KB Home strips management of its role in granting options

Home builder KB Home has revamped its policy for granting stock and options to executives, removing the company’s managers from the process of setting terms of the awards.

The move followed the resignation of Chief Executive Bruce Karatz in November and his agreement to repay $13 million in compensation after an internal report concluded the company used incorrect measurement dates for financial reporting of yearly stock option grants between 1998 and 2005.

In 2005 alone, Karatz earned $155.9 million, mostly from exercising stock options, company documents state.

The company fired the head of its human resources department, Gary A. Ray. Richard B. Hirst, executive vice president and chief legal officer, resigned.

The company said it would require all grants of equity-based awards, including pricing and terms, to be approved by the board’s management development and compensation panel.

The policy does not allow the group to delegate any of its authority to management.

The policy also requires that the grant date of any award, including stock options and restricted stock, to be the date the committee meets to approve it unless the group decides to set a later date.

The exercise price of any stock option grant will not be less than the trading price of the company’s common stock on the grant date, the new policy states.

The policy requires board members to record individual votes on grants rather than rely on general “unanimous written consent” approvals and calls for an attorney from the company’s legal staff to record minutes.