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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:

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Dear Shareholders:

On behalf of the TopBuild Board of Directors and Senior Leadership team, it is my pleasure to invite you to the TopBuild Corp. 2022 Annual Meeting of Shareholders. Our meeting will be held virtually on Monday, May 2nd at 10:00 a.m. Eastern Time.  We hope you will attend.

A BRIEF REVIEW OF 2021

I am pleased to report that 2021 was another outstanding year for TopBuild. Our consistent strategy, diversified business model, and strong execution delivered on our objective of achieving profitable growth.  Revenue increased 28.3% to $3.5 billion, and our gross and operating margins expanded for both business segments.

On the capital allocation front, we completed 11 acquisitions including Distribution International, which provided us with a direct entry and leadership position into a new adjacency and growth platform, the highly attractive $5 billion mechanical insulation market. This acquisition also solidified TopBuild as the leader in supplying energy saving insulation solutions to a broad range of customers and industries across North America.

Since August 2016, we have completed 25 acquisitions, deploying almost $2 billion of capital. Our success in integrating acquisitions onto our company and leveraging and supply chain has become a core competency.

LOOKING FORWARD

As we look at 2022, we are optimistic that it will be another good year for TopBuild. We believe residential construction will remain strong and TopBuild, with exposure to 95% of all housing starts, unrivaled national scale, and a seasoned, energized and cycle- tested team, is uniquely positioned to capture a large portion of that growth. We are also excited about the growth potential of the commercial and industrial end markets where we have a leading presence.

Operationally, we remain focused on continuing to identify and implement initiatives that drive operational efficiency and improve labor and sales productivity. Strategic acquisitions will remain our number one capital allocation priority and will continue to be an important aspect of our projected growth. And finally, we believe energy codes will continue to strengthen, providing growth opportunities for all areas of TopBuild’s business.

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In everything we do as a company we look to our core values to guide our direction and decisions. They serve as our guiding principles in growing and managing our business. This means:

STRONG CORPORATE GOVERNANCE AND ESG FOCUS

We are committed to corporate governance practices that promote honesty, accountability, transparency, integrity, and an ethical work environment. We are guided by our Corporate Governance Guidelines and Code of Business Conduct and Ethics applicable to all directors, officers, and employees. Our Board believes that setting the tone at the top with a strong governance structure is critical to our long- term success.

Towards that end, the following measures are in place:

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In 2021, we established a formal ESG sustainability program which is directly overseen by our Board of Directors. The program is managed by an ESG committee comprised of the Company’s executive officers, including me, and a newly appointed senior director of ESG reporting to our General Counsel. We are working to ensure that we are implementing the right programs and providing relevant, timely, and accurate information to our stakeholders.

We recognize that you have a choice regarding your investment decisions, and we appreciate your continued support of our Company. Your vote is very important to us and I encourage 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.

We hope you will attend our virtual Annual Meeting on May 2nd. If you have any questions, please contact our Investor Relations department at (386) 763-8801.

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TopBuild Corp.

475 North Williamson Boulevard

Daytona Beach, Florida 32114-7101

NOTICE OF 2022 ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of TopBuild Corp.:

The 2022 Annual Meeting of Shareholders of TopBuild Corp. will be held virtually on May 2, 2022, at 10:00 AM Eastern Time, for the following purposes:

Only shareholders of record at the close of business on March 3, 2022, may vote at the meeting.

On or about March 23, 2022, we began mailing a Notice of Internet Availability of Proxy Materials (the “Notice”) to all shareholders of record as of March 3, 2022, and posted our proxy materials on the website referenced in the Notice (www.proxyvote.com). As more fully described in the Notice, all shareholders 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 electronically or by mail.

Your vote is very important. Shareholders may vote their shares (1) at the Annual Meeting, (2) by telephone, (3) through the Internet in advance, 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 on the enclosed proxy card.

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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 before voting your shares, and you should read this entire Proxy Statement carefully before voting. Page references are supplied to help you find additional information in this Proxy Statement.

Annual Meeting of Shareholders

Who May Vote

You may vote if you were a shareholder of record at the close of business on the record date, March 3, 2022.

We began mailing a Notice of Availability of Proxy Materials on or about March 23, 2022, 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 11:59 PM Eastern Time on May 1, 2022;

       Telephone (1-800-690-6903) until 11:59 PM Eastern Time on May 1, 2022;

      If you requested to receive printed proxy materials, by completing, signing, and returning your proxy by mail so that it is received no later than April 29, 2022; or

      During the Annual Meeting: If you are a shareholder of record, the control number on your proxy card will serve as proof of ownership. If you hold your shares through a broker, nominee or other intermediary, you must present proof of ownership to attend the meeting and must obtain a legal proxy from the broker, nominee or other intermediary that holds your shares giving you the right to vote the shares during the Annual Meeting.

Voting Matters

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

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Board Nominees (page 12)

The Board has nominated each of Alec C. Covington, Ernesto Bautista III, Robert M. Buck, Joseph S. Cantie, Tina M. Donikowski, Mark A. Petrarca, and Nancy M. Taylor as Directors, to hold office for a term of one year or until their respective successors have been duly elected and qualified. Mr. Camden will retire from the Board of Directors at the 2022 Annual Meeting and has not been nominated for re-election.

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The following table provides summary information about each director nominee:

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(1) Mr. Covington serves as Board Chairperson.

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Ratification of Auditor Appointment (page 21)

We are asking our shareholders to ratify the appointment of PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for the year ending December 31, 2022. Below is summary information about fees billed to us by PwC for services provided in the years ended December 31, 2020 and 2021:

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Approval, on an Advisory Basis, of the Compensation of our Named Executive Officers (page 24)

We are asking our shareholders 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 shareholder interests, including:

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Approval, on an Advisory Basis, of the Frequency for Future Advisory Votes to Approve the Compensation of our Named Executive Officers (page 25)

We are also asking our shareholders to approve, on an advisory basis, the frequency of “every year” for future advisory votes to approve 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 shareholders on corporate governance matters and our executive compensation philosophy, policies, and practices on a routine basis.  An annual vote will continue to give our shareholders 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 to approve named executive officer compensation each year.  An annual vote also complements our goal of creating and implementing compensation programs that enhance shareholder value and maximize accountability.

Compensation Committee Report (page 26)

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 based on company performance, both the achievement of performance goals and the making of effective strategic decisions, and to align executive officers' interests with the long-term interests of our shareholders.

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

At our Annual Meeting in 2021, approximately 97% of the votes cast were voted in favor of our say-on-pay proposal, suggesting that an overwhelming majority of our shareholders approve of our executive compensation programs and philosophy.

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PROXY STATEMENT

2022 Annual Meeting

The 2022 Annual Meeting of Shareholders of TopBuild Corp. (the “Annual Meeting”) will be held virtually at 10:00 AM Eastern Time on May 2, 2022 for the purposes set forth in the accompanying Notice of the 2022 Annual Meeting of Shareholders. This Proxy Statement is being furnished to our shareholders of record as of March 3, 2022 (the “Record Date”), in connection with the solicitation of proxies by the Board of Directors (the “Board”) for the Annual Meeting and at any adjournments or postponements of the Annual Meeting. We refer to TopBuild Corp. in this Proxy Statement as “we,” “us,” “our,” the “Company” or “TopBuild.”

About TopBuild

We are a leading installer and specialty distributor of insulation and building material products to the construction industry in the United States and Canada.  We provide insulation installation services nationwide through our contractor services business which has approximately 235 branches located across the United States. We distribute building and mechanical insulation, insulation accessories and other building product materials for the residential, commercial, and industrial end markets through our Specialty Distribution business which encompasses approximately 175 branches.  On a pro-forma basis, approximately 63% of our revenue is generated through residential construction, 29% from commercial construction, and 8% from industrial distribution sales.

We leverage our footprint to gain economies of scale while capitalizing on our local market presence to forge strong relationships with our customers.

Our principal executive office is located at 475 North Williamson Boulevard, Daytona Beach, Florida 32114-7101. Our telephone number is (386) 304-2200 and our website is www.topbuild.com. Our common stock trades on the New York Stock Exchange (the “NYSE”) under the symbol “BLD”. Our internet website and the information thereon or connected thereto is not incorporated into or made a part of this Proxy Statement.

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CORPORATE GOVERNANCE

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

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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, access to senior management, director compensation, director qualifications, Board performance, management evaluation and succession planning, and enterprise risk management. The Guidelines are available at: https://www.topbuild.com/esg/corporate-governance.

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 at: https://www.topbuild.com/esg/corporate-governance.

Board Leadership Structure

The Guidelines provide that the roles of Chairperson of the Board and Chief Executive Officer may be separate or combined. If our Chairperson of the Board does not qualify as independent, then the Board must select a lead independent director to coordinate with the Chairperson of the Board and chair executive sessions of the independent directors. The Board currently separates the roles of Chairperson of the Board and Chief Executive Officer. We believe that separation of the positions of Chairperson 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 Board’s ability to monitor whether management’s actions are in the best interests of the Company and its shareholders.

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The Board's independent oversight function is further enhanced by the fact that all three Committees are composed 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.

Independent Sessions

The Board and each Committee regularly meet in independent session of only non-management directors, without management present, with the Chairperson of the Board or of the applicable Committee Chairperson presiding.

Annual Board and Committee Self-Assessments

Our Board and each Committee conduct an annual self-assessment designed to determine whether the Board and the Committees are functioning effectively and to discuss the potential to improve their effectiveness. The self-assessment, overseen by the Governance Committee, enables directors to provide confidential feedback on a variety of topics including Board and committee structure and composition, culture, responsibility, and accountability of directors. A summary of the results is presented to the Board and each Committee, which consider ways to enhance effectiveness. While the formal Board and Committee self-evaluation is conducted on an annual basis, the directors share perspectives, feedback, and suggestions throughout the year.

Majority Vote Standard for Election of Directors; Director Resignation Policy

Our Amended and Restated Bylaws provide for director majority voting in uncontested elections, which are those elections in which the number of nominees for election is less than or equal to the number of directors to be elected. For election or reelection to the Board in an uncontested election, a director must receive more votes cast in favor of such director’s election than cast against such director’s election. Promptly following the annual meeting at which a person is elected as a director, such person must deliver an irrevocable resignation effective upon such persons’ failure to receive the required vote for reelection at the next meeting at which such person would face reelection, and upon acceptance of such resignation by the Board. Any such resignation will be reviewed by the Governance Committee following the election at which the director failed to receive a majority of votes cast and, within 90 days, make a recommendation to the Board, at which time the independent members (other than the resigning member) of the Board will determine whether to accept, reject, or take other appropriate action with respect to the resignation. Absent a compelling reason for the director to remain on the Board, the Board shall accept such resignation.

Certain Relationships and Related Party Transactions

The Board has adopted a written 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 of our common stock, 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 and valued at $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 Corporate 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 disinterested, independent directors determines that a material interest exists, the Board or such committee will consider all relevant information to assess whether the transaction is in, or is not inconsistent with, the Company’s best interests and the best interests of our shareholders. The Board reviews this policy annually and makes changes as appropriate. In 2021, no related party transactions as defined under the policy occurred, and none were submitted, reviewed, or rejected.

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Compensation Committee Interlocks and Insider Participation

In 2021, each of our non-employee directors served on our Compensation Committee, and none of our executive officers or directors was a member of the board of directors of any other company where the relationship is a compensation committee interlock under Securities and Exchange Commission (“SEC”) rules.

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, skills, and expertise, particularly in the areas of accounting and finance, management, domestic markets, strategy, leadership, and diversity, each of which provide sound and prudent guidance with respect to our operations and interests.

The Governance Committee does not have a specific policy regarding consideration of director candidates recommended by shareholders but will consider director candidates recommended by shareholders using the same criteria as for other candidates. Shareholders may submit recommendations in accordance with the procedures for nominations and proposals for other business to be brought at the Annual Meeting set forth in this Proxy Statement.

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, strategy, cybersecurity, and operations, including the risks associated with each. The Company has not experienced an information security breach in the last three years and monitors and maintains active security of its information technology systems. 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 Audit Committee is also responsible for oversight of the Code of Business Ethics with respect to executive officers and senior financial officers. The Governance Committee is responsible for oversight of risks related to corporate governance and risks associated with the independence of the Board and potential conflicts of interest. Each of the Board’s committees apprises the full Board of its activities relating to the foregoing, and the Company’s Chief Executive Officer reports to the Board regarding known risks to the Company’s business and strategy.

ESG Oversight

The Board and management of the Company recognize the importance of environmental, social, and governance (“ESG”) matters, and of providing information regarding our ongoing efforts and practices in these matters to shareholders and other stakeholders. The Board as a whole has retained oversight of the Company’s ESG process rather than delegating oversight to a committee of the Board. In addition, each standing Committee has taken on aspects of ESG oversight, and we have updated Committee charters to reflect those particular responsibilities, in each case under the oversight of the entire Board.  

In 2021, in connection with expanding Board ESG oversight, the Company formed a management ESG committee tasked with developing and implementing a Company-wide sustainable ESG program.  Each of the named executive officers sits on the ESG committee, together with other Company leaders. In addition, the Company appointed a senior director of ESG, reporting to the Vice President, General Counsel & Secretary, to lead the Company’s ESG and sustainability program and engaged an external third-party consultant for assistance and guidance.  The management ESG committee meets regularly and provides detailed plans, updates, and progress reports to the Board for review, feedback, and direction on an ongoing basis.

We are committed to continuous improvement of our ESG and sustainability programs and initiatives and to periodically updating information and results. We encourage you to read our current annual Sustainability Report and to visit the ESG section of our website for updates and additional policies, information, and materials.

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Shareholder Engagement

We recognize that good corporate governance includes proactive communications with our shareholders so that we may better understand their priorities and determine how we can best respond to their needs while supporting our investment strategy.  Key investors provide input throughout the year at sell-side sponsored industry conferences, on quarterly earnings conference calls, and during individual meetings and conference calls. In 2021, our CFO and investor relations team, either virtually or in-person, attended eleven sell-side industry conferences and hosted individual investor meetings with over 175 separate institutions.   While most discussions concern our operations, business performance, and long-term strategy, we also stress our firm commitment to managing and growing our business in a sustainable and socially responsible manner in line with our core values. 

Culture of Ethics and Training

The Company is committed to the highest ethical standards in interactions with our employees, customers, suppliers, and the public.

For its employees and managers, the Company has established training programs on ethics and professional development:

Accuracy of Public Disclosures

It is the Company’s policy that all public disclosures be accurate and complete, fairly present in all material respects the Company’s financial condition and results of operations, and be made on a timely basis as required by applicable laws and securities exchange requirements. A Disclosure Committee oversees this policy based on a Disclosure Committee Charter. The purpose of the Disclosure Committee is to ensure that the information required to be disclosed by the Company in the reports it files or submits to the SEC and other information the Company publicly discloses is recorded, processed, summarized, and reported accurately to senior management of the Company, as appropriate, to allow timely decisions regarding such disclosure.

Prohibition on Hedging and Other Speculative Transactions

We maintain a securities trading policy that applies to our directors, officers, employees, family members of the foregoing persons and trusts, corporations, and other entities controlled by any of the foregoing persons. Our securities trading policy prohibits each of them from engaging in any hedging transactions that are designed to hedge or offset any decrease in the market value of our equity securities. Prohibited hedging transactions include, without limitation, the use of variable forward contracts, equity swaps, collars, exchange funds, pledging or holding shares in margin accounts, short selling, or placing standing or limit orders with respect to Company stock. We believe this policy is important to help ensure that our officers, directors, and other personnel have the same objectives as our public shareholders.

Corporate Governance Documents

Current copies of the following corporate governance documents are on our website at:

https://www.topbuild.com/esg/corporate-governance:

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We will provide any of these documents in print to any shareholder upon written request to TopBuild Investor Relations, 475 North Williamson Boulevard, Daytona Beach, Florida 32114-7101.

Communications to the Board

Shareholders 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 Corporate Secretary
475 North Williamson Boulevard
Daytona Beach, Florida 32114-7101

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

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PROPOSAL 1: ELECTION OF DIRECTORS

Other than our Chief Executive Officer, who serves as a director, our Board of Directors consists entirely of independent directors, all of whom the Board has affirmatively determined satisfy both the Company’s and the NYSE director independence standards. The currently authorized number of directors is eight.  The authorized number of directors will be reduced to seven immediately following the 2022 Annual Meeting.

The Company’s Amended and Restated Certificate of Incorporation provides that all directors serve for a term of one year that expires at the following year’s annual meeting of shareholders. Unless otherwise instructed, the shares represented by validly submitted proxy cards will be voted “FOR” the election of the below listed nominees to serve as directors of the Company.

Management has no reason to believe that the below listed director nominees will not be candidates or will be unable to serve as Directors. However, in the event that any of the below listed director nominees should become unable or unwilling to serve as 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 director nominee(s), the Company will publicly notify shareholders by press release and will promptly distribute to shareholders 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 is willing to serve if elected, and (iii) include certain other disclosures required by applicable 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 expiring at the next succeeding annual meeting of shareholders. Mr. Camden will retire from the Board of Directors at the 2022 Annual Meeting and has not been nominated for re-election.

Below each director nominee’s biography, we have included an assessment of the skills and qualifications of such nominee.

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Experience:

Mr. Covington has served as Managing Director of Haynes Park Capital, LLC, a private investment and business consulting firm, since forming the company late in 2013. Mr. Covington served as the President and Chief Executive Officer of Nash-Finch Company, a food distribution company, from 2006 until the company merged with Spartan Stores, Inc. in 2013. From 2004 to 2006, he served as both President and Chief Executive Officer of Tree of Life, Inc., a specialty food distributor, and as a member of the Executive Board of Tree of Life’s parent corporation, Royal Wessanen NV, a corporation based in the Netherlands. From 2001 to 2004, Mr. Covington was Chief Executive Officer of AmeriCold Logistics, LLC, a company that specializes in temperature-controlled warehousing and logistics for the food industry. Prior to that time, Mr. Covington was the President of Richfood Inc. and Executive Vice President of Supervalu Inc.

Skills and Qualifications:

Mr. Covington has a strong background in distribution, supply chain operations, and logistics. His significant leadership, executive management experience, and expertise in the areas of management, operations, and business development provide us with a broad-based understanding of areas important to our growth and operations.

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Experience:

Mr. Bautista is Chief Financial Officer of BJ Energy Solutions LLC an oil and gas service company.  Prior to joining BJ Energy Solutions in 2021, Bautista served as Vice President, Chief Financial Officer and Treasurer of CARBO Ceramics Inc. (NYSE:CRR) from 2009 to 2020.  In addition, Bautista served in several senior management roles at W-H Energy Services, Inc. (NYSE:WHQ), ultimately serving as Vice President and Chief Financial Officer prior to the Company’s sale to Smith International Inc.

Skills and Qualifications:

Mr. Bautista has significant experience leading financial and treasury organizations in cyclical industries. His  background and expertise provide a deep understanding of finance, financial planning, cash management, strategy, and operations. Mr. Bautista was nominated for election and appointed to the Board of Directors following a search led by the Governance Committee and conducted by a nationally recognized executive search firm.

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Experience:

Mr. Buck assumed the position of Chief Executive Officer on January 1, 2021 after serving as President and Chief Operating Officer since the Company’s spin-off from Masco Corporation in June 2015.  At Masco, Mr. Buck served as Group Vice President where he was responsible for the Installation and Other Services Segment consisting of both Masco Contractor Services and Service Partners, LLC. Mr. Buck began his career with Masco in 1997 at Liberty Hardware where he spent eight years in several operations leadership roles and worked extensively in international operations. He 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.  

Skills and Qualifications:

Mr. Buck’s leadership positions with Masco, Masco’s subsidiaries and TopBuild give him company-specific knowledge in all areas important to TopBuild’s performance including, among others, key markets, personnel, customer and supplier relationships, operations, marketing, finance, and risk management.

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Experience:

Mr. Cantie is the former Executive Vice President and Chief Financial Officer of TRW Automotive Holdings Corp., a diversified global supplier of automotive systems, modules, and components, a position he held from February 2003 until January 2016. From 2001 to 2003, Mr. Cantie was Vice President, Finance for the automotive business of TRW, Inc., a global aerospace, systems and automotive conglomerate. Mr. Cantie served as TRW Inc.’s Vice President, Investor Relations from 1999 until 2001. From 1996 to 1999, Mr. Cantie was employed by LucasVarity plc, serving in several executive positions, including Vice President and Controller. Prior to joining LucasVarity, Mr. Cantie was employed as a certified public accountant with the international accounting firm of KPMG. Mr. Cantie is a director of Summit Materials, Inc. (NYSE: SUM), a vertically integrated construction materials company, and Howmet Aerospace, Inc. (NYSE: HWM), a provider of advanced engineered solutions for the aerospace and transportation industries.

Skills and Qualifications:

Mr. Cantie has significant experience leading the finance organization of a large company. His financial background and expertise provide us with a deep understanding of finance, financial operations, capital markets, and investor relations, and his operations and transactions experience provide expertise in mergers and acquisitions as well as in strategy, operations, and integration.

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Experience and Qualifications:

Ms. Donikowski retired from General Electric in 2015 after serving for 38 years in a variety of leadership positions. The most recent were Vice President, Global Locomotive Business of General Electric and Vice President, Propulsion Business of General Electric. Ms. Donikowski currently serves on the Board of Directors of CIRCOR International (NYSE: CIR), Atlas Copco AB (STOCKHOLM: ATCO), Advanced Energy Industries, Inc. (NASDAQ: AEIS), and ERIEZ Magnetics, a private company, as well as on the Board of Trustees of both Gannon University and The Boys & Girls Club of Erie, Pennsylvania. Ms. Donikowski holds a Bachelor of Science degree in Industrial Engineering and an Honorary Doctorate from Gannon University.

Skills and Qualifications:

Ms. Donikowski brings with her considerable executive leadership experience derived from her 38-year tenure with General Electric, together with her experience serving as a director of both U.S. and foreign publicly traded companies.

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Experience:

Mr. Petrarca has served as the Senior Vice President of Human Resources and Public Affairs of A. O. Smith Corporation, a global manufacturer of residential and commercial water heating and water treatment equipment, since 2005. In this role, he is responsible for all human resource activities, including policy and strategy development, performance management, employee relations, compensation and benefits, and organizational development and succession planning, as well as public affairs and communications. Mr. Petrarca joined A. O. Smith Corporation in 1999, serving as Vice President-Human Resources for its Water Products Company until 2005. Mr. Petrarca was previously employed as Director of Human Resources for Strike Weapon Systems, a division of Raytheon Systems Company, and in various manufacturing and human resources positions at the Defense Systems and Electronics Group of Texas Instruments.

Skills and Qualifications:

Mr. Petrarca brings strong expertise in domestic and international human resources and insight into employee relations issues, public affairs, communications, and executive compensation. He provides us with valuable experience in policy and strategy development, performance management, organizational development, succession planning, executive compensation, and mergers and acquisitions. He also has a deep understanding of the building products industry.

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Experience:

Ms. Taylor served as the President and Chief Executive Officer of Tredegar Corporation, a global manufacturing company, from 2010 until 2015. During her 24-year career with Tredegar, Ms. Taylor held a variety of leadership positions, including President of Tredegar Film Products, Senior Vice President, Strategy, and General Counsel. Ms. Taylor currently serves as Chair of the Board of Lumber Liquidators Holdings, Inc. (NYSE:LL), serves on the Board of Directors of Verso Corporation (NYSE: VRS), and is on the Board of the Boys & Girls Club of Metro Richmond (Virginia).

Skills and Qualifications:

Ms. Taylor has significant executive and board leadership experience, deep corporate governance knowledge and a strong background in the commercial construction market. She also has significant experience in operations, mergers and acquisitions, strategic planning, and risk management.

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BOARD OF DIRECTORS AND COMMITTEES

Board Meetings and Committees

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

In 2021, the Board held five regularly scheduled meetings and met telephonically two times. Our Audit Committee met four times, our Governance Committee met five times, and our Compensation Committee met four times. In addition, the Board received regular updates from management wherein the Directors reviewed the ongoing performance of the business, results of safety training and safety initiatives, the impact (if any) of the COVID-19 pandemic on the Company’s business and operations, discussed the Company’s plans and actions with respect thereto and provided advice and counsel during regular calls with members of senior management. Each of our incumbent directors attended at least 75% of the aggregate of the total number of meetings of the Board and the total number of meetings held by all committees of the Board on which such director served. Directors are expected to attend the Annual Meeting. All of the Directors attended the 2021 virtual Annual Meeting of shareholders.

COMMITTEES OF THE BOARD

Each Committee has a written charter that sets forth in detail the duties and responsibilities of the Committee. Current Committee charters are available on our website at: https://www.topbuild.com/esg/corporate-governance.

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Audit Committee

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Compensation Committee

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Director Independence

Our Corporate Governance Guidelines and the rules of the NYSE require that a majority of the members of the Board be independent directors. Our Board has adopted its own director independence standards contained in our Corporate Governance Guidelines to assist it in assessing director independence.

The Board has determined that none of the current directors or director nominees, other than Mr. Buck (who is a current employee of the Company), has a material relationship with the Company, and that each of these directors (other than Mr. Buck) is independent.

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

Summary

We have provided information about the capabilities, experience, skills, 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 possess the skills, judgment, experience, reputation, and commitment to make a constructive contribution to the Board.

DIRECTOR COMPENSATION

In 2021, as compensation for their service on our Board, each of our non-employee directors received an annual retainer of $215,000, of which $87,500 was paid in cash and $127,500 was paid in the form of restricted stock. The vesting of all restricted stock grants to our non-employee directors fully accelerates upon our change in control. Additionally, our Chairman of the Board receives an annual cash retainer of $140,000 for service in this position. The additional annual retainers for serving as Chair of the Audit Committee, Compensation Committee, and Governance Committee were $20,000, $15,000, and $10,000, respectively. Our non-employee directors do not receive any perquisites. Mr. Buck, who is a director and the Chief Executive Officer of our company, does not receive additional compensation for service as a director. Mr. Bautista joined the Board on September 13, 2021, and received a pro-rated retainer and equity grant. The table below shows compensation for the year ended December 31, 2021.

Director Compensation Table

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(1) This column reflects the grant date fair value of the Stock Awards granted to our independent directors during 2021, calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 718. These Stock Awards vest in full on May 3, 2022, which is the first anniversary of the grant date, subject to continued service.

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(2) Mr. Bautista joined the Board on September 13, 2021. He received a stock award value and cash compensation pro-rated for his service during 2021.

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Non-Employee Director Stock Ownership Guidelines

Our Governance Committee has adopted a policy requiring that our non-employee directors own five 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 years from the effective date to achieve the targeted ownership. All of our non-employee directors have satisfied the guidelines or are on track to be in compliance with the guidelines within the five-year window.

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The following report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of TopBuild's filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate such report by reference.

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 2021 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. PricewaterhouseCoopers LLP (“PwC”), the Company’s independent registered public accounting firm, is responsible for expressing, and has expressed, an opinion on the conformity of those audited financial statements with generally accepted accounting principles.

The Audit Committee has discussed with PwC the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the SEC. In addition, the Audit Committee has received written disclosures and the letter from PwC in accordance with the applicable requirements of the PCAOB regarding PwC’s communications with the Audit Committee concerning independence and has discussed its independence with PwC. The Audit Committee has also considered whether PwC's provision of non-audit services to the Company is compatible with maintaining PwC's independence.

The Audit Committee discussed with the Company's internal auditors and with PwC the overall scope and plans for their respective audits. The Audit Committee also met with the internal auditors and with PwC, 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, 2021, for filing with the SEC.

Audit Committee

Joseph S. Cantie (Chair)

Ernesto Bautista III

Carl T. Camden

Alec C. Covington

Tina M. Donikowski

Mark A. Petrarca

Nancy M. Taylor

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PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board has appointed PwC, an independent registered public accounting firm, to audit the Company’s financial statements for the year ending December 31, 2022. The Company is submitting its appointment of PwC for ratification by the shareholders at the Annual Meeting. A representative of PwC, who is expected to be present at the Annual Meeting, will have the opportunity to make a statement and be available to respond to appropriate questions.

Although the selection and appointment of our independent registered public accounting firm is not required to be submitted to a vote of shareholders, the Board deems it desirable to obtain shareholders’ ratification and approval of this appointment. If the appointment is not ratified by our shareholders, the adverse vote will be considered as an indication to the Audit Committee that it should consider selecting another independent registered public accounting firm for the following year, but it is not required to do so. Even if the appointment is ratified, the Audit Committee, in its discretion, may select a new independent registered public accounting firm at any time during the year if it believes that such a change would be in the Company’s best interest.

In making its recommendation to ratify the appointment of PwC as the Company’s independent registered public accounting firm for the year ending December 31, 2022, the Audit Committee considered whether the services provided by PwC are compatible with maintaining the independence of PwC.

Before the Audit Committee selected PwC, it carefully considered the independence and qualifications of that firm, including its past performance as the Company’s independent registered public accounting firm and its reputation for integrity and for competence in the fields of accounting and auditing.

Audit Fees

The following table sets forth the aggregate fees billed to us by PwC for the years ended December 31, 2020 and 2021, all of which were pre-approved by the Audit Committee in accordance with its policy described below:

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(1) Audit Fees consisted of fees billed or estimated to be billed by PwC for the audit of our annual financial statements included in our Annual Report on Form 10-K, review of our interim financial statements included in our Quarterly Reports on Form 10-Q, and services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings or engagements for the years ended December 31, 2020 and 2021.

(2) All Other Fees consisted of fees for services other than the audit services reported above billed for consulting on tax compliance matters and direct tax returns relating to our Specialty Distribution reporting segment and foreign subsidiaries acquired in 2021 in the amount of $149,838, and the balance for a subscription to an accounting website.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee is responsible for appointing, compensating, and overseeing the work performed by PwC as well as audit services performed by other independent public accounting firms. The Audit Committee has established a policy governing our use of the services of PwC. Under the policy, our Audit Committee is required to pre-approve all audit and non-audit services performed by PwC in order to ensure that the provision of such services does not impair PwC’s independence.

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COMMON STOCK OWNERSHIP OF OFFICERS, DIRECTORS AND SIGNIFICANT SHAREHOLDERS

Directors and Executive Officers

The following table sets forth, as of March 3, 2022, beneficial ownership of TopBuild common stock 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. Beneficial ownership is determined in accordance with the rules of the SEC. Except as indicated by footnote and subject to community property laws where applicable, to our knowledge, the persons named in the table below have sole voting and dispositive power with respect to all shares of common stock shown as beneficially owned by them. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options and warrants held by such person that are exercisable as of March 3, 2022 or that will become exercisable within 60 days thereafter are deemed outstanding for purposes of such person’s percentage ownership but not deemed outstanding for purposes of computing the percentage ownership of any other person.

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* Less than 1%

(1) The address for each beneficial owner listed in this table is 475 North Williamson Boulevard, Daytona Beach, Florida 32114-7101.

(2) As of March 3, 2022, we had 33,006,575 shares of common stock outstanding.

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Certain Other Shareholders

As of December 31, 2021, the following were beneficial owners known by us to hold more than 5% of the 32,927,185 shares of then outstanding common stock.  Unless otherwise indicated, each beneficial owner has sole voting and dispositive power with respect to the common stock held. In accordance with SEC rules, information with respect to each shareholder identified in the table below is derived from its most recently dated Schedule 13G or 13D, as filed by each respective shareholder with the SEC. We do not know, nor do we have reason to believe that such information is not complete or accurate or that a statement or amendment should have been filed and was not.

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(1) Based on a Schedule 13G/A filed with the SEC on February 3, 2022.

(2) Based on a Schedule 13G/A filed with the SEC on February 10, 2022.

(3) Based on a Schedule 13G filed with the SEC on January 26, 2022.

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PROPOSAL 3: APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

Section 14A of the Exchange Act, which was added under the Dodd­Frank Wall Street Reform and Consumer Protection Act enacted in July 2010, requires that we provide shareholders with the opportunity to vote to approve, on a nonbinding advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with the SEC's rules (commonly referred to as “Say­on­Pay”). A Say-on-Pay vote is held annually, and we currently anticipate that the next such vote after the 2022 Annual Meeting will occur next year in connection with our 2023 Annual Meeting.

We encourage shareholders to read the “Compensation Discussion and Analysis” section of this Proxy Statement, the Summary Compensation Table and the other related tables and disclosures for a detailed description of the year 2021 compensation of our named executive officers. The Compensation Committee and the Board believe that the policies and procedures articulated in the “Compensation Discussion and Analysis” are effective in achieving our goals and that the compensation of our named executive officers reported in this Proxy Statement appropriately reflects our results during the year.

The vote on this resolution is not intended to address any specific element of compensation; rather, the advisory vote relates to the overall compensation of our named executive officers. This vote is advisory, which means that it is not binding on the Company, the Board, or the Compensation Committee. However, we value the opinion of our shareholders, and the Board and the Compensation Committee will review the voting results and will take into account the outcome of the vote when considering future compensation decisions for the named executive officers.

Accordingly, we ask our shareholders to vote on the following resolution:

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PROPOSAL 4: APPROVAL, ON AN ADVISORY BASIS, OF THE FREQUENCY FOR FUTURE ADVISORY VOTES TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

Section 14A of the Exchange Act and related SEC rules require that we provide shareholders the opportunity to vote, on a non-binding, advisory basis, as to how frequently we should hold future Say-on-Pay votes (which we refer to as a “Say-on-Frequency” vote). SEC rules provide that shareholders must have an opportunity to indicate whether they would prefer that we hold future Say-on-Pay votes once every year (every year or annual), once every two years, or once every three years.  Shareholders may also abstain from voting on this proposal. SEC rules require us to hold this Say-on-Frequency vote at least once every six years. The last Say-on-Frequency vote was held in 2016, and we expect the next Say-on-Frequency vote will be held in 2028. The Say-on-Frequency vote is non-binding on the Board.

The Board has determined that annual (every year) Say-on-Pay votes continue to be the most appropriate alternative. The Board therefore recommends that you vote to hold future Say-on-Pay votes every year.  In formulating its recommendation on this proposal, the Board considered that annual Say-on-Pay votes are consistent with our policy of seeking input from our shareholders on corporate governance matters and our executive compensation philosophy, policies, and practices on a routine basis.  An annual Say-on-Pay vote gives our shareholders the opportunity to react promptly to emerging trends in compensation, provides feedback before those trends become pronounced over time and gives the Board and the Compensation Committee the opportunity to evaluate Say-on-Pay votes each year.  An annual Say-on-Pay vote also complements our goal of creating and implementing compensation programs that enhance shareholder value and maximize accountability.

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The following report of the Compensation Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of TopBuild's filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate such report by reference.

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 and incorporated by reference in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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Mark A. Petrarca (Chair)

Ernesto Bautista III
Carl T. Camden
Joseph S. Cantie
Alec C. Covington
Tina M. Donikowski
Nancy M. Taylor
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Compensation Discussion and Analysis

Overview

For purposes of this Compensation Discussion and Analysis, our named executive officers are identified below (collectively, our “named executive officers”). The information provided reflects summary information concerning TopBuild's executive compensation approach. There are no family relationships between any director, executive officer, or person nominated or chosen to become a director or executive officer.

Named Executive Officers

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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 of motivating them to maximize our Company's performance and create long-term value for our shareholders. We believe in rewarding our executive officers based on Company performance. Our Compensation Committee continually analyzes our compensation practices and programs thoughtfully and thoroughly.

Impact of COVID-19 on Compensation Programs

The Compensation Committee, together with the entire Board, continues to carefully monitor the effect of the COVID-19 pandemic on the business and operations of the Company.  Based on available information, and on the ongoing performance of the business, the Compensation Committee considered whether, and to what extent, any impact should be taken into consideration in revising or reconsidering its approach to executive compensation or modifying any existing or planned programs. Following careful consideration and deliberation, the Compensation Committee concluded that our compensation practices and programs remain appropriate and effective and that no modification of our programs is necessary due to the COVID-19 pandemic in 2021 or its impact on our business or operations.

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Consideration of Shareholder Vote on Executive Compensation

At our 2021 Annual Meeting, our shareholders had the opportunity to cast an advisory vote on our executive compensation, referred to as the say-on-pay proposal. At that meeting, approximately 97% of the votes cast were voted in favor of the say-on-pay proposal, suggesting that an overwhelming majority of our shareholders approve of our executive compensation programs and philosophy. The Compensation Committee considered this vote when constructing and approving the Company’s ongoing compensation structure for our executives. Based on this strong shareholder support at our 2021 Annual Meeting, the Compensation Committee made no changes to our executive compensation program as a direct result of such vote.

Compensation Philosophy

We believe that effective executive compensation programs are critical to our long-term success. We have developed compensation programs with the following objectives:

Our long-term incentive opportunities link a significant portion of executive compensation to our performance through performance-based restricted stock and time-vesting stock or option awards. We believe that an executive's total compensation opportunity should increase commensurate with his or her responsibility and capacity to influence our results. Additionally, as an executive's responsibility and accountability increase, so should the portion of that person's compensation that is at risk. Therefore, not only do base salaries increase with position and responsibility, but short-term and long-term incentive opportunities as a percentage of total compensation increase as well.

Equity grants in the form of stock awards that vest only upon the achievement of performance goals as well as stock options or restricted stock awards with extended vesting periods are an important component of compensation for executive officers. The value ultimately realized from equity awards depends on Company performance and the value delivered to shareholders through the long-term performance of TopBuild's common stock.

TopBuild Compensation Practices

TopBuild has adopted the following compensation practices:

As a guideline, we target executive compensation levels within 90%-110% of market median as compared to the benchmarked positions as described below. However, target pay for any individual executive may be set above or below this range due to experience levels, unique job qualifications, internal equity considerations, or other factors which may be considered relevant by management and the Compensation Committee.

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Stock Ownership Guidelines

Our Compensation Committee has adopted a policy requiring our senior officers, including the named executive officers, to own a multiple of their base salary in our common stock. For our Chief Executive Officer, the multiple is five times base salary. For our Chief Financial Officer, the multiple is three times base salary. For our General Counsel and Secretary and our Chief Human Resources Officer, the multiple is two times base salary. For all other executives at the level of Vice President, the multiple is one times base salary. Individuals have five years from the point of being subject to the ownership guidelines to achieve the prescribed multiple and are permitted to only sell our common stock in order to pay taxes on vesting equity until the required ownership is achieved. All of our named executive officers have satisfied the guidelines or are on track to be in compliance with the guidelines within the five-year window.

Executive Compensation Approach

TopBuild's 2021 compensation structure was composed of the following primary components:

Our executive officers enter into award agreements in connection with grants of equity awards. The award agreements and the Severance Plan (described in the section below entitled “Payments upon a Change of Control and/or Termination of Employment”) contain certain restrictive covenants, including a non-competition covenant during employment and for one year thereafter. In addition to the foregoing, our executive officers are able to participate in the health care plans, defined contribution plans, discount programs and benefits offered to all employees of the Company and, in addition to the foregoing, have access to an executive physical exam program that provides for an annual health assessment.

Equity Incentive Compensation

We believe that a combination of performance-based restricted stock and stock options, with extended vesting and exercise periods are appropriate vehicles for a public company to align executives’ compensation with long-term Company performance and shareholder interests. See “Equity Compensation Program,” below.

Compensation Benchmarking

We compete for talent in competitive labor environments. In order to attract and retain critical leadership, we strive to provide a comprehensive and competitive total compensation package. We utilize the resources of an independent compensation consultant to aid in establishing our programs and to monitor how they compare with the marketplace. The Compensation Committee has retained Willis Towers Watson, a leading global executive compensation consultant, to advise the Compensation Committee on market trends relative to executive compensation, to provide market data as requested, and to share views on issues being discussed by the Compensation Committee.

The Compensation Committee has sole authority to approve the independent compensation consultant's fees and terms of engagement on executive compensation matters. The Compensation Committee reviews its relationship with Willis Towers Watson annually to ensure its independence on executive compensation matters, taking into account the independence analysis and recommendation of the Governance Committee. In making its recommendation, the Governance Committee reviews the independence of Willis Towers Watson and the individual representatives of Willis Towers Watson who serve as the Compensation Committee's advisors, considering the following specific factors: (i) other services provided to us by Willis Towers Watson; (ii) fees paid by us to Willis Towers Watson as a percentage of Willis Towers Watson's total revenue; (iii) policies and procedures maintained by Willis Towers Watson that are designed to prevent a conflict of interest; (iv) any business or personal relationships between the individual representatives of Willis Towers Watson who advised the Compensation Committee and any member of the Compensation Committee; (v) any shares of our Company's common stock owned by the individual representatives; and (vi) any business or personal relationships between our executive officers and Willis Towers Watson or the individual representatives.

The Compensation Committee concluded, based on the evaluation described above, that the services performed by Willis Towers Watson which do not relate to executive compensation do not raise a conflict of interest or impair Willis Towers Watson's ability to provide independent advice to the Compensation Committee regarding executive compensation matters.

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We endeavor to benchmark our executive compensation levels against similarly situated executives in comparably sized organizations. We believe we compete for executive talent with other non-financial institutions across multiple industrial segments. With that in mind, our consultants look at compensation practices and pay levels for a general industry group of comparable executives, size-adjusted for organizations with a similar revenue size, and the same metrics for a building products peer group.

The following companies were identified as benchmarks for our executive compensation building products peer group.  Aside from reflecting the merger of two of the Company’s peers it is unchanged from last year.  

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We feel this blended approach between a building products peer group and a broad general industry compensation survey dataset compiled by Willis Towers Watson gives us a realistic view of the compensation levels needed to attract and retain top executive talent.

For 2021, the Compensation Committee targeted our overall compensation and benefits programs and each element of compensation at the median level of the surveyed companies. The Compensation Committee considers a range of 90%-110% of median to be appropriate when reviewing total compensation because a number of variables can influence the relationship of an individual executive's pay components to the survey median data. Although the Compensation Committee attempts to have each component of compensation in this target range, the Compensation Committee puts greater emphasis on achieving the target at the total compensation level. Variables considered include, but are not limited to, education, position tenure, previous experience, level of performance, additional responsibilities, and, as appropriate, recruitment considerations.

Compensation of Named Executive Officers

The table below summarizes the 2021 compensation levels for each of our current named executive officers.

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(1) The bonus award paid is based on performance and is capped at the maximum payout equal to 200% of target.

(2) Stock options (Black-Scholes value) represent 40% of the grant date value; performance-based restricted stock awards represent 60% of the grant date value; (the maximum payout of performance-based restricted stock awards is 200% of target).

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2021 Annual Incentive Performance-Based Cash Bonus Opportunity

TopBuild provided an annual cash bonus opportunity for 2021 to our named executive officers to emphasize annual performance, provide incentive to achieve critical business objectives, and align officers' interests with those of its shareholders.

The performance metrics were net sales (weighted 10%), net sales change (weighted 10%), operating income (weighted 30%), operating income as a percentage of sales (weighted 30%), working capital as a percentage of sales (weighted 10%), and achievement of an ESG related minimum safety incident rate (weighted 10%). The threshold, target and maximum goals set for the 2021 annual performance program are set forth below. These metrics are believed to most effectively reflect drivers of enhanced shareholder value creation. We weighted operating income more heavily because it reflects the primary driver of our stock price performance.

Annual Performance Goals and Achievements

The following table shows target and actual performance along with percentage attained for the 2021 annual performance program.

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(1) For purposes of determining achievement of the performance target, numbers adjusted to exclude impact of acquisitions and other unusual charges not included when targets were set.

To determine the cash bonus to be paid to our named executive officers based on the 2021 performance achievements set forth above, the actual weighted performance percentage achieved applicable for each executive officer was multiplied by such executive officer’s applicable target bonus percentage, which was in turn multiplied by such executive officer’s base salary. For those executive officers responsible for business units, a blend of performance metrics is used which includes the metrics described above and metrics specific to such officer’s business unit performance.

Threshold, target, and maximum payouts under the 2021 cash bonus program are shown in the 2021 Grants of Plan-Based Awards Table, while actual awards for 2021 are shown in the Summary Compensation Table.

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Equity Compensation Program

Results for LTIP Awards with Performance Periods Ending in 2021

During 2021, the three-year performance period for our 2019 performance equity awards ended. Vesting of these awards was subject to the Company achieving certain pre-determined performance goals relating to our cumulative 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, 2021. Partial payouts are permitted for performance that exceeds pre-set thresholds but 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. Our Compensation Committee determined payout as follows:

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(1)  Mr. Machado joined the Company in 2020 and did not receive a 2019 LTIP award.

(2)  Adjusted EPS target of $14.75.  For purposes of the LTIP, EPS adjusted to exclude impact of acquisitions and other unusual charges not intended when targets were set. Under the LTIP, payout is increased to 200% of the target award level for performance that exceeds the target by 10% or more. The actual result exceeded target by 40%, resulting in a payout of 200%.

(3)  Total shareholder return earned of 495.34% over the cumulative three-year period ended December 31, 2021, resulting in a ranking in the top quartile amongst the Company's peer group and a payout of 200%.

(4)  Represents value of total performance shares earned based on the closing stock price of $219.56 on such date.

2021 Equity Awards

In February of 2021, our Compensation Committee approved equity awards designed to align executive compensation with market practices, reflect our strategic priorities, 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. In sizing the grants for our named executive officers, our Compensation Committee considered compensation peer group data and the named executive officer’s expected role in driving our operating results and creating value for our stockholders.  The February 2021 equity awards consisted of stock options (40% of targeted total equity grant value) and performance-based restricted stock (60% of total equity grant value) under the Amended and Restated TopBuild Corp. 2015 Long Term Stock Incentive Plan (as amended to the date hereof, the “LTIP”).

The stock options will vest in three equal increments on approximately each of the first three anniversaries of the date of the grant and have an exercise price of $214.58.

The performance-based restricted stock awards will vest on approximately the third anniversary of the grant date, subject to the Company achieving certain pre-determined performance goals based on our cumulative earnings per share (50% of award) and our relative TSR (50% of award), over the three-year period ending on December 31, 2023. Partial payouts are permitted for performance that exceeds pre-set thresholds but 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. Partial payouts are permitted in cases where one of the performance measures is met but the other is not.

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TopBuild Peer Group Established for Relative TSR Measurement

The following companies were identified as the peer group for the relative TSR measurement in the 2021-2023 equity incentive program design. The peer group is based on business characteristics similar to ours, including industry and revenue size between $1.1 and $8.8 billion.

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Clawback Policy

Our clawback policy authorizes the Board to recover past incentive compensation awards in the event of a material restatement of our financial statements, other than as a result of changes to accounting rules and regulations, or if an executive officer engages in certain acts of misconduct.

Prohibition Against Hedging

The Company’s insider trading policy prohibits directors, officers, employees, and consultants of the Company from engaging in any hedging transactions, pledging, or holding shares in margin accounts, short selling, or placing standing or limit orders with respect to Company stock. For more detailed information, please see “Prohibition on Hedging and Other Speculative Transactions” in our proxy summary above.

Compensation-Related Risk Assessment

We have assessed our employee compensation policies and practices and determined that any risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company. In reaching this conclusion, the Compensation Committee considered all components of our compensation program and assessed any associated risks. The Compensation Committee also considered the various strategies and measures employed by the Company that mitigate such risk, including: (i) the overall balance achieved through our use of a mix of cash and equity, annual and long-term incentives, and time- and performance-based compensation; (ii) our use of multi-year vesting periods for equity grants; and (iii) the oversight exercised by the Compensation Committee over the performance metrics and results under the annual incentive plan and the LTIP. In addition, compensation programs are reviewed with Willis Towers Watson, our compensation consultant, on an annual basis to ensure plans do not create incentives that would put the Company at excessive risk. Based on the assessment described above, the Compensation Committee concluded that any risks associated with our compensation policies and practices were not reasonably likely to have a material adverse effect on the Company.

Accounting for Share-Based Compensation

We follow FASB ASC Topic 718 for our share-based compensation awards. FASB ASC Topic 718 requires companies to measure the compensation expense for all share-based compensation awards made to employees and directors, including stock options and restricted stock, based on the grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our named executive officers may never realize any value from their awards.

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Summary Compensation Table

The following table sets forth certain information regarding compensation paid to the named executive officers of TopBuild.

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(1) The amounts in this column reflect the aggregate grant date fair value of restricted stock award opportunities under the LTIP, assuming target performance, representing the probable outcome. The grant date fair values were calculated in accordance with FASB ASC 718, utilizing the assumptions discussed in Note 1 and Note 14 to our consolidated financial statements for the year ended December 31, 2021. Assuming the highest level of achievement on performance awards as of the grant date, the aggregate grant date fair value of all stock granted in fiscal 2021 would have been $3,301,160 for Mr. Buck, $1,219,458 for Mr. Peterson, $681,582 for Mr. Machado, $681,582 for Mr. Raia, and $501,950 for Mr. Franklin. Assuming the highest level of achievement on performance awards as of the grant date, the aggregate grant date fair value of all stock granted in fiscal 2020 would have been $1,330,396 for Mr. Buck, $1,120,568 for Mr. Peterson, $644,436 for Mr. Raia, and $455,092 for Mr. Franklin.  Assuming the highest level of achievement on performance awards as of the grant date, the aggregate grant date fair value of all stock granted in fiscal 2019 would have been $1,304,908 for Mr. Buck, $1,005,056 for Mr. Peterson, $630,242 for Mr. Raia, and $458,053 for Mr. Franklin. In 2020, Mr. Machado received a time-based restricted stock award vesting in three equal annual installments that began on October 1, 2021.

(2) Amounts in this column reflect the aggregate grant date fair value of stock options, calculated in accordance with FASB ASC Topic 718, utilizing the assumptions discussed in Note 1 and Note 14 to our consolidated financial statements for the year ended December 31, 2021. 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.

(3) The amounts in this column for 2021 represent the company's 401(k) match, which is available to all employees of the Company, and the incremental Company portion of an executive physical, which is available to all executive officers.

(4) Mr. Buck served as President and Chief Operating Officer in 2019 and 2020.

(5) Messrs. Raia and Franklin’s annual incentive bonus target is based on blended results of the Company and the business units they lead.  As a result, Mr. Raia’s achievement percentage was 135.6%, and Mr. Franklin’s achievement percentage was 173.5%.

(6) Mr. Franklin served as Senior Vice President of TruTeam Operations in 2019.

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Grants of Plan-Based Awards Table

The following table provides information about the potential payouts that were available in 2021 to our named executive officers under our annual performance-based cash bonus opportunity and equity plans under our LTIP.

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(1) The amounts shown reflect the number of shares of performance-based restricted stock granted on February 16, 2021 under the LTIP. The restricted stock granted accounts for 60% of the 2021 equity program. Performance-based restricted stock has estimated future payout ranges from threshold (25%) to target (100%) to maximum (200%) depending on Company performance. The grant date fair value was calculated in accordance with FASB ASC 718, using the assumptions discussed in Note 1 and Note 14 to our consolidated financial statements for the year ended December 31, 2021. Amounts disclosed are based on current estimates of future performance and attainment of specific annual performance goals; however, the ultimate payouts will be determined based on actual three-year cumulative performance, which may vary from such estimates.

(2) The amounts shown reflect the stock options granted on February 16, 2021, at a per share value of $89.59 calculated in accordance with FASB ASC 718. Stock options account for 40% of the 2021 equity program. These options vest ratably in three equal installments over three years beginning on February 22, 2022.

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Outstanding Equity Awards at Year-End

The following sets forth certain information regarding equity-based awards held by each named executive officer on December 31, 2021.

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(1) Stock options become exercisable or vest in equal annual installments of 33%, commencing in the year following the year of grant.

(2) Represents unvested restricted stock awards and restricted stock awards with performance conditions that have been achieved as of December 31, 2021.

(3) Based on TopBuild’s closing stock price of $275.91 on December 31, 2021.

(4) The number and value of the shares of performance-vesting restricted stock that are expected to vest reported in the table reflect amounts based on target performance. The actual number of shares that will vest after a three-year performance period with respect to the performance-vesting shares of restricted stock granted in 2020 and 2021 is not yet determinable.

Option Exercises and Stock Vested

The following table provides additional information about stock option exercises and shares acquired upon the vesting of stock awards, including the value realized, during the year ended December 31, 2021, by the named executive officers.

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Payments upon a Change of Control and/or Termination of Employment

To help ensure retention of our executive officers, the Board of Directors adopted an Executive Severance and Change-in-Control Plan in February 2016, which was amended and restated on August 25, 2021, (as so amended and restated, the “Severance Plan”).  The Severance Plan provides severance benefits to certain executive officers, including each of our named executive officers, in the event their employment is terminated under certain conditions, as outlined below.

The treatment of outstanding awards upon the occurrence of a change in control, if any, is determined by the Compensation Committee at the time such awards are granted and set forth in the applicable award agreement, except to the extent covered by the Severance Plan. For purposes of the LTIP and the Severance Plan, the term “change in control” means the occurrence of any of the following events:

For purposes of the definition of Change in Control, the terms “Beneficial Owner” or “Beneficially Owned” have meanings set forth in Rule 13d-3 under the Exchange Act and “Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term does not include (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its affiliates, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of shares of the Company.

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Severance Plan

In order to be covered under the Severance Plan, eligible executive officers must sign a non-compete, non-solicitation and confidentiality agreement and a release of all claims against the Company and its affiliates. Under the terms of the Severance Plan, each participant is entitled to severance payments and benefits in the event that he or she experiences a “qualifying termination” (i.e., termination without cause by the Company or for a good reason by the executive officer, each as defined in the Severance Plan).

If an eligible executive officer experiences a qualifying termination under the Severance Plan, the executive officer is entitled to an incentive payment that is based on the target amount established under the Company's annual incentive plan for the year in which the termination occurs. The payment is adjusted on a pro-rata basis according to the number of calendar days the eligible executive officer was an active employee during such plan year and is determined based on actual performance after the performance period ends. The eligible executive officer will also receive salary continuation payments in an amount equal to such multiple as identified in the Severance Plan multiplied by the executive officer's base salary and bonus at target. The salary continuation and incentive continuation, if applicable, would be paid in a lump sum or installments over the severance period and in accordance with the Company's standard payroll practice, subject to the requirements of Section 409A of the Internal Revenue Code of 1986, as amended. The Company will also provide health and wellness benefits to the eligible named executive officer and his or her dependents for the period identified in the Severance Plan.

Executive Severance Compensation Table

The following table represents amounts payable to each named executive officer if he experienced a qualifying termination as of December 31, 2021, not in connection with a change in control.  

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Unvested stock options vest pro-rata and must be exercised within three months of the termination date. Unvested performance shares vest pro-rata as of the termination date based on actual performance against target. Unvested restricted stock awards vest pro-rata as of the termination date based on the portion of the vesting period during which the executive officer was an active participant.

Change in Control Severance

In the event that an eligible executive officer experienced a qualifying termination as of December 31, 2021, and such termination occurred two months prior to, or within twenty-four months following, a change in control, the following enhanced severance compensation applies under the Severance Plan.

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Executive Change in Control Compensation Table

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(1) Calculated based on TopBuild’s closing stock price of $275.91 on December 31, 2021.

Following a termination without cause or for good reason two months prior to, or within twenty-four months following, a change in control, unvested stock options become 100% vested; outstanding and unvested performance shares become 100% vested based on performance at target levels; and unvested restricted stock awards become 100% vested.

CEO Pay Ratio

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Robert Buck, our Chief Executive Officer in 2021:

For 2021, our last completed year:

Based on this information, for 2021 the ratio of the annual total compensation of Mr. Buck, our CEO, to the median of the annual total compensation of all our employees was 86 to 1.

As of December 31, 2021, our employee population consisted of approximately 13,000 individuals located in the U.S., Canada, and China. This population consisted of our full-time, part-time, temporary employees, and seasonal workers.

To identify the “median employee” from our employee population, we calculated the annual total compensation of all our employees using the same components that are included for our CEO in the Summary Compensation Table included in this Proxy Statement. In determining the median employee, a list was prepared of all the employees in the U.S. and Canada as of December 31, 2021 (excluding Mr. Buck). The list includes approximately 13,000 employees, including approximately 12,650 employees in the U.S. and approximately 220 employees in Canada. The five employees in China were excluded from the list. Total compensation was gathered for each employee. Total compensation for employees in Canada was converted using the currency exchange rate of 0.78. After we identified our median employee, we combined all the elements of such employee’s compensation for 2021 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $54,929. With respect to the annual total compensation of our CEO, we used the amount reported in the 2021 line of the “Total” column of our Summary Compensation Table included in this Proxy Statement.

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