Housing recovery arrives now for select few…

May 23, 2012

The Wall Street Journal reported yesterday that if housing sales continue at the current rate of improvement, “2012 could be the strongest year for home sales since 2007,…” That’s good news indeed for anyone trying to sell a home, although we all know that the recovery won’t happen overnight. By contrast, though, the fortunes of some who are integrally involved in the housing market have been improving overnight, and in fairly dramatic ways.

For example, PulteGroup, Inc. (PHM), which builds homes in 28 states, filed an 8-K yesterday to announce the promotion of Harmon D. Smith to Executive Vice President – Homebuilding Operations and Area President – Texas. Along with the boost in title came a raise from $565,000 to $625,000 (a hike of more than 10%). PulteGroup also tweaked Smith’s goals under the Annual Incentive Program; if those goals are met, he may get more than half a million dollars, described as follows:

“Accordingly, 38% of Mr. Smith’s 2012 annual incentive award will be determined solely on performance of the Gulf Coast Area during the first 20 weeks of 2012 using a target award of $500,000, and 62% of Mr. Smith’s 2012 annual incentive award will be determined based on an equal weighting of Gulf Coast Area and Company performance using a target award of $625,000.”

We also found examples of a mortgage company’s executives whose good fortunes arrived earlier than others with a less exalted stake in the housing market’s recovery. Coming off its IPO a couple of months ago, Nationstar Mortgage Holdings, Inc. (NSM) just celebrated a strong quarter, telling analysts in a call last week that “adjusted EBITDA was up 63%, and net income was up 237% over the prior quarter.” The company also filed a couple of employment agreements along with its May 15 10-Q, and those disclose some generous terms for the lucky executives who got them.

For example, Exhibit 10.1 is an employment letter dated February 1, 2012, to David Hisey, Nationstar’s Executive Vice President & Chief Financial Officer. Topping a $375,000 base salary are terms that promise him a “minimum bonus guarantee” of $1 million for 2012 and an initial equity grant worth another $1 million, although it will vest over three years. Hisey also got a $225,000 relocation allowance to move from McLean, Virginia, to the Dallas metro area, and termination protection in case he is loses his job without cause or leaves for a good reason.

The other fortunate executive is Harold Lewis, Nationstar’s President & Chief Operating Officer, whose January 18, 2012 employment letter is attached to the 10-Q as Exhibit 10.2. Lewis started his job with a $450,000 annual base salary, and he will get a minimum guaranteed bonus of $1.15 million in 2012. He, too, will get an initial equity grant of $1 million, and he also gets a sign-on bonus of $650,000, which Nationstar says is to compensate him for the forfeiture of his 2011 profit sharing payout. Add to that another $100,000 as a deferred cash award, a relocation allowance of $550,000 to move from Duluth, Georgia to the Dallas metro area (plus a tax gross-up!), and termination protection if he loses his job without cause or leaves for a good reason.

Obviously the fortunes of executives rise and fall to some degree on home buyers and sellers, whose role in the housing market is essential for the former group to keep its jobs. But let’s hope that the early fortunes of those at the top of the industry serve as a harbinger that the housing market will recover and benefit others, as well. Of course, the last time housing-industry executives were rolling in the good stuff, it didn’t work out so well for the rest of us.

Image source: House metaphor, via Shutterstock

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