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Leggett and Platt® Incorporated 2018 ANNUAL MEETING PROXY STATEMENT

 

Leggett & Platt® Incorporated 2018 ANNUAL MEETING PROXY STATEMENT


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FROM OUR

 

CHAIRMAN OF THE BOARD

Fellow Shareholders:

At Leggett & Platt, our mission is to enhance people’s lives by designing and manufacturing innovative, distinctive products and components for use in bedding, automobiles, furniture, seating, homes, offices, and airplanes. We efficiently turn ordinary materials into extraordinary products through the outstanding efforts of our 22,000 employees around the world.

At the core of our strategy is a commitment to excellence and innovation. The Company grows and prospers as we expand or obtain positions in attractive markets, develop inventive proprietary products, and continuously improve production and distribution efficiency. Through these efforts, we strive to generate Total Shareholder Return for our stockholders that ranks in the top 1/3 of the S&P 500.

We look forward to sharing more about Leggett at our Annual Meeting of Shareholders to be held on Tuesday, May 15, 2018 , at our headquarters at the Cornell Campus in Carthage, Missouri. In addition to the business to be transacted at the Annual Meeting, as described in this Notice of Annual Meeting of Shareholders and Proxy Statement, we will discuss developments during the past year, outline the progress we’ve made on our strategic priorities, and respond to shareholder questions.

Your vote is very important. Whether or not you plan to attend the meeting, please vote as soon as possible, either online at www.proxypush.com/leg or by returning the enclosed proxy or voting instruction card.

On behalf of the Board of Directors, I thank you for your participation and investment in Leggett.

Sincerely,

LEGGETT & PLATT, INCORPORATED

 

 

R. Ted Enloe, III

R. Ted Enloe, III

Board Chair


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Leggett and Platt

 

 

NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS

 

 

Tuesday, May 15, 2018 | 10:00 a.m. Central Time

Leggett & Platt Conference Center, 1 Leggett Road, Carthage, Missouri

Dear Shareholders:

The annual meeting of shareholders of Leggett & Platt, Incorporated (the “Company”) will be held at the Company’s Conference Center, 1 Leggett Road, Carthage, Missouri 64836, on Tuesday, May 15, 2018, at 10:00 a.m. Central Time:

 

  1. To elect nine directors;
  2. To ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2018;
  3. To provide an advisory vote to approve named executive officer compensation; and
  4. To transact such other business as may properly come before the meeting or any postponement or adjournment thereof.

You are entitled to vote only if you were a Leggett & Platt shareholder at the close of business on March 6, 2018.

An Annual Report to Shareholders outlining the Company’s operations during 2017 accompanies this Notice of Annual Meeting and Proxy Statement.

By Order of the Board of Directors,

 

Scott S. Douglas

Scott S. Douglas

Secretary

Carthage, Missouri

March 28, 2018

 

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting to Be Held on May 15, 2018

The enclosed proxy materials and access to the proxy voting site are also available to you on the Internet.

You are encouraged to review all of the information contained in the proxy materials before voting.

The Company’s Proxy Statement and Annual Report to Shareholders are available at:

www.leggett.com/proxy/2018

The Company’s proxy voting site can be found at:

www.proxypush.com/leg


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TABLE OF CONTENTS

 

 

PROXY SUMMARY

 

  

 

 

 

 

1

 

 

 

 

  

 

CORPORATE GOVERNANCE & BOARD MATTERS

 

 

Director Independence

     3  

Board Leadership Structure

     3  

Communication with the Board

     3  

Board & Committee Composition and Meetings

     4  

Board and Committee Evaluations

     4  

Board’s Oversight of Risk Management

     5  

Consideration of Director Nominees and Diversity

     5  

Transactions with Related Persons

     7  

Compensation Committee Interlocks and Insider Participation

     7  

Director Compensation

     8  
  

 

PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING

 

 

PROPOSAL 1—Election of Directors

     10  

PROPOSAL 2—Ratification of Independent Registered Public Accounting Firm

     15  

Audit and Non-Audit Fees

     15  

Pre-Approval Procedures for Audit and Non-Audit Services

     15  

Audit Committee Report

     16  

PROPOSAL 3—Advisory Vote to Approve Named Executive Officer Compensation

     17  

 

EXECUTIVE COMPENSATION RELATED MATTERS

 

 

Compensation Discussion & Analysis

     18  

Compensation Committee Report

     33  

Summary Compensation Table

     34  

Grants of Plan-Based Awards in 2017

     37  

Outstanding Equity Awards at 2017 Fiscal Year End

     38  

Option Exercises and Stock Vested in 2017

     39  

Pension Benefits in 2017

     40  

Non-Qualified Deferred Compensation in 2017

     41  

Potential Payments Upon Termination or Change in Control

     42  

CEO Pay Ratio

     44  
  

 

SECURITY OWNERSHIP

 

  

Security Ownership of Directors and Executive Officers

     45  

Security Ownership of Certain Beneficial Owners

     46  

Section 16(a) Beneficial Ownership Reporting Compliance

     46  
  

 

EQUITY COMPENSATION PLAN INFORMATION

 

  

 

 

 

 

47

 

 

 

 

  

 

QUESTIONS AND ANSWERS ABOUT PROXY MATERIALS AND ANNUAL MEETING

 

  

 

 

 

 

48

 

 

 

 

 

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PROXY SUMMARY

This summary highlights information contained elsewhere in this proxy statement. It does not contain all of the information that you should consider—please read the entire proxy statement before voting. These materials were first sent to our shareholders on March 28, 2018.

2018 Annual Meeting of Shareholders

 

 

Date and Time:    Tuesday, May 15, 2018, 10:00 a.m. Central Time
Place:    Leggett & Platt Conference Center, 1 Leggett Road, Carthage, Missouri
Record Date:    March 6, 2018

 

Voting Matters

 

  

 

Board Vote

Recommendation

 

    

Page

 

Election of nine directors

   FOR each nominee      10

Ratification of PwC as Independent Accounting Firm

   FOR      15

Advisory vote to approve named executive officer compensation

   FOR      17

Business Highlights

 

In 2017, sales increased 5% to $3.94 billion from a combination of volume growth, raw material-related price increases and currency impact. Earnings were pressured by commodity inflation, resulting in a lower EBIT margin of 11.9% for 2017. The company generated $444 million of cash from operations in 2017. For detailed results, see the Company’s Annual Report on Form 10-K filed February 22, 2018.

We posted EPS from continuing operations of $2.14 in 2017, which included a net $.32 per share charge related to the recently enacted Tax Cuts and Jobs Act and other smaller items. We also raised our dividend for the 46th consecutive year. Over the last ten years we generated total shareholder return (TSR) of 15% per year, which ranked in the top 18% of the S&P 500. For the three years ending December 31, 2017, we generated an average TSR of 7% per year, which placed us just below the midpoint of the S&P 500 and short of our goal of our three-year TSR ranking in the top third of the S&P 500. However, we believe our disciplined growth strategy and priorities for use of capital should support achievement of our top-third goal in future cycles.

Director Nominees (page 10)

 

All of Leggett’s directors are elected for a one-year term by a majority of shares present and entitled to vote at the Annual Meeting. The 2018 director nominees are:

 

Independent Directors

 

 

Age

 

 

Director

Since

 

  

Principal Occupation

 

  

Committee

Memberships(1)

 

  

 

Other Public

Company

Boards

 

Robert E. Brunner

  60   2009    Retired Executive VP, Illinois Tool Works    A C    2

Robert G. Culp, III

  71   2013    Chairman, Culp, Inc.    A N    2

R. Ted Enloe, III, Board Chair

  79   1969    Managing General Partner, Balquita Partners, Ltd.    A C N    1

Manuel A. Fernandez

  71   2014    Managing Director, SI Ventures    C N    2

Joseph W. McClanathan

  65   2005   

Retired President & CEO—Household Products

Division, Energizer Holdings, Inc.

   A C N*   

Judy C. Odom

  65   2002    Retired Chair & CEO, Software Spectrum, Inc.    A* C N    2

Phoebe A. Wood

  64   2005    Retired Vice Chair & CFO, Brown-Forman Corp.    A C*    3

 

Management Directors

 

                      

Karl G. Glassman

  59   2002    President & Chief Executive Officer        

Matthew C. Flanigan

  56   2010    Executive Vice President & Chief Financial Officer         1
(1)  *Committee Chair, A—Audit Committee, C—Compensation Committee, N—Nominating & Corporate Governance Committee


 

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Executive Compensation Highlights (page 18)

 

Leggett seeks to align our executives’ and shareholders’ interests through pay-for-performance. In 2017, 83% of our CEO’s target compensation was performance-based and 62% was delivered in equity-based awards. Our compensation structure strives to strike an appropriate balance between short-term and longer-term compensation that reflects the short- and longer-term interests of the business. We believe this structure helps us attract, retain and motivate high-performing executives who will achieve outstanding results for our shareholders.

Key Components of Our Executive Officers’ 2017 Compensation Program

 

    

Performance Metrics

 

  

Role within Compensation Program

 

  

How Designed and Determined

 

  

 

% of 2017

CEO Pay

at Target

 

 

Base Salary

   N/A    The only non-performance based component of our executives’ compensation. Target incentive payments and equity awards are set as a percentage of base salary.    Our Compensation Committee reviews executive salaries annually, based on market data, peer benchmarking, individual performance and internal equity.      17

Annual Incentive

   Return on Capital Employed (ROCE), Cash Flow, and Individual Performance Goals    Short-term cash incentive that rewards achievement of specific business targets and individual goals within the fiscal year.    The ROCE and cash flow targets are based on the Company’s earnings guidance for the year. Payouts range from 0% to 150%, based upon actual performance.      21

Profitable Growth Incentive

   Revenue Growth and Profit Margin    Pay-for-performance program that rewards revenue growth while maintaining or improving margins over a two-year period. These are two levers for achieving our long-range TSR goals.    The revenue growth threshold is based on the projected GDP of our primary markets, while margin threshold is based on the Company’s past performance. Payouts range from 0% to 250%.      13

Performance Stock Units

   Total Shareholder Return (TSR)    Three-year relative TSR performance holds management accountable for creating and sustaining value for shareholders.    Relative TSR is measured against the industrial, materials and consumer discretionary sectors of the S&P 500 and S&P Midcap 400, about 320 companies. Payouts range from 0% to 175%.      49

Key Features of Our Executive Officer Compensation Program

 

   What We Do           What We Don’t Do

  Pay for Performance – A significant majority of our NEOs’ compensation is at-risk variable compensation.    

×

  No Excessive Perquisites – Perquisites represent less than 1% of our NEOs’ compensation.

  Multiple Performance Metrics – Variable compensation is based on more than one measure to encourage balanced incentives.    

×

  No Single-Trigger Change in Control – Our CIC-related cash severance and equity incentive awards (other than legacy stock options) have a double trigger.

  Awards Caps – All of our variable compensation plans have maximum payout limits.    

×

  No Dividends on Equity Awards Prior to Vesting

  Benchmarking – We compare our compensation package to market surveys and a customized peer group, and the Committee engages an independent consultant.    

×

  No Hedging or Pledging – We do not permit our executive officers to engage in either hedging or pledging activities with respect to Leggett shares.

  Tally Sheets – The Compensation Committee reviews the NEOs’ overall compensation packages and potential severance payouts.    

 

×

 

 

 

No Employment Agreements – All of our NEOs are employed at-will.

  Stock Ownership Requirements – All NEOs exceed our robust stock ownership requirements.    

 

×

 

 

 

No Tax Gross-Ups

  Confidentiality & Non-Compete Agreements – All NEOs are subject to confidentiality and non-compete agreements.    

 

×

 

 

 

No Share Recycling

  Clawbacks – Our policies exceed the mandates of Sarbanes-Oxley.    

 

×

 

 

No Repricing of Options or Cash Buyouts



 

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CORPORATE GOVERNANCE AND BOARD MATTERS

Leggett & Platt has a long-standing commitment to sound corporate governance principles and practices. The Board of Directors has adopted Corporate Governance Guidelines that establish the roles and responsibilities of the Board and Company management. The Board has also adopted a Code of Business Conduct and Ethics applicable to all Company employees, officers and directors, as well as a separate Financial Code of Ethics applicable to the Company’s CEO, CFO, and principal accounting officer. These documents can be found at www.leggett-search.com/governance.

Director Independence

 

 

The Board reviews director independence annually and during the year upon learning of any change in circumstances that may affect a director’s independence. The Company has adopted director independence standards (the “Independence Standards”) that satisfy the NYSE listing requirements and can be found at www.leggett-search.com/ governance. A director who meets all the Independence Standards will be presumed to be independent.

While the Independence Standards help the Board to determine director independence, they are not the exclusive measure for doing so. The Board also reviews the relevant facts and circumstances of any material relationships between the Company and its directors during the independence assessment. Based on its review, the Board has determined that all of its current

non-management directors are independent. The director biographies accompanying Proposal 1—Election of Directors identify our independent and management directors on the ballot.

All Audit Committee members meet the additional independence standards for audit committee service under NYSE and SEC rules and are financially literate, as defined by NYSE rules. In addition, Robert Brunner, Robert Culp, Joseph McClanathan, Judy Odom, and Phoebe Wood meet the SEC’s definition of an “audit committee financial expert.” None of the members serves on the audit committee of more than three public companies.

All Compensation Committee members satisfy the enhanced independence standards required by the NYSE listing standards and SEC rules.

 

 

Board Leadership Structure

 

 

The Board elected R. Ted Enloe, III in 2016 as the independent Board Chair, believing this arrangement best serves the Board, the Company and our shareholders at this time.

Our Corporate Governance Guidelines allow the roles of Board Chair and CEO to be filled by the same or different individuals. This approach allows the Board flexibility to determine whether the two roles should be separate or combined based upon the Company’s needs and the

Board’s assessment of the Company’s leadership from time to time.

Our non-management directors regularly hold executive sessions without management present. Mr. Enloe, the Board Chair, presides over these executive sessions. At least one executive session per year is attended by only independent, non-management directors. An executive session was held at each quarterly Board meeting in 2017.

 

 

Communication with the Board

 

Shareholders and all other interested parties wanting to contact our Board of Directors may e-mail the Board Chair, Mr. Enloe, at boardchair@leggett.com. They can also write to Leggett & Platt Board Chair, P.O. Box 637, Carthage, MO 64836. The Corporate Secretary’s office reviews this correspondence and periodically sends Mr. Enloe all communications except items unrelated to Board functions. In his discretion, Mr. Enloe may forward communications to the full Board or to any of the other independent directors for further consideration.

During 2017 and early 2018, we engaged with shareholders on a variety of governance issues, including proxy access, board refreshment and director evaluations, with an independent director participating in those discussions, as appropriate.

 

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Board and Committee Composition and Meetings

 

The Board held four meetings in 2017, and its committees met the number of times listed in the table below. All directors attended at least 75% of the Board meetings and their respective committee meetings. Directors are expected to attend the Company’s annual meeting of shareholders, and all of them attended the 2017 annual meeting.

The Board has a standing Audit Committee, Compensation Committee, and Nominating & Corporate Governance (N&CG) Committee. These committees consist entirely of independent directors, and each operates under a written charter adopted by the Board. The Audit, Compensation, and N&CG Committee charters are posted on our website at www.leggett-search.com/governance.

 

Audit Committee

Judy C. Odom (Chair)

Robert E. Brunner

Robert G. Culp, III

R. Ted Enloe, III

Joseph W. McClanathan

Phoebe A. Wood

 

Meetings in 2017: 4

  

The Audit Committee assists the Board in the oversight of:

• Independent registered public accounting firm’s qualifications, independence, appointment, compensation, retention and performance.

• Internal control over financial reporting.

• Guidelines and policies to govern risk assessment and management.

• Performance of the Company’s internal audit function.

• Integrity of the financial statements and external financial reporting.

• Legal and regulatory compliance.

• Complaints and investigations of any questionable accounting, internal control or auditing matters.

 

 

Compensation Committee

Phoebe A. Wood (Chair)

Robert E. Brunner

R. Ted Enloe, III

Manuel A. Fernandez

Joseph W. McClanathan

Judy C. Odom

 

Meetings in 2017: 6

  

 

The Compensation Committee assists the Board in the oversight and administration of:

• Corporate goals and objectives regarding CEO compensation and evaluation of the CEO’s performance in light of those goals and objectives.

• Non-CEO executive officer compensation.

• Cash and equity-based compensation for directors.

• Incentive compensation and equity-based plans that are subject to Board approval.

• Grants of awards under incentive and equity-based plans required to comply with applicable tax laws.

• Employment agreements and severance benefit agreements with the CEO and executive officers, as applicable.

• Related person transactions of a compensatory nature.

 

 

Nominating & Corporate

Governance Committee

Joseph W. McClanathan (Chair)

Robert G. Culp, III

R. Ted Enloe, III

Manuel A. Fernandez

Judy C. Odom

 

Meetings in 2017: 3

  

 

The N&CG Committee assists the Board in the oversight of:

• Corporate governance principles, policies and procedures.

• Identifying qualified candidates for Board membership and recommending director nominees.

• Recommending committee members and Board leadership positions.

• Director independence and related person transactions.

Board and Committee Evaluations

 

The Board and each of its Committees conduct an annual self-evaluation of their practices and charter responsibilities. In addition, the Board periodically conducts director peer reviews of the qualifications and contributions of its individual members. In 2017, one-on-one director evaluations were conducted by the Board Chair. The N&CG Committee oversees these reviews and reports to the Board.

 

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Board’s Oversight of Risk Management

 

 

The Audit Committee is responsible for oversight of our guidelines and policies to assess and manage risk. The Company’s CEO and other senior managers are responsible for assessing and managing various risk exposures on a day-to-day basis. Our Enterprise Risk Management Committee (the “ERM Committee”), currently composed of 16 executives and chaired by our CFO, adopted guidelines by which the Company identifies, assesses, monitors and reports financial and non-financial risks material to the Company.

The ERM Committee meets at least quarterly. Identified risks, including emerging risks, are assigned to a team of subject matter experts who meet regularly throughout the year and provide an updated assessment twice each year (or as circumstances require) for their respective risk areas. A risk summary report is assembled from these assessments for review by the ERM Committee with a summary of each risk area provided to senior management and the Audit Committee concerning (i) the likelihood, significance, and impact velocity of risks, (ii) the policies and guidelines regarding risk assessment and management, (iii) management’s steps to monitor and control risks, and (iv) an evaluation of the process. The Audit Committee reviews and discusses the report with management and the independent auditor.

An overall review of risk is inherent to the Board’s consideration of the Company’s strategies and other matters. In furtherance of this review, our CFO updates other senior managers and the entire Board every quarter on notable activities of the ERM Committee.

The Company has formal processes in place for both incident response and cyber security continuous improvement that includes a cross functional Cyber Risk Oversight Committee. The General Counsel and the Vice

President of Internal Audit (both members of the Cyber Risk Oversight Committee) update the Audit Committee quarterly on cyber activity, with procedures in place for interim reporting as necessary.

The Compensation Committee’s oversight of executive officer compensation, including the assessment of compensation risk for executive officers, is detailed in the Compensation Discussion & Analysis section on page 18. The Committee also assesses our compensation structure for employees generally and has concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on the Company. The following factors contributed to this determination:

 

  We use a combination of short-term and long-term incentive rewards that are tied to varied and complementary measures of performance and have overlapping performance periods.

 

  We use a common annual incentive plan across all business units.

 

  Our annual incentive plan and our omnibus equity plan contain clawback provisions that enable the Committee to recoup incentive payments, when triggered.

 

  Our employees below key management levels have a small percentage of their total pay in variable compensation.

 

  We promote an employee ownership culture to better align employees with shareholders, with approximately 3,300 employees contributing their own funds to purchase Company stock under various stock purchase plans in 2017.
 

 

Consideration of Director Nominees and Diversity

 

The Nominating & Corporate Governance Committee is responsible for identifying and evaluating qualified candidates for election to the Board of Directors. The Committee’s procedure can be found at www.leggett-search.com/governance. Following its evaluation, the N&CG Committee recommends to the full Board a slate of director candidates for inclusion in the Company’s proxy statement and proxy card.

 

Incumbent Directors. In the case of incumbent directors, the N&CG Committee reviews each director’s overall service during his or her current term, including the number of meetings attended, level of participation, quality of performance and any transactions between the director and the Company.

New Director Candidates. In the case of new director candidates, the N&CG Committee first determines whether the nominee will be independent under NYSE rules, then identifies any special needs of the Board. The N&CG Committee will consider individuals recommended by Board members, Company management, shareholders and, if it deems appropriate, a professional search firm.

 

 

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The N&CG Committee seeks to identify and recruit the best available candidates, who should have the following minimum qualifications:

 

    Character and integrity.

 

    A commitment to the long-term growth and profitability of the Company.

 

    A willingness and ability to make a sufficient time commitment to the affairs of the Company in order to effectively perform the duties of a director, including regular attendance at Board and committee meetings.

 

    Significant business or public experience relevant and beneficial to the Board and the Company.

Board Diversity. The N&CG Committee recognizes the value of cultivating a Board with a diverse mix of opinions, perspectives, skills, experiences, and backgrounds. A diverse board enables more balanced, wide-ranging discussion in the boardroom, which, we believe, enhances the decision-making processes. Having diverse representation and a variety of viewpoints is also important to our shareholders and other stakeholders.

As such, the N&CG Committee considers director candidates from a wide variety of backgrounds, without discrimination based on race, ethnicity, color, ancestry, national origin, religion, sex, sexual orientation, gender identity, age, disability, or any other status protected by law.

All nominations to the Board will be based upon merit and experience relevant to the Board’s current and anticipated needs, as well as Leggett’s businesses. Subject to this overarching principle, the N&CG Committee will always have regard for the need to consider director candidates to maintain and strengthen the Board’s diversity.

Director Recommendations from Shareholders. The N&CG Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, for candidates recommended by a shareholder. Shareholders who wish to recommend candidates for the N&CG Committee’s consideration must submit a written recommendation to the Secretary of the Company at 1 Leggett Road, Carthage, MO 64836. Recommendations must be sent by certified or registered mail and received by December 15th for the N&CG Committee’s consideration for the following year’s annual meeting of shareholders. Recommendations must include the following:

 

    Shareholder’s name, number of shares owned, length of period held and proof of ownership.

 

    Candidate’s name, address, phone number and age.

 

    A resume describing, at a minimum, the candidate’s educational background, occupation, employment history and material outside commitments (memberships on other boards and committees, charitable foundations, etc.).

 

    A supporting statement which describes the shareholder’s and candidate’s reasons for nomination to the Board of Directors and documents the candidate’s ability to satisfy the director qualifications described above.

 

    The candidate’s consent to a background investigation.

 

    The candidate’s written consent to stand for election if nominated by the Board and to serve if elected by the shareholders.

 

    Any other information that will assist the N&CG Committee in evaluating the candidate in accordance with this procedure.

Director Nominations for Inclusion in Leggett’s Proxy Materials (Proxy Access). In February 2017, the Board approved a proxy access bylaw, which permits a shareholder, or group of up to 20 shareholders, owning at least 3% of our outstanding shares continuously for at least three years, to nominate and include in Leggett’s proxy materials up to the greater of two nominees or 20% of the Board, provided the shareholders and nominees satisfy the requirements specified in our bylaws. Notice of proxy access nominees for the 2019 annual meeting must be received no earlier than January 15, 2019 and no later than February 14, 2019.

Notice of Other Director Nominees. For shareholders intending to nominate a director candidate for election at the 2019 annual meeting outside of the Company’s nomination process, our bylaws require that the Company receive notice of the nomination no earlier than January 15, 2019 and no later than February 14, 2019. This notice must provide the information specified in Section 2.2 of the bylaws.

 

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Transactions with Related Persons

 

 

According to our Corporate Governance Guidelines, the N&CG Committee reviews and approves or ratifies transactions in which the Company or a subsidiary is a participant, the amount involved exceeds $120,000 and a related person has a direct or indirect material interest. If the transaction with a related person concerns compensation, the Compensation Committee conducts the review.

The Company’s executive officers and directors are expected to notify the Company’s Corporate Secretary of any current or proposed transaction that may be a related person transaction. The Corporate Secretary will determine if it is a related person transaction and, if so,

will include it for consideration at the next meeting of the appropriate Committee. Approval should be obtained in advance of a related person transaction whenever practicable. If it becomes necessary to approve a related person transaction between meetings, the Chair of the appropriate Committee is authorized to act on behalf of the Committee. The Chair will provide a report on the matter to the full Committee at its next meeting.

The full policy for reviewing transactions with related persons, including categories of pre-approved transactions, is found in our Corporate Governance Guidelines (available on Leggett’s website at www.leggett-search.com/governance).

 

 

Each of the following transactions was approved in accordance with our Corporate Governance Guidelines:

 

    We buy shares of our common stock from our employees from time to time. In 2017 and early 2018, we purchased shares from three of our executive officers: 168,437 shares from Karl Glassman for a total of $8,266,868; 76,917 shares from Matthew Flanigan for a total of $3,761,374; and 8,000 shares from Scott Douglas for a total of $405,650. All employees, including executive officers, pay a $25 administrative fee for each transaction. If the Company agrees to purchase stock before noon, the purchase price is the closing stock price on the prior business day; if the agreement is made after noon, the purchase price is the closing stock price on the day of purchase.

 

    The Company employs one relative of its directors and executive officers with total compensation in excess of the $120,000 related person transaction threshold: Bren Flanigan, Director—Corporate Development, the brother of CFO Matthew Flanigan, had total compensation of $248,824 in 2017 (consisting of salary and annual incentive earned in 2017 and the grant date fair value of equity-based awards issued in 2017).

Compensation Committee Interlocks and Insider Participation

 

No Compensation Committee member had an interlocking relationship as described in Item 407(e)(4) of Regulation S-K.

 

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DIRECTOR COMPENSATION

Our non-employee directors receive an annual retainer, consisting of a mix of cash and equity, as set forth below. Our employee directors (Mr. Glassman and Mr. Flanigan) do not receive additional compensation for their Board service.

 

  Item    Amount    

  Cash Compensation

        
  Director Retainer      $80,000    
  Audit Committee Retainer   

Chair

     25,000    

Member

     10,000    
  Compensation Committee Retainer   

Chair

     20,000    

Member

     8,000    
  N&CG Committee Retainer   

Chair

     15,000    

Member

     7,000    

  Equity Compensation—Restricted Stock or RSUs

        
  Board Chair Retainer (including director retainer)      285,000    
  Director Retainer      135,000    

 

The Compensation Committee reviews director compensation annually and recommends any changes to the full Board for consideration at its May meeting. The Committee considers national survey data and trends, as well as peer company benchmarking data (see discussion of the executive compensation peer group at page 29), but does not target director compensation to any specific percentage of the median. In 2017, no changes were made to the director’s compensation package.

Directors may elect to receive the equity retainer in restricted stock or restricted stock units (“RSUs”). Electing RSUs enables directors to defer receipt of the shares for two to ten years while accruing dividend equivalent shares at a 20% discount to market price over the deferral period. Both restricted stock and RSUs vest one year after the grant date.

A majority of our directors have elected to defer a portion of their 2017 cash retainer into Leggett stock options or stock units under the Company’s Deferred Compensation Program, described on page 27. Interest-bearing cash deferrals are also an alternative under the Program.

Our non-employee directors currently comply with the stock ownership guidelines requiring them to hold Leggett stock with a value of five times their annual cash retainer within five years of joining the Board.

The Company pays for all travel expenses the directors incur to attend Board meetings.

 

 

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Director Compensation in 2017

 

Our non-employee directors received the following compensation in 2017:

 

     Director   

Fees
Earned

or Paid

in Cash(1)

    



Stock

Awards(2)

    

Non-Qualified

Deferred

Compensation

Earnings(3)

    

All Other

Compensation(4)

    


Total
 

  Robert E. Brunner

     $98,000        $135,000        $3,522        $38,586        $275,108    

  Robert G. Culp, III

     97,000        135,000        —          3,708        235,708    

  R. Ted Enloe, III

     105,000        285,000        —          9,219        399,219    

  Manuel A. Fernandez

     95,000        135,000        4,424        41,448        275,872    

  Joseph W. McClanathan

     113,000        135,000        —          3,708        251,708    

  Judy C. Odom

     120,000        135,000        6,882        44,345        306,228    

  Phoebe A. Wood

     110,000        135,000        9,889        67,057        321,946    

 

(1)  These amounts include cash compensation deferred into stock options or stock units under our Deferred Compensation Program. The following directors deferred cash compensation into stock units: Brunner—$98,000, Fernandez—$95,000, Odom—$60,000, and Wood—$110,000.
(2)  These amounts reflect the grant date fair value of the annual restricted stock or RSU awards, which was $135,000 for each director except Mr. Enloe, who received a restricted stock award of $285,000 for his service as the Board Chair. The grant date fair value of these awards is determined by the stock price on the day of the award.
(3)  These amounts include the 20% discount on stock unit dividends acquired under our Deferred Compensation Program and RSUs.
(4)  Items in excess of $10,000 that are reported in this column consist of (i) dividends paid on the annual restricted stock or RSU awards and dividends paid on stock units acquired under our Deferred Compensation Program: Brunner—$14,086, Fernandez—$17,698, Odom—$29,345, and Wood—$39,557; and (ii) the 20% discount on stock units purchased with deferred cash compensation: Brunner—$24,500, Fernandez—$23,750, Odom—$15,000, and Wood—$27,500.

Only one director held outstanding stock options as of December 31, 2017: Mr. Enloe’s 10,174 options granted in 2016 in lieu of cash compensation under our Deferred Compensation Program.

All of our non-employee directors held unvested stock or stock units as of December 31, 2017 as set forth below. These restricted stock shares and RSUs will vest on May 14, 2018.

 

Director

  

Restricted

Stock

    

Restricted

Stock

Units

 

Robert E. Brunner

              2,569  

Robert G. Culp, III

     2,524           

R. Ted Enloe, III

     5,328           

Manuel A. Fernandez

              2,569  

Joseph W. McClanathan

     2,524           

Judy C. Odom

     2,524           

Phoebe A. Wood

              2,569  

 

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PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING

 

1

 

 

 

PROPOSAL ONE:    Election of Directors

  At 2018 annual meeting, nine directors are nominated to hold office until the 2019 Annual Meeting of Shareholders, or until their successors are elected and qualified. All nominees have been previously elected by our shareholders. If any nominee named below is unable to serve as a director (an event the Board does not anticipate), the proxy will be voted for a substitute nominee, if any, designated by the Board.

In recommending the slate of director nominees, our Board has chosen individuals of character and integrity, with a commitment to the long-term growth and profitability of the Company. We believe each of the nominees brings significant business or public experience relevant and beneficial to the Board and the Company, as well as a work ethic and disposition that foster the collegiality necessary for the Board and its committees to function efficiently and best represent the interests of our shareholders.

 

 

  Robert E. Brunner

 

 

  

 

  Independent Director

  Director Since: 2009

  Age: 60

 

  Committees:

    Audit

    Compensation

  

 

Professional Experience:

 

Mr. Brunner was the Executive Vice President of Illinois Tool Works (ITW), a Fortune 250 global, multi-industrial manufacturer of advanced industrial technology, from 2006 until his retirement in 2012. He previously served ITW as President—Global Auto beginning in 2005 and President—North American Auto from 2003.

 

Education:

 

Mr. Brunner holds a degree in finance from the University of Illinois and an MBA from Baldwin-Wallace University.

 

Public Company Boards:

 

Mr. Brunner currently serves as the non-executive chair of NN, Inc., a global manufacturer of precision bearings and plastic, rubber and metal components, and as a director of Lindsay Corporation, a global manufacturer of irrigation equipment and road safety products.

 

Director Qualifications:

 

Mr. Brunner’s experience and leadership with ITW, a diversified manufacturer with a global footprint, provides valuable insight to our Board on strategy, business development, mergers and acquisitions, operations, and international issues.

 

 

  Robert G. Culp, III

 

  

 

  

 

  Independent Director

  Director Since: 2013

  Age: 71

 

  Committees:

    Audit

    Nominating & Corporate

    Governance

  

 

Professional Experience:

 

Mr. Culp is the co-founder of Culp, Inc., an upholstery and bedding fabrics designer and manufacturer, where he has been the Chairman since 1990 and served as CEO from 1988 to 2007.

 

Education:

 

Mr. Culp holds a degree in economics from the University of North Carolina—Chapel Hill and an MBA from the Wharton School of the University of Pennsylvania.

 

Public Company Boards:

 

Mr. Culp is the Chairman of the Board of Culp, Inc., and the lead independent director of Old Dominion Freight Line, Inc., a national motor transportation and logistics company.

 

Director Qualifications:

 

Mr. Culp’s experience in the bedding and furniture industries provides valuable insight into a number of the Company’s key markets. Through his leadership of Culp, Inc., a publicly-traded company with an international scope, he understands the complexities of the financial and regulatory requirements facing US companies, as well as the challenges and opportunities of developing global operations.

 

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  R. Ted Enloe, III

 

  

 

  

 

  Independent Director

  Director Since: 1969

  Board Chair Since: 2016

  Age: 79

 

  Committees:

    Audit

    Compensation

    Nominating & Corporate

    Governance

  

 

Professional Experience:

 

Mr. Enloe has been Managing General Partner of Balquita Partners, Ltd., a family securities and real estate investment partnership, since 1996. His former positions include Vice Chairman of the Board and member of the Office of the Chief Executive for Compaq Computer Corporation and President of Lomas Financial Corporation and Liberte Investors.

 

Education:

 

Mr. Enloe holds a degree in petroleum engineering from Louisiana Polytechnic University and a law degree from Southern Methodist University.

 

Public Company Boards:

 

Mr. Enloe currently serves as a director of Live Nation, Inc., a venue operator, promoter and producer of live entertainment events, and he was previously a director of Silicon Laboratories Inc., a designer of mixed-signal integrated circuits.

 

Director Qualifications:

 

Mr. Enloe’s professional background and experience, previously held senior-executive level positions, financial expertise and service on other company boards, qualifies him to serve as a member of our Board of Directors. Further, his wide-ranging experience combined with his intimate knowledge of the Company from over 40 years on the Board provides an exceptional mix of familiarity and objectivity.

 

 

  Manuel A. Fernandez

 

  

 

  

 

  Independent Director

  Director Since: 2014

  Age: 71

 

  Committees:

    Compensation

    Nominating & Corporate

    Governance

  

 

Professional Experience:

 

Mr. Fernandez co-founded SI Ventures, a venture capital firm focusing on IT and communications infrastructure, and has served as the managing director since 2000. Previously, he served as the Chairman, President and Chief Executive Officer at Gartner, Inc., a research and advisory company, from 1989 to 2000. Prior to Gartner, Mr. Fernandez was President and CEO of three technology-driven companies, including Dataquest, an information services company, Gavilan Computer Corporation, a laptop computer manufacturer, and Zilog Incorporated, a semiconductor manufacturer. Mr. Fernandez was the Executive Chairman of Sysco Corporation, a marketer and distributor of foodservice products, from 2012 until his retirement in 2013, having previously served as Non-executive Chairman since 2009 and as a director since 2006.

 

Education:

 

Mr. Fernandez holds a degree in electrical engineering from the University of Florida and completed post-graduate work in solid-state engineering at the University of Florida.

 

Public Company Boards:

 

Mr. Fernandez currently serves as lead independent director of Brunswick Corporation, a market leader in the marine, fitness, and billiards industries, and as a director of Performance Food Group Company, a foodservice products distributor. He was previously a director of Flowers Foods, Inc., a national producer and marketer of packaged bakery foods, Tibco, a global leader in infrastructure and business intelligence software, and Time, Inc., a global media company.

 

Director Qualifications:

 

Mr. Fernandez’ venture capital experience, leadership of several technology companies as CEO and service on a number of public company boards offers Leggett outstanding insight into corporate strategy and development, information technology, international growth, and corporate governance.

 

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  Matthew C. Flanigan

 

  

 

  

 

  Management Director

  Director Since: 2010

  Age: 56

 

  Committees:

    None

  

 

Professional Experience:

 

Mr. Flanigan was appointed Executive Vice President of the Company in 2013 and has served as Chief Financial Officer since 2003. He previously served the Company as Senior Vice President from 2005 to 2013, Vice President from 2003 to 2005, Vice President and President of the Office Furniture Components Group from 1999 to 2003, and in various capacities since 1997.

 

Education:

 

Mr. Flanigan holds a degree in finance and business administration from the University of Missouri.

 

Public Company Boards:

 

Mr. Flanigan serves as the lead director of Jack Henry & Associates, Inc., the nation’s leading provider of information processing systems for small-to-medium-sized financial institutions.

 

Director Qualifications:

 

As the Company’s CFO, Mr. Flanigan adds valuable knowledge of the Company’s finance, risk and compliance functions to the Board. In addition, his prior experience as one of the Company’s group presidents provides valuable operations insight.

 

 

  Karl G. Glassman

 

  

 

  

 

  Management Director

  Director Since: 2002

  Age: 59

 

  Committees:

    None

  

 

Professional Experience:

 

Mr. Glassman was appointed Chief Executive Officer in 2016 and has served as President since 2013. He previously served the Company as Chief Operating Officer from 2006 to 2015, Executive Vice President from 2002 to 2013, President of the Residential Furnishings Segment from 1999 to 2006, Senior Vice President from 1999 to 2002, and in various capacities since 1982.

 

Education:

 

Mr. Glassman holds a degree in business management and finance from California State University—Long Beach.

 

Public Company Boards:

 

Mr. Glassman previously served as a director of Remy International, Inc., a leading global manufacturer of alternators, starter motors and electric traction motors.

 

Director Qualifications:

 

As the Company’s CEO, Mr. Glassman provides comprehensive insight to the Board from strategic planning to implementation at all levels of the Company around the world, as well as the Company’s relationships with investors, the financial community and other key stakeholders. Mr. Glassman also serves on the Board of Directors of the National Association of Manufacturers.

 

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  Joseph W. McClanathan

 

  

 

  

 

  Independent Director

  Director Since: 2005

  Age: 65

 

  Committees:

    Audit

    Compensation

    Nominating & Corporate

    Governance, Chair

  

 

Professional Experience:

 

Mr. McClanathan served as President and Chief Executive Officer of the Household Products Division of Energizer Holdings, Inc., a manufacturer of portable power solutions, from 2007 through his retirement in 2012. Previously, he served Energizer as President and Chief Executive Officer of the Energizer Battery Division from 2004 to 2007, as President—North America from 2002 to 2004, and as Vice President—North America from 2000 to 2002.

 

Education:

 

Mr. McClanathan holds a degree in management from Arizona State University.

 

Director Qualifications:

 

Through his leadership experience at Energizer and as a former director of the Retail Industry Leaders Association, Mr. McClanathan offers an exceptional perspective to the Board on manufacturing operations, marketing and development of international capabilities.

 

 

  Judy C. Odom

 

  

 

  

 

  Independent Director

  Director Since: 2002

  Age: 65

 

  Committees:

    Audit, Chair

    Compensation

    Nominating & Corporate

    Governance

  

 

Professional Experience:

 

Until her retirement in 2002, Ms. Odom was Chief Executive Officer and Board Chair at Software Spectrum, Inc., a global business to business software services company, which she co-founded in 1983. Prior to founding Software Spectrum, she was a partner with the international accounting firm, Grant Thornton.

 

Education:

 

Ms. Odom is a licensed Certified Public Accountant and holds a degree in business administration from Texas Tech University.

 

Public Company Boards:

 

Ms. Odom is a director of Harte-Hanks, a direct marketing service company, and Sabre, Inc., which provides technology solutions for the global travel and tourism industry.

 

Director Qualifications:

 

Ms. Odom’s director experience with several companies offers a broad leadership perspective on strategic and operating issues. Her experience co-founding Software Spectrum and growing it to a global Fortune 1000 enterprise before selling it to another public company provides the insight of a long-serving CEO with international operating experience.

 

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  Phoebe A. Wood

 

  

 

  

 

  Independent Director

  Director Since: 2005

  Age: 64

 

  Committees:

    Audit

    Compensation, Chair

  

 

Professional Experience:

 

Ms. Wood has been a principal in CompaniesWood, a consulting firm specializing in early stage investments, since her 2008 retirement as Vice Chairman and Chief Financial Officer of Brown-Forman Corporation, a diversified consumer products manufacturer, where she had served since 2001. Ms. Wood previously held various positions at Atlantic Richfield Company, an oil and gas company, from 1976 to 2000.

 

Education:

 

Ms. Wood holds a degree in psychology from Smith College and an MBA from UCLA.

 

Public Company Boards:

 

Ms. Wood is a director of Invesco, Ltd., an independent global investment manager, Pioneer Natural Resources, an independent oil and gas company, and PPL Corporation, a utility and energy services company. She previously served as a director of Coca-Cola Enterprises, Inc., a major bottler and distributor of Coca-Cola products.

 

Director Qualifications:

 

From her career in business and various directorships, Ms. Wood provides the Board with a wealth of understanding of the strategic, financial and accounting issues the Board faces in its oversight role.

 

 

The Board recommends that you vote FOR the election of each of the director nominees.

 

 

 

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2

 

 

 

PROPOSAL TWO: Ratification of Independent Registered Public Accounting Firm

 

The Audit Committee is directly responsible for the appointment of the Company’s independent registered public accounting firm and has selected PricewaterhouseCoopers LLP (“PwC”) for the fiscal year ending December 31, 2018. PwC (or its predecessor firm) has been our independent registered public accounting firm continuously since 1991.

 

The Audit Committee regularly evaluates activities to assure continuing auditor independence, including whether there should be a regular rotation of the independent registered public accounting firm. As with all matters, the members of the Audit Committee and the Board perform assessments in the best interests of the Company and our investors, and believe that the continued retention of PwC meets this standard.

Although shareholder ratification of the Audit Committee’s selection of PwC is not required by the Company’s bylaws or otherwise, the Board is requesting ratification as a matter of good corporate practice. If our

shareholders fail to ratify the selection, it will be considered a direction to the Audit Committee to consider a different firm. Even if this selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change is in the best interest of the Company and our shareholders.

PwC representatives are expected to be present at the annual meeting. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate shareholder questions.

 

 

 

The Board recommends that you vote FOR the ratification of PwC

as the independent registered public accounting firm.

 

 

Audit and Non-Audit Fees

The Audit Committee is directly responsible for the compensation, retention, performance and oversight of the independent external audit firm, directly involved in the selection of the lead engagement partner, and responsible for the audit fee negotiations associated with retaining PwC. The fees billed or expected to be billed by PwC for professional services rendered in fiscal years 2017 and 2016 are shown below.

 

 

  Type of Service

 

  

 

2017

 

        

 

2016

 

 

Audit Fees(1)

     $2,344,181          $2,056,542  

Audit-Related Fees(2)

     105,028          192,715  

Tax Fees(3)

     441,366          398,563  

All Other Fees(4)

     2,970          2,970  
  

 

 

      

 

 

 

Total

     $2,893,545          $2,650,790  

 

  (1)  Includes rendering an opinion on the Company’s consolidated financial statements and the effectiveness of internal control over financial reporting; quarterly reviews of the Company’s financial statements; statutory audits, where appropriate; comfort and debt covenant letters; and services in connection with regulatory filings.

 

  (2)  Includes assessment of controls; consulting on accounting and financial reporting issues; and audits of employee benefit plans.

 

  (3)  Includes preparation and review of tax returns and tax filings; tax consulting and advice related to compliance with tax laws; tax planning strategies; and tax due diligence related to acquisitions and joint ventures. Of the tax fees listed above in 2017, $180,926 related to compliance services and $260,440 related to consulting and planning services.

 

  (4)  Includes use of an internet-based accounting research tool provided by PwC.

The Audit Committee has determined that the provision of these approved Non-Audit Services by PwC is compatible with maintaining PwC’s independence.

Pre-Approval Procedures for Audit and Non-Audit Services

The Audit Committee has established a procedure for pre-approving the services performed by the Company’s auditors. All services provided by PwC in 2017 were approved in accordance with the adopted procedures. There were no services provided or fees paid in 2017 for which the pre-approval requirement was waived.

 

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The procedure provides standing pre-approval for:

 

  Audit Services: rendering an opinion on the Company’s consolidated financial statements and the effectiveness of internal control over financial reporting; quarterly reviews of the Company’s financial statements; statutory audits, where appropriate; comfort and debt covenant letters; and services in connection with regulatory filings.

 

  Audit-Related Services: consultation on new or proposed transactions, statutory requirements, or accounting principles; reports related to contracts, agreements, arbitration, or government filings; continuing professional education; audits of employee benefit plans and subsidiaries; and due diligence and audits related to acquisitions and joint ventures.
  Tax Services: preparation and review of Company and related entity income, sales, payroll, property, and other tax returns and tax filings and permissible tax audit assistance; preparation or review of expatriate and similar employee tax returns and tax filings; tax consulting and advice related to compliance with applicable tax laws; tax planning strategies and implementation; and tax due diligence related to acquisitions and joint ventures.
 

 

Any other audit, audit-related, or tax services provided by the Company’s auditors require specific Audit Committee pre-approval. The Audit Committee must also specifically approve in advance all permissible Non-Audit Services to be performed by the Company’s auditors. Management provides quarterly reports to the Audit Committee concerning any fees paid to the auditors for all services.

Audit Committee Report

The Audit Committee is composed of six non-management directors who are independent as required by SEC and NYSE rules. The Audit Committee operates under a written charter adopted by the Board which is posted on the Company’s website at www.leggett-search.com/governance.

 

Management is responsible for the Company’s financial statements and financial reporting process, including the system of internal controls. PwC, our independent registered public accounting firm, is responsible for expressing an opinion on the conformity of the audited consolidated financial statements with accounting principles generally accepted in the United States.

The Audit Committee is responsible for monitoring, overseeing and evaluating these processes, providing recommendations to the Board regarding the independence of and risk assessment procedures used by our independent registered public accounting firm, selecting and retaining our independent registered public accounting firm, and overseeing compliance with various laws and regulations.

At its meetings, the Audit Committee reviewed and discussed the Company’s audited financial statements with management and PwC. The Audit Committee also

discussed with PwC all items required by Public Company Accounting Oversight Board Auditing Standard 1301— Communications with Audit Committees.

The Audit Committee received the written disclosures and letter from PwC required by applicable requirements of the Public Company Accounting Oversight Board regarding PwC’s communications with the Audit Committee concerning independence and has discussed PwC’s independence with them.

The Audit Committee has relied on management’s representation that the financial statements have been prepared in conformity with accounting principles generally accepted in the United States and on the opinion of PwC included in their report on the Company’s financial statements.

 

 

Based on the review and discussions with management and PwC referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s 2017 Annual Report on Form 10-K.

Judy C. Odom (Chair)

Robert E. Brunner

Robert G. Culp, III

R. Ted Enloe, III

Joseph W. McClanathan

Phoebe A. Wood

 

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3

 

 

 

PROPOSAL THREE: Advisory Vote to Approve Named Executive Officer Compensation

 

  Pursuant to Section 14A of the Securities Exchange Act of 1934, Leggett’s shareholders have the opportunity to vote on an advisory resolution on our executive compensation package, commonly known as "Say-on-Pay," to approve the compensation of Leggett's named executive officers, as described in the Executive Compensation section beginning on page 18.    

For these reasons, the Board requests our shareholders approve the compensation paid to the Company’s named executive officers as described in this proxy statement, including the Compensation Discussion and Analysis, the executive compensation tables and the related footnotes and narrative accompanying the tables.

 

Because your vote is advisory, it will not be binding upon the Board; however, the Compensation Committee and the Board has considered and will continue to consider the outcome of the vote when making decisions for future executive compensation arrangements.

 

Since Say-on-Pay was implemented in 2011, our shareholders have supported the compensation of our named executive officers with over 90% of the vote (with 93% support in 2017).

 

Our Compensation Committee is committed to creating an executive compensation program that enables us to attract and retain a superior management team that has targeted incentives to build long-term value for our shareholders. The Company’s compensation package uses a mix of cash and equity-based awards to align executive compensation with our annual and long-term performance. These programs reflect the Committee’s philosophy that executive compensation should provide greater rewards for superior performance, as well as accountability for underperformance. At the same time, we believe our programs do not encourage excessive risk-taking by management. The Board believes that our philosophy and practices have resulted in executive compensation decisions that are appropriate and that have benefited the Company over time.

   

 

 

The Board recommends that you vote FOR the Company’s executive compensation package.

 

 

Discretionary Vote on Other Matters

 

 

We are not aware of any business to be acted upon at the annual meeting other than the three items described in this proxy statement. Your signed proxy, however, will entitle the persons named as proxy holders to vote in their discretion if another matter is properly presented at the meeting. If one of the director nominees is not available as a candidate for director, the proxy holders will vote your proxy for such other candidate as the Board may nominate.

 

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EXECUTIVE COMPENSATION AND RELATED MATTERS

Compensation Discussion & Analysis

 

Our Compensation Committee, consisting of six independent directors, is committed to creating and overseeing an executive compensation program that enables us to attract and retain a superior management team that has targeted incentives to build long-term value for our shareholders. To meet these objectives, the Committee has implemented a compensation package that:

 

    Emphasizes performance-based equity programs over cash compensation.

 

    Sets incentive compensation targets intended to drive performance and shareholder value.

 

    Balances rewards between short-term and long-term performance to foster sustained excellence.

 

    Motivates our executive officers to take appropriate business risks.

This Compensation Discussion and Analysis describes our executive compensation program and the decisions affecting the compensation of our Named Executive Officers (the “NEOs”):

 

  Name

 

  

Title

 

Karl G. Glassman

   President and Chief Executive Officer (CEO)

Matthew C. Flanigan

   Executive VP and Chief Financial Officer (CFO)

Perry E. Davis

   Executive VP, President—Residential Products & Industrial Products

J. Mitchell Dolloff

   Executive VP, President—Specialized Products & Furniture Products

Scott S. Douglas

   Senior VP—General Counsel and Secretary

Executive Summary

 

This section provides an overview of our NEOs’ compensation structure, Leggett’s pay practices and the Committee’s compensation risk management. Additional details regarding the NEOs’ pay packages, the Committee’s annual review of the executive officers’ compensation and our equity pay practices are covered in the sections that follow.

The largest component of our executives’ 2017 compensation package, Performance Stock Units (“PSUs”), is based on our Total Shareholder Return (“TSR”)(1) over rolling three-year periods relative to approximately 320 peer companies making up the industrial, materials and consumer discretionary sectors of the S&P 500 and S&P Midcap 400. Leggett’s cumulative TSR from 2015-2017 was 21.9%, which placed us in the 43rd percentile of the peer group and resulted in a 61% payout versus target for the three-year PSUs vesting on December 31, 2017.

The Profitable Growth Incentive (“PGI”) is a two-year, performance-based equity program with payouts determined by revenue growth(2) and EBITDA margin(3)—two key levers for achieving our long-range TSR goals. Corporate participants did not receive a payout for the 2016-2017 PGI awards, as the Company’s revenue growth over those two years did not reach the threshold 2.8% compound annual growth rate.

Our executives’ 2017 annual incentive payouts under the Key Officers Incentive Plan tracked the Company’s operational results in 2017, in which we generated incentive cash flow of $391.8 million (versus a target of $450 million) and 45.2% return on capital employed (versus a target of 50%).(4)

 

(1)  TSR = change in stock price plus dividends divided by beginning stock price; assumes dividends are reinvested.

 

(2)  Revenue growth is the compound annual growth rate of the Company’s (or applicable profit centers’) revenue during the performance period compared to the revenue of the immediately preceding year.

 

(3)  EBITDA margin is the cumulative Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) during the performance period divided by the total revenue during the performance period.

 

(4)  The Key Officers Incentive Plan, including the calculations for adjusted cash flow and return on capital employed (ROCE), is described on page 21.

 

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Structuring the Mix of Compensation

The Committee uses its judgment to determine the appropriate percentage of variable and fixed compensation, the use of short-term and long-term performance periods, and the split between cash and equity-based compensation. The ultimate payment and value of the variable elements depends on actual performance and could result in no payout if those conditions are not met. The following table shows the key attributes of the 2017 compensation programs used to drive performance and build long-term shareholder value:

 

  Compensation Type   

Fixed or

Variable

  

Cash or

Equity-Based

   Term    Basis for Payment

Base Salary

   Fixed    Cash    1 year   

Individual responsibilities, performance and experience

 

Annual Incentive

   Variable    Cash    1 year   

Return on capital employed, cash flow and individual performance goals

 

 

Profitable Growth Incentive

  

 

Variable

  

 

Equity

  

 

2 years

  

 

Revenue growth and EBITDA margin

 

 

Performance Stock Units

 

  

 

Variable

 

  

 

Equity

 

   3 years

 

  

 

TSR relative to peer group

 

 

Performance-based Compensation

Sound Pay Practices

The Company is committed to executive compensation practices that align the interests of our executives and our shareholders:

 

   What We Do           What We Don’t Do

  Pay for Performance – A significant majority of our NEOs’ compensation is at-risk variable compensation.    

×

  No Excessive Perquisites – Perquisites represent less than 1% of our NEOs’ compensation.

  Multiple Performance Metrics – Variable compensation is based on more than one measure to encourage balanced incentives.    

×

  No Single-Trigger Change in Control – Our CIC-related cash severance and equity incentive awards (other than legacy stock options) have a double trigger.

  Awards Caps – All of our variable compensation plans have maximum payout limits.    

×

  No Dividends on Equity Awards Prior to Vesting

  Benchmarking – We compare our compensation package to market surveys and a customized peer group, and the Committee engages an independent consultant.    

×

  No Hedging or Pledging – We do not permit our executive officers to engage in either hedging or pledging activities with respect to Leggett shares.

  Tally Sheets – The Compensation Committee reviews the NEOs’ overall compensation packages and potential severance payouts.    

 

×

 

 

 

No Employment Agreements – All of our NEOs are employed at-will.

  Stock Ownership Requirements – All NEOs exceed our robust stock ownership requirements.    

 

×

 

 

 

No Tax Gross-Ups

  Confidentiality & Non-Compete Provisions – All NEOs are subject to confidentiality and non-compete provisions.    

 

×

 

 

 

No Share Recycling

 

  Clawbacks – Our compensation recoupment policies exceed the mandates of Sarbanes-Oxley.    

 

×

 

 

No Repricing of Options or Cash Buyouts

 

19 LEGGETT & PLATT, INCORPORATED – 2018 Proxy Statement

CEO 2017 Compensation Mix At Target PGI 13% BASE SALARY 17% ANNUAL INCENTIVE 21% PSUs 49% All Other NEOs 2017 Compensation Mix At Target BASE SALARY 27% ANNUAL INCENTIVE 20% PSUs 37% PGI 16% Performance-based Compensation 83% 73%


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Additional Investment in Leggett Stock

In addition to having pay packages that are heavily weighted to Leggett equity-based awards, for many years our NEOs have voluntarily deferred substantial portions of their cash compensation into Company stock through the Executive Stock Unit Program (the “ESU Program”) and the Deferred Compensation Program. Through participation in these programs, particularly the ESU Program, in which Company equity is held until the executive leaves the Company, our NEOs are further invested in the long-term success of the Company.

Managing Compensation Risk

The Committee regularly reviews whether our executive compensation policies and practices (as well as those that apply to our employees generally) are appropriate and whether they create risks or misalignments that are reasonably likely to have a material adverse effect on the Company.

We believe that our compensation programs align our executives’ incentives for risk taking with the long-term best interests of our shareholders. We mitigate risk by allocating incentive compensation across multiple components. This structure reduces the incentive to take excessive risk because it:

 

    Rewards achievement on a balanced array of performance measures, minimizing undue focus on any single target.

 

    Stresses long-term performance, discouraging short-term actions that might endanger long-term value.

 

    Combines absolute and relative performance measures.

Additional safeguards against undue compensation risk include stock ownership guidelines, caps on incentive payouts and clawback policies.

Impact of 2017 Say-on-Pay Vote

At our annual meeting of shareholders held on May 9, 2017, 93% of the votes cast on the Say-on-Pay proposal approved the compensation of our NEOs. The Committee believes that this shareholder vote strongly endorses the Company’s compensation philosophy and programs. The Committee took this support into account as one of many factors it considered in connection with the discharge of its responsibilities (as described in this Compensation Discussion and Analysis) in exercising its judgment in establishing and overseeing our executive compensation arrangements throughout the year.

Changes for 2018

In order to better align the NEOs’ compensation package with the Company’s long-term strategy, the Committee approved the transition in 2018 to a three-year PSU award with 50% of the award vesting based upon relative TSR and 50% vesting based upon the compound annual growth rate for the Company’s earnings before interest and taxes (“EBIT”), the primary operational driver for increasing our TSR. The granting of PGI awards, which had a two-year performance period, was discontinued in 2018, with that portion of the NEOs’ pay package being shifted to the new PSU awards.

 

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Our Compensation Components and Programs

 

Base Salary

Base salary is the only fixed portion of our NEOs’ compensation package. Salary levels are intended to reflect specific responsibilities, performance and experience, while taking into account market compensation levels for comparable positions. Although base salary makes up less than one-fourth of our NEOs’ aggregate compensation, it’s the foundation for the total package with the variable compensation components set as percentages of base salary:

 

  Name   

2017

Base Salary

    

Annual Incentive:

Target Percentage

of Base Salary

 

PGI Awards:

Target Percentage

of Base Salary(2)

  

PSU Awards:

Target Percentage

of Base Salary (2)

Karl G. Glassman, CEO

   $ 1,175,000      118.75%(1)   77%    275%

Matthew C. Flanigan, CFO

     550,000      80%   70%    175%

Perry E. Davis, EVP

     500,000      75%(1)   64%    130%

J. Mitchell Dolloff, EVP

     500,000      75%(1)   64%    130%

Scott S. Douglas, SVP

     330,000      50%   51%    100%

 

(1) Reflects Mr. Glassman’s annual incentive adjustment from 115% to 120% following the March executive compensation review, and Mr. Davis’ and Mr. Dolloff’s adjustments from 60% to 80%.

 

(2)  The methods for valuing and calculating the PGI and PSU awards are described in the Equity-Based Awards section on page 24.

The Committee reviews and determines the NEOs’ base salaries (along with the rest of their compensation packages) during the annual review, which is discussed on page 29.

Annual Incentive

Our NEOs earn their annual incentive, a cash bonus paid under the Key Officers Incentive Plan (the “Incentive Plan”), based on achieving certain performance targets for the year.

Our executive officers are divided into two groups under the Incentive Plan, depending upon their areas of responsibility: (i) corporate participants (Glassman, Flanigan and Douglas), whose performance criteria and payouts are based on the Company’s overall results, and (ii) profit center participants (Davis and Dolloff) whose performance targets are set for the operations under their control. The NEOs also have individual performance goals (“IPGs”) as part of their annual incentive.

Each NEO has a target incentive amount—the amount he would receive if he achieved exactly 100% of all performance goals. The target incentive amount is the officer’s base salary multiplied by his target incentive percentage. At the end of the year, the target incentive amount is multiplied by the payout percentages for the various performance metrics (each with its own weighting) to determine the annual incentive payout.

Performance Metrics. The Committee chose ROCE as the primary incentive target (60% weighting) to improve earnings and maximize returns on key assets by carefully managing working capital and fixed asset investments. The annual incentive is also based upon cash flow (20% weighting), which is critical to fund the Company’s dividend, capital expenditures and ongoing operations. The 2017 award formula provides that the ROCE and cash flow calculations will be adjusted for all items of gain, loss or expense (i) from non-cash impairments; (ii) related to loss contingencies identified in the Company’s 2016 10-K; (iii) that are unusual in nature or infrequent in occurrence; (iv) related to the disposal of a segment of a business; or (v) related to a change in accounting principle. The Incentive Plan also permits adjustments to remove the effects of changes in the tax law. Profit center participants are also subject to an adjustment ranging from a potential 5% increase for exceptional safety performance to a 20% deduction for their operations’ failure to achieve safety, audit and environmental standards.

 

21 LEGGETT & PLATT, INCORPORATED – 2018 Proxy Statement

Target Incentive Amount Base Salary Target Incentive Percentage Weighted Payout Percentage ROCE(1) Achievement % Cash Flow(2) Achievement % IPG Achievement % Potential adjustment for safety, audit and environmental (profit center participants only) 60% Weighting 20% Weighting 20% Weighting Annual Incentive


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The annual incentive payout is calculated as follows, and more fully described below:

 

 

(1)  Return on Capital Employed (ROCE) = Earnings Before Interest and Taxes (EBIT) ÷ quarterly average of Net Plant Property and Equipment (PP&E) and Working Capital (excluding cash and current maturities of long-term debt)

 

(2)  For corporate participants (Glassman, Flanigan and Douglas): Cash Flow = Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) +/- Change in Working Capital (excluding cash and current maturities of long-term debt) + Non-Cash Impairments—Capital Expenditures

For profit center participants (Davis and Dolloff), the same formula is used, except (i) EBITDA is adjusted for currency effects and (ii) change in working capital excludes balance sheet items not directly related to ongoing activities.

Individual Performance Goals. In addition to the financial metrics described above, the annual incentive includes IPGs (20% weighting) that are tailored to each executive’s responsibilities and aligned with the Company’s strategic goals. The Committee approved the 2017 IPGs covering the following areas of responsibility, with achievement based upon the performance scale detailed in the tables below:

 

  Name    Individual Performance Goals

Karl G. Glassman, CEO

   Strategic planning and succession planning

Matthew C. Flanigan, CFO

   Strategic planning, information technology projects, succession planning and efficiency initiatives

Perry E. Davis, EVP

   Growth initiatives and succession planning

J. Mitchell Dolloff, EVP

   Strategic planning, succession planning and efficiency initiatives

Scott S. Douglas, SVP

   Strategic planning, succession planning and cost initiatives

Targets and Payout Schedules. Upon selecting the metrics and IPGs, the Committee established performance achievement targets and payout schedules. In setting the payout schedules, the Committee evaluated various payout scenarios before selecting one that struck a balance between accountability to shareholders and motivation for participants. For corporate participants (Glassman, Flanigan and Douglas), the target for 100% payout on ROCE was increased from 46% in 2016 to 50% under the 2017 award formula, and the target for 100% payout on cash flow remained $450 million with the goal for a maximum payout increasing from $500 million to $525 million. The payout for each portion of the annual incentive is capped at 150%. The NEOs’ annual incentive ultimately depends upon how well they perform against the targets.

 

22 LEGGETT & PLATT, INCORPORATED – 2018 Proxy Statement


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2017 Corporate Payout Schedule

 

ROCE(1)            Cash Flow(1)
(millions)
          

Individual Performance Goals

(1—5 scale)

 
Achievement    Payout            Achievement    Payout            Achievement    Payout  

<43% 

     0%        <$375      0      1—Did not achieve goal      0%      

43%

     50%        375      50      2—Partially achieved goal      50%      

   46.5%

     75%           412.5      75      3—Substantially achieved goal      75%      

50%

     100%        450      100      4—Fully achieved goal      100%      

   53.5%

     125%           487.5      125      5—Significantly exceeded goal      up to 150%      

57%

     150%        525      150        

2017 Profit Center Payout Schedule

 

ROCE and Free Cash Flow

(Relative to Target)

         Individual Performance Goals
(1—5 scale)
 
Achievement(2)   Payout          Achievement    Payout  

<80%

  0%      1—Did not achieve goal      0%      

 80%

  60%      2—Partially achieved goal      50%      

 90%

  80%      3—Substantially achieved goal      75%      

  100%

  100%      4—Fully achieved goal      100%      

  110%

  120%      5—Significantly exceeded goal      up to 150%      

  120%

  140%        

  125%

  150%        

 

  (1) The 2017 results for corporate participants (Glassman, Flanigan and Douglas) were 45.2% ROCE (resulting in a 65.6% payout) and $391.8 million of cash flow (resulting in a 61.2% payout).

 

  (2) As a profit center participant, Mr. Davis’ target for a 100% payout was 34.2% ROCE (39.3% actual) and $143.6 million free cash flow ($178.0 million actual) for the Residential Products Segment and 37.2% ROCE (23.4% actual) and $46.0 million free cash flow ($12.7 million actual) for the Industrial Products Segment. His annual incentive opportunity was apportioned between Residential Products (79.8%) and Industrial Products (20.2%) based on their relative 2016 EBITDA.

Mr. Dolloff’s target for a 100% payout was 52.5% ROCE (66.2% actual) and $98.8 million free cash flow ($151.0 million actual) for the Specialized Products Segment and 43.3% ROCE (34.7% actual) and $55.7 million free cash flow ($46.3 million actual) for the Furniture Products Segment. His annual incentive opportunity was apportioned between Specialized Products (56.1%) and Furniture Products (43.9%) based on their relative 2016 EBITDA.

 

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The following table provides the details of the 2017 annual incentive payouts for our NEOs:

 

 

  Name

 

 

 

Target Incentive Amount

 

         

 

Weighted Payout Percentage

 

       

 

Annual Incentive Payout

 

 

Karl G. Glassman, CEO

    $1,395,313       x     76.6%     =       $1,068,809  
    Salary       x       Target %       Metric     Payout %       x     Weight    
    $1,175,000         118.75%       ROCE     65.6%       60%    
          Cash Flow     61.2%       20%    
                                    IPGs     125%             20%                

Matthew C. Flanigan, CFO

    $440,000       x     76.1%     =       $334,840  
    Salary       x       Target %       Metric     Payout %       x     Weight    
    $550,000         80%       ROCE     65.6%       60%    
          Cash Flow     61.2%       20%    
                                    IPGs     122.5%             20%                

Perry E. Davis, EVP

    $375,000       x     108.6%     =       $407,250  
    Salary       x       Target %       Metric     Payout %       x     Weight    
    $500,000         75%       ROCE     103.7%       60%    
          FCF     118.1%       20%    
          IPGs     110%       20%    
                                    1% Compliance Adjustment                

J. Mitchell Dolloff, EVP

    $375,000       x     116.7%     =       $437,625  
    Salary       x       Target %       Metric     Payout %       x     Weight    
    $500,000         75%       ROCE     110.5%       60%    
          FCF     113.1%       20%    
          IPGs     135%       20%    
                                    1% Compliance Adjustment                

Scott S. Douglas, SVP

    $165,000       x     73.6%     =       $121,440  
    Salary       x       Target %       Metric     Payout %       x     Weight    
    $330,000         50%       ROCE     65.6%       60%    
          FCF     61.2%       20%    
                                    IPGs     110%             20%                

Equity-Based Awards

In 2017, we granted performance stock units and Profitable Growth Incentive awards to our NEOs and other senior managers. The PSU and PGI awards tie our executive officers’ pay to the Company’s performance and shareholder returns. The payouts from these equity-based awards reflect our philosophy that executive compensation should provide greater rewards for superior performance, as well as accountability for underperformance.

Performance Stock Units. Leggett’s long-term strategic plan emphasizes the Company’s TSR performance versus peer companies. The Committee grants PSUs to a small group of senior managers, including the NEOs, to drive and reward those results. The PSU grants are set by multiplying the executive’s base salary by the PSU award percentage (see the table on page 21.

The 2017 PSUs have a three-year performance period, with the payout based on Leggett’s three-year TSR relative to the TSR of all the companies in the industrial, materials and consumer discretionary sectors of the S&P 500 and S&P Midcap 400 (about 320 companies). Although Leggett is a member of the S&P 500, our market capitalization is significantly below that group’s median, so the Committee included the S&P Midcap 400 in the group as well. In addition, nearly all of our business units fall into these industry sectors. At the end of the three-year performance period, if the threshold performance level is met, a percentage of each officer’s PSU base award is payable depending on Leggett’s TSR rank within the group.

 

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PSU Payout Schedule

(based on Peer Group TSR)

 

  Performance Level    Percentile
Rank
   Payout %

Threshold

   25th      25%

Target

   50th      75%

Maximum

   >75th    175%

The PSU awards granted in January 2015 vested on December 31, 2017. Leggett’s TSR for that three-year period was in the 43rd percentile of the peer group, resulting in a payout of 61% of the base award. Our TSR ranks in the 28th percentile for the 2016 PSU awards with one year remaining in the performance period, and our TSR for the 2017 PSU awards ranks in the 22nd percentile with two years remaining.

The PSUs are typically paid out 35% in cash and 65% in Company stock; however, as permitted by the PSU terms and conditions, the Compensation Committee directed the Company to settle 100% of the 2015-2017 PSUs in cash in order to realize certain tax benefits in 2017 in connection with the passage of tax reform legislation.

Profitable Growth Incentive. Leggett’s strategic plan also focuses on long-term revenue growth, while improving profit margins. The Committee established the Profitable Growth Incentive in 2013 as a performance-based equity program to provide additional incentive to our senior management, including the NEOs, to drive and reward those results. PGI awards are set by multiplying the executive’s base salary by the PGI award percentage (see table on page 21).

The PGI awards are issued as stock units that vest at the end of a two-year performance period with payouts based on a matrix of revenue growth and EBITDA margin. The threshold achievement for revenue growth is the projected GDP growth of our primary geographic markets, and the EBITDA margin scale is based upon the Company’s prior three-year average. When these metrics are taken in combination, the PGI payout scale rewards growth at or above GDP while maintaining or improving historical margins.

For the PGI awards granted in 2017, the payout schedule for our corporate participants (Glassman, Flanigan and Douglas) is:

 

 

EBITDA

Margin(1)

 

  

Payout Percentage

 

 
20.8%      250%                       
19.8%      213%        250%                    
18.8%      175%        213%        250%                 
17.8%      138%        175%        213%        250%              
16.8%      100%        138%        175%        213%        250%           
15.8%      75%        100%        138%        175%        213%        250%        
14.8%      50%        75%        100%        138%        175%        213%        250%     
13.8%      25%        50%        75%        100%        138%        175%        213%        250%    
       2.7%        3.7%        4.7%        5.7%        6.7%        7.7%        8.7%        9.7%    
     

 

Revenue Growth(2)

 

 

 

(1)  EBITDA margin equals the cumulative Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) during the performance period divided by the total revenue during the performance period.

 

(2)  Revenue growth is the compound annual growth rate of the Company’s (or applicable profit centers’) revenue during the performance period compared to the revenue of the immediately preceding year. The Revenue Growth rate is subject to adjustment by the difference (positive or negative) between the forecast GDP growth (set prior to the PGI awards) and the actual GDP growth (determined at the end of the performance period), but such adjustment will be made only if the difference is greater than ±1.0%. The forecast GDP growth for the 2017-2018 performance period is 2.7%, representing the weighted average GDP growth in the primary geographies where the Company does business, using data from the International Monetary Fund’s January 2017 World Economic Outlook Update.

 

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Each of the profit center participants has his own payout matrix based upon the operations for which he is responsible:

 

    Mr. Davis’ payout matrix is structured in the same manner as shown above, but is based on an EBITDA margin range of 17.3% to 24.3% and a revenue growth range of 2.4% to 9.4% for the Residential Products Segment and an EBITDA margin range of 14.3% to 21.3% and a revenue growth range of 2.5% to 9.5% for the Industrial Products Segment. His 2017 PGI award was apportioned between Residential Products (79.8%) and Industrial Products (20.2%) based on their relative 2016 EBITDA.

 

    Mr. Dolloff’s payout matrix is based on an EBITDA margin range of 22.6% to 29.6% and a revenue growth range of 3.2% to 10.2% for the Specialized Products Segment and an EBITDA margin range of 15.3% to 22.3% and a revenue growth range of 2.9% to 9.9% for the Furniture Products Segment. His 2017 PGI award was apportioned between Specialized Products (56.1%) and Industrial Products (43.9%) based on their relative 2016 EBITDA.

The calculation of revenue growth and EBITDA margin include results from businesses acquired during the performance period. Revenue Growth and EBITDA margin exclude results for any businesses divested during the performance period, and the divested businesses’ revenue is deducted from base revenue used to calculate the growth rate. EBITDA results are adjusted to eliminate gain, loss or expense (i) from non-cash impairments; (ii) related to loss contingencies identified in the Company’s 2016 10-K; (iii) that are unusual in nature or infrequent in occurrence; (iv) related to the disposal of a segment of a business; or (v) related to a change in accounting principle.

The PGI awards granted in 2016 vested on December 31, 2017. Corporate participants, including Mr. Glassman, Mr. Flanigan, and Mr. Douglas, did not receive a payout for the 2016-2017 PGI awards, as the Company’s revenue growth over those two years did not reach the threshold 2.8% compound annual growth rate. Mr. Davis did not receive a 2016-2017 PGI payout, as the profit centers for which he is responsible also did not reach the revenue growth threshold. Mr. Dolloff received a 250% PGI payout for his profit centers’ performance.

The PGI is typically paid out 50% in cash and 50% in Company stock; however, as permitted by the PGI terms and conditions, the Compensation Committee directed the Company to settle 100% of the 2016-2017 PGI in cash in order to realize certain tax benefits in 2017 in connection with the passage of tax reform legislation.

As discussed on page 30, the PSU awards were redesigned for 2018, and the PGI awards were discontinued for 2018.

Other Compensation Programs

The NEOs have voluntarily deferred substantial portions of their cash compensation into Leggett equity through the Executive Stock Unit Program and the Deferred Compensation Program for many years, building an additional long-term stake in the Company. The Company also provides a 401(k) and non-qualified excess plan in which some of our executives choose to participate.

Executive Stock Unit Program. All our NEOs have significant holdings in the ESU Program, our primary executive retirement plan. These accounts are held until the executives terminate employment.

The ESU Program is a non-qualified retirement program that allows executives to make pre-tax deferrals of up to 10% of their compensation into diversified investments. We match 50% of the executive’s contribution in Company stock units, purchased at a 15% discount, which may increase up to a 100% match if the Company meets annual ROCE targets linked to the Incentive Plan. The Company makes an additional 17.6% contribution to the diversified investments acquired with executive contributions. Matching contributions vest once employees have participated in the ESU Program for five years. Leggett stock units held in the ESU Program accrue dividends, which are used to acquire additional stock units at a 15% discount. At distribution, the balance of the diversified investments is paid in cash. Although the Company intends to settle the stock units in shares of the Company’s common stock, it reserves the right to distribute the balance in cash.

 

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Deferred Compensation Program. The Deferred Compensation Program allows key managers to defer up to 100% of salary, incentive awards and other cash compensation in exchange for any combination of the following:

 

    Stock units with dividend equivalents, acquired at a 20% discount to the fair market value of our common stock on the dates the compensation or dividends otherwise would have been paid.

 

    At-market stock options with the underlying shares of common stock having an initial market value five times the amount of compensation forgone, with an exercise price equal to the closing market price of our common stock on the last business day of the prior year.

 

    Cash deferrals with an interest rate intended to be slightly higher than otherwise available for comparable investments.

Participants who elect a cash or stock unit deferral can receive distributions in a lump sum or in annual installments. Distribution payouts must begin no more than 10 years from the effective date of the deferral and all amounts subject to the deferral must be distributed within 10 years of the first distribution payout. Although the Company intends to settle the stock units in shares of the Company’s common stock, it reserves the right to distribute the balance in cash. Participants who elect at-market stock options, which have a 10-year term, may exercise them approximately 15 months after the start of the year in which the deferral was made.

Retirement K and Excess Plan. The Company’s defined benefit Retirement Plan was frozen in 2006 (see description on page 40). Employees who had previously participated in the Retirement Plan were offered a replacement benefit: a tax-qualified defined contribution Section 401(k) Plan (the “Retirement K”). The Retirement K includes an age-weighted Company matching contribution designed to replicate the benefits lost by the Retirement Plan freeze.

Many of our officers cannot fully participate in the Retirement K due to limitations imposed by the Internal Revenue Code or the Employee Retirement Income Security Act, or as a result of their participation in the Deferred Compensation Program. Consequently, we maintain a non-qualified Retirement K Excess Plan which permits affected executives to receive the full matching benefit they would otherwise have been entitled to under the Retirement K. Amounts earned in the Retirement K Excess Plan are paid out in cash no later than March 15 of the following year and are eligible for the Deferred Compensation Program.

Perquisites and Personal Benefits

The Committee believes perquisites should not be a significant part of our executive compensation program. In 2017, perquisites were less than 1% of each NEO’s total compensation and consisted of use of a Company car and executive physicals.

The Committee approved a new policy in 2017 to allow limited personal use of corporate aircraft by our CEO. Following the Committee’s comprehensive review of Mr. Glassman’s compensation package and given the location of the Company’s headquarters away from any major metropolitan area, the Committee extended this perquisite to facilitate the CEO’s schedule and to enable him to travel more efficiently to attend to Company business. Mr. Glassman’s use of corporate aircraft for personal travel by him and his guests, subject to the aircraft not being scheduled for business purposes, is subject to an annual limit of $100,000 in aggregate incremental cost to the Company, including the cost of “deadhead” flights necessitated by such personal use. The Company will not provide tax reimbursements to Mr. Glassman for any taxes arising from imputed income relating to his use of the corporate aircraft for personal travel by him or his guests.

We believe these benefits are appropriate when viewed in the overall context of our executive compensation program.

 

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How Compensation Decisions Are Made

 

The Committee uses its informed judgment to determine the appropriate type and mix of compensation elements; to select performance measures, target levels and payout schedules for incentive compensation; and to determine the level of salary and incentive awards for each executive officer. The Committee may delegate its duties and responsibilities to one or more Committee members or Company officers, as it deems appropriate, but may not delegate authority to non-members for any action involving executive officers. The full Board must review and approve certain actions, including employment and severance benefit agreements and amendments to stock plans.

The Committee has the authority to engage its own external compensation consultant as needed and has engaged Meridian Compensation Partners, LLC as its independent consultant since 2012. The Company conducts an annual conflict of interest assessment, which the Committee reviews in order to verify, in the Committee’s judgment, Meridian’s independence and that no conflicts of interest exist. Meridian does not provide any other services to the Company and works with the Company’s management only on matters for which the Compensation Committee is responsible.

In 2017, the Committee engaged Meridian to perform a competitive review of the Company’s executive pay programs in comparison to market levels. Meridian also advised on selecting a peer group of companies for executive compensation benchmarking, provided comparative data for the annual executive compensation review described below, and assisted with other compensation matters as requested. Representatives from Meridian also attend Committee meetings on request.

The Company’s Legal and Human Resources Departments also provide compensation data, research and analysis that the Committee may request, and personnel from those departments, along with Mr. Glassman and Mr. Flanigan, regularly attend Committee meetings. However, the Committee regularly meets in executive session without management present to discuss CEO performance and compensation, as well as any other matters deemed appropriate by the Committee.

The CEO recommends to the Committee compensation levels for the other executive officers, including salary increases, annual incentive targets and equity award values, based on his assessment of each executive’s performance and level of responsibility. The Committee evaluates those recommendations and accepts or makes adjustments as it deems appropriate.

 

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The Annual Review and Use of Compensation Data

 

The Committee conducts an annual review of executive compensation. Historically, the annual review was held in March to set the executive officers’ compensation for that year; however, in 2017, the Committee transitioned to holding the annual review in November to set the executive officers’ compensation for the following year. As a result, the Committee conducted a review in March 2017 with respect to the executive officers’ 2017 compensation and another review in November 2017 with respect to their 2018 compensation. Unless noted otherwise, the description of the annual review below applies to both the March and November reviews conducted during this transition year.

During the annual review, the Committee evaluates the four primary elements of the annual compensation package for executive officers: base salary, annual incentive, performance stock units and the Profitable Growth Incentive. As discussed above, increases to base salary affect all of the other elements of the compensation package, because the variable compensation elements (annual incentive, PSUs and PGI) are each set as a percentage of base salary. The Committee also reviews the secondary compensation elements, such as voluntary equity plans and retirement plans, as well as potential payments upon termination or change in control. Decisions about secondary and post-termination compensation elements are made at various times throughout the year as the plans or agreements giving rise to the compensation are reviewed.

In connection with the annual review, the Committee evaluates the following data presented by the Company and Meridian to consider each executive’s compensation package in the context of past decisions, internal pay relationships and the external market:

 

    Compensation data available from proxy filings of the executive compensation peer group, and two general industry surveys published by national consulting firms (described more fully below).

 

    Current annual compensation for each executive officer.

 

    The potential value of each executive officer’s compensation package under three Company performance scenarios (threshold, target and outstanding performance).

 

    Comparison of CEO target and realizable pay for the prior five years.

 

    The cash-to-equity ratio and fixed-to-variable pay ratio of each executive officer’s compensation package.

 

    Compliance with our stock ownership requirements.

 

    A summary of each executive’s accumulated wealth from outstanding equity awards, including a sensitivity analysis of the impact of changes in our stock price.

Among the factors the Committee considers when making compensation decisions is the compensation of our NEOs relative to the compensation paid to similarly-situated executives in our markets. We believe, however, that a benchmark should be just that—a point of reference for measurement, not the determinative factor for our executives’ compensation. Because the comparative compensation information is just one of several analytic tools that are used in setting executive compensation, the Committee has discretion in determining the nature and extent of its use.

Benchmarking Against Peer Companies. In 2017, the Committee again used a peer group to provide additional insight into company-specific pay levels and practices. The Committee evaluates market data provided by compensation surveys, and views the use of a peer group as an additional reference point when reviewing the competitiveness of NEO pay levels.

In developing the peer group, the Committee directed Meridian to focus on companies in comparable industries with a similar size and scope of business operations as Leggett. The Committee periodically reviews the composition of the peer group to ensure these companies remain relevant for comparative purposes.

In 2017, the Committee approved the following peer group of 18 U.S. based, publicly-traded manufacturing companies, with Leggett near the group’s median revenue and market cap:

 

Allegion PLC    HNI Corporation
American Axle & Manufacturing Holdings, Inc.    Lennox International Inc.
A. O. Smith Corporation    Masco Corporation
Autoliv, Inc.    Mohawk Industries, Inc.
Carlisle Companies, Incorporated    Owens Corning
Dana Incorporated    PENTAIR plc
Fortune Home Brands & Security, Inc.    Tempur Sealy International, Inc.
Harman International Industries, Incorporated(1)    Tenneco Inc.
Herman Miller, Inc.    USG Corporation

 

(1) Prior to the November 2017 review, Harman International was removed from the peer group, as it had been acquired by another company.

 

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Compensation Survey Data. The Committee used broad-based compensation surveys published by Towers Watson (U.S. Compensation Data Bank—General Industry) and Aon Hewitt (TCM Total Compensation by Industry—Executive, United States) to develop a balanced picture of the compensation market.

We sought the largest sample size possible from each survey, as we believe the validity of data increases with sample size. The Committee reviewed data from large companies across all industries (median revenue of $4.0 billion) from the Towers Watson survey and large manufacturing companies (median revenue of $3.6 billion) from the Aon Hewitt survey. The Committee used comparator groups that most closely match the NEOs’ job descriptions; however, the Committee is not made aware of the specific companies in the applicable survey groups.

The Committee used the peer group and compensation surveys to get a general sense of the competitive market. These sources generally showed our executive officers’ compensation was in line with median total compensation with an above-average percentage of at-risk, performance-based pay. Individual pay levels may vary relative to the market median for a number of reasons, including tenure, responsibilities, performance and the like.

Additional Considerations. Although the Committee views benchmarking data as a useful guide, it gives significant weight to (i) the mix of fixed to variable pay, (ii) the ratio of cash to equity-based compensation, (iii) internal pay equity, and (iv) individual responsibilities, experience and merit when establishing base salaries, annual incentive percentages and equity award percentages. While the Committee monitors these pay relationships, it does not target any specific pay ratios.

The Committee also considers the Company’s merit increase budget for all salaried U.S. employees in determining salary increases for executive officers. The 2017 merit increase budget of 3% was based on the Consumer Price Index, other national economic data and our own business climate.

Compensation Adjustments for 2017. In connection with the March 2017 review relating to the executive officers’ 2017 compensation, the Committee raised Mr. Glassman’s base salary by 6.8% and Mr. Flanigan’s by 5.2%. Mr. Glassman’s 2017 annual incentive target percentage was increased from 115% to 120% of base salary. In light of the 2016 changes to the Company’s management structure and their increased responsibilities, Mr. Davis and Mr. Dolloff each received a 17.7% increase in their 2017 base salary and their 2017 annual incentive target percentages were increased from 60% to 80% of base salary. Mr. Douglas’ base salary was increased by 10%.

Compensation Adjustments for 2018. In connection with the November 2017 review relating to the executive officers’ 2018 compensation, the Committee raised Mr. Glassman’s base salary by 4.3%, Mr. Flanigan’s by 4.0%, and Mr. Davis’ and Mr. Dolloff’s by 2.4% each. Mr. Douglas’s 2018 base salary was increased by 15.2% as a result of taking on additional responsibilities and benchmarking comparisons. Each of the NEO’s annual incentive target percentages remained unchanged for 2018.

The Committee also approved changes to the long-term incentive awards granted in 2018. Previously, the NEOs received a three-year Performance Stock Unit award based upon relative TSR (as described on page 24) and a two-year Profitable Growth Incentive award based upon EBITDA margin and revenue growth (as described on page 25). Each NEO had a separate PSU award percentage and a separate PGI award percentage.

 

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In order to better align the compensation package with the Company’s long-term strategy, the Committee approved the transition to a single, three-year PSU award with 50% of the award vesting based upon relative TSR and 50% vesting based upon EBIT CAGR (the primary operational driver for increasing our TSR) according to the following schedules:

 

 

Relative TSR(1)

Percentile

 

  

 

Relative TSR
Vesting %

 

      

 

EBIT CAGR(2)

%

 

  

 

EBIT CAGR

Vesting %

 

25%

   25%        

30%

   35%        

35%

   45%        

40%

   55%        

45%

   65%        

50%

   75%      2%    75%

55%

   100%      4%    100%

60%

   125%      6%    125%

65%

   150%      8%    150%

70%

   175%      10%    175%

75%

   200%      12%    200%

 

(1) Relative TSR is the Company’s Total Shareholder Return compared to a peer group consisting of all the companies in the Industrial, Consumer Discretionary and Materials sectors of the S&P 500 and S&P 400.

 

(2) EBIT CAGR is the Company’s (for Glassman, Flanigan and Douglas) or applicable Segments’ (for Davis and Dolloff) compound annual growth rate of Earnings Before Interest and Taxes (“EBIT”) in the third fiscal year of the performance period compared to the Company’s (or applicable Segments’) EBIT in the fiscal year immediately preceding the performance period. The calculation of EBIT CAGR will include results from businesses acquired during the performance period, and will exclude results for any businesses divested during the performance period. EBIT CAGR will also exclude (i) results from non-operating branches, (ii) certain currency and hedging-related gains and losses, (iii) gains and losses from asset disposals, (iv) items that are outside the scope of the Company’s core, on-going business activities, and (v) with respect to Segments, all amounts relating to corporate allocations. EBIT CAGR will be adjusted to eliminate gain, loss or expense, as determined in accordance with standards established under Generally Accepted Accounting Principles, (i) from non-cash impairments; (ii) related to loss contingencies identified in footnotes to the financial statements in the Company’s 10-K relating to the fiscal year immediately preceding the performance period; (iii) related to the disposal of a segment of a business; or (iv) related to a change in accounting principle.

For the transition from two long-term incentive awards to a single PSU award, the executive officers’ 2017 PSU and PGI award percentages were aggregated. The Committee reviewed the combined award percentages in the context of the benchmarking data and the other considerations described above and made the following adjustments to the NEOs: Mr. Glassman’s combined PSU award percentage was increased from 352% to 400% of base salary, Mr. Flanigan’s award percentage was increased from 245% to 250%, Mr. Davis’ and Mr. Dolloff’s award percentages were both increased from 194% to 250%, and Mr. Douglas’ award percentage was increased from 151% to 155%.

In connection with the decision to move a significant portion of the long-term incentive opportunity from a two-year to a three-year performance period by eliminating PGI awards in 2018, the Committee also granted each executive officer a one-time transition PSU award in 2018 based upon EBIT CAGR only over a two-year performance period. This transition PSU award was set at 50% of the executive officers’ 2018 PSU award percentages described above.

The base salary adjustments approved at the November 2017 review became effective January 7, 2018, and the 2018 PSU awards were granted on February 20, 2018. As a result, the changes described in this section are not reflected in the Summary Compensation Table at page 34 or the following tables concerning compensation for the year ending December 31, 2017.

 

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Equity Grant Practices

 

The Committee discussed the 2017 equity-based awards at length at its November 2016 meeting, and then approved the 2017 PSU grants during a telephone meeting on the first business day of the year. The PGI awards were approved at the Committee’s March 2017 meeting. The Committee does not approve grants of equity-based awards when aware of material inside information.

Performance of Past Equity-Based Awards. The Committee monitors the value of past equity-based awards to gain an overall assessment of how current compensation decisions fit with past practices and to determine the executive’s accumulated variable compensation. However, the Committee does not increase current-year equity-based awards, or any other aspect of the NEOs’ compensation, to adjust for below-expected performance of past equity-based awards.

Clawback Provisions. All equity-based awards are subject to a clawback provision included in our Flexible Stock Plan, which allows the Committee to recover any benefits received on the vesting, exercise or payment of any award if the employee violates any confidentiality, non-solicitation or non-compete obligations, or engages in activity adverse to the interests of the Company, including fraud or conduct contributing to any financial restatement. In addition, the award documents for our PSU and PGI programs include clawback provisions triggered if the Company is required to restate previously reported financial results.

Executive Stock Ownership Guidelines. The Committee believes executive officers should maintain a meaningful ownership stake in the Company to align their interests with those of our shareholders. We expect executive officers to attain the following levels of stock ownership within five years of appointment and to maintain those levels throughout their employment.

 

Position

 

  

Ownership
Requirement

 

CEO

   5X base salary

CFO

   3X base salary

All Other Executive Officers

   2X base salary

Shares of the Company’s stock owned outright, stock units and net shares acquirable upon the exercise of deferred compensation stock options count toward satisfying the ownership totals. A decline in the stock price can cause an executive officer who previously met the threshold to fall below it temporarily. An executive officer who has not met the ownership requirement or falls below it due to a stock price decline, may not sell Leggett shares and must hold any net shares acquired upon the exercise of stock options or vesting of stock units until he meets the ownership threshold. As of December 31, 2017, all of our NEOs were in compliance with their stock ownership requirements with holdings well in excess of these threshold levels.

 

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Change in Control Agreements

 

Our NEOs do not have employment agreements and are all considered at-will employees.

In May 2017, the Company entered into severance benefit agreements with Mr. Glassman, Mr. Flanigan, Mr. Davis and Mr. Dolloff. Mr. Douglas also has a severance benefit agreement which was last amended in 2008. These agreements are designed to protect both the executive officers’ and the Company’s interests in the event of a change in control of the Company. The material terms and conditions of these agreements and the Company’s potential financial obligations arising from these agreements are described on page 42.

The benefits provided under the severance benefit agreements do not impact the Committee’s decisions regarding other elements of the executive officers’ compensation. Because these agreements provide contingent compensation, not regular compensation, they are evaluated separately in view of their intended purpose.

Tax Considerations

 

For tax years prior to 2018, Section 162(m) of the Internal Revenue Code generally disallows an income tax deduction to public companies for compensation over $1 million paid to certain executive officers; however, qualifying performance-based compensation is not subject to the deduction limit if certain requirements are met. The Company takes reasonable and practical steps to minimize compensation that exceeds the $1 million cap, including the decision to pay the PSUs and PGI awards that vested in 2017 entirely in cash (as described on pages 25 and 26). In some circumstances the Committee may determine the best form of compensation for the intended purpose may be one that is not tax-deductible under Section 162(m), such as the inclusion of IPGs in the annual incentive program.

In 2017, the Company paid Mr. Glassman some non-deductible compensation which exceeded the $1 million threshold. Those amounts resulted from base salary, payouts of previously deferred compensation, and the IPG portion of the annual incentive.

On December 22, 2017, the U.S. federal government enacted tax reform legislation, which, among other things, eliminated the performance-based compensation exception under Section 162(m). As a result, the Company currently expects that, with respect to 2018 and beyond, any compensation amounts over $1 million paid to any NEO will no longer be deductible unless grandfathered under the exception for pre-existing contractual arrangements.

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed the Compensation Discussion & Analysis with management and, based on that review and discussion, the Committee has recommended to the Board of Directors that this Compensation Discussion & Analysis be included in this proxy statement.

Phoebe A. Wood (Chair)

Robert E. Brunner

R. Ted Enloe, III

Manuel A. Fernandez

Joseph W. McClanathan

Judy C. Odom

 

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Summary Compensation Table

 

The following table reports the total 2017 compensation of our Chief Executive Officer, Chief Financial Officer, and our three other most highly compensated executive officers as of December 31, 2017. Collectively, we refer to these five executives as the “Named Executive Officers” or “NEOs.”

 

  Name and Principal Position   Year     Salary(1)    

Stock

Awards(2)

   

Option

Awards(3)

   

Non-Equity

Incentive Plan

Compensation(1)

   

Change in

Pension Value;

Nonqualified

Deferred

Compensation

Earnings(4)

   

All Other

Compensation

(1)(5)

    Total  

Karl G. Glassman

    2017       $1,154,808       $4,217,693         $1,068,809             $79,137             $496,581             $7,017,028  

  President and Chief Executive

  Officer

    2016       1,095,000       3,565,927       $869,276       1,863,345             84,295             577,209             8,055,052  
    2015       833,077       2,421,092               1,049,328             50,383             519,150             4,873,030  

Matthew C. Flanigan

    2017       542,731       1,388,732         334,840             28,845             367,827             2,662,975  

  Executive VP—Chief Financial

  Officer

    2016       519,308       1,161,499         604,588             29,665             364,699             2,679,729  
    2015       503,077       1,294,712               567,840             17,908             343,283             2,726,820  

Perry E. Davis

    2017       479,808       891,059         407,250             20,346             133,114             1,931,577  

  Executive VP, President—

  Residential Products &

  Industrial Products

    2016       386,154       677,094         332,775             22,235             121,716             1,539,974  
    2015       365,846       736,177         312,576             7,406             115,594             1,537,599  
                                                               

J. Mitchell Dolloff(6)

    2017       479,808       891,059         437,625             17,098             200,874             2,026,464  

  Executive VP, President—

  Specialized Products &

  Furniture Products

    2016       344,846       613,773               329,368             14,952             154,560             1,457,499  

Scott S. Douglas (6)

    2017       321,923       489,753         121,440             16,591             111,575             1,061,282  

  Senior VP—General Counsel &

  Secretary

                                                               

 

(1) Amounts reported in these columns include cash compensation (base salary, non-equity incentive plan compensation and certain other cash items) that was deferred into the ESU Program (to acquire diversified investments) and/or the Deferred Compensation Program (to acquire, at the NEO’s election, an interest-bearing cash deferral or Leggett stock units), as follows:

 

                          Deferred Compensation Program  

Name

 

  

Year

 

    

Total Cash

Compensation

Deferred

 

    

ESU

($)

 

    

Cash
Deferral

($)

 

    

Stock
Options

(#)

 

    

Stock
Units

(#)

 

 

Karl G. Glassman

     2017        $1,019,455        $219,455           40,917        10,311  
     2016        1,092,909        292,909           47,596        10,621  
       2015        985,382        185,382                          21,862  

Matthew C. Flanigan

     2017        900,820                 24,724  
     2016        944,230        109,527           15,448        17,971  
       2015        770,110        104,271                          17,831  

Perry E. Davis

     2017        246,294        85,904        $160,390        
     2016        171,821        69,038        102,783        
       2015        114,067        65,021        49,046                    

J. Mitchell Dolloff

     2017        482,504        88,817              11,773  
       2016        360,863        64,546                          7,486  

Scott S. Douglas

     2017        200,314        41,430                          4,370  

 

     See the Grants of Plan-Based Awards Table on page 37 for further information on Leggett equity-based awards received in lieu of cash compensation in 2017.

 

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(2)  Amounts reported in this column reflect the grant date fair value of the PSU awards and Profitable Growth Incentive awards, as detailed in the table below. For a description of the assumptions used in calculating the grant date fair value, see Note K to Consolidated Financial Statements to our Annual Report on Form 10-K for the year ended December 31, 2017. The potential maximum fair value of the PSU awards and the PGI awards on the grant date are also included in the table below.

 

Name

 

  

Year

 

    

PSU

Awards:

Grant

Date

Fair Value

 

    

PSU Awards:

Potential

Maximum

Value at

Grant Date

 

    

PGI Awards:

Grant Date

Fair Value

 

    

PGI Awards:

Potential

Maximum

Value at

Grant Date

 

 

Karl G. Glassman

     2017        $3,346,963        $5,857,184        $870,730        $2,176,826  
     2016        2,648,552        4,634,966        917,375        2,293,438  
       2015        1,759,519        3,079,157        661,573        1,653,932  

Matthew C. Flanigan

     2017        1,012,463        1,771,809        376,269        940,673  
     2016        777,096        1,359,918        384,403        961,006  
       2015        930,951        1,629,164        363,761        909,402  

Perry E. Davis

     2017        611,538        1,070,191        279,521        698,803  
     2016        420,676        736,183        256,418        641,044  
       2015        497,141        869,996        239,036        597,591  

J. Mitchell Dolloff

     2017        611,538        1,070,191        279,521        698,803  
       2016        381,520        667,660        232,253        580,631  

Scott S. Douglas

     2017        332,413        581,722        157,340        393,350  

 

(3)  Amounts in this column represent the grant date fair value of the stock options calculated using the Black-Scholes option value model. For a description of the assumptions used in calculating the grant date fair value, see Note K to Consolidated Financial Statements to our Annual Report on Form 10-K for the year ended December 31, 2017.

 

(4) Amounts reported in this column for 2017 are set forth below.

 

Name

 

  

Change in

Pension

Value(a)

 

    

ESU
Program
(b)

 

    

Deferred

Stock

Units(c)

 

    

Cash
Deferrals
(d)

 

    

Total

 

 

Karl G. Glassman

   $ 11,904      $ 35,337      $ 31,896               $ 79,137  

Matthew C. Flanigan

     5,509        15,013        8,323                 28,845  

Perry E. Davis

     7,025        9,698               $ 3,623        20,346  

J. Mitchell Dolloff

              6,600        10,498                 17,098  

Scott S. Douglas

     9,100        6,064        1,427                 16,591  

 

  (a) Change in the present value of the NEO’s accumulated benefits under the defined benefit Retirement Plan, as described on page 40. The present value of Retirement Plan benefits was affected by the decrease in the Plan’s discount rate from 3.75% to 3.5% in 2017.

 

  (b) 15% discount on dividend equivalents for stock units held in the ESU Program, as described on page 26.

 

  (c) 20% discount on dividend equivalents for stock units held in the Deferred Compensation Program, as described on page 27.

 

  (d)  Above-market portion of the interest earned on cash deferrals under the Deferred Compensation Program, as described on page 27.

 

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(5)  Amounts reported in this column for 2017 are set forth below:

 

Name

 

  

ESU

Program(a)

 

    

Deferred

Stock

Units(b)

 

    

Retirement

K Matching

Contributions

(c)

 

    

Retirement
K Excess

Payments

(c)

 

    

Life and

Disability

Insurance

Benefits

 

    

Perks(d)

 

    

Total

 

 

Karl G. Glassman

     $292,281        $100,000        $9,720        $70,330        $5,055        $19,195        $496,581  

Matthew C. Flanigan

     96,524        225,205                 31,593        3,870        10,635        367,827  

Perry E. Davis

     97,272                 9,720        22,252        3,870                 133,114  

J. Mitchell Dolloff

     100,382        98,422                          2,070                 200,874  

Scott S. Douglas

     52,841        39,721        9,720        6,241        3,052                 111,575  

 

  (a)  This amount represents the Company’s matching contributions under the ESU Program, the additional 17.6% contribution for diversified investments acquired with employee contributions and the 15% discount on Leggett stock units acquired with Company matching contributions.

 

  (b)  This amount represents the 20% discount on stock units acquired with employee contributions to the Deferred Compensation Program.

 

  (c)  The Retirement K and Retirement K Excess Plan are described on page 27.

 

  (d) Only perquisites or other personal benefits with an aggregate value of $10,000 or more are included in the Summary Compensation Table. Perquisites for our executive officers in 2017 consisted of use of a Company car, limited personal use of corporate aircraft by the CEO, and executive physicals. For disclosure purposes, perquisites are valued at the Company’s incremental cost. Mr. Glassman’s use of corporate aircraft for personal travel by him and his guests, subject to the aircraft not being scheduled for business purposes, is subject to an annual limit of $100,000 in aggregate incremental cost to the Company, including the cost of “deadhead” flights necessitated by such personal use.

 

(6)  Mr. Dolloff became an NEO of the Company for the first time in 2016. Mr. Douglas became an NEO for the first time in 2017.

 

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Grants of Plan-Based Awards in 2017

 

The following table sets forth, for the year ended December 31, 2017, information concerning each grant of an award made to the NEOs in 2017 under the Company’s Flexible Stock Plan and the Key Officers Incentive Plan.

 

         

Award

Type

(1)

   

 

Estimated Future Payouts

Under Non-Equity Incentive
Plan Awards
(2)

   

 

Estimated Future Payouts

Under Equity Incentive
Plan Awards
(3)

   

All

Other

Stock

Awards:

Shares

of Stock

    All Other
Option
Awards:
Securities
Underlying
   

Exercise
or Base
Price of
Option

Awards
($/Sh)
(6)

   

Grant

Date Fair

Value of

Stock

and

Option

Awards

($)

 
  Name   Grant
Date
     

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

   

or Units

(#)(4)

    Options
(#)
(5)
     

Karl G. Glassman

    3/22/17       AI       $697,656       $1,395,313       $2,092,969                
    1/3/17       PSU             16,488         49,463       115,413             $3,346,963  
    3/22/17       PGI             4,365         17,460       43,650             870,730  
          DSU                   10,311           500,000  
      12/30/16       DSO                                                               40,917       $48.88       448,450  

Matthew C. Flanigan

    3/22/17       AI       220,000       440,000       660,000                
    1/3/17       PSU             4,988         14,963       34,913             1,012,463  
    3/22/17       PGI             1,886         7,545       18,863             376,269  
            DSU                                                       24,724                       1,126,025  

Perry E. Davis

    3/22/17       AI       225,000       375,000       562,500                
    1/3/17       PSU             3,013         9,038       21,088             611,538  
      3/22/17       PGI                               1,401         5,605       14,013                               279,521  

J. Mitchell Dolloff

    3/22/17       AI       225,000       375,000       562,500                
    1/3/17       PSU             3,013         9,038       21,088             611,538  
    3/22/17       PGI             1,401         5,605       14,013             279,521  
            DSU                                                       11,773                       492,109  

Scott S. Douglas

    3/22/17       AI       82,500       165,000       247,500                
    1/3/17       PSU             1,638         4,913       11,463             332,413  
    3/22/17       PGI             789         3,155       7,888             157,340  
            DSU                                                       4,370                       198,605  

 

(1) Award Type:
       AI—Annual Incentive
       PSU—Performance Stock Units
       PGI—Profitable Growth Incentive
       DSU—Deferred Stock Units
       DSO—Deferred Stock Options

 

(2) The performance metrics, payout schedules and other details of the NEOs’ annual incentive are described on page 22.

 

(3)  PSU awards vest at the end of a three-year performance period based on our TSR as measured relative to a peer group. The PSU awards are described on page 24. PGI awards vest at the end of a two-year performance period based on a combination of revenue growth and EBITDA margin. The PGI awards are described on page 25.

 

(4) DSU amounts (from the Deferred Compensation Program described on page 27) reported in this column represent stock units acquired in lieu of cash compensation. Stock units are purchased on a bi-weekly basis or as compensation otherwise is earned, so there is no grant date for these awards. DSUs are acquired at a 20% discount to the market price of our common stock on the acquisition date. We recognize a compensation expense for this discount, which is reported in the All Other Compensation column of the Summary Compensation Table on page 34.

 

(5)  Options issued under the Deferred Compensation Program are described on page 27.

 

(6)  The exercise price is the closing market price of the Company’s common stock on the grant date.

 

37 LEGGETT & PLATT, INCORPORATED – 2018 Proxy Statement


Table of Contents

Outstanding Equity Awards at 2017 Fiscal Year-End

 

The following table reports the outstanding stock options, performance stock units, Profitable Growth Incentive awards and restricted stock units held by each NEO as of December 31, 2017.

 

    Option Awards     Stock Awards  
          Securities Underlying
Unexercised Options
                Equity Incentive Plan Awards—
Unearned Shares, Units or

Other Unvested Rights
 

Name

 

Grant

Date(1)

    Exercisable
(#)
    Unexercisable
(#)
    Exercise
Price
($)
    Expiration
Date
    Performance
Period
(2)
    Number
of Units
(#)
(3)
    Market or
Payout Value
($)
(4)
 

Karl G. Glassman

    1/4/2010       105,300         $20.51       1/3/2020       PSU Awards      
    1/3/2011       101,675         23.14       1/2/2021       2016-2018       49,463       $2,360,869  
    1/3/2012       98,675         23.14       12/31/2021       2017-2019       16,488       786,972  
    12/31/2015     47,596         42.02       12/30/2025       PGI Awards      
    1/4/2016       26,816       53,633       41.02       1/3/2026       2017-2018       43,650       2,083,415  

Total

            380,062       53,633                               109,601       $5,231,256  

Matthew C. Flanigan

    1/3/2011       49,575         23.14       1/2/2021       PSU Awards      
    1/3/2012       47,975         23.14       12/31/2021       2016-2018       14,513       692,705  
    12/31/2015     15,448         42.02       12/30/2025       2017-2019       4,988       238,077  
              PGI Awards      
                    2017-2018       18,863       900,331  

Total

            112,998                                       38,364       1,831,113  

Perry E. Davis

    1/3/2012       30,825         23.14       12/31/2021       PSU Awards      
              2016-2018       7,856       374,967  
              2017-2019       3,013       143,810  
              PGI Awards      
                    2017-2018       14,013       668,840  

Total

            30,825                                       24,882       1,187,617  

J. Mitchell Dolloff

              PSU Awards      
              2016-2018       7,125       340,076  
              2017-2019       3,013       143,810  
              PGI Awards      
              2017-2018       14,013       668,840  

Total

                                                    24,151       1,152,726  

Scott S. Douglas

    1/3/2011       18,450         23.14       1/2/2021       PSU Awards      
    1/3/2012       19,175         23.14       12/31/2021       2016-2018       4,163       198,700  
              2017-2019       1,638       78,182  
              PGI Awards      
                    2017-2018       7,888       376,494  

Total

            37,625                                       13,689       653,376  

 

(1)  These option grants were issued subject to our standard vesting terms, become exercisable in one-third increments at 18 months, 30 months and 42 months following the grant date, and have a 10-year term.

 

     *Denotes an option grant under the Deferred Compensation Program—these options become exercisable on March 15, approximately 15 months following the grant date, and have a 10-year term.

 

(2)  PSU awards were granted on the first business day of the year and have a three-year performance period (awards with a 2017–2019 performance period were granted on January 4, 2017 and vest on December 31, 2019). PGI awards were granted in connection with our Compensation Committee’s regularly-scheduled February or March meeting and have a two-year performance period (awards with a 2017–2018 performance period were granted on March 22, 2017 and vest on December 31, 2018).

 

(3)  For the 2016–2018 PSU awards, these amounts reflect the target payout (75% of the base award) because Leggett’s TSR ranking as of December 31, 2017 was above the threshold level (performance in the 28th percentile of the peer group versus the 25th percentile threshold). For the 2017-2019 PSU awards, these amounts reflect the threshold payout (25% of the base award) because Leggett’s TSR ranking as of December was at the 22nd percentile. The PSUs are described at page 24.

 

     For the 2017–2018 PGI awards, these amounts reflect the maximum potential payout (175% of the base award) for all NEOs, as the combined revenue growth and EBITDA margin over the performance period for the Company or the applicable profit centers are projected, as of December 31, 2017, to result in a payout above the target. The PGI awards are described at page 25.

 

(4)  Values shown in this column were calculated by multiplying the number of units shown in the prior column by the per share value of $47.73, the closing market price of our common stock on December 31, 2017.

 

38 LEGGETT & PLATT, INCORPORATED – 2018 Proxy Statement


Table of Contents

Option Exercises and Stock Vested in 2017

 

The following table reports the number of stock options exercised and stock awards vested in 2017, and the value realized by the NEOs upon exercise or vesting of such awards. The stock award amounts represent the payout of the 2015 PSU awards and the 2016 PGI at the end of their respective performance periods on December 31, 2017.

 

     Option Awards      Stock Awards(1)  

Name

  

Shares

Acquired on

Exercise

(#)

    

Value

Realized on

Exercise

($)

    

Shares

Acquired on

Vesting

(#)

    

Value

Realized on

Vesting(2)

($)

 

Karl G. Glassman

                   25,422        $1,213,392  

Matthew C. Flanigan

     51,350        $1,492,745        13,451        642,016  

Perry E. Davis

                   7,183        342,845  

J. Mitchell Dolloff

     20,000        561,729        17,062        814,369  

Scott S. Douglas

     14,275        369,114        3,767        179,799  

 

(1)  Amounts reported in these columns consist of vested PSU and PGI awards, allocated as follows:

 

     PSU      PGI  

Name

  

Shares

Acquired on

Vesting

(#)

    

Value

Realized on
Vesting

($)

    

Shares

Acquired
on Vesting
(#)

    

Value
Realized on
Vesting

($)

 

Karl G. Glassman

     25,422        $1,213,392                

Matthew C. Flanigan

     13,451        642,016