KB imposes guidelines for CEO’s compensation

Times Staff Writer

KB Home has placed caps on some of its new chief executive’s compensation but also made him eligible to earn a higher percentage of pretax profit than his predecessor, who was among the highest-paid U.S. CEOs, according to a securities filing Monday.

The Westwood-based home builder, under federal investigation for its past stock-option grant practices, said Jeffrey T. Mezger could earn bonus pay up to 2.5% of KB’s earnings before taxes. By comparison, Bruce Karatz, the company’s previous CEO, who was often criticized for his large pay, was eligible for 1% to 2% of the profit.

Tying compensation to pretax profit without other restrictions can result in massive payouts, especially if a company has a stellar year. In its Securities and Exchange Commission filing, KB didn’t specify profit thresholds or other measures for determining exactly how much Mezger would be eligible to receive in bonus pay in fiscal 2007.

However, he will receive $8 million in stock options, plus 54,000 “performance shares” this year, on top of his $1-million base salary, KB said. The shares’ value will be based on how well KB does financially relative to other publicly traded builders.


Mezger’s new employment contract also caps at $12 million the amount of salary and bonus he is entitled to if he loses his job after a change of control.

By placing some restrictions on Mezger’s pay, KB may be trying to deal with shareholder criticism of excessive executive compensation.

During his last three years on the job, Karatz, who abruptly left last fall in a stock option backdating scandal, earned about $232 million. His severance contract, which KB is disputing, entitles him to $175 million more.