contained elsewhere in this proxy statement.  This summary does not contain all of the information that you should consider, and you should read this entire proxy statement carefully before voting.  Page references are supplied to help you find further information in this proxy statement.

Annual Meeting of Stockholders

Who May Vote

You may vote if you were a stockholder of record at the close of business on the record date.  The proxy materials are first being sent on or about March 23, 2016, to those persons who are entitled to vote at the Annual Meeting.

How to Cast Your Vote

You can vote by any of the following methods:

Internet (www.proxyvote.com) until May 1, 2016; 

Telephone (1-800-690-6903) until May 1, 2016;

Complete, sign and return your proxy by mail by May 1, 2016; or

Voting Matters

We are asking you to vote on the following proposals at the Annual Meeting:

 

Board and Governance Highlights (page 11)

Board Nominees (page 15)

The Board has nominated Mr. Archer and Mr. Covington as Class I Directors, to hold office for a term of three (3) years or until their respective successors have been duly elected and qualified.

The following table provides summary information about each director nominee.

 

Auditor (page 45)

We are asking our stockholders to approve the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016.  Below is summary information about fees billed or estimated to be billed to us by PricewaterhouseCoopers LLP for services provided in the year ended December 31, 2015:

 

Executive Compensation (page 29)

Our compensation programs are designed to attract, retain and incentivize executive officers to focus on critical business objectives, to appropriately balance risks and rewards and to effectively lead our business.  The fundamental principles of our compensation programs are to reward executive officers to a significant degree based on company performance, both in achieving performance goals and by making effective strategic decisions, and to align executive officers’ interests with the long-term interests of stockholders.

We believe that having a significant ownership interest in stock is critical to aligning the interests of executive officers with the long-term interests of stockholders.  Accordingly, equity grants in the form of restricted stock awards and stock options with extended vesting periods, as well as awards that only vest upon the achievement of performance goals, are an important component of compensation for executive officers.  The value ultimately realized from equity awards depends on the long-term performance of our common stock.

Advisory Vote to Approve Executive Compensation (page 46)

We are asking our stockholders to approve, on an advisory basis, the compensation of our named executive officers.  We believe our compensation programs and practices are appropriate and effective in implementing our compensation philosophy, as they support achieving our goals with appropriate levels of risk and are aligned with stockholder interests, including:

Advisory Vote on Frequency of Future Advisory Votes to Approve Executive Compensation (page 47)

We are asking our stockholders to approve, on an advisory basis, the frequency of “every year” for future advisory votes on the compensation of our named executive officers.  In formulating its recommendation on this proposal, the Board considered that an annual advisory vote on executive compensation is consistent with our policy of seeking input from our stockholders on corporate governance matters and our executive compensation philosophy, policies and practices on a routine basis.  An annual vote will give our stockholders the opportunity to react promptly to emerging trends in compensation, provide feedback before those trends become pronounced over time and give the Board and the Compensation Committee the opportunity to evaluate advisory votes on executive compensation each year.  An annual vote also complements our goal of creating and implementing compensation programs that enhance stockholder value and maximize accountability.

Vote to Approve Amended and Restated TopBuild Corp. 2015 Long Term Stock Incentive Plan (page 48)

We are asking our stockholders to approve the Amended and Restated TopBuild Corp. 2015 Long Term Stock Incentive Plan (the “Amended LTIP”).  Stockholder approval of the Amended LTIP is being sought primarily to secure the continued deductibility of performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) prior to the expiration of a transition rule for spin-off companies that only affords such deductibility for the transition period.  The Amended LTIP also makes certain other changes as described further herein.  No additional shares are being requested under the Amended LTIP at this time.

PROXY STATEMENT

2016 Annual Meeting

The 2016 Annual Meeting of Stockholders of TopBuild Corp. (the “Annual Meeting”) will be held at 10:00 AM Eastern Time on May 2, 2016, for the purposes set forth in the accompanying Notice of 2016 Annual Meeting of Stockholders.  This Proxy Statement is being furnished to stockholders of record as of March 10, 2016, of TopBuild Corp. in connection with the solicitation of proxies by the Board of Directors of the Company (the “Board”) for the Annual Meeting and at any adjournments or postponements of the Annual Meeting.  We will refer to TopBuild Corp. in this proxy statement as “we,” “us,” “our,” the “Company” or “TopBuild.”

TopBuild

On June 30, 2015 (the “Distribution Date”), we became an independent, publicly traded company as a result of Masco Corporation’s (“Masco”) distribution of 100% of the shares of TopBuild to holders of Masco’s common stock (the “Separation” or the “Spin-Off”).  Our common stock began trading “regular way” under the ticker symbol “BLD” on the New York Stock Exchange (“NYSE”) on July 1, 2015.  As a result of the Spin-Off, TopBuild holds the assets and liabilities of the Installation and Other Services Business previously owned by Masco.  For further information regarding the Spin-Off, see our Information Statement filed as an exhibit to Amendment No. 3 to our Registration Statement on Form 10 filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 8, 2015.

We are the leading installer and distributor of insulation products to the United States construction industry, based on revenue.  We provide insulation installation services nationwide through our TruTeam contractor services business, which has over 180 installation branches located in 44 states.  We distribute insulation and other building products including rain gutters, fireplaces, closet shelving and roofing materials through our Service Partners business, which has over 70 distribution centers in 35 states.  Further, through our Home Services subsidiary and our Environments For Living® program, we offer a number of services and tools designed to assist builders with applying the principles of building science to new home construction.

Our principal executive office is located at 260 Jimmy Ann Drive, Daytona Beach, Florida 32114.  Our telephone number is (386) 304-2200 and our website is located at www.topbuild.com.  Our common stock trades on the NYSE under the symbol BLD.

GENERAL INFORMATION ABOUT THE MEETING AND VOTING

Q:Why is TopBuild distributing this Proxy Statement?

A:We are distributing this Proxy Statement and, if you requested to receive printed proxy materials, the enclosed proxy card, because the Board is soliciting your proxy to vote at the Annual Meeting (to be held on May 2, 2016) and at any postponements or adjournments of the Annual Meeting.  This Proxy Statement summarizes information that is intended to assist you in making an informed vote on the proposals described in this Proxy Statement.

Q:Why did I receive a Notice of Internet Availability of Proxy Materials?

A:We have elected to take advantage of SEC rules that allow companies to furnish proxy materials to stockholders via the Internet.  If you received a Notice of Internet Availability of Proxy Materials (a “Notice”) by mail, you will not receive a printed copy of the proxy materials unless you specifically request one.  The Notice instructs you on how to access and review this proxy statement and our 2015 Annual Report as well as how to vote by Internet.  If you received the Notice and would still like to receive a printed copy of our proxy materials, you should follow the instructions for requesting these materials included in the Notice.  As stated in the Notice, the request should be made on or before April 18, 2016, to facilitate timely delivery.

We will mail the Notice to certain stockholders by March 23, 2016.  We will also mail a printed copy of this proxy statement and form of proxy to certain stockholders, and we expect that mailing to begin on March 23, 2016.

Q:Who is entitled to vote at the Annual Meeting?

A:Only stockholders of record as of the close of business on March 10, 2016 (the “Record Date”), are entitled to vote at the Annual Meeting.  On that date, there were 38,534,827 shares of our common stock outstanding and entitled to vote.

Q:How many shares must be present to conduct the Annual Meeting?

A:We must have a “quorum” present in person or by proxy to hold the Annual Meeting.  A quorum is achieved through the presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the total voting power of all outstanding securities of the Company generally entitled to vote at the Annual Meeting.  Abstentions and broker non-votes (defined below) will be counted for the purpose of determining the existence of a quorum.

Q:What am I voting on?

A:Five (5) proposals are scheduled for a vote:

As of the date of this proxy statement, our Board does not know of any other business to be presented at the Annual Meeting. 

Q:How does the Board recommend that I vote?

A:The Board’s recommendation for each proposal is set forth in this proxy statement together with the description of each proposal.  In summary, the Board recommends a vote:

Q:How do I vote before the Annual Meeting?

A:You may vote your shares before the Annual Meeting (1) by telephone, (2) through the Internet, or (3) by completing and mailing a proxy card if you receive your proxy materials by mail.  If you

vote by telephone or via the Internet, you do not need to return your proxy card or voting instruction form.  With respect to the election of directors, you may vote “FOR” all of the nominees to the Board, you may withhold authority to vote for any nominee you specify or you may withhold authority to vote for both of the nominees as a group.  For the advisory votes on the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016, and the compensation of the Company’s named executive officers, you may vote “FOR” or “AGAINST” or abstain from voting.  For the advisory vote on the frequency of future nonbinding advisory votes on the compensation of the Company’s named executive officers, you may vote for “EVERY YEAR,” “EVERY TWO YEARS,” “EVERY THREE YEARS” or abstain from voting.  For the vote on the approval of the Amended LTIP, you may vote “FOR” or “AGAINST” or abstain from voting.

Q:May I vote at the Annual Meeting?

A:Yes, you may vote your shares at the Annual Meeting if you attend in person.  Even if you plan to attend the Annual Meeting in person, we recommend that you also submit your proxy or voting instructions as described above, or as directed by your broker if you hold your shares through a broker, so that your vote will be counted if you later decide not to attend the Annual Meeting.

Q:What is the difference between holding shares as a stockholder of record and as a beneficial owner?

A:If your shares are registered in your name on the Company’s books and records or with our transfer agent, Computershare, you are the “stockholder of record” of those shares, and this Notice of Annual Meeting and Proxy Statement and any accompanying documents have been provided directly to you by us.  In contrast, if you purchased your shares through a brokerage or other financial intermediary, the brokerage or other financial intermediary will be the “stockholder of record” of those shares.  Generally, when this occurs, the brokerage or other financial intermediary will automatically put your shares into “Street Name,” which means that the brokerage or other financial intermediary will hold your shares in its name or another nominee’s name and not in your name, but will keep records showing you as the real or “beneficial owner.”  If you hold shares beneficially in Street Name, this Notice of Annual Meeting and Proxy Statement and any accompanying documents have been forwarded to you by your broker, bank or other holder of record.

Q:How do I vote if my bank or broker holds my shares in “Street Name”?

A:If you hold shares beneficially, you may vote by submitting the voting instruction form you receive from your broker.  Telephone and Internet voting may also be available – please refer to the voting instruction card provided by your broker.

Q:How many votes do I have?

A:Each share of common stock that you own as of the close of business on the Record Date (March 10, 2016) entitles you to one (1) vote on each matter voted upon at the Annual Meeting.  As of the close of business on the Record Date, there were 38,534,827 shares of our common stock outstanding.

Q:May I change my vote?

A:Yes, you may change your vote or revoke your proxy at any time before the vote at the Annual Meeting.  You may change your vote prior to the Annual Meeting by executing a valid proxy card bearing a later date and delivering it to us prior to the Annual Meeting at TopBuild Corp., Attention: Vice President, General Counsel and Secretary, 260 Jimmy Ann Drive, Daytona Beach, Florida 32114.  Submitting a proxy card will revoke votes you may have made with a previous proxy card.  You may withdraw your vote at the Annual Meeting and vote in person by giving written notice to our Vice President, General Counsel and Secretary (the “Secretary”).  You

may also revoke your vote without voting by sending written notice of revocation by May 1, 2016, to the Secretary at the above address.  Attendance at the meeting will not by itself revoke a previously granted proxy.

Q:How are my shares voted if I submit a proxy card but do not specify how I want to vote?

A:If you submit a properly executed proxy card but do not specify how you want to vote, your shares will be voted “FOR” the election of each of the Company’s nominees for director; “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2016; “FOR” advisory approval of the compensation of the Company’s named executive officers; “EVERY YEAR” for the advisory approval of the frequency of future nonbinding advisory votes on the compensation of the Company’s named executive officers; and “FOR” the approval of the Amended LTIP.  

If other business is properly brought before the Annual Meeting, the persons named on the proxy card will vote on such other matters in their discretion.

If you hold your shares beneficially, such as through a broker, and not of record, see the question above titled “How do I vote if my bank or broker holds my shares in ‘Street Name’?”

Q:How many votes are needed to approve each of the proposals?

A:

 

Election of Directors.  Directors will be elected on a plurality basis.  This means that the two (2) candidates receiving the highest number of “FOR” votes will be elected.  A properly executed proxy card marked “WITHHOLD” with respect to the election of a director nominee will be counted for purposes of determining if there is a quorum at the Annual Meeting, but will not be considered to have been voted for or against the director nominee.  Withhold votes and broker non-votes will have no effect on the outcome of the election.

PricewaterhouseCoopers LLP Appointment.  The affirmative vote of the holders of a majority of the votes cast is required for approval of this proposal.  Abstentions and broker non-votes will not be counted as votes cast, although they will have the practical effect of reducing the number of affirmative votes required to achieve a majority by reducing the total number of shares from which the majority is calculated.

Compensation of Named Executive Officers.  The affirmative vote of the holders of a majority of the votes cast is required for approval of this proposal.  Abstentions and broker non-votes will not be counted as votes cast, although they will have the practical effect of reducing the number of affirmative votes required to achieve a majority by reducing the total number of shares from which the majority is calculated.

Frequency of Advisory Approval Votes on Executive Compensation.    The affirmative vote of the holders of a majority of the votes cast is required for approval of this proposal.  Abstentions and broker non-votes will not be counted as votes cast, although they will have the practical effect of reducing the number of affirmative votes required to achieve a majority by reducing the total number of shares from which the majority is calculated.

Approval of the Amended LTIP.  The affirmative vote of the holders of a majority of the votes cast is required for approval of this proposal.  Abstentions and broker non-votes will not be counted as votes cast, although they will have the practical effect of reducing the number of affirmative votes required to achieve a majority by reducing the total number of shares from which the majority is calculated.

Q:What is the effect of an abstention?

A:The shares of a stockholder who abstains from voting on a matter will be counted for purposes of determining whether a quorum is present at the meeting so long as the stockholder is present in person or represented by proxy.  An abstention from voting on a matter by a stockholder present in person or represented by proxy at the meeting has no effect on the election of directors.  In addition, abstentions will not be counted as votes cast on the proposals to ratify the appointment of PricewaterhouseCoopers LLP; to approve, on an advisory basis, the compensation of our named executive officers; to approve, on an advisory basis, the frequency of future advisory votes; to approve the compensation of our named executive officers; and to approve the Amended LTIP, although they will have the practical effect of reducing the number of affirmative votes required to achieve a majority by reducing the total number of shares from which the majority is calculated.

Q:Will my shares be voted if I don’t provide instructions to my broker?

A:If you are the beneficial owner of shares held in “Street Name” by a broker, you must instruct your broker how to vote your shares.  If you do not provide voting instructions at least ten (10) days prior to the Annual Meeting date, your broker will be entitled to vote the shares with respect to “discretionary” items but will not be permitted to vote the shares with respect to “non-discretionary” items (we refer to the latter case as a broker non-vote).  In the case of a broker non-vote, your broker can register your shares as being present at the Annual Meeting for purposes of determining the presence of a quorum, but will not be able to vote on those matters for which specific authorization is required under the rules of the NYSE.

Under NYSE rules, the proposal to elect directors, the advisory vote to approve the compensation of our named executive officers, the advisory vote on the frequency of future advisory votes to approve the compensation of our named executive officers and the vote to approve the Amended LTIP are non-discretionary matters for which specific instructions from beneficial owners are required.  As a result, your broker will not be allowed to vote with respect to the election of directors; the proposal to approve, on an advisory basis, the compensation of the Company’s named executive officers; the proposal to approve, on an advisory basis, the frequency of future advisory votes to approve the compensation of the Company’s named executive officers; or the proposal to approved the Amended LTIP on your behalf if you do not provide your broker with specific voting instructions on these proposals.

Your broker will be allowed to vote with respect to the proposal to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2016.

Your vote is important, and we strongly encourage you to vote your shares by following the instructions provided on the Notice, the proxy card or the voting instruction form provided by your broker.  Please vote promptly.

Q:Who will count the votes?

A:Votes will be counted by representatives of Broadridge Financial Solutions, Inc.

Q:Do stockholders have any appraisal or dissenters’ rights on the matters to be voted on at the Annual Meeting?

A:No, stockholders of the Company will not have rights of appraisal or similar dissenters’ rights with respect to any of the matters identified in this proxy statement to be acted upon at the Annual Meeting.

Q:What do I need for admission to the Annual Meeting?

A:Attendance at the Annual Meeting or any adjournment or postponement thereof will be limited to record and beneficial holders of our common stock as of the Record Date, individuals holding a valid proxy from a record holder, and other persons authorized by the Company.  If you are a stockholder of record, your name will be verified against the list of stockholders of record prior to your admittance to the Annual Meeting or any adjournment or postponement thereof.  You should be prepared to present photo identification for admission.  If you hold your shares in Street Name, you will need to provide proof of beneficial ownership on the Record Date, such as a brokerage account statement showing that you owned shares of our common stock as of the Record Date, a copy of a voting instruction form provided by your broker, bank or other nominee, or other similar evidence of ownership as of the Record Date, as well as your photo identification, for admission.  If you do not provide photo identification or comply with the other procedures described above upon request, you will not be admitted to the Annual Meeting or any adjournment or postponement thereof.  For security reasons, you and your bags will be subject to search prior to your admittance to the Annual Meeting.

Q:Who pays for the Company’s solicitation of proxies?

A:The Company will bear the cost of the solicitation of proxies.  In addition to mail and email, proxies may be solicited personally, via the Internet, by telephone, by facsimile, or by our employees without additional compensation.  We will reimburse brokers and other persons holding shares of our common stock in their names, or in the names of nominees, for their expenses (in accordance with the fee schedule approved by the NYSE) for forwarding proxy materials to principals and beneficial owners and obtaining their proxies.  We have hired Morrow & Co., LLC (“Morrow”) to assist us in the solicitation of proxies.  We will pay Morrow a base fee of $8,500 plus customary costs and expenses for these services.  We have agreed to indemnify Morrow against certain liabilities arising out of or in connection with these services.

Q:How can I find out the results of the voting at the Annual Meeting?

A:We will announce the results of the voting at the Annual Meeting promptly once they are available and will report final results in a Current Report on Form 8-K filed with the SEC.

Q:What is “householding” and how does it work?

A:SEC rules permit us to deliver only one (1) copy of our annual report and this proxy statement or the Notice to multiple stockholders who share the same address and have the same last name, unless we received contrary instructions from a stockholder.  This delivery method, called “householding,” reduces our printing and mailing costs.  Stockholders who participate in householding and who request to receive printed proxy materials will continue to receive separate proxy cards.

We will deliver promptly upon written or oral request a separate copy of our annual report and proxy statement or Notice to any stockholder who received these materials at a shared address.  To receive a separate copy of the 2015 Annual Report or this proxy statement, or if you wish to receive separate copies of future annual reports and/or proxy statements, please contact our investor relations department by telephone at (386) 763-8801 or in writing at 260 Jimmy Ann Drive, Daytona Beach, Florida 32114.

If you and other stockholders of record with whom you share an address currently receive multiple copies of annual reports and/or proxy statements, or if you hold stock in more than one (1) account and, in either case, you wish to receive only a single copy of the annual report or proxy statement for your household, please contact our transfer agent, Computershare, at (866) 230-0666.

If you are a beneficial owner, you can request additional copies of the annual report and proxy statement or you may request householding information from your bank, broker or nominee.

CORPORATE GOVERNANCE

Good governance is a critical part of our corporate culture.  The following provides an overview of certain of our governance practices:

 

The Board has adopted Corporate Governance Guidelines (the “Guidelines”) that contain general principles regarding the responsibilities and function of our Board and Board Committees.  The Guidelines set forth the Board’s governance practices with respect to leadership structure, Board meetings and access to senior management, director compensation, director qualifications, Board performance, management evaluation and succession planning and enterprise risk management.  The Guidelines are available on our website at http://www.topbuild.com/Investors/Corporate-Governance/Governance-Documents/.

The Board has also adopted a Code of Business Ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other senior officers, in accordance with applicable rules and regulations of the SEC and the NYSE.  Our Code of Business Ethics is available on our website at http://www.topbuild.com/Investors/Corporate-Governance/Governance-Documents/.

Board Leadership Structure

The Board does not have a policy as to whether the roles of Chairman of the Board and Chief Executive Officer should be separate or combined.  The Board currently separates the roles of Chairman of the Board of Directors and Chief Executive Officer.  Alec C. Covington, an independent director, currently serves as the Chairman of the Board.  We believe that separation of the positions of Chairman of the Board and Chief Executive Officer reinforces the independence of the Board in its oversight of our business and affairs, is more conducive to objective evaluation and oversight of management’s

performance, increases management accountability and improves the ability of the Board to monitor whether management’s actions are in the best interests of the Company and its stockholders.

The Board’s independent oversight function is further enhanced by the fact that all three (3) Committees are comprised entirely of independent directors, the directors have complete access to management, the Board and these Committees may retain their own advisors and the independent Compensation Committee regularly evaluates the performance of our senior executive officers against pre-determined goals.

Certain Relationships and Related Party Transactions

The Board has adopted a related person transactions policy that requires the Board or a designated committee thereof consisting solely of independent directors to approve or ratify any transaction involving us in which any director, director nominee, executive officer, 5% beneficial owner or any of their immediate family members has a direct or indirect material interest.  This policy covers financial transactions, arrangements or relationships or any series of similar transactions, arrangements or relationships, including indebtedness and guarantees of indebtedness, as well as transactions involving employment and similar relationships.  This policy excludes transactions determined by the Board or a committee of independent directors not to create or involve a material interest on the part of the related person, such as transactions involving the purchase or sale of products or services in the ordinary course of business in transactions of $120,000 or less, transactions in which the related person’s interest is derived solely from service as a director of another entity that is a party to the transaction and transactions in which the related person’s interest derives solely from his or her ownership (together with that of any other related persons) of less than 10% of the equity interests in another entity (other than a general partnership interest) which is a party to the transaction.  The policy requires directors, director nominees and executive officers to provide prompt written notice to the Secretary of any related person transaction so it can be reviewed by the Board or a designated committee thereof consisting solely of independent directors to determine whether the related person has a direct or indirect material interest.  If the Board or a designated committee thereof consisting solely of independent directors determines that this is the case, the Board or such committee will consider all relevant information to assess whether the transaction is in, or not inconsistent with, our best interests and the best interests of our stockholders.  The Board will annually review this policy and make changes as appropriate.

In order to govern certain ongoing relationships between the Company and Masco after the Spin-Off and to provide mechanisms for an orderly transition, the Company and Masco have entered into certain agreements pursuant to which certain services and rights will be provided for following the Spin-Off.  The following is a summary list of the material agreements we have entered into with Masco:

The foregoing is not a complete description of the terms of the agreements that we have entered into with Masco.  For further information about the terms of these agreements, please see our Current Report on Form 8-K filed with the SEC on July 6, 2015, and other periodic reports and registration statements that we have filed with the SEC.

Potential Director Candidates

The Governance Committee is responsible for screening potential director candidates and recommending qualified candidates to the full Board.  We expect our Board to consist of individuals with appropriate skills and experiences to meet Board governance responsibilities and to contribute effectively to our Company.  The Governance Committee seeks to ensure that the Board reflects a range of talents, ages, skills, diversity and expertise, particularly in the areas of accounting and finance, management, domestic markets, governmental/regulatory and leadership, sufficient to provide sound and prudent guidance with respect to our operations and interests.  Our Board seeks to maintain a diverse membership, but does not currently have a separate policy on diversity.

Risk Management

While our management is responsible for the day-to-day management of risks to the Company, our Board has broad oversight responsibility for our risk management programs.

Our Board exercises risk management oversight and control both directly and indirectly, the latter through various Board committees.  Our Board regularly reviews information regarding the Company’s credit, liquidity and operations, including the risks associated with each.  The Compensation Committee is responsible for overseeing the management of risks relating to the Company’s compensation policies and practices.  The Audit Committee is responsible for oversight of financial risks, including the steps the Company has taken to monitor and mitigate these risks.  The Governance Committee is responsible for oversight of risks related to corporate governance and, in its role of reviewing and maintaining the Company’s Corporate Governance Guidelines and Code of Business Ethics, manages risks associated with the independence of the Board and potential conflicts of interest.  While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports and by the Chief Executive Officer about the known risks to the strategy and the business of the Company.

Corporate Governance Documents

Current copies of the following corporate governance documents are on our website at http://www.topbuild.com/Investors/Corporate-Governance/Governance-Documents:

We will provide any of these documents in print to any stockholder upon written request to TopBuild Investor Relations, 260 Jimmy Ann Drive, Daytona Beach, Florida 32114.

Communications to the Board

Stockholders and other parties interested in communicating directly with the Board, an individual director, the non-management directors as a group, or a Board Committee should send such communications to the following address:

TopBuild Corp.

c/o Vice President, General Counsel and Secretary

260 Jimmy Ann Drive

Daytona Beach, Florida 32114, USA

The Secretary will receive and process all communications.  The Secretary will forward all communications unless the Secretary determines that a communication is a business solicitation or advertisement, or is a request for general information about the Company.

PROPOSAL 1: ELECTION OF DIRECTORS

Our board of directors consists of seven (7) directors, six (6) of whom the Board has determined satisfy the Company’s Director Independence Standards (“Categorical Standards”), which are designed to track the NYSE director independence standards.

The Company’s Board has three (3) staggered classes of Directors, each of whom serves for a term of three (3) years.  At the Annual Meeting, the Board’s Class I Directors will be elected to hold office for a term of three (3) years or until their respective successors are elected and qualified.  Unless otherwise instructed, the shares represented by validly submitted proxy cards will be voted “FOR” the election of the below­listed Board nominees to serve as Class I Directors of the Company.

Management has no reason to believe that the below­listed Board nominees will not be candidates or will be unable to serve as Class I Directors.  However, in the event that either of the below­listed Board nominees should become unable or unwilling to serve as Class I Director(s), the proxy card will be voted for the election of such alternate person(s) as shall be designated by the Board.  If any alternate person(s) is/are designated by the Board to serve as Class I Director nominee(s), the Company will publicly notify stockholders by press release and will promptly distribute to stockholders revised proxy materials (including a revised proxy card if you requested to receive printed proxy materials) that (i) identify each such substitute nominee, (ii) disclose whether such substitute nominee has consented to being named in the revised proxy statement and to serve if elected and (iii) include certain other disclosures required by applicable federal proxy rules and regulations with respect to each such substitute nominee.  Under our amended and restated certificate of incorporation, vacancies on the Board shall, except as otherwise required by law, be filled solely by a majority of the directors then in office or by the sole remaining director, and each director so elected shall hold office for a term that shall coincide with the term of the Class to which such director shall have been elected.

Information about Director Nominees and Continuing Directors

Nominees for election as directors with terms expiring in 2019

 

 

Mr. Archer's long and distinguished career as an attorney and judge provides our Board with specific expertise and a unique understanding of litigation and other legal matters.  As a result of his position as Mayor of Detroit, he has broad leadership, administrative and financial experience and is also knowledgeable in the area of governmental relations.  The Board has affirmatively determined that Mr.

Archer is independent under our Categorical Standards, which are designed to track the NYSE director independence standards.

 

 

 

Continuing directors with terms expiring in 2017

 

 

 

 

 

Ms. Whelan's extensive knowledge of the building industry, gained through her experience as an analyst, together with her financial experience, provides us with strategic insight and a valuable perspective of the housing market and its key participants and dynamics.  Further, her investment banking experience will

assist us as we evaluate growth opportunities.  The Board has affirmatively determined that Ms. Whelan is independent under our Categorical Standards, which are designed to track the NYSE director independence standards.

 

Continuing directors with terms expiring in 2018

 

 

 

Mr. Camden has significant experience and expertise in executive management, human resource strategies, labor dynamics, economics and marketing.  His strong leadership skills as well as his considerable knowledge and experience in the factors that affect the labor market and global business operations are an asset to our Company.  The Board has affirmatively determined that Mr. Camden is

independent under our Categorical Standards, which are designed to track the NYSE director independence standards.

 

 

 

 

BOARD OF DIRECTORS AND COMMITTEES

Board Meetings and Committees

Our business is managed under the direction of the Board.  The Board has established the following standing committees: Audit, Compensation and Governance.  The membership and function of each committee is described herein.

In fiscal 2015, the Board held six (6) meetings and on two (2) occasions acted by unanimous written consent in lieu of a meeting.  All of the directors attended 100% of the meetings of the Board and the Committees on which they served.  Directors are expected to attend the Annual Meeting.  This is the Company’s first Annual Meeting of stockholders.

COMMITTEES OF THE BOARD

Each Committee has a written charter that sets forth in detail the duties and responsibilities of the Committee.  Current copies of each of the Committee charters are available on our website at http://www.topbuild.com/Investors/Corporate-Governance/Governance-Documents/.

Audit Committee

 

Governance Committee

 

 

Compensation Committee

 

 

 

Director Independence

Our Corporate Governance Guidelines require that a majority of the members of the Board be independent directors.  Our Board has adopted its own director independence standards to assist it in assessing director independence (“Categorical Standards”).  These Categorical Standards are available on our web site.  The Categorical Standards have been designed to comply with the NYSE standards for director independence.  For a director to be independent, the Board must affirmatively determine that the director has no direct or indirect material relationship with the Company.  When assessing materiality, the Board considers all relevant facts and circumstances including, without limitation, transactions between the Company and the director directly, immediate family members of the director, or organizations with which the director is affiliated, and the frequency and dollar amounts associated with these transactions.  The Board further considers whether the transactions were at arm’s length in the ordinary course of business and whether the transactions were consummated on terms and conditions similar to those of unrelated parties.

One of our directors, Mr. Carl Camden, is the President and Chief Executive Officer of Kelly Services, Inc., a temporary staffing company.  We purchased approximately $0.2 million of Kelly Services’ services in the year ended December 31, 2015.  These services consisted of temporary field and insulation installation construction labor.  The Board considered these payments in connection with its assessment of Mr. Camden’s status as an independent director, including for purposes of membership on our Audit Committee and Compensation Committee.

The Board considered the nature of the services provided by Kelly Services to the Company, the fact that the Company’s relationship with Kelly Services predated Mr. Camden’s appointment to our Board and the fact that the payments by the Company comprised far less than one (1) percent of Kelly Services’ 2015 revenue.

After considering our Categorical Standards, as well as the standards for independence imposed by the NYSE and the transactions described above, the Board has determined that none of the current directors or director nominees, other than Mr. Volas (who is a current employee of the Company), has a material relationship with the Company, and that each of these directors (other than Mr. Volas) is independent.

The Board has also determined that all members of the Audit Committee meet the independence and financial literacy standards and requirements of the NYSE and the SEC.  The Board has also determined that all members of the Compensation Committee meet the independence standards of the NYSE, and that all members of the Compensation Committee are “non-employee directors” (within the meaning of Rule 16b-3 of the Exchange Act) and “outside directors” (within the meaning of Section 162(m) of the Code).

Summary

We have provided certain information about the capabilities, experience and other qualifications of our directors in their biographies and as set forth above.  The Board considered these qualifications in particular in concluding that each current director and director nominee is qualified to serve as a director of the Company.  In addition, the Board has determined that each director and director nominee possesses the skills, judgment, experience, reputation and commitment to make a constructive contribution to the Board.

DIRECTOR COMPENSATION

As compensation for their service on our Board, our non-employee directors receive an annual retainer of $150,000, of which one-half is paid in cash and one-half is paid in the form of restricted stock.  Additionally, our Chairman of the Board receives an annual cash retainer of $150,000 for service in this position.  The additional annual retainers for serving as Chair of the Audit Committee, Compensation Committee and Governance Committee are $20,000, $15,000 and $10,000, respectively.  Our non-employee directors do not receive any perquisites.  Mr. Volas, who is a director and Chief Executive Officer of our company, does not receive additional compensation for service as a director.  The table below shows compensation for the partial year following the Spin-Off, except with respect to Mr. Cantie, who was appointed to our Board on June 15, 2015.

DIRECTOR COMPENSATION TABLE

 

(1) Gerald Volas, the Company’s Chief Executive Officer and a director, is not included in this table as he is an employee of the Company and receives no additional compensation for his service as a director.  The compensation received by Mr. Volas as an employee of the Company is shown in the 2015 Summary Compensation Table.

(2) Includes compensation for the third and fourth quarters of 2015.  Each of Messrs. Covington, Cantie, Petrarca and Camden and Ms. Whelan held 2,770 shares of unvested restricted stock on December 31, 2015.  Mr. Archer held 6,250 shares of our common stock on December 31, 2015.  None of Messrs. Covington, Cantie, Petrarca, Camden or Archer or Ms. Whelan held any options to purchase shares of our common stock on December 31, 2015.

(3) This column reflects the grant date fair value of the entire amount of awards granted to our independent directors, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718, excluding estimated forfeitures.

(4) Includes an additional $3,960 representing a pro-rated portion of cash fees earned for service on our Board prior to the Spin-Off.

(5) Does not include compensation received by Mr. Archer as a member of Masco’s board of directors prior to the Spin-Off.

Non-Employee Director Stock Ownership Guidelines

Our Governance Committee has adopted a policy requiring our non-employee directors to own five (5) times their annual cash retainer in our common stock.  These guidelines become effective upon a non-employee director’s election to the Board and give such directors five (5) years from the effective date to achieve the targeted ownership levels.

 

  

AUDIT COMMITTEE REPORT

The Audit Committee oversees the company’s financial reporting process on behalf of the Board.  In fulfilling its responsibilities, the Audit Committee has reviewed and discussed the audited financial statements in the 2015 Annual Report with the Company’s management and independent registered public accounting firm.

Management has the primary responsibility for the financial statements and the reporting process, including the Company’s internal controls systems, and has represented to the Audit Committee that such financial statements were prepared in accordance with generally accepted accounting principles.  The independent registered public accounting firm is responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles.

The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees issued by the Public Company Accounting Oversight Board.  In addition, the Audit Committee has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence, including the matters in the written disclosures and letter which were received by the Audit Committee from the independent registered public accounting firm, as required by Independence Standard Board No. 1, Independence Discussions with Audit Committees.  The Audit Committee has also considered whether the independent registered public accounting firm’s provision of non-audit services to the Company is compatible with maintaining the independent registered public accounting firm’s independence.

The Audit Committee discussed with the Company’s internal and independent auditors the overall scope and plans for their respective audits.  The Audit Committee also met with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.

Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2015, for filing with the U.S. Securities and Exchange Commission.

Audit Committee

Joseph S. Cantie (Chair)

Dennis W. Archer

Carl T. Camden

Alec C. Covington

Mark A. Petrarca

Margaret M. Whelan

COMMON STOCK OWNERSHIP OF OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS

Directors and Executive Officers

The following table sets forth, as of March 10, 2016, beneficial ownership of TopBuild common shares by each executive officer named in the Summary Compensation Table in this proxy statement, each director or director nominee, and by all directors and executive officers as a group.  Unless otherwise indicated, each beneficial owner had sole voting and dispositive power with respect to the common stock held.

 

* Less than 1%.

(1) The address for each beneficial owner listed in this table is 260 Jimmy Ann Drive, Daytona Beach, Florida 32114.

(2) Includes shares of unvested restricted stock, as set forth in the table below.  Holders have sole voting, but no dispositive power, over unvested restricted shares.

(3) As of March 10, 2016, we had 38,534,827 shares of our common stock outstanding.

(4) Shares owned by Mr. Cantie include 8,750 shares held in a revocable living trust, of which Mr. Cantie is the trustee.

(5) Shares owned by Mr. Volas include 11,039 shares held in a revocable living trust, of which Mr. Volas is the trustee, and 1,688 shares held in a retirement plan.

(6) Includes shares that may be acquired within sixty (60) days upon exercise of stock options.  Mr. Volas has neither voting nor dispositive power over unexercised stock option shares.

 

 

Certain Other Stockholders

As of December 31, 2015, the following are beneficial owners of more than 5% of our outstanding common stock.  Unless otherwise indicated, each beneficial owner had sole voting and dispositive power with respect to the common stock held.

 

(1) As of March 10, 2016, we had 38,534,827 shares of our common stock outstanding.

(2) Based on a Schedule 13G/A filed with the SEC on January 8, 2016, on December 31, 2015, BlackRock Inc. (through certain of its subsidiaries) beneficially owned 4,404,318 shares of our common stock, with sole voting power over 4,187,542 shares and sole dispositive power over all of the shares.  The address of this stockholder is 55 East 52nd Street, New York, NY 10055.

(3) Based on a Schedule 13G filed with the SEC on February 10, 2016, on December 31, 2015, The Vanguard Group and certain of its subsidiaries beneficially owned 2,753,599 shares of our common stock, with sole voting power over 28,741 shares, sole dispositive power over 2,727,658 shares and shared dispositive power over 25,941 shares.  The address of this stockholder is 100 Vanguard Blvd., Malvern, PA  19355.

(4) Based on a Schedule 13G filed with the SEC on February 12, 2016, on December 31, 2015, Grantham, Mayo, Van Otterloo & Co. LLC beneficially owned 2,467,288 shares of our common stock, with sole voting power and sole dispositive power over all of the shares.  The address of this stockholder is 40 Rowes Wharf, Boston, MA 02110.

(5) Based on a Schedule 13G filed with the SEC on February 12, 2016, on December 31, 2015, Capital World Investors is deemed to have beneficially owned and have sole voting power and sole dispositive power over 2,253,110 shares of our common stock as a result of Capital Research and Management Company acting as an investment adviser to various investment companies.  The address of this stockholder is 333 South Hope Street, Los Angeles, CA 90071.

(6) Based on a Schedule 13G filed with the SEC on February 16, 2016, Silver Point Capital, L.P. (“Silver Point”) is the investment manager of Silver Point Capital Fund, L.P. (the “Onshore Fund”) and Silver Point Capital Offshore Fund, Ltd. (the “Offshore Fund”) and, by virtue of such status, may be deemed to be the beneficial owner of the securities held by the Onshore Fund and the Offshore Fund.  Silver Point Capital Management, LLC ("Management") is the general partner of Silver Point and, as a result, may be deemed to be the beneficial owner of the securities held by the Onshore Fund and the Offshore Fund.  Each of Mr. Edward A. Mulé and Mr. Robert J. O'Shea is a member of Management and has voting and dispositive power with respect to the securities held by the Onshore Fund and the Offshore Fund and may be deemed to be a beneficial owner of the securities held by the Onshore Fund and the Offshore Fund.  The address of this stockholder is Two Greenwich Plaza, Greenwich, CT 06830.

 

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis prepared by management and contained in this proxy statement.  Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Compensation Committee

Mark A. Petrarca (Chair)

Dennis W. Archer

Carl T. Camden

Joseph S. Cantie

Alec C. Covington

Margaret M. Whelan

COMPENSATION OF EXECUTIVE OFFICERS

Executive Officers

Set forth below is information about our executive officers.  There are no family relationships among any of the officers named below or Mr. Volas, our Chief Executive Officer and a member of the Board.  See “Proposal 1: Election of Directors—Information about Director Nominees and Continuing Directors—Continuing directors with terms expiring in 2018” for Mr. Volas' biographical information.

Robert M. Buck.  Mr. Buck, 46, has served as our President and Chief Operating Officer since June 2015.  Mr. Buck served as Group Vice President of Masco from 2014 until June 2015.  In this position, Mr. Buck was responsible for the Installation and Other Services Segment consisting of both Masco Contractor Services and Service Partners, LLC.  Mr. Buck served as President and Chief Executive Officer of Masco Contractor Services from 2011 until June 2015.  Mr. Buck began his career with Masco in 1997 at Liberty Hardware Mfg. Corp., where he spent eight years in several operations leadership roles and worked extensively in international operations.  Mr. Buck became Executive Vice President in 2005 and helped lead the merger of another Masco company with Liberty Hardware before being promoted to the office of President in 2007.  Mr. Buck holds a Bachelor of Science degree in Information Systems and Operations Management, and a Masters in Business Administration from the University of North Carolina at Greensboro.

John S. Peterson.  Mr. Peterson, 57, has served as our Vice President and Chief Financial Officer since June 2015.  Mr. Peterson served as Executive Vice President, Chief Financial Officer of Masco Contractor Services from November 2010 until June 2015.  From 2006 to 2010, he was the Chief Financial Officer of Masco Retail Cabinet Group, a Masco subsidiary.  From 2001 to 2006, he was the Vice President—Finance for Biolab and from 1998 to 2001, he was the Vice President—Finance, Performance Chemicals Division, both subsidiaries of Great Lakes Chemical, which has since changed its name to Chemtura Corporation.  Mr. Peterson holds a Bachelor of Science degree in Accounting from Pennsylvania State University and a Masters in Business Administration from the University of Indianapolis.

Michelle A. Friel.  Ms. Friel, 46, has served as our Vice President, General Counsel and Secretary since June 2015.  Ms. Friel joined Masco in 2015.  From 2012 to 2015, she was the Executive Vice President and General Counsel for YRC Worldwide, one of the largest transportation providers in the world.  She has also acted as President and CEO of YRC Worldwide’s North American subsidiary in Mexico.  From 2010 to 2012, she served as Senior Vice President, General Counsel and Corporate Secretary at Spirit AeroSystems Holdings.  Ms. Friel holds Bachelor degrees in Anthropology and Atmospheric Science and a Juris Doctorate degree from the University of Kansas.

Mark R. Moore.  Mr. Moore, 51, has served as the President of Service Partners, LLC since 2003.  He joined Service Partners at its inception in 1998 and served in various senior financial capacities prior to assuming his current role.  He became part of the Masco team upon Masco's acquisition of Service Partners in 2002.  From 1987 to 1998, Mr. Moore held various senior financial and operational positions with privately held firms in the petroleum distribution industry.  Mr. Moore began his career with DuPont.  Mark holds a Bachelor of Science in Commerce degree from the University of Virginia and a Masters in Business Administration from the University of Richmond.

Robin L. Reininger.  Ms. Reininger, 59, has served as our Vice President, Chief Human Resource Officer since June 2015.  Ms. Reininger held the position of Vice President, Human Resources for Masco Contractor Services from 2011 to 2015.  Ms. Reininger has significant experience leading change management and organizational strategy initiatives.  Before joining Masco Contractor Services in 2011, Ms. Reininger was the Senior Global Director of Human Resources for Avery Dennison.  She also served as Vice President, Strategic Accounts with Staples/Corporate Express, Region Vice President Human Resources with Corporate Express and held management positions with CompuCom Systems, NVR and Cooper Industries.  Ms. Reininger holds a Bachelor's degree in Business Administration from Washington and Jefferson College and a Masters in Business Administration from DeSales University.

Nicholas R. Thompson, Jr. Mr. Thompson, 47, has served as our Corporate Controller since June 2015.  Mr. Thompson served as the Controller for Masco Contractor Services from 2011 until June 2015.  Mr. Thompson began his career in public accounting with Price Waterhouse.  He has held various roles since then, including FP&A Manager, Controller and Accounting Director for St. Joe/Arvida, Lennar Homes and CNL Real Estate and Development.  Mr. Thompson holds a Bachelor's degree in Accounting from Jacksonville University and a Masters in Business Administration from Florida State University.  Mr. Thompson is a Certified Public Accountant in the State of Florida.

Compensation Discussion and Analysis

Overview

For purposes of this Compensation Discussion and Analysis and the disclosure under “Compensation of Executive Officers,” our named executive officers are identified below (collectively, our “named executive officers”).  The information provided reflects summary information concerning TopBuild’s executive compensation approach developed to date.

Named Executive Officers

 

TopBuild Compensation Programs

We recognize the importance of attracting and retaining executive officers who can effectively lead our business and make effective strategic decisions and motivating them to maximize our corporate performance and create long-term value for our stockholders.  We believe in rewarding our executive officers to a significant degree based on our performance.  Our Compensation Committee continues to thoughtfully and thoroughly analyze our compensation practices and programs.

The Company believes that having a significant ownership interest in stock is critical to aligning the interests of executive officers with the long-term interests of stockholders.  Accordingly, equity grants in the form of restricted stock awards and stock options with extended vesting periods are an important component of compensation for executive officers.  The value ultimately realized from equity awards depends on the long-term performance of TopBuild common stock.

TopBuild Compensation Practices

TopBuild has adopted the following compensation practices:

Our intention is to have executive compensation within 90%-110% of market median.  Many of our executives are currently below that target and over a period of time, individual and company performance permitting, they will be moved closer to market median.

Our Compensation Committee believes it is in TopBuild’s interest to retain flexibility in its compensation programs.  Consequently, in some circumstances, TopBuild may pay compensation that is not tax-deductible by TopBuild.

Compensation Mix

 

Stock Ownership Guidelines

Our Compensation Committee has adopted a policy requiring our executives to own a multiple of their base salary in our common stock.  In the case of our Chief Executive Officer, the multiple is five (5) times base salary.  In the case of our President and Chief Operating Officer and our Vice President and Chief Financial Officer, the multiple is three (3) times base salary.  In the case of our Vice President, General Counsel and Secretary and our Vice President, Chief Human Resource Officer, the multiple is two (2) times base salary.  In the case of all other Vice Presidents, the multiple is one (1) times base salary.  The targeted ownership levels must be met by July 1, 2020, five (5) years after the date we became a public company.

Executive Compensation Approach

TopBuild’s 2015 compensation structure was composed of the following primary components:

We have no employment agreements with our executive officers.  Our executive officers enter into award agreements in connection with grants of equity awards.  The award agreements contain certain restrictive covenants, including a non-competition covenant during employment and for one (1) year thereafter.

Equity Incentive Compensation

We believe that a combination of performance-based restricted stock and stock options are appropriate vehicles for a newly public company to focus executives on long-term performance and alignment with stockholder interests.  The amount of annual restricted stock awards granted by the Compensation Committee is based on the prior year’s performance.  In addition, some of our named executive officers received initial equity awards consisting of stock options and restricted stock at the time of the Spin-Off to more tightly align their interests with those of our stockholders (a “Founders Grant”).  Extended vesting and exercise periods further align our named executive officers with our stockholders.  Our equity grants for 2015 performance contain five (5) year vesting/exercisability requirements.  See “Annual Stock Option Grant for the 2015 Program” and “New Equity Compensation Program Adopted in February 2016,” below.

Market Comparison for Compensation

In connection with preparations for the Spin-Off, Masco reviewed compensation surveys by AonHewitt and Willis Towers Watson for U.S. public companies with $1 billion to $2 billion in sales and information provided by Masco’s Organization and Compensation Committee’s independent consultant, Semler Brossy.  In addition, Masco identified the following companies for additional compensation benchmarking, based on similar business characteristics (in particular, installation and distribution of homebuilding products) and revenue size between $700 million and $3 billion:

 

Our Compensation Committee is considering alternatives as we evaluate market pay practices going forward.

Compensation of Named Executive Officers

The disclosure in the “Summary Compensation Table” relates to the 2015 compensation of our named executive officers.  Effective March 1, 2016, our Compensation Committee approved increases to the base salary, target bonus (Mr. Peterson only) and long-term incentive opportunity for our named executive officers.  The table below summarizes our 2015 compensation levels and the changes approved effective March 1, 2016, for each of our named executive officers.

 

(1) TopBuild has entered into an agreement with Mr. Volas that would provide him severance benefits under specified termination events.  This agreement does not include any “golden parachute” excise tax gross-up payments.

(2) Maximum bonus opportunity of 200% of target.

(3) Maximum stock award opportunity of 200% of target.

(4) Black-Scholes value.

(5) Allocated 40% to stock options (Black-Scholes value) and 60% to performance-based restricted stock awards (target/maximum is 200% of target).    

Masco Long Term Cash Incentive Program

Mr. Volas is our only named executive officer who participated in Masco's Long Term Cash Incentive Program (“LTCIP”).  The cash performance awards granted in 2015 under the LTCIP (reflected in the “Grants of Plan-Based Awards” table below) will be earned only if Masco achieves long-term growth and profitability, measured by the achievement of return on invested capital (“ROIC”) goals over a three-year period from 2015 to 2017.  Masco’s Organization and Compensation Committee chose the ROIC performance metric because it reinforces executive officers’ focus on capital efficiency and consistent return on capital and is a measure of importance to Masco stockholders in their assessment of long-term value creation.  Under the LTCIP, Masco defines ROIC as adjusted after-tax operating income from continuing operations adjusted to exclude the effect of special charges and certain other non-recurring income and expenses, divided by invested capital.  Invested capital includes shareholders equity, which Masco adjusts to add back the cumulative after-tax impact of goodwill and intangible asset impairment charges and to exclude the impact of certain non-operating income and expenses and the effects of special charges, plus short-term and long-term debt minus cash.

Under the LTCIP, Masco measures performance over three annual performance periods, with the average results for the three annual performance periods determining the amount of any award.  Performance goals are established at the start of each three-year period.

If the threshold three-year average ROIC is attained, Masco will determine the actual award to be paid under the LTCIP by multiplying the target opportunity for the officer by the payout percentage corresponding to the actual three-year average ROIC achieved.  If the ROIC threshold is not achieved, no payments will be made under the LTCIP.

As a result of the achievement for the three-year performance period under the LTCIP for the 2013-2015 period, Mr. Volas received a payout included in the Summary Compensation Table below based on the following targets and results:

Three-Year Average ROIC

 

As a result, Mr. Volas received a payment under the LTCIP for the 2013-2015 period determined by multiplying his target opportunity (which was 75% of his salary in 2013) by 200%, the maximum payout percentage under the LTCIP.

With respect to ongoing three-year periods under the LTCIP that have not ended as of the Separation date, TopBuild will not assume Mr. Volas' LTCIP award.  Instead, he will remain eligible for a future prorated payout from Masco based on Masco's actual performance at the end of the applicable three-year periods, but prorated to reflect the conclusion of his employment with Masco at the Separation date.

Conversion of Stock and Options Awards

Masco restricted stock awards (“RSAs”) and stock options that were unvested as of the date of the Spin-Off under Masco’s Long Term Stock Incentive Plan were replaced with unvested TopBuild RSAs and stock options (the “Replacement Awards”), under TopBuild’s 2015 Long Term Stock Incentive Plan (the “Existing LTIP”).  The replacement of RSAs and stock options with Replacement Awards was “value-neutral” to participants and the vesting schedule for the Replacement Awards remained the same as the vesting schedule for the Masco RSAs and options.  “Value-neutral” means that the market value of the Masco equity awards, measured by the average closing prices on the three (3) trading days (June 26, 2015, June 29, 2015 and June 30, 2015) before the Spin-Off, were equal to the value of the post-spin equity awards (either TopBuild Replacement Awards or adjusted Masco option awards), measured in the three (3) trading days (July 1, 2016, July 2, 2016 and July 6, 2016) after the Spin-Off.  The tax treatment when RSAs vest or when options are exercised did not change as a result of the Spin-Off.

The formulas used to convert the unvested Masco RSAs and unvested Masco options were as follows: Number of Masco RSAs x (Masco’s pre-spin market price, $26.9171) ÷ (TopBuild’s post-spin market price, $27.9555).  The formula used to convert the exercise price of the vested Masco options was as follows: Pre-spin option exercise price x (Masco’s post-spin market price, $23.6189) ÷ (Masco’s pre-spin market price, $26.9171).  The formula used to convert the exercise price of the unvested Masco options that were converted to TopBuild options was as follows: pre-spin option exercise price x (TopBuild’s post spin market price, $27.9555) ÷ (Masco’s pre-spin market price, $26.9171).

Masco vested options were not replaced with TopBuild vested options and, if not exercised by September 30, 2015, were forfeited.

2015 Annual Incentive Performance-Based Restricted Stock and Cash Bonus Opportunities

TopBuild provided annual performance-based restricted stock and cash bonus opportunities for fiscal 2015 to our named executive officers to emphasize annual performance, provide incentive to achieve critical business objectives and align officers’ interests with those of Masco stockholders.  The performance goals were based on the performance of TruTeam and Service Partners, the Masco business divisions that became TopBuild at the time of the Separation and Spin-Off on June 30, 2015.  

The performance goals were Operating Profit (weighted at 75%) and Working Capital as a Percent of Sales (weighted at 25%).  The metrics chosen for the 2015 annual performance program are set forth below.  These metrics were those believed to most effectively enhance stockholder value.  Operating profit was more heavily weighted because it reflects management’s contribution to operating performance.

The following tables show target and actual performance for each metric along with percentage attained for the 2015 annual performance program. 

Annual Performance Goals and Achievements

 

(1) For purposes of determining achievement of the performance target, operating profit from continuing operations was adjusted to exclude the effects of rationalization and other special charges and other unusual non-recurring gains and losses. 

(2) Working capital as a percent of sales is defined as quarter-end averages of reported accounts receivable and inventories, less accounts payable, divided by reported sales for the year. 

To determine the cash bonus and restricted stock award values to be granted to our named executive officers based on the 2015 performance achievements set forth above, the target opportunities for each executive officer were multiplied by their applicable payout percentage (that is, 100% for Mr. Volas, 75% for Mr. Buck, 60% for Mr. Peterson and 50% for Messrs. Cushen and Moore), which was in turn multiplied by each executive officer's base salary.  For Messrs. Volas, Buck, Peterson and Moore, the individual amounts for the cash bonus awards were increased by $103,600, $49,950, $32,856 and $50,000 respectively, for their strong leadership during the Spin-Off which enabled TopBuild to retain key talent, keep the organization focused on company initiatives and prevent disruption of the business.

Threshold, target and maximum payouts under the 2015 cash bonus program are shown in the 2015 Grants of Plan-Based Awards Table, while actual awards for 2015 are disclosed in the Summary Compensation Table.

The restricted stock awards were granted on February 22, 2016, and have a five-year vesting, beginning on February 22, 2017.

Annual Stock Option Grant for the 2015 Program

Stock options were approved by our Compensation Committee in February 2016 for our executive officers for the 2015 program to motivate and reward them for improving share price, to align their long-term interests with those of stockholders and to maintain the competitiveness of the total compensation package.  Further, they provide value to our executive officers following the grant of the stock options and over their long vesting schedule only if the price of our common stock increases.  These stock options vest ratably in five (5) equal installments, beginning on February 22, 2017.  To determine the stock option value to be granted to each of our named executive officers for 2015, the target opportunities for each executive officer (that is, 100% for Mr. Volas, 75% for Mr. Buck, 60% for Mr. Peterson, and 50% for Messers. Cushen and Moore), were multiplied by each executive officer’s base salary.

New Equity Compensation Program Adopted in February 2016

In February 2016, our Compensation Committee approved equity awards designed to align executive compensation with market best practices, create a strong link between compensation and performance, drive compensation consistency by having the same performance metrics for executives and non-executives and assist with the ability to attract and retain key employees.

The February 2016 equity awards consisted of stock options (40% of award) and performance-based restricted stock (60% of award) under the Existing LTIP.  The change in allocation between stock options and performance-based restricted stock was made to align with market best practices and in recognition that shareholders prefer a greater percentage of equity in performance based awards.

The stock options will vest in three equal increments on each of the first three anniversaries of the date of the grant (February 22, 2016) and have an exercise price of $26.30 (the closing price of our common stock on the NYSE on the date of grant).

The performance-based restricted stock was awarded as our equity incentive program for the 2016-2018 period.  The performance-based restricted shares will vest on February 22, 2019, subject to the Company achieving certain pre-determined performance goals relating to our cumulative three (3) year earnings per share (50% of award) and our relative total shareholder return (“TSR”) (50% of award), over the three-year period ending on December 31, 2018.  Partial payouts are permitted for performance that falls below target levels (in either of the two measures) and our executive officers may earn up to 200% of their target award level for performance that exceeds target performance.  Payouts are permitted in cases where one of the performance measures is met and the other is not.

TopBuild Peer Group Established for TSR Measurement

The following companies have been identified as a company peer group for TSR measurement in the 2016-2018 equity incentive program design.  The peer group is based on similar business characteristics, including industry and revenue size between $650 million and $4.3 billion.

 

 

Summary Compensation Table for Fiscal Years 2013-2015

The following table sets forth certain information regarding compensation paid to the named executive officers of TopBuild in their capacities as officers of Masco (prior to the Spin-Off) and their capacities as officers of TopBuild (after the Spin-Off).

 

(1) In 2013, 2014 and prior to the completion of the Spin-Off on June 30, 2015, the named executive officers were employed by and were compensated by, Masco or its subsidiaries.

(2) This column includes amounts voluntarily deferred by each named executive officer as salary reductions under the 401(k) Savings Plan.

(3) These amounts include discretionary increases in excess of the amounts earned by the applicable executive based on the performance measures.  Amounts also include discretionary bonus payments for their strong leadership during the Spin-Off which enabled TopBuild to retain key talent, keep the organization focused on company initiatives and prevent disruption of the business.

(4) Based on SEC rules, this column reports the grant date fair value of the restricted stock award opportunity calculated in accordance with FASB ASC Topic 718 for the applicable performance year even though the restricted stock award is not granted until the following year.  Because the rules require such value to be based on the probable outcome at the grant date, such estimated fair value reflects the actual awards for the 2015, 2014 and 2013 performance year, as applicable, since the grant date for the award occurred when the award was actually determined in early 2016, 2015, and 2014, respectively.  The threshold, target and maximum dollar values that were eligible to be awarded based on 2015 performance are shown in the Grants of Plan Based Awards Table below.  The named executive officers do not realize the value of restricted stock awards until those awards vest over the five (5) year vesting period following the grant date.  Values for 2015 include the Founders Grant on July 8, 2015, and a grant on February 22, 2016, for 2015 performance.

(5) Amounts in these columns reflect the aggregate grant date fair value of stock options, calculated in accordance with FASB ASC Topic 718.  In determining the fair market value of stock options, we used the same assumptions as set forth in the Note L to Masco’s financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014.  The named executive officers have no assurance that these amounts will be realized.  Actual gains, if any, on stock option exercises will depend on overall market conditions, the future performance of the common stock and the timing of exercise of the option.  See the “Compensation Discussion and Analysis” for a discussion of the treatment of Masco equity awards upon the completion of the Spin-Off.  Values for 2015 include the Founders Grant on July 8, 2015, and a grant on February 22, 2016, for 2015 performance.

(6) This column includes performance-based cash bonuses that were earned in the fiscal year based on the attainment of performance targets.  Amounts include payments under the Masco LTCIP for the 2012-2014 performance period (Mr. Volas only) and 2013-2015 annual performance periods (all of the named executive officers).  For Mr. Volas, included is a payment of $593,800 under the Masco LTCIP for the 2013-2015 performance period, as described in the “Compensation Discussion and Analysis.”

(7) This column shows changes in the sum of year-end pension values for Mr. Volas and Mr. Moore (the only named executive officers who participated in any defined benefit pension plan), which reflect actuarial factors and variations in interest rates used to calculate present values.  An increase in pension value does not represent increased benefit accruals since benefits in Masco’s domestic defined benefit plans were frozen effective January 1, 2010 (as described under the “2015 Pension Plan Table” below).  We calculated the pension values for 2015 using the same assumptions as set forth in the notes to Masco’s financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2014.  The named executive officers did not have any above-market earnings under any of the plans in which they participate.

(8) Includes Company matching contributions under TopBuild’s new tax-qualified 401(k) savings plan.  2015 value for Mr. Cushen includes a $47,780 tax gross-up to make relocation reimbursements in 2013 and 2014 tax-neutral.

2015 Grants of Plan-Based Awards Table

The following table provides information about (i) the potential payouts that were available in 2015 to our named executive officers under our annual performance-based cash bonus opportunity and (ii) the actual grants of restricted stock and stock options made to our named executive officers in respect of 2015 performance under the Existing LTIP.  The “Compensation Discussion and Analysis” above describes the treatment of Masco equity awards in connection with the Spin-Off.

 

(1) The amounts shown reflect the grant date fair value of Masco stock options granted on February 11, 2015, which converted to TopBuild options on the date of Separation.  These options vest ratably in five equal installments over five years beginning on February 11, 2016, one year after the grant date.

(2) The amounts shown reflect the threshold, target and maximum opportunities under the 2015 annual cash bonus program.  The amounts actually paid under this program are set forth in the “2015 Summary Compensation Table” above.

(3) The amounts shown reflect the threshold, target and maximum opportunities under the 2015 annual performance-based restricted stock program described in our “Compensation Discussion and Analysis.”

(4) The amounts shown reflect the number of stock options granted in 2015.  These options vest ratably in five equal installments over five years beginning on July 8, 2016, one year after the grant date.

(5) The amounts shown reflect the number of shares of restricted stock granted in 2015, at per share value of $27.10.  These stock grants vest ratably in five equal installments over five years beginning on July 8, 2016, one year after the grant date.

(6) These awards were denominated in dollars but payable in equity based on the market price of our common stock when achievement of the performance level is determined.

(7) The grant date fair value shown in the column is determined in accordance with accounting guidance.  Regardless of the value placed on a stock option on the grant date, the actual value of the option will depend on the market value of our common stock at a future date when the option is exercised.

(8) The amounts shown reflect the threshold, target and maximum opportunities under the LTCIP relating to Masco's performance for the 2015-2017 performance period.  On June 30, 2015, the threshold, target and maximum opportunities were reduced from $150,000, $375,000 and $750,000, respectively, to $25,750, $64,375 and $128,750, respectively, to reflect the occurrence of the Spin-Off and the fact that Mr. Volas ceased being an executive officer of Masco on June 30, 2015.  Payment of this cash award depends on return on invested capital performance over the three-year period.  TopBuild did not assume any payment obligation in respect of this award opportunity and any payment will be the responsibility of Masco.

(9) The amounts shown reflect the grant date fair value of TopBuild stock options granted on February 22, 2016, in respect of 2015 performance.  These options vest ratably in five equal installments over five years beginning on February 22, 2017, one year after the grant date.