Ara K. Hovnanian
HOVNANIAN ENTERPRISESAbout Ara K. Hovnanian
Ara K. Hovnanian, 67, is President, Chief Executive Officer, Chairman of the Board, and Director of Hovnanian Enterprises (HOV). He joined the company in 1979, became Executive Vice President in 1983, President in 1988, CEO in 1997, Vice Chairman (1998–2009), and was elected Chairman in November 2009; he also chairs the Board’s Strategy Committee . Under his tenure, pre-tax income rose to $317.1M in FY2024 from $189.9M in FY2021 and the average October stock price increased to $190.12 in Oct-2024 from $87.56 in Oct-2021, while FY2024 home sale revenues grew 9.3% YoY; management cites top-half peer performance on adjusted EBIT/Investment for five years and $1.6B debt reduction since 2009 (including $579M since 10/31/2020) .
Past Roles
| Organization | Role | Years | Strategic Impact |
|---|---|---|---|
| Hovnanian Enterprises | Chairman of the Board | 2009–Present | Leadership continuity; chairs Strategy Committee focusing on value-creation transactions and strategic goals . |
| Hovnanian Enterprises | Chief Executive Officer | 1997–Present | Led debt reduction and liquidity strategy; drove profitability and ROI metrics tied to incentive plans . |
| Hovnanian Enterprises | President | 1988–Present | Operational leadership across cycles . |
| Hovnanian Enterprises | Vice Chairman | 1998–2009 | Board leadership transition following founder’s passing . |
| Hovnanian Enterprises | Executive Vice President | 1983–1988 | Senior management responsibilities . |
| Hovnanian Enterprises | Director | 1981–Present | Longest-serving director; family control stewardship . |
| Hovnanian Enterprises | Joined Company | 1979 | Career-long tenure at HOV . |
External Roles
- The proxy biography for Mr. Hovnanian does not list current external public company directorships or committee roles beyond HOV .
Fixed Compensation
| Component | FY2024 Amount | Notes |
|---|---|---|
| Base Salary | $1,150,442 | Salary restored to $1,150,000 effective 12/23/2023 given improved performance . |
| Perquisites (total) | $195,983 | Includes $128,700 personal use of fractional aircraft; $37,867 tax preparation; other listed perqs; no tax gross-ups . |
| 401(k) Company Match | $20,700 | Company contributions to 401(k) . |
| EDCP Company Contribution | $461,234 | Executive Deferred Compensation Plan contribution (make-whole above 401(k) limits) . |
| Above-market EDCP Earnings (taxable) | $76,349 | Reflected as “Change in Pension Value and Nonqualified Deferred Comp Earnings” . |
Performance Compensation
Annual Bonus (structure and FY2024 outcome)
| Metric | Target/Formula | FY2024 Actual | Payout Component |
|---|---|---|---|
| ROAE | Sliding scale; at 20%+ ROAE, CEO gets 2.00% of Pre-tax Profit | 34.6% | 2.00% of Pre-tax Profit triggers; component equals ~$7.008M on $350.4M Pre-tax Profit . |
| Pre-tax Profit | Input to ROAE percent-of-profit component | $350.4M | Used for percentage calculation above . |
| Liquidity Balances | # of quarter-ends ≥ $200M; max adds $1.4M | 4 quarter-ends ≥ $200M | +$1.4M . |
| Alternative Capital Raises | Thresholds to max add of $1.4M | $574.3M | +$1.4M . |
| Bonus Cap | Overall cap | $7.0M | He would have earned $9,807,009; paid $7,000,000 due to cap . |
Notes:
- Bonus metrics emphasize ROAE, liquidity, and alternative capital raises, aligning with balance sheet and growth priorities .
- No discretionary bonus for FY2024 .
Long-Term Incentives
| Year/Grant | Award | Target Size/Value | Performance Metrics | Performance Outcome | Vesting | Delivery/Hold |
|---|---|---|---|---|---|---|
| 2024 PSU (6/14/2024) | PSUs (Class B stock units for CEO) | 19,086 target; $2,274,096 total for two PSU tranches | Half on absolute EBIT; half on EBIT Return on Investment for 4Q ending 4/30/2025; 50–200% multiplier . | In-progress as of proxy; 2024 tranche tracking varies by metric (threshold/target references disclosed) . | Earned PSUs vest 6/14/2027 . | 2-year delayed delivery through 6/14/2029 . |
| 2024 LTIP (12/14/2023) | LTIP: 50% shares/50% phantom shares | CEO target 1.75x base salary; payout 0–250% | EBIT ROI vs peers (to 10/31/2026) and Net Debt/Capital (10/31/2026) . | In-progress; payout in FY2027 based on FY2024–FY2026 performance . | End of performance period 10/31/2026 . | Shares delivered FY2028 (2-year delayed delivery); phantom portion paid after performance period . |
| 2023 PSU (6/9/2023) | PSUs | 31,202 target (two tranches) | Half on absolute EBIT; half on relative EBIT ROI vs peer group . | Both tranches paid at 200% (max) based on EBIT $563.9M and top peer rank; vest 6/9/2026; delivered 6/9/2028 . | 6/9/2026 | 6/9/2028 . |
| 2022 LTIP (3-year) | LTIP shares | CEO target 1.35x base salary | Cumulative Pre-tax Profit (FY2022–FY2024) and Annualized Interest Incurred at 10/31/2024 . | Payout of 152.74% (Pre-tax Profit $1.1B; Annualized Interest Incurred $98.9M) . | 10/31/2024 | Delayed delivery through FY2026 . |
Best practices shaping structure:
- No employment agreements for NEOs other than CFO; no tax gross-ups or DB pensions; robust clawback policy under NYSE/SEC rules with additional misconduct-based recovery .
- Stock awards subject to mandatory 2-year post-vesting delayed delivery, enhancing retention and alignment .
Equity Ownership & Alignment
| Item | Detail |
|---|---|
| Beneficial Ownership (A shares) | 25,203 Class A shares; 0.49% of Class A outstanding . |
| Beneficial Ownership (B shares) | 142,026 Class B shares; 18.22% of Class B outstanding . |
| Options exercisable ≤60 days | 50,000 Class B options (CEO) . |
| Family/affiliated entities (context) | Significant Class B holdings in family entities (e.g., Kevork S. Hovnanian Family LP, Hovnanian Family 2012 LLC, family trusts) are included in “all directors/officers as a group” but not in Ara’s separate figure; Ara holds managerial/trust roles for some vehicles . |
| Group control | Directors and executive officers as a group own 93.62% of Class B (732,982 of 729,354 outstanding adjusted for options), reflecting high voting control . |
| Ownership Guidelines | CEO: 6x salary; CEO in compliance as of 10/31/2024 . |
| Hedging/Pledging | Hedging, short-term/speculative trading prohibited; pledging not allowed without company consent . |
Vesting-driven supply considerations:
- CEO had 126,150 shares deemed/vested in FY2024 (primarily PSUs and LTIP shares); a large portion is subject to delayed delivery until future years, moderating near-term selling pressure .
Employment Terms
| Topic | Terms/Notes |
|---|---|
| Employment Agreement | None for CEO (only CFO has a change-in-control severance agreement) . |
| Change-in-Control (CIC) – LTIP/PSU mechanics | 2024 LTIP: on qualifying termination in connection with a CIC, awards deemed earned at target and become immediately vested/payable; if CIC termination after performance period, unpaid earned portions vest/pay . |
| Award Holding/Delivery | Mandatory 2-year post-vesting delayed delivery for equity awards; CIC-qualified termination can accelerate vesting/delivery per award terms . |
| Clawback | NYSE/SEC 10D-compliant clawback; separate misconduct-based recovery policy for erroneously awarded incentive pay . |
| Perquisites & Security | Aircraft usage, auto, insurance, club fees, tax prep reviewed annually; rationale includes CEO security and time efficiency; no tax gross-ups . |
| Deferred Compensation | Company EDCP contributions and associated above-market earnings taxed as required . |
Board Governance
- Roles and independence: Mr. Hovnanian serves as CEO and Chairman; the Board maintains a Lead Independent Director (Edward A. Kangas) and independent Audit, Compensation, and Corporate Governance/Nominating Committees; Ara chairs the Strategy Committee (members: Hovnanian, Sorsby, Kangas) .
- Attendance: In FY2024, the Board met 4 times; each Director attended 100% of Board and committee meetings; all directors attended the 2024 annual meeting .
- Voting control: Family entities and trusts intend to vote in favor of Board nominees and proposals; due to collective voting power, elections and key proposals are assured passage .
- Independence requirements: Restated Certificate requires at least one-third of Directors be independent while Class B stock is outstanding; current slate satisfies NYSE and charter independence standards .
Performance & Track Record
| Metric/Item | FY2024/Recent | Context |
|---|---|---|
| Sale of Homes Revenues | +9.3% YoY (driven by +9.6% deliveries; -0.3% ASP) . | Supported by stronger demand and increased communities/QMI strategy . |
| Pre-tax Income | $317.1M vs $256.0M in FY2023 . | Gains from JV consolidation; lower interest; prior-year extinguishment loss . |
| Net Income | $242.0M vs $205.9M in FY2023 . | |
| Stock Price (avg Oct) | $190.12 in Oct-2024 vs $87.56 in Oct-2021 . | |
| ROAE (for bonus metric) | Achieved 34.6% in FY2024 . | |
| Debt Reduction | ~$1.6B since 2009; $579M since 10/31/2020 . | Overlevered vs peers remains challenge . |
| Peer Operating Rank | Top half on adjusted EBIT/Investment for 5 years; highest inventory turns in peer group . |
Director Service/Compensation (Board seat specifics for CEO)
- Board service since 1981; CEO since 1997; Chairman since 2009; Strategy Committee Chair .
- Dual-role implications: CEO+Chairman mitigated by Lead Independent Director, fully independent key committees, and active committee cadence (Audit: 12 meetings; Comp: 4; Governance: 4; Cyber Subcommittee: 3) .
Compensation Structure Analysis
- Mix and leverage: 91% of CEO FY2024 total direct compensation opportunity is variable; significant equity usage with rigorous performance metrics (EBIT, EBIT ROI, net debt/capital), multi-year periods, and 2-year delivery delays, promoting long-term alignment and retention .
- Outcome discipline: FY2024 bonus capped at $7.0M despite formula output ~$9.8M; 2023 PSUs paid at max on both metrics; 2022 LTIP paid at 152.74% reflecting strong multi-year profit and reduced interest burden .
- Governance practices: No tax gross-ups or DB pensions; NYSE/SEC clawback; ownership guidelines met (6x salary CEO) .
Options and Award Overhang (selected instruments)
| Grant | Type | Strike | Expiration | Vesting/Status |
|---|---|---|---|---|
| 6/10/2016 | CEO Options (10,000) | $56.75 | 6/9/2026 | Vested; special 33 1/3% premium strike; no retirement/disability acceleration . |
| 6/8/2018 | CEO Options (10,000) | $61.00 | 6/7/2028 | Vested; 25% premium strike; no retirement/disability acceleration . |
| 6/14/2019 | CEO Options (30,000) | $9.81 | 6/13/2029 | 4 equal installments starting 2nd anniversary . |
Supply considerations:
- FY2024 vesting/“deemed vesting” totaled 126,150 shares for CEO, including PSUs and LTIP shares; deliveries are subject to delayed schedules, moderating immediate market supply .
Say-on-Pay & Compensation Peer Group
- Say-on-Pay: 95.7% approval for FY2023 NEO compensation at 2024 annual meeting; Company continues annual say-on-pay following 98.8% frequency vote to hold annual votes .
- Peer Group (FY2024): Beazer, Century Communities, Dream Finders (added FY2024), KB Home, LGI, M/I Homes, Meritage, Taylor Morrison, Tri Pointe; MDC removed due to merger .
Equity Ownership & Alignment (Quantitative Table)
| Holder/Instrument | Shares/Units | % Class | Notes |
|---|---|---|---|
| Ara K. Hovnanian – Class A | 25,203 | 0.49% | Includes small family-related holdings . |
| Ara K. Hovnanian – Class B | 142,026 | 18.22% | Includes spousal/trust holdings; options separate . |
| Options exercisable ≤60 days (Class B) | 50,000 | — | Section 16 table attribution . |
| Directors/Officers Group – Class B | 732,982 | 93.62% | Reflects voting control through family/affiliated entities . |
Board/Committee Roles (Selective)
| Committee | Membership | Notes |
|---|---|---|
| Strategy | Hovnanian (Chair), Sorsby, Kangas | Met 4 times in FY2024 . |
| Compensation | Marengi (Chair), Coutts, Hernandez-Kakol, Kangas | Independent; 4 meetings; FW Cook engaged; no conflicts . |
| Audit | Kangas (Chair), Coutts, Hernandez-Kakol, Marengi, Pagano, Sellers | Independent; 12 meetings . |
| Governance/Nominating | Pagano (Chair), Kangas, Marengi, Sellers | Independent; 4 meetings; Cyber Subcommittee met 3 times . |
Investment Implications
- Pay-for-performance and retention: High variable and performance contingent pay, multi-year metrics (EBIT/ROI/net debt-to-capital), and mandatory 2-year delivery delays increase alignment and reduce near-term insider selling pressure from vestings, a constructive signal for equity overhang dynamics .
- Governance and control: CEO/Chair dual role is counterbalanced by Lead Independent Director and independent committees; however, concentrated family Class B voting control means director elections and Say-on-Pay outcomes are effectively assured, limiting external governance pressure as a catalyst .
- Execution track record: Max PSU outcomes in 2023 and 152.74% 2022 LTIP payout reflect strong profitability and balance sheet progress, supporting confidence in near-term execution; yet management acknowledges above-peer leverage and interest burden remain structural headwinds, making ROI-based metrics and net debt-to-capital improvements critical monitors for future payouts and equity value .
- Watch items: Monitor upcoming vest/delivery schedules (notably 2026–2029 cadence), option expiries (2026/2028/2029), and liquidity/alternative capital raising targets embedded in the annual bonus for signs of either incremental insider supply or positive balance-sheet catalysts .