12.	Equity-Based Compensation, Profit Sharing and Deferred Compensation Plans

Equity-Based Compensation Plans

NVR’s equity-based compensation plans provide for the granting of non-qualified stock options to purchase shares of NVR common stock (“Options”) and restricted share units (“RSUs”) to key management employees, including executive officers and Board members, of the Company. The exercise price of Options granted is equal to the closing price of the Company’s common stock on the New York Stock Exchange (the “NYSE”) on the day prior to the date of grant, and RSUs are issued at a $0 exercise price. Options are granted for a ten-year term and typically vest in separate tranches over periods of 3 to 6 years. The vesting for certain Options is contingent solely on continued employment or service as a Director, while vesting for other Options is contingent upon both continued employment or service as a Director and the achievement of a performance metric as discussed further in the summary description of the 2014 Plan below. RSUs generally vest in separate tranches over periods of 2 to 3 years, based solely on continued employment or continued service as a Director. At December 31, 2014, there was an aggregate of 1,201 options and 55 RSUs outstanding, and there were an additional 362 available shares to be granted under existing equity-based compensation plans. Of the available shares to be granted, up to 33 shares may be granted in the form of RSUs.

The following is a summary description of each of the Company’s equity-based compensation plans for any plan with grants outstanding at December 31, 2014:

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During 1999, the Company’s shareholders approved the 1998 Management Long-Term Stock Option Plan (the “1998 Option Plan”). There were 1,000 Options authorized under the 1998 Option Plan. All Options were granted at an exercise price equal to the closing price of the Company’s common stock on the NYSE on the day prior to the date of grant. The Options expire 10 years after the dates upon which they were granted, and were fully vested as of December 31, 2013. There are no grants remaining available to issue under the 1998 Option Plan.

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During 1999, the Company’s shareholders approved the 1998 Directors’ Long Term Stock Option Plan (the “1998 Directors’ Plan”). There were 150 Options to purchase shares of common stock authorized for grant to the Company’s outside directors under the 1998 Directors’ Plan. All Options were granted at an exercise price equal to the closing price of the Company’s common stock on the NYSE on the day prior to the date of grant. The outstanding Options were granted for a 10-year term and were fully vested as of December 31, 2012. There are no grants remaining available to issue under the 1998 Directors’ Plan.

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During 2000, the Board approved the 2000 Broadly-Based Stock Option Plan (the “2000 Plan”). The Company did not seek approval from its shareholders for the 2000 Plan. There were 2,000 Options authorized under the 2000 Plan. All Options were granted at an exercise price equal to the closing price of the Company’s common stock on the NYSE on the day prior to the date of grant. Grants under the 2000 Plan were available to both employees and members of the Board. Options granted under the 2000 Plan expire 10 years from the date of grant, and generally vest annually in 25% increments based on the date of grant. There are no grants remaining available to issue under the 2000 Plan.

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During 2010, the Company’s shareholders approved the 2010 Equity Incentive Plan (the “2010 Plan”). The 2010 Plan authorizes the Company to issue Options and RSUs to key management employees, including executive officers and Board members, to acquire up to an aggregate of 700 shares of the Company’s common stock. Of the 700 aggregate shares available to issue, up to 240 may be granted in the form of RSUs. All Options are granted at an exercise price equal to the closing price of the Company’s common stock on the NYSE on the day prior to the date of grant, and all RSUs are granted at a $0 exercise price. The Options are granted for a 10-year term. The RSUs and Options initially granted under the 2010 Plan each vested annually in 50% increments beginning December 31, 2011 and December 31, 2013, respectively. At December 31, 2014, there were 41 shares available to be granted under the 2010 Plan, of which 33 may be granted as RSUs.

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During 2014, the Company’s shareholders approved the NVR, Inc. 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan authorizes the Company to issue Options to key management employees, including executive officers and Board members, to acquire up to an aggregate 950 shares of the Company’s common stock. Option grants under the 2014 Plan are generally divided such that vesting for 50% of the Option grant is solely contingent upon continued employment or continued service as a Director, while vesting for the remaining 50% of the Option grant is contingent upon both continued employment or service as a Director and the achievement of a performance metric based on the Company’s return on capital performance during 2014 through 2016. Options granted under the 2014 Plan generally vest annually over four years in 25% increments beginning on December 31, 2016. All Options are granted at an exercise price equal to the closing price of the Company’s common stock on the NYSE on the day prior to the date of grant. The Options are granted for a 10-year term. At December 31, 2014, there were 321 shares available to be granted under the 2014 Plan.

During 2014, the Company issued 634 Options under the 2014 Plan. The Options were granted at an exercise price equal to the closing price of the Company’s common stock on the day prior to the date of grant. Substantially all of the Options granted in 2014 will vest annually over four years in 25% increments beginning on December 31, 2016. Vesting for 338 of the Options granted is contingent both upon continued employment or continued service as a director and the Company’s return on capital performance during the years 2014 through 2016. Vesting for the other 296 Options granted under the 2014 Plan is contingent solely upon continued employment or continued service as a director. The Options expire ten years from the date of grant.

During 2014, the Company also issued 49 Options under the 2010 Plan. The Options were granted at an exercise price equal to the closing price of the Company’s common stock on the day prior to the date of grant. Substantially all of the 2010 Plan Options granted during 2014 under the 2010 Plan will vest annually over four years in 25% increments beginning on December 31, 2016. The vesting for the Options granted under the 2010 Plan is based solely on continued employment. The Options expire ten years from the date of grant.

The Company also issued 16 RSUs from the 2010 Plan during 2014. Each RSU was granted at a $0 exercise price. The RSUs vest in 33% increments on December 31, 2016, 2017 and 2018, based solely on continued employment.

The following table provides additional information relative to NVR’s equity-based compensation plans for the year ended December 31, 2014:

	Shares			Weighted Avg. Per Share Exercise Price		Weighted Avg. Remaining Contract Life (years)		Aggregate Intrinsic Value
Stock Options
Outstanding at December 31, 2013		667		$	740.18
Granted		683			1,095.69
Exercised		(118	)		644.60
Forfeited		(31	)		910.36
Outstanding at December 31, 2014		1,201		$	947.39		7.9	$	393,866
Exercisable at December 31, 2014		346		$	676.37		5.1	$	207,487

RSUs (1)
Outstanding at December 31, 2013		45
Granted		16
Vested		(5	)
Forfeited		(1	)
Outstanding at December 31, 2014		55						$	70,773
Vested, but not issued at December 31, 2014		2						$	2,713

(1)	RSU grants were issued at a $0 exercise price.

To estimate the grant-date fair value of its Options, the Company uses the Black-Scholes option-pricing model (the “Pricing Model”). The Pricing Model estimates the per share fair value of an option on its date of grant based on the following factors: the option’s exercise price; the price of the underlying stock on the date of grant; the estimated dividend yield; a risk-free interest rate; the estimated option term; and the expected volatility. For the risk-free interest rate, the Company uses U.S. Treasury STRIPS which mature at approximately the same time as the option’s expected holding term. For expected volatility, NVR has concluded that its historical volatility over the option’s expected holding term provides the most reasonable basis for this estimate. The fair value of the Options granted during 2014, 2013 and 2012 was estimated on the grant date using the Pricing Model, based on the following assumptions:

	2014		2013		2012
Estimated option life	5.16 years		5.20 years		4.95 years
Risk free interest rate (range)	1.06%-2.49%		0.42%-2.10%		0.35%-1.84%
Expected volatility (range)	18.26%-30.57%		17.98%-32.72%		17.71%-34.43%
Expected dividend rate		0.00%		0.00%		0.00%
Weighted average grant-date fair value per share of options granted	$	267.66	$	268.13	$	221.45

In accordance with ASC 718, Compensation – Stock Compensation, the fair value of the RSUs is measured as if they were vested and issued on the grant date. Additionally, under ASC 718, service-only restrictions on vesting of RSUs are not reflected in the fair value calculation at the grant date. As a result, the fair value of the RSUs was the closing price of the Company’s common stock on the day immediately preceding the date of grant. The weighted average fair value of the RSUs granted in the current year was $1,153.41 per share.

Compensation cost for Options and RSUs is recognized on a straight-line basis over the requisite service period for the entire award (from the date of grant through the period of the last separately vesting portion of the grant). For the recognition of equity-based compensation, the RSUs are treated as a separate award from the Options. Additionally, the Options which are subject to a performance condition are treated as a separate award from the “service-only” Options, and compensation expense is recognized when it becomes probable that the stated performance target will be achieved. The Company currently believes that it is probable that the performance condition will be satisfied at the target level and is recognizing compensation expense related to such Options accordingly. Compensation cost is recognized within the income statement in the same expense line as the cash compensation paid to the respective employees. ASC 718 also requires the Company to estimate forfeitures in calculating the expense related to equity-based compensation and requires that the compensation costs of equity-based awards be recognized net of estimated forfeitures. The impact on compensation costs due to changes in the expected forfeiture rate will be recognized in the period that they become known. In 2014, 2013 and 2012, the Company recognized approximately $63,227, $34,296, and $64,841 in equity-based compensation costs, respectively, and approximately $22,900, $12,100, and $23,900 in tax benefit related to equity-based compensation costs, respectively. In 2013, the Company reversed approximately $7,900 in equity-based compensation expense previously recorded to adjust stock option forfeiture rates based on actual forfeiture experience. The reversal was made to the accounts originally charged as follows; approximately $7,100 and $300 from homebuilding general and administrative and cost of sales expense, respectively, and approximately $500 from NVRM general and administrative expense.

As of December 31, 2014, the total unrecognized compensation cost for all outstanding Options and RSUs equaled approximately $195,400, net of estimated forfeitures. The unrecognized compensation cost will be recognized over each grant’s applicable vesting period with the latest vesting date being December 31, 2020. The weighted-average period over which the unrecognized compensation will be recorded is equal to approximately 2.7 years.

The Company settles Option exercises and vesting of RSUs by issuing shares of treasury stock to Option holders. Shares are relieved from the treasury account based on the weighted average cost of treasury shares acquired. During the years ended December 31, 2014, 2013 and 2012, the Company issued 123, 102 and 222 shares, respectively, from the treasury account for Option exercises and vesting of RSUs. Information with respect to the vested RSUs and exercised Options is as follows:

	Year Ended December 31,
	2014		2013		2012
Aggregate exercise proceeds (1)	$	76,153	$	14,834	$	73,211
Aggregate intrinsic value on exercise dates	$	62,136	$	84,908	$	101,334

(1)	Aggregate exercise proceeds include the Option exercise price received in cash or the fair market value of NVR stock surrendered by the optionee in lieu of cash.

Profit Sharing Plans

NVR has a trustee-administered, profit sharing retirement plan (the “Profit Sharing Plan”) and an Employee Stock Ownership Plan (“ESOP”) covering substantially all employees. The Profit Sharing Plan and the ESOP provide for annual discretionary contributions in amounts as determined by the NVR Board of Directors. The combined plan contribution for the years ended December 31, 2014, 2013 and 2012 was $16,980, $12,012 and $9,575, respectively. The ESOP purchased approximately 14 and 10 shares of NVR common stock in the open market for the 2014 and 2013 plan year contributions, respectively, using cash contributions provided by the Company. As of December 31, 2014, all shares held by the ESOP had been allocated to participants’ accounts. The 2014 plan year contribution was funded and fully allocated to participants in February 2015.

Deferred Compensation Plans

The Company has two deferred compensation plans (“Deferred Comp Plans”). The specific purpose of the Deferred Comp Plans is to i) establish a vehicle whereby named executive officers may defer the receipt of salary and bonus that otherwise would be nondeductible for Company tax purposes into a period where the Company would realize a tax deduction for the amounts paid, and ii) to enable certain employees who are subject to the Company’s stock holding requirements to acquire shares of the Company’s common stock on a pre-tax basis in order to more quickly meet, and maintain compliance with those stock holding requirements. Amounts deferred into the Deferred Comp Plans are invested in NVR common stock, held in a rabbi trust account, and are paid out in a fixed number of shares upon expiration of the deferral period.

The rabbi trust account held 109 shares of NVR common stock as of both December 31, 2014 and 2013. During 2013, 43 shares of NVR common stock were issued from the rabbi trust related to deferred compensation for which the deferral period ended. There were no shares of NVR common stock contributed to the rabbi trust in 2014 or 2013. Shares held by the Deferred Comp Plans are treated as outstanding shares in the Company’s earnings per share calculation for each of the years ended December 31, 2014, 2013 and 2012.