Affirming Our Commitment

ESG Oversight

Our full Board generally oversees the company's Environmental, Social, and Governance (ESG) goals and objectives, and supports the implementation of the company's ESG priorities. Specific ESG topics are overseen by the Board committee generally responsible for the subject matter. For example, the Board's Governance Committee has oversight responsibility for the corporate governance aspects of ESG, and the Audit and Risk Committee generally oversees regulatory compliance matters, including with respect to environmental issues, cybersecurity, and compliance with the company's Code of Business Conduct and Ethics. The Board currently believes that it is the appropriate body to oversee the development and implementation of the company's sustainability efforts, which focus on the Company's efforts to positively impact both people and planet. It is anticipated that ESG will be a regular agenda item at Board meetings in the future.

Execution of the company's ESG strategy is overseen by the company's senior management team. The company has formed an ESG Committee, which includes members of senior management who report directly to the CEO. The ESG Committee is responsible for setting direction and driving accountability as we address important issues, work with key stakeholders, and measure and report our progress, including with respect to climate change. We are in the process of identifying and aligning our efforts to respond to the issues of climate change and sustainability using the guidelines issued by the Task Force on Climate-related Financial Disclosures (TCFD). We are working to more formally evaluate our land acquisition and land development processes for potential exposure to the following risks: sea level rise, increases in heavy rain and wind events, drought, extreme heat, and wildfire. We expect this process to enable us to more deliberately consider the potential impacts of climate change on the land that we acquire, how we develop our communities, the materials used in the construction of our homes, and how we design these homes. We expect this process will enhance how we manage and reduce potential climate-related financial impacts on our business.

We believe there are both risks and opportunities for our business related to climate change. Risks and opportunities that have been identified include the following:

Land acquisition and development: Climate change may increase the risk that federal, state and local governments act to limit the emission of greenhouse gases by, among other things, imposing stricter land use, building and zoning codes, and preventing the development of exurban areas, all of which could increase our costs. To date, we have not experienced a material impact on our business as a result of these impacts.

Land ownership: Over extended periods of time, climate change could make certain areas of the country less hospitable due to extreme weather conditions such as drought, excessive heat, and flooding events. This could result in migration out of these areas and the devaluation of land and communities in favor of more hospitable zones. This is both a risk and an opportunity. The time horizon over which we own land is generally limited to periods in which these factors are not reasonably expected to materially impact the value of our land or our operations.

Energy efficiency of homes: An increased focus on reducing greenhouse gas emissions, volatility in energy costs, and the potential to achieve savings by reducing or eliminating home energy costs through green technologies, may lead to a greater consumer appreciation for new homes, which are generally more energy-efficient than existing homes, which could increase consumer interest in our homes. These factors could also lead federal, state, and local governments to revise building and zoning codes to require more green technologies, such as solar panels, in new construction, which could increase new homeownership costs.

Resiliency of homes: Climate change could lead consumers to value newly built homes that incorporate the latest in resilient technologies—such as the use of fireproofing materials to protect against wildfires and greater wind proofing in hurricane-prone areas—over existing homes. These factors could also lead federal, state, and local governments to require these technologies in new construction, which could increase home ownership costs.

Compensation Governance

The majority of our CEO pay is long-term and at-risk with no guaranteed bonuses or salary increases. The Executive Compensation Committee of the Board has identified performance goals that underpin our strategy and has incorporated those goals into executive compensation plans to serve as drivers of incentive awards.

Stock ownership guidelines align executive and director interests with those of our shareholders. These guidelines were updated in December 2018 to require our CEO to retain qualifying equity equal to six times his annual base salary (three times for other executive officers), and for our Board members to retain equity in the amount of five times their annual base cash retainer.

We prohibit all hedging, pledging, and transactions in derivatives related to Toll Brothers securities for all directors and executives (with a limited pledging exception for our Chairman Emeritus).

We have a policy that requires reimbursement and/or cancellation of awards if it is determined by the Board that a payment was made based upon the achievement of specified financial results that was subsequently restated, if in the Board's view the executive engaged in fraud or intentional misconduct that was a substantial contributing cause to the need for the restatement, or if a lower award would have been made to the executive based upon the restated financial results. We do not pay tax gross-ups on payments to executives.