Exhibit 10.1

 

NVR, Inc.

Summary of the 2005 Annual Incentive Compensation Program

 

The following is a description of NVR, Inc.’s (“NVR”) 2005 annual incentive
compensation program (the “Bonus Program”). The Bonus Program is not set forth
in a formal written document, and therefore NVR is providing this description of
the program.

 

Virtually all of NVR’s management employees participate in the Bonus Program,
including all of NVR’s executive officers. Under the Bonus Program, each
executive officer has a maximum potential payout limited to 100% of his base
salary. The annual incentive award is based on actual financial results compared
to the business plan approved by NVR’s Board of Directors. At the beginning of
each year, financial targets that are tied to NVR’s annual business plan are
established by NVR’s Compensation Committee. The financial target for corporate
executives is based on NVR, Inc.’s consolidated pre-tax profit (before
consolidated annual incentive expense but after all other charges). The
financial targets used for the mortgage banking operation are pre-tax profit
(before annual incentive expense and certain corporate cost allocations) and
return on invested capital. The financial targets used for the homebuilding
operation are pre-tax profit (before annual incentive expense, but after a
charge for the cost of capital) and return on assets.

 

An executive officer begins to earn the incentive award once the financial
targets are at least 70% attained. The full amount of the incentive award is
earned ratably from 70% up to 100% of the financial target attainment. The
executive officers can earn no more than 100% of their base salary as an
incentive award, which is earned once 100% of the financial targets are
attained. Thus, attainment of greater than 100% of the financial target has no
impact on the amount of the incentive award earned.