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LOGO


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LOGO   

A MESSAGE FROM OUR

 

CHAIRMAN AND CEO

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 homes, automobiles, 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.

Our Annual Meeting of Shareholders will be held on Friday, May  15, 2020 , at our headquarters at the Cornell Campus in Carthage, Missouri, to address the agenda described in this Notice of Annual Meeting of Shareholders and Proxy Statement.

Your vote is very important — 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

 

 

LOGO

 

Karl Glassman

Chairman and CEO

 



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LOGO

NOTICE OF 2020 ANNUAL MEETING OF SHAREHOLDERS

Friday, May 15, 2020 | 10:00 a.m. Central Time

 

Wright 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 Wright Conference Center, 1 Leggett Road, Carthage, Missouri 64836, on Friday, May 15, 2020, at 10:00 a.m. Central Time:

 

  1.

To elect eleven directors;

 

  2.

To ratify the selection of PricewaterhouseCoopers LLP as the Company's independent registered public accounting firm for the year ending December 31, 2020;

 

  3.

To approve the amendment and restatement of the Company's Flexible Stock Plan;

 

  4.

To provide an advisory vote to approve named executive officer compensation; and

 

  5.

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, 2020.

An Annual Report to Shareholders outlining the Company's operations during 2019 accompanies this Notice of Annual Meeting and Proxy Statement.

By Order of the Board of Directors,

 

 

LOGO

Scott S. Douglas

Secretary

Carthage, Missouri

March 31, 2020

 

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting to Be Held on May 15, 2020

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/2020

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

www.proxypush.com/leg

 



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TABLE OF CONTENTS

 

PROXY STATEMENT SUMMARY      1  
CORPORATE GOVERNANCE AND BOARD MATTERS   

Director Independence

     5  

Board Leadership Structure

     5  

Communication with the Board

     6  

Board and Committee Composition and Meetings

     6  

Board and Committee Evaluations

     7  

Board's Oversight of Risk Management

     7  

Consideration of Director Nominees and Diversity

     7  

Transactions with Related Persons

     9  

Director Compensation

     10  
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING   

PROPOSAL 1—Election of Directors

     12  

PROPOSAL 2—Ratification of Independent Registered Public Accounting Firm

     18  

Audit and Non-Audit Fees

     18  

Pre-Approval Procedures for Audit and Non-Audit Services

     19  

Audit Committee Report

     19  

PROPOSAL 3—Approval of the Amendment and Restatement of the Flexible Stock Plan

     20  

PROPOSAL 4—Advisory Vote to Approve Named Executive Officer Compensation

     27  
EXECUTIVE COMPENSATION AND RELATED MATTERS   

Compensation Discussion & Analysis

     28  

Compensation Committee Report

     41  

Summary Compensation Table

     42  

Grants of Plan-Based Awards in 2019

     45  

Outstanding Equity Awards at 2019 Fiscal Year End

     46  

Option Exercises and Stock Vested in 2019

     47  

Pension Benefits in 2019

     48  

Non-Qualified Deferred Compensation in 2019

     49  

Potential Payments Upon Termination or Change in Control

     49  

CEO Pay Ratio

     52  
SECURITY OWNERSHIP   

Security Ownership of Directors and Executive Officers

     53  

Security Ownership of Certain Beneficial Owners

     54  

Delinquent Section 16(a) Reports

     54  
EQUITY COMPENSATION PLAN INFORMATION      55  
QUESTIONS AND ANSWERS ABOUT PROXY MATERIALS AND ANNUAL MEETING      56  
APPENDIX: FLEXIBLE STOCK PLAN      A-1  

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PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this proxy statement. It does not contain all the information that you should consider—please read the entire proxy statement before voting. These materials were first sent to our shareholders on March 31, 2020.

2020 Annual Meeting of Shareholders

 

 

Friday, May 15, 2020

10:00 a.m. Central Time

 

Wright Conference Center

1 Leggett Road

Carthage, Missouri

 

Record Date: March 6, 2020

 

 

            

 

 

Proposal

  Recommendation       Page    
 

1  -  Election of Eleven Directors

  FOR   12
 

2  -  Ratification of PWC as Independent Registered Public Accounting Firm

  FOR   18
 

3  -  Approval of the Flexible Stock Plan

  FOR   20
 

4  -  Advisory Vote to Approve Named
Executive Officer Compensation

  FOR   27
             

Business Highlights

 

In 2019, sales increased 11% to $4.75 billion. Our acquisition of Elite Comfort Solutions (ECS) in January 2019 added 13% to sales with other small acquisitions adding 1%. Full year organic sales growth, which excludes sales from acquisitions and divestitures in the last 12 months, in most of our businesses, including U.S. Spring, Automotive, Work Furniture, and Aerospace, was more than offset by the planned exit of business in Fashion Bed and Home Furniture (which reduced sales 3%) and weak trade demand for steel rod and wire.

The company generated a record $668 million of cash flow from operations in 2019, a $228 million increase over 2018. This improvement was driven by a significant reduction in working capital across the company and strong operating cash generation in many of our businesses, including ECS.

We posted full year EPS of $2.47 in 2019, an increase of $.21 versus 2018. Our 2019 EPS included a full year $.10 charge from restructuring-related costs as well as

transaction costs related to the ECS acquisition. For detailed results, see the Company's Annual Report on Form 10-K filed February 20, 2020.

We raised our dividend for the 48th consecutive year, reaching an indicated annual dividend of $1.60 per share with a 3.1% yield based on our year-end closing share price of $50.83.

Our primary financial goal is to achieve Total Shareholder Return (TSR) that ranks in the top third of the S&P 500 over rolling 3-year periods, which we believe will require average TSR of 11-14% per year over the long term. Our annual TSR for 2017 and 2018 was below the targeted range, but we significantly exceeded it for 2019. Over those same years, the TSR of the S&P 500 was well above historical averages. As a result, our recent three-year performance did not meet our top-third goal. We believe our disciplined growth strategy, portfolio management, and use of capital will support achievement of our goal over time.

 

 

2020 Proxy Statement | Leggett & Platt      1 


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Board Nominees

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 2020 director nominees are:

 

LOGO

 

 

Mark A. Blinn

Independent

         LOGO  

Robert E. Brunner

Independent

         LOGO  

Mary Campbell

Independent

         LOGO  

J. Mitchell Dolloff

President & COO

Retired President & CEO

Flowserve Corporation

 

   

Retired Executive VP

Illinois Tool Works

   

Chief Merchandising Officer

Qurate Retail Group

   

President & COO

Leggett & Platt, Incorporated

LOGO  

Manuel A. Fernandez

Independent

   

LOGO

 

 

Karl G. Glassman

Chairman & CEO

    LOGO  

Joseph W. McClanathan

Independent

    LOGO  

Judy C. Odom

Independent

Managing Director

SI Ventures

   

Chairman & CEO

Leggett & Platt, Incorporated

   

Retired President & CEO —

Household Products Division

Energizer Holdings, Inc.

 

   

Retired Chair & CEO

Software Spectrum

LOGO

 

 

Srikanth Padmanabhan

Independent

         LOGO  

Jai Shah

Independent

         LOGO  

Phoebe A. Wood

Independent

          

Vice President and President -

Engine Business Segment

Cummins, Inc.

 

   

Group President

Masco Corporation

   

Retired Vice Chair & CFO

Brown-Forman Corp.

   

 

   

Mark

Blinn

 

Robert

Brunner

 

Mary

Campbell

 

Mitchell

Dolloff

 

Manuel

Fernandez

 

Karl

Glassman

 

Joseph

McClanathan

 

Judy

Odom

 

Srikanth

Padmanabhan

 

Jai

Shah

 

Phoebe

Wood

Independent Director

  LOGO   LOGO   LOGO       LOGO       LOGO   LOGO   LOGO   LOGO   LOGO

L&P Director since

  2019   2009   2019   2020   2014   2002   2005   2002   2018   2019   2005

Age

  58   62   52   54   73   61   67   67   55   53   66

L&P Board Committees

                     

      Audit

  LOGO     LOGO         LOGO   Chair   LOGO     LOGO

      Compensation

    Chair       LOGO           LOGO  

      N&CG

      LOGO           LOGO       Chair   LOGO           LOGO

Other Public Company Boards

  3   2   0   0   2   0   1   1   0   0   3

EXPERIENCE AND QUALIFICATIONS

                                       

Financial/Accounting

  LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO

Global Business

  LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO

R&D/Innovation/Tech

  LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO       LOGO   LOGO   LOGO

Manufacturing/Operations

  LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO       LOGO   LOGO    

Corporate Governance

  LOGO   LOGO           LOGO   LOGO   LOGO   LOGO           LOGO

Strategic Planning

  LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO

HR/Compensation

  LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO   LOGO       LOGO   LOGO

Risk Management

  LOGO                           LOGO   LOGO   LOGO   LOGO

IT/Cybersecurity

          LOGO       LOGO           LOGO   LOGO       LOGO

L&P Industry Experience

      LOGO   LOGO   LOGO       LOGO           LOGO        

Diversity - Our Nominating & Corporate Governance 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. The matrix above reflects some aspects of the Board's diversity. In addition, six of our nine independent director nominees (67%) are women or racial/ethnic minorities.

 

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Executive Compensation

L&P seeks to align our executives' and shareholders' interests through pay-for-performance. In 2019, 86% of our CEO's target compensation was performance-based and 69% 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' 2019 Compensation Program

 

     Performance Metrics    Role within Compensation Program    How Designed and Determined   

% of 2019

CEO Pay

at Target

Base Salary

   N/A    This is 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.    14%

Annual Incentive

   Return on Capital Employed (ROCE), Cash Flow, and Individual Performance Goals    The short-term cash incentive 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.    17%

Performance Stock Units

   Relative Total Shareholder Return (TSR) and growth of Earnings Before Interest and Taxes (EBIT CAGR)    Three-year relative TSR performance holds management accountable for creating and sustaining value for shareholders. Sustained EBIT growth is key to achieving our long-term TSR goals.    Relative TSR is measured against the industrial, materials and consumer discretionary sectors of the S&P 500 and S&P Midcap 400. The three-year EBIT CAGR targets are aligned with our long-term TSR goals. Payouts range from 0% to 200%.    69%

Recent Changes to Long-Term Incentive Structure

From 2013 to 2017, our long-term incentive (LTI) awards consisted of (i) the two-year Profitable Growth Incentive (PGI) with vesting based upon a combination of revenue growth and EBITDA margin and (ii) the three-year Performance Stock Units (PSU) with vesting based upon relative TSR. In 2018, we made the following changes to our LTI awards to better align our performance-based programs with the Company's long-term strategy:

 

   

The PGI program was eliminated with that portion of the participants' LTI reallocated to the PSU awards with a three-year performance period (the PGI was a two-year award).

 

   

The metrics for the PSU awards were modified with 50% continuing to vest based upon relative TSR and 50% now based upon EBIT CAGR, key to achieving our long-term TSR goals.

Following the 2018 changes, we gathered feedback from participants on the updated LTI programs and benchmarked our programs against the broader market. At the end of this process, the Compensation Committee determined that the 2020 LTI awards for our executive officers would be reallocated as follows:

 

   

Two-thirds of the target award value will be granted as PSUs based on relative TSR and EBIT CAGR over a three-year performance period.

 

   

One-third of the target award value will be granted as restricted stock units (RSUs) vesting in one-third increments over three years.

We believe the 2020 changes will move our LTI practices closer to market, make us more competitive for talent, and continue to support our business objectives.

 

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Key Features of Our Executive Officer Compensation Program

 

            What We Do                                                                             What We Don't Do                                                   
                         
   

 

  

 

Pay for Performance - A significant majority of our named executive officers' (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 Hedging or Pledging - We do not permit our executive officers to engage in either hedging or pledging activities with respect to Leggett shares.    
      

Incentive Award 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 Single-Trigger Change in Control - Our CIC-related cash severance and equity awards (other than legacy stock options) have a double trigger.    
      

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, except for Mr. Tate's 24-month Separation Agreement (see page 40).    
      

Stock Ownership Requirements - All NEOs are subject to 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    

Flexible Stock Plan (page 20)

Our shareholders will be voting whether to authorize 10 million additional shares under the Company's Flexible Stock Plan. These shares are primarily used in our equity-based long-term incentive awards, as well as our stock-based retirement and deferred compensation programs.

In 2019, approximately 3,800 employees purchased Leggett stock through payroll contributions or deferrals of cash compensation. We feel the shares issued under the Flexible Stock Plan align our executives and employees with our shareholders by tying their financial future to the long-term performance of Leggett stock.

We expect the increase in shares will fund our equity-based programs for the next four years. All full-value awards (such as performance stock units and restricted stock) count as three shares against the number of authorized shares. Our burn rate from 2017 through 2019 has averaged 0.52% and reflects our responsible use of shares under the Plan.

 

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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 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. Information on our website does not constitute part of this proxy statement.

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 only criteria. 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 of our non-management directors 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, Mark Blinn, Joseph McClanathan, Judy Odom, Srikanth Padmanabhan, and Phoebe Wood meet the SEC's definition of an "audit committee financial expert." No member serves on the audit committee of more than three public companies.

All of our non-management directors satisfy the enhanced independence standards required by the NYSE listing standards and SEC rules for service on the Compensation Committee.

 

 

Board Leadership Structure

 

 

 

Our Corporate Governance Guidelines allow the roles of Chairman of the Board 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.

The Board elected CEO Karl Glassman as Chairman effective January 1, 2020, and appointed R. Ted Enloe, III as the independent Lead Director, believing this arrangement best serves the Board, the Company and our shareholders.

The Lead Director's responsibilities include:

 

  Serving as the liaison between the Chairman and the independent directors.

 

  Acting as the principal representative of the independent directors in communicating with shareholders.
  Setting the schedule and agenda for Board meetings, and overseeing delivery of materials to the directors, together with the Chairman.

 

  Calling special executive sessions of the independent directors upon notice to the full Board.

 

  Presiding over meetings of the non-management directors and over Board meetings in the Chairman's absence.

Our non-management directors regularly hold executive sessions without management present. At least one executive session per year is attended by only independent, non-management directors, and such an executive session was held at each quarterly Board meeting in 2019.

 

 

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   Corporate Governance and Board Matters

 

Communication with the Board

 

 

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

In 2019, we engaged with shareholders on a variety of issues, including board refreshment, with an independent director participating in those discussions, as appropriate.

Board and Committee Composition and Meetings

 

 

The Board held four meetings in 2019, 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 2019 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)

Mark A. Blinn

Mary Campbell

Joseph W. McClanathan

Srikanth Padmanabhan

Phoebe A. Wood

 

Meetings in 2019: 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

Robert E. Brunner (Chair)

R. Ted Enloe, III

Manuel A. Fernandez

Jai Shah

 

Meetings in 2019: 5

  

 

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 E. Brunner

R. Ted Enloe, III

Manuel A. Fernandez

Judy C. Odom

Phoebe A. Wood

 

Meetings in 2019: 5

  

 

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.

 

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   Corporate Governance and Board Matters

 

On February 19, 2020, the Board approved changes to the committee rosters provided above such that, effective April 15, 2020, (i) Joseph McClanathan will no longer be on the Audit Committee and will become a member of the Compensation Committee, (ii) Judy Odom will no longer be on the N&CG Committee, (iii) Jai Shah will become a member of the N&CG Committee, and (iv) Phoebe Wood will become the Audit Committee Chair and will no longer be on the N&CG Committee.

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.

Board's Oversight of Risk Management

 

 

 

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 14 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 report twice each year (or as circumstances require) for their respective risk areas. On a semi-annual basis, a risk summary report is assembled from these reports for review by the ERM Committee with a summary of each risk category provided to senior management and the Board concerning (i) the likelihood, significance, and impact velocity of each risk category, (ii) management's steps to monitor and control risks, and (iii) identified emerging risks. The Audit Committee annually reviews and discusses the guidelines and policies to govern the process by which risk assessment and management is undertaken, and reviews and discusses major financial risks on a semi-annual basis.

In addition, a designated Board member receives a copy of all reports lodged through the Company's ethics hotline.

The Company has formal processes in place for both incident response and cybersecurity continuous improvement that includes a cross functional Cyber Security Oversight Committee. The Chief Information Officer (a member of the

Cyber Security Oversight Committee) updates the Board 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 28. 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 3,800 employees contributing their own funds to purchase Company stock under various stock purchase plans in 2019.
 

 

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 and the Company's bylaws 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.

 

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   Corporate Governance and Board Matters

 

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. In 2019, the Company retained a search firm, Diversified Search, to assist with identifying and evaluating potential director candidates, including Mr. Blinn, Ms. Campbell, and Mr. Shah.

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 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 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 its evaluation process, 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.

 

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   Corporate Governance and Board Matters

 

Director Nominations for Inclusion in Leggett's Proxy Materials (Proxy Access). In 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 2021 annual meeting must be received no earlier than January 15, 2021 and no later than February 14, 2021.

Notice of Other Director Nominees. For shareholders intending to nominate a director candidate for election at the 2021 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, 2021 and no later than February 14, 2021. This notice must provide the information specified in Section 2.2 of the bylaws.

Transactions with Related Persons

 

 

According to our Corporate Governance Guidelines, the N&CG Committee reviews and approves or ratifies transactions in which a related person has a direct or indirect material interest, the Company or a subsidiary is a participant, and the amount involved exceeds $120,000. 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 our 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 2019 we purchased shares from two of our executive officers: 21,893 shares from Karl Glassman for a total of $1,031,650, and 23,004 shares from Russell Iorio for a total of $1,103,213. 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 former CFO Matthew Flanigan, had total compensation of $300,723 in 2019 (consisting of salary and annual incentive earned in 2019 and the grant date fair value of equity-based awards issued in 2019).

 

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   Corporate Governance and Board Matters

 

Director Compensation

 

 

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

 

Cash Compensation

      

Director Retainer

  

$

90,000

 

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 (includes director retainer)

  

 

300,000

 

Director Retainer

  

 

150,000

 

 

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 38), but does not target director compensation to any specific percentage of the median. Following two years with no changes to the compensation arrangements, in 2019 the director's annual cash retainer was increased by $10,000 and the annual equity award was increased by $15,000.

The directors' equity awards are generally granted on the date of the Annual Meeting, and a prorated award is granted to a director elected by the Board at another time of the year. Mr. Enloe served as Board Chair from May 2016 through January 1, 2020, at which time he became Lead Director. Mr. Enloe's compensation was not adjusted in connection with this transition. The Board expects to re-evaluate the Lead Director compensation at its May 2020 Board meeting.

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.

Many of our directors elected to defer a portion of their 2019 cash retainer into Leggett stock units at a 20% discount under the Company's Deferred Compensation Program, described on page 36. Interest-bearing cash deferrals and stock options are the other alternatives under the Program.

Our non-management 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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   Corporate Governance and Board Matters

 

Director Compensation in 2019

Our non-management directors received the following compensation in 2019:

 

Director

  

Fees Earned

or Paid

in Cash(1)(2)

    

Stock

Awards(3)

    

Non-Qualified

Deferred

Compensation

Earnings(4)

    

All Other

Compensation(5)

     Total  

Mark A. Blinn

  

$

50,000

 

  

$

150,000

 

           

$

3,056

 

  

$

203,056

 

Robert E. Brunner

  

 

107,500

 

  

 

150,000

 

  

$

9,076

 

  

 

63,180

 

  

 

329,756

 

Mary Campbell

  

 

25,000

 

  

 

75,000

 

                    

 

100,000

 

R. Ted Enloe, III

  

 

105,000

 

  

 

300,000

 

           

 

12,709

 

  

 

417,709

 

Manuel A. Fernandez

  

 

100,000

 

  

 

150,000

 

  

 

5,789

 

  

 

51,213

 

  

 

307,002

 

Joseph W. McClanathan

  

 

114,000

 

  

 

150,000

 

           

 

5,522

 

  

 

269,522

 

Judy C. Odom

  

 

121,000

 

  

 

150,000

 

  

 

7,024

 

  

 

43,220

 

  

 

321,244

 

Srikanth Padmanabhan

  

 

95,000

 

  

 

150,000

 

           

 

4,820

 

  

 

249,820

 

Jai Shah

  

 

49,000

 

  

 

150,000

 

           

 

3,056

 

  

 

202,056

 

Phoebe A. Wood

  

 

108,500

 

  

 

150,000

 

  

 

12,687

 

  

 

80,929

 

  

 

352,116

 

 

(1)

These amounts include cash compensation deferred into stock units under our Deferred Compensation Program. The following directors deferred cash compensation into stock units: Brunner—$107,500, Fernandez—$100,000, Odom—$60,500, and Wood—$108,500.

 

(2) 

The amounts shown for Mr. Blinn and Mr. Shah reflect the quarterly cash retainer payments for a partial year of service following their May 7, 2019 appointment as directors. Similarly, Ms. Campbell's amount reflects her partial year of service following her November 5, 2019 appointment.

 

(3) 

These amounts reflect the grant date fair value of the annual restricted stock or RSU awards, which was $150,000 for each director except Mr. Enloe's restricted stock award of $300,000 for his service as the Board Chair and Ms. Campbell's restricted stock award of $75,000 to reflect her partial year of service. The grant date fair value of these awards is determined by the stock price on the day of the award.

 

(4) 

These amounts include the 20% discount on stock unit dividends acquired under our Deferred Compensation Program and RSUs.

 

(5) 

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—$36,305, Enloe—$11,318, Fernandez—$26,213, Odom—$28,095, and Wood—$53,804; and (ii) the 20% discount on stock units purchased with deferred cash compensation: Brunner—$26,875, Fernandez—$25,000, Odom—$15,125, and Wood—$27,125.

All of our non-management directors held unvested stock or stock units as of December 31, 2019 as set forth below. The restricted stock and RSUs will vest on May 7, 2020.

 

Director

  

Restricted

Stock

    

Restricted

Stock Units

 

Mark A. Blinn

  

 

3,820

 

        

Robert E. Brunner

           

 

3,915

 

Mary Campbell

  

 

1,389

 

        

R. Ted Enloe, III

  

 

7,639

 

        

Manuel A. Fernandez

  

 

3,820

 

        

Joseph W. McClanathan

  

 

3,820

 

        

Judy C. Odom

           

 

3,915

 

Srikanth Padmanabhan

  

 

3,820

 

        

Jai Shah

  

 

3,820

 

        

Phoebe A. Wood

  

 

3,820

 

        

Only one director held outstanding stock options as of December 31, 2019: Mr. Enloe's 10,174 options granted in lieu of cash compensation under our Deferred Compensation Program.

 

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1  

PROPOSAL ONE:    Election of Directors

 

  At the 2020 annual meeting, eleven directors are nominated to hold office until the 2021 Annual Meeting of Shareholders, or until their successors are elected and qualified. All nominees have been previously elected by our shareholders, except Mr. Blinn, Ms. Campbell, Mr. Dolloff, and Mr. Shah who were appointed by the Board of Directors in 2019. After over 50 years of outstanding service to the Board, on February 18, 2020, Mr. Enloe notified the Company that he will retire from the Board, effective as of the 2020 annual meeting and, as such, has not been nominated for re-election.. 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.

Additional information concerning the directors is found in the Proxy Summary at page 2.

 

 

  Mark A. Blinn

 

  

 

   LOGO     

  Independent Director

  Director Since: 2019

  Age: 58

 

  Committees:

  Audit

  

 

Professional Experience:

 

Mr. Blinn was President and Chief Executive Officer and a director of Flowserve Corporation, a leading provider of fluid motion and control products and services for the global infrastructure markets, from 2009 until his retirement in 2017. He previously served Flowserve as Chief Financial Officer from 2004 to 2009 and in the additional role of Head of Latin America from 2007 to 2009. Prior to Flowserve, Mr. Blinn's positions included Chief Financial Officer of FedEx Kinko's Office and Print Services Inc. and Vice President, Corporate Controller and Chief Accounting Officer of Centex Corporation.

 

Education:

 

Mr. Blinn holds a bachelor's degree, a law degree, and an MBA from Southern Methodist University.

 

Public Company Boards:

 

Mr. Blinn currently serves as a director of Texas Instruments, Incorporated, a global semiconductor design and manufacturing company, Kraton Corporation, a leading global producer of polymers for a wide range of applications, and Emerson Electric Co., a global technology and engineering company for industrial, commercial and residential markets.

 

Director Qualifications:

As the former CEO and CFO of Flowserve, Mr. Blinn has exceptional leadership experience in operations and finance, as well as strategic planning and risk management. His board service at other global, public companies provides additional perspective on current finance, oversight, and governance matters.

 

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   Proposals to be Voted on at the Annual Meeting

 

 

  Robert E. Brunner

 

  

 

   LOGO     

  Independent Director

  Director Since: 2009

  Age: 62

 

  Committees:

  Compensation, Chair

  Nominating & Corporate   Governance

 

  

 

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 diversified industrial company that designs and manufactures high-precision components and assemblies on a global basis, 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 the automotive strategy, business development, mergers and acquisitions, operations, and international issues.

 

 

  Mary Campbell

 

  

 

   LOGO     

  Independent Director

  Director Since: 2019

  Age: 52

 

  Committees:

  Audit

  

 

Professional Experience:

 

Ms. Campbell was appointed Chief Merchandising Officer of Qurate Retail Group and Chief Commerce Officer of QVC US, in 2018. Qurate Retail Group is comprised of eight leading retail brands including QVC, HSN and Zulily and is a leader in video commerce, a top-10 ecommerce retailer, and a leader in mobile and social commerce. During her more than 20 years with the company, Ms. Campbell held various leadership positions across the Merchandising, Planning and Commerce Platforms functions. Most recently, and prior to her current position, she served Qurate Retail Group as Chief Merchandising and Interactive Officer in 2018 and as Chief Interactive Experience Officer from 2017 to 2018. She also served as Executive Vice President, Commerce Platforms for QVC from 2014 to 2017.

 

Education:

 

Ms. Campbell holds a bachelor's degree in psychology from Central Connecticut State University.

 

Director Qualifications:

Through her positions at Qurate Retail Group and QVC, Ms. Campbell has extensive knowledge in consumer driven product innovation, marketing and brand building, and traditional and new media platforms, and leading teams for long term growth and evolution.

 

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   Proposals to be Voted on at the Annual Meeting

 

 

  J. Mitchell Dolloff

 

  

 

   LOGO     

  Management Director

  Director Since: 2020

  Age: 54

 

  Committees:

  None

 

  

 

Professional Experience:

 

Mr. Dolloff was appointed the Company's President and Chief Operating Officer, President—Bedding Products effective January 1, 2020. He has served the Company as Executive Vice President—Chief Operating Officer since January 1, 2019; President—Specialized Products & Furniture Products from 2017 to 2019; Senior Vice President and President of Specialized Products from 2016 to 2017; Vice President and President of the Automotive Group from 2014 to 2015; President of Automotive Asia from 2011 to 2013; Vice President of Specialized Products from 2009 to 2013; and in various other capacities for the Company since 2000.

 

Education:

 

Mr. Dolloff holds a degree in economics from Westminster College (Fulton, Missouri), as well as a law degree and an MBA from Vanderbilt University.

 

Director Qualifications:

As the Company's President and Chief Operating Officer, Mr. Dolloff provides in-depth global operational knowledge to the Board and will complement the Board's oversight and strategy roles as those plans are implemented throughout the Company.

 

 

  Manuel A. Fernandez

 

 

   LOGO     

  Independent Director

  Director Since: 2014

  Age: 73

 

  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 the non-executive chairman of Brunswick Corporation, a market leader in the marine industry, and as the lead independent director of Performance Food Group Company, a foodservice products distributor. He was previously a director of 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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   Proposals to be Voted on at the Annual Meeting

 

 

  Karl G. Glassman

 

  

 

   LOGO     

  Management Director

  Director Since: 2002

  Chairman Since: 2020

  Age: 61

 

  Committees:

  None

  

 

Professional Experience:

 

Mr. Glassman was appointed Chairman of the Board effective January 1, 2020 and continues to serve as Chief Executive Officer since his appointment in 2016. He previously served as President from 2013 to 2019, 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.

 

 

  Joseph W. McClanathan

 

 

   LOGO     

  Independent Director

  Director Since: 2005

  Age: 67

 

  Committees:

  Audit

  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.

 

Public Company Boards:

 

Mr. McClanathan currently serves as a director of Brunswick Corporation, a market leader in the marine industry.

 

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.

 

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   Proposals to be Voted on at the Annual Meeting

 

 

  Judy C. Odom

 

  

 

   LOGO     

  Independent Director

  Director Since: 2002

  Age: 67

 

  Committees:

  Audit, Chair

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

 

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.

 

 

  Srikanth Padmanabhan

 

 

   LOGO     

  Independent Director

  Director Since: 2018

  Age: 55

 

  Committees:

  Audit

  

 

Professional Experience:

 

Mr. Padmanabhan has served Cummins Inc., a global manufacturer of engines and power solutions, as a Vice President since 2008 and President of its Engine Business segment since 2016. Previously, he served Cummins as Vice President—Engine Business from 2014 to 2016, Vice President and General Manager of Emission Solutions from 2008 to 2014, and in various other capacities since 1991.

 

Education:

 

Mr. Padmanabhan holds a bachelor's degree in mechanical engineering from the National Institute of Technology in Trichy, India, a Ph.D. in mechanical engineering from Iowa State University, and has completed the Advanced Management Program at Harvard Business School.

 

Director Qualifications:

With nearly 30 years at Cummins in a variety of leadership roles, Mr. Padmanabhan offers considerable knowledge of the automotive industry and the industrial sector. He brings extensive experience in managing operations, technology and innovation across a multi-billion-dollar global business. He has lived and worked in India, the United States, Mexico, and the United Kingdom.

 

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   Proposals to be Voted on at the Annual Meeting

 

 

  Jai Shah

 

  

 

   LOGO     

  Independent Director

  Director Since: 2019

  Age: 53

 

  Committees:

  Compensation

  

 

Professional Experience:

 

Mr. Shah serves as a Group President of Masco Corporation, a Fortune 500 global leader in the design, manufacture and distribution of branded home improvement and building products. In this position since 2018, Mr. Shah has responsibility for operating companies with leading brands in architectural coatings, decorative and outdoor lighting, decorative hardware and wellness businesses in North America. Mr. Shah is also responsible for Masco's Corporate Strategic Planning activities. He previously served as President of Delta Faucet Company, a Masco business unit, from 2014 to 2018, as Vice President and Chief Human Resources Officer for Masco from 2012 to 2014, and in various capacities since 2003. Prior to Masco, Mr. Shah held a number of senior management positions at Diversey Corporation and served as Senior Auditor for KPMG Peat Marwick Chartered Accountants.

 

Education:

 

Mr. Shah is a Certified Public Accountant and Chartered Professional Accountant (Canada) and holds an MBA from the University of Michigan, and bachelor's and master's degrees in accounting from the University of Waterloo in Ontario, Canada.

 

Director Qualifications:

Mr. Shah's range of experience at Masco in a variety of operational, financial and corporate roles offers the Board a broad perspective on relevant issues facing global corporations, including growth strategy development and implementation, talent management, and adapting to e-business and market innovations.

 

 

  Phoebe A. Wood

 

  

 

   LOGO     

  Independent Director

  Director Since: 2005

  Age: 66

 

  Committees:

  Audit

  Nominating & Corporate

  Governance

  

 

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 addresses 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, 2020. 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 2019 and 2018 are shown below.

 

Type of Service

   2019      2018  

Audit Fees(1)

   $ 2,617,888      $ 2,202,770  

Audit-Related Fees(2)

     22,768        19,792  

Tax Fees(3)

     208,531        370,282  

All Other Fees(4)

     3,870        2,015  
  

 

 

    

 

 

 

Total

   $ 2,853,057      $ 2,594,859  

 

  (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 2019, $97,060 related to compliance services and $111,471 related to consulting and planning services.

 

  (4)

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

 

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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 2019 were approved in accordance with the adopted procedures. There were no services provided or fees paid in 2019 for which the pre-approval requirement was waived.

The procedure provides standing pre-approval for:

Audit Services: quarterly reviews of the Company's financial statements; statutory audits, where appropriate; comfort and debt covenant letters; consents and assistance in responding to SEC comment 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; financial statement audits of employee benefit plans; and due diligence and audits related to acquisitions and joint ventures.

Tax Services: preparation or 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 procedure requires the Audit Committee to specifically pre-approve the terms of the annual audit services engagement letter with the Company's auditor, including all audit procedures required to render an opinion on the Company's annual financial statements and on the effectiveness of the Company's internal control over financial reporting. The Audit Committee must also specifically approve, if necessary, any changes in terms of the annual audit engagement resulting from changes in audit scope, Company structure or other matters. The Audit Committee must also specifically approve in advance all other permissible Non-Audit Services to be performed by the Company's auditors.

Management provides quarterly reports to the Audit Committee the nature and scope of any non-audit services performed and any fees paid to the auditors for all services. The Audit Committee has determined that the provision of the approved Non-Audit Services by PwC in 2019 is compatible with maintaining PwC's independence.

Audit Committee Report

The current 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 to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (PCAOB) and the SEC.

The Audit Committee received the written disclosures and letter from PwC required by applicable requirements of the PCAOB regarding PwC's communications with the Audit Committee concerning independence and has discussed PwC's independence with them.

 

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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 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 2019 Annual Report on Form 10-K.

 

    

  Judy C. Odom (Chair)    Mary Campbell    Srikanth Padmanabhan        
  Mark A. Blinn    Joseph W. McClanathan    Phoebe A. Wood   

 

3  

PROPOSAL THREE: Approval of the Amendment and Restatement of the Flexible Stock Plan

 

 

We are asking shareholders to approve the amended and restated Flexible Stock Plan (the "Plan"), last approved by our shareholders in 2015 (the "2015 Plan"). The Plan provides for the award of stock-based benefits to attract and  retain valuable employees, directors and other key individuals, align the interests of participants with shareholders and reward outstanding performance. At its meeting on February 18, 2020, the Board of Directors recommended our shareholders approve the amended and restated Plan set forth in full in Appendix A (the "2020 Restatement").

As of December 31, 2019, there were 5.2 million shares potentially issuable from prior awards under the 2015 Plan (4.6 million full-value awards and .6 million options), while 5.0 million shares remained available for future grants. If shareholders approve the 2020 Restatement, the current 5.0 million shares available for future grants will increase by 10 million shares for a total of approximately 15.0 million shares available for future grants under the Plan (excluding forfeitures of existing awards that again become available for issuance under the Plan). The closing market price for our common stock on December 31, 2019 was $50.83.

Under the 2020 Restatement (as with the 2015 Plan), each option or stock appreciation right counts as one share against the shares available under the Plan, but each share granted for any other awards counts as three shares against the Plan. This fungible plan design, in which the shares under the Plan can be used for all types of awards, provides our Compensation Committee flexibility to design equity compensation plans and grant awards that motivate our employees and build shareholder value. The Company has largely discontinued granting options (although options remain available through the Deferred Compensation Program). Therefore, we anticipate that nearly all shares authorized under the 2020 Restatement will be granted as full value awards—the approximately 15.0 million shares under the Plan would permit the Company to issue approximately 5 million full value awards under the 3-for-1 fungible plan design.

In addition to increasing the number of shares available under the Plan, the 2020 Restatement also expands the Company's ability to cancel awards under the Plan or claw-back compensation from such awards and updates the Plan for certain tax law changes and for other administrative matters.

Shareholder approval of the 2020 Restatement will constitute approval of the material terms of the Plan. If our shareholders fail to approve the 2020 Restatement, the 2015 Plan will continue as in effect prior to its amendment and restatement.

While we have tax-qualified stock purchase plans for employees generally, the Flexible Stock Plan is our only vehicle for granting non-qualified equity benefits. The Plan's flexible design permits equity-based awards to be tailored to the needs of the Company and to comply with changing business, tax and regulatory environments.

Key Features of the Plan

No Repricing. The Plan prohibits the cancellation of an outstanding option or stock appreciation rights ("SARs") in exchange for cash or for the purpose of reissuing to the participant at a lower exercise price or granting a replacement award of a different type without shareholder approval. Unless following a change in our capital stock, the exercise price of an option or SAR may not be reduced without shareholder approval.

No Discounted Options or SARs. Options and SARs may not be granted with exercise prices lower than the fair market value of the underlying shares on the grant date.

No Evergreen Provision. There is no "evergreen" feature pursuant to which the shares authorized for issuance under the Plan can be automatically increased.

 

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No Tax Gross-ups. The Plan does not provide for any tax gross-ups.

Double-Trigger Vesting of Awards upon a Change in Control. The Plan does not permit awards to vest solely upon the occurrence of a change in control (unless the acquirer requires that outstanding awards be terminated as a result of the change in control), but awards may become vested in connection with a termination of employment following a change in control.

Clawback. The Committee is authorized to cancel awards and require repayment to the Company under the circumstances described below at page 25.

Ten Year Term. The Plan will terminate on May 15, 2030, the tenth anniversary of the date of shareholder approval.

Independent Administration. The Compensation Committee, an independent committee of the Board of Directors, will administer the Plan.

How We Use Stock Compensation

We have encouraged and promoted employee stock ownership at all levels of the Company for many years. In 2019, approximately 3,800 employees purchased Leggett stock through payroll contributions or deferrals of cash compensation. The Board's Compensation Committee has weighted our executives' compensation heavily toward performance-based Leggett equity, and those programs are administered through the Plan.

Performance Stock Units. Leggett's long-term strategic plan emphasizes profitable growth and the Company's Total Shareholder Return ("TSR") performance relative to peer companies. For the past several years, we have granted performance stock unit awards ("PSUs") as a primary component of our senior executives' compensation to drive and reward those results. The PSU awards granted in 2018 and 2019 support our operational and market-based goals by allocating 50% of the payout to EBIT CAGR results and 50% to our relative TSR over a 3-year performance period.

Restricted Stock Units. Each year the Company grants restricted stock units ("RSUs") to a broad base of managers and key employees that vest in one-third increments at 12, 24 and 36 months after the grant date. RSUs are also awarded intermittently to select new hires and existing employees for retention, motivation or recognition. Finally, one-third of our executive officers' 2020 long-term incentive awards were granted as RSUs (with the remaining two-thirds granted in PSUs as described above).

Deferred Compensation. Leggett had 132 managers eligible for the Deferred Compensation Program in 2019, and they collectively deferred approximately $8 million of their cash compensation into stock units and stock options. Stock units and reinvested dividend equivalent accruals are acquired at a 20% discount to the market price of Company stock. Participants may also choose 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 grant date.

Retirement. We also use shares from the Plan for our executives' primary retirement plan, the Executive Stock Unit Program (the "ESU Program"). Executives contribute up to 10% of their cash compensation above a certain threshold into diversified investments in their accounts, which are held until they retire or terminate employment. The Company matches 50% of the executives' contributions in stock units acquired at a 15% discount to the market price of Company stock, with an additional match of up to 50% if the Company meets certain performance targets.

Directors. Our non-employee directors receive a portion of their annual compensation in restricted stock. On the date of the annual meeting of shareholders, each non-employee director receives restricted stock with a grant date value of $150,000 (except the independent Board Chair, whose award value was $300,000 in 2019). The restricted stock vests one year after the grant date. Directors may elect to receive the equity retainer in restricted stock or 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. Directors may also participate in the Deferred Compensation Program described above.

Stock Options. Non-qualified stock options ("NQSOs") are occasionally granted to senior executives in connection with promotions or for retention purposes. These options are granted with an exercise price equal to the closing price of the Company's common stock on the grant date. Options vest and become exercisable in three annual installments beginning 18 months after the grant date and had a 10-year term.

 

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Burn Rate and Overhang

We believe we have been judicious in our use of shares previously authorized by shareholders under the Plan, and we are committed to closely monitoring share usage. Two common measures of a stock plan's cost are known as "burn rate" and "overhang."

Burn rate refers to the rate at which shares issued under the Plan increase the number of shares outstanding. Over the last three years, we have maintained an average burn rate of 0.52% per year. We calculate burn rate as the sum of options granted during each year plus full value awards vested during each year, as a percentage of the weighted average common shares outstanding.

Burn Rate

 

  Year    Options(1)   

Full

Value Awards(2)

  

Total

Awards

  

Weighted

Average Shares

Outstanding

  

Burn

Rate

2019

   2,067    519,582    521,649    134,782,517    0.39%

2018

   43,847    552,173    566,020    134,313,120    0.44%

2017

   85,807    893,292    979,099    136,004,847    0.72%
            3-year average    0.52%

 

  (1) 

The Company no longer grants broad-based option awards on a regular basis, although options remain available under our Deferred Compensation Program.

 

 

  (2) 

Full value awards include stock units issued under the Deferred Compensation Program and ESU Program, restricted stock, RSUs, and PSUs vested during the year. Each full value share counts as three shares against shares available under the Plan.

 

Overhang measures the degree to which our shareholders' ownership may be diluted by stock-based compensation awarded under the Plan. Our overhang as of December 31, 2019, was determined by dividing the current stock awards outstanding by the current common shares outstanding. The 5,035,063 shares available for grant under the 2015 Plan as of December 31, 2019 are not included in this calculation.

Overhang

 

    581,625     Options Outstanding:
        Weighted Average Exercise Price: $33.03
        Weighted Average Term: 4.7 years
    4,577,136     Full-Value Awards Outstanding (2.4 million in the ESU Program)
 

 

 

   
    5,158,761     Total Awards Outstanding

Divided by

    131,781,452     Common Shares Outstanding
 

 

 

   
    3.9   Overhang as of December 31, 2019

Several factors influence our overhang percentage:

 

   

Because the ESU Program is a retirement program, stock units continue to accrue in employee accounts until the employee retires or terminates employment. We recognize that the long-term design of this plan increases our overhang (ESU holdings make up 52% of our outstanding full value shares), but we believe this program serves shareholders well by tying an important element of key employees' compensation to the Company's stock.

 

   

The unvested shares for the PSU awards are reserved at the maximum 200% payout percentage (the 2017–2019 PSUs vested at 49%), and their 3-year vesting schedule means the past three annual grants count against our overhang.

 

   

We have reduced our total shares outstanding by 5% in the last five years. Because share repurchases reduce the denominator in the overhang calculation, they increase our overhang percentage.

 

 

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To assess the number of shares requested for the 2020 Restatement, the Committee reviewed projected equity-based awards that are currently anticipated to be granted from the Plan during the next four fiscal years. The projection assumes that the Company continues making equity-based awards consistent with recent practice and includes the following additional assumptions: (i) continued usage of a fungible share ratio of 3 to 1 for full value shares being issued from or returned to the pool of Plan shares; (ii) an average share price of  $45 per share; (iii) performance units would pay out at the maximum performance level; and (iv) voluntary participation in the Deferred Compensation Plan and Executive Stock Unit Plan continues at levels similar to the recent past. This projection indicated that anticipated awards would reduce the number of shares available for issuance under the plan by an average of approximately 2.6 million shares each year. Accordingly, the Company has estimated that its request for an additional 10 million shares will be sufficient for four annual award cycles. The actual number of shares granted and ultimately issued from the Plan each year will likely vary from this estimate and will depend on a variety of factors, including: (i) changes to the Company's equity-based programs and award practices; (ii) the actual number of participants in our equity-based programs; (iii) the actual number of shares forfeited, cancelled or terminated; (iv) our share price at the time of each award; and (v) our performance, which will impact the actual number of performance units earned and charged against the Plan.

We are strongly committed to a culture of employee stock ownership. Accordingly, we believe the approval of the 2020 Restatement is critical to our ability to attract, retain and reward the caliber of employees necessary to achieve superior performance.

Description of the Plan

The following description of the Plan is qualified in its entirety by the full 2020 Restatement. If approved by the Company's shareholders, the 2020 Restatement will become effective as of May 15, 2020 (the "Effective Date") and will continue in effect until the tenth anniversary of the Effective Date.

The Plan provides for awards to eligible participants in the form of stock options, SARs, restricted stock, stock units, performance awards, other stock-based awards and all other awards.

Awards may be granted to (i) employees, (ii) non-employee directors, and (iii) individuals or entities providing services to the Company. The number of awards that may be granted to a participant under the Plan is in the discretion of the committee that administers the Plan (the "Committee") and therefore cannot be determined in advance. See the Grants of Plan-Based Awards in 2020 table at page 45 for information regarding equity-based awards granted to our named executive officers.

Awards settled in cash do not reduce the number of shares available for grant. If an award expires or is terminated, cancelled or forfeited, the shares covered by that award will again be available for issuance under the Plan. The following shares will not become available for reissuance under the Plan:

 

   

Shares tendered by participants or withheld as full or partial payment to the Company upon exercise of options granted under the Plan;

 

   

Shares subject to a SAR or an option that are not issued upon net settlement or exercise of the SAR or the option;

 

   

Shares withheld by, or otherwise remitted to, the Company to satisfy a participant's tax withholding obligations on awards granted under the Plan; and

 

   

Shares that have been repurchased by the Company using cash proceeds received by the Company from the exercise of options granted under the Plan.

Under the Plan's fungible share feature, all shares available under the Plan may be granted as any type of award. Each option or SAR awarded will count as one share against the shares available under the Plan, but each share granted for any other awards will count as three shares against the Plan. Up to one hundred percent of the shares available under the Plan may be granted as incentive stock options ("ISOs").

Outstanding awards, as well as the number of shares reserved under the Plan and the maximum number of shares issuable to participants, will be appropriately adjusted to reflect any stock split or similar change to the Company's capital stock.

 

 

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The Committee administering the Plan consists of at least two directors who are intended to qualify as "non-employee directors" as defined in Rule 16b-3 of the Securities Exchange Act of 1934 (the "Exchange Act"). Members of the Committee are appointed by the Board. Currently, the Compensation Committee of the Board serves as the Committee administering the Plan. The Committee has full authority and discretion to (i) select participants, (ii) determine the type, size, and conditions applicable to awards, (iii) determine to what extent awards may be settled in cash, shares, or other property, (iv) determine to what extent amounts payable from an award under the Plan may be deferred, either automatically or at the election of the participant, (v) interpret and administer the Plan and any agreement, and (vi) establish rules, appoint agents, and take any other action necessary or desirable for the administration of the Plan. To the extent permitted by law, the Committee may delegate all or any part of its authority under the Plan, except for grants to individuals who are subject to Section 16 of the Exchange Act.

The Board has the sole right and power to amend or terminate the Plan at any time, except that it may not amend the Plan, without approval of Company shareholders, in a manner that would cause ISOs to fail to qualify as such or in a manner which would violate applicable law. The amendment or termination of the Plan will not adversely affect a participant's right to any outstanding awards.

In the event of a change in control of the Company (as defined in the Plan), the Committee may provide such protection as it deems necessary to maintain participants' rights; however, the Committee may not permit an award to vest solely upon the occurrence of change in control (unless the acquirer in the change in control requires that outstanding awards be terminated as a result of the change in control), but may permit an award to vest in connection with a termination of employment that occurs within a specified time before, upon or after a change in control. To the extent consistent with the foregoing, the Committee may, among other things: (i) accelerate any time periods relating to the exercise or realization of awards; (ii) purchase an award, upon the participant's request, for the amount which could have been attained upon the exercise or realization of the award had it been currently exercisable or payable; (iii) adjust outstanding awards as it deems appropriate to reflect such transaction, and (iv) cause outstanding awards to be assumed or substituted by the surviving corporation.

Description of Awards

Restricted Stock. These are awards of common stock, the grant, vesting, issuance, or retention of which is subject to certain conditions expressed in the award document. Shares of restricted stock have full voting rights and accrue dividends during the restriction period, unless otherwise determined by the Committee. The Committee will determine the price, if any, at which restricted stock is sold or awarded.

Stock Units. These represent the right to receive the value of a number of shares of common stock, the grant, vesting, issuance, or retention of which is subject to certain conditions expressed in the award document. Stock units may be settled in cash or in stock, as determined by the Committee. Stock units represent an unfunded and unsecured obligation of the Company. Stock units have no voting rights, but may accrue dividend equivalents, as determined by the Committee. The Committee will determine the price, if any, at which stock units are sold or awarded to participants.

Performance Awards. A performance award entitles a participant to receive a specified number of shares of common stock (or cash equal to the fair market value of such shares) at the end of a performance period, as specified in the award document. The ultimate number of shares distributed depends upon the extent to which pre-established performance objectives are met during the applicable performance period.

Stock Options. A stock option is the right to acquire shares of common stock at a fixed exercise price for a fixed period of time not to exceed ten years. The option price per share cannot be less than the fair market value of the Company's common stock on the grant date. Options cannot be exercised until they are vested. All option terms and conditions will be determined by the Committee.

The Committee may grant options intended to qualify as ISOs pursuant to Section 422 of the Code, as well as NQSOs under the Plan. We currently do not grant ISOs and do not have any outstanding ISOs.

Stock Appreciation Rights. This gives a participant the right to receive, for each SAR exercised, an amount equal to the excess of the fair market value of a share of common stock on the date the SAR is exercised over the fair market value of a share on the date the SAR was granted. SARs may have terms up to ten years, may be settled in cash or in stock, as determined by the Committee, and are subject to the terms and conditions of the award document. We currently do not grant SARs.

 

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Other Stock-Based Awards. The Committee may grant other stock-based awards which may include, without limitation, the grant of shares of common stock and the grant of securities convertible into shares of common stock.

Other Awards. The Committee may provide types of awards under the Plan in addition to those specifically listed, if the Committee believes that such awards would further the purposes for which the Plan was established.

Award Conditions and Administration

Awards are typically evidenced by an agreement describing the award's terms and conditions. An agreement may include: description of the type of award; the award's duration; if an option, the exercise price, the exercise period and the person or persons who may exercise the option; the effect of the participant's death or termination of employment on the award; the award's conditions, vesting or performance criteria; when, if, and how it may be forfeited, converted into another award, modified, exchanged for another award, or replaced; and the restrictions on any shares purchased or granted under the Plan.

The Committee may require the satisfaction of certain performance criteria as a condition to the grant or vesting of any award.

The Committee may allow the exercise price of an option or payment price of an award to be paid in cash, with shares owned by the participant, or a combination of both. Options also may be exercised in a broker-assisted, cashless exercise or other cashless exercise, as permitted by the Committee.

The Company may withhold from option exercises or other awards any amount necessary to satisfy tax withholding requirements arising from the option exercise or award. The Committee may, at any time, require a participant to pay in cash the amount necessary to comply with withholding requirements.

An award may be granted in tandem with another award, except that only SARs may be granted in tandem with an ISO.

Subject to the requirements of Code Section 409A, and upon the terms established by the Committee, participants may defer receipt of awards, interest may be earned on cash deferrals, and dividends or dividend equivalents may be earned on deferrals denominated in shares.

Modifications to Awards

Any award may be converted, modified, forfeited or cancelled, in whole or in part, by the Committee to the extent permitted in the Plan or applicable agreement, or with the participant's consent.

The Committee may permit a participant to surrender an award in exchange for a new award; however, the Committee may not cancel an outstanding option or SAR that is underwater in exchange for cash or for the purpose of reissuing the option to the participant at a lower exercise price or granting a replacement award of a different type without shareholder approval. Unless following a change in the Company's capital stock, the exercise price of an option or SAR may not be reduced without shareholder approval.

If an award is subject to Code Section 409A, an award may be modified, replaced or terminated in the discretion of the Committee to the extent necessary to comply with such provision. In addition, in the event that a participant is determined to be a specified employee under Section 409A, any payment upon separation from service will be made or begin, as applicable, six months following the date of separation from service.

Clawbacks

The Committee may, in its discretion, cancel all or any portion of an award if the recipient (i) violates any confidentiality, non-solicitation or non-compete obligations or terms in an award, employment agreement, confidentiality agreement, separation agreement, and/or any other similar agreement, (ii) engages in improper conduct contributing to the need to restate any external Company financial statement, (iii) commits an act of fraud or significant dishonesty, or (iv) commits a significant violation of any of the Company's written policies or applicable laws.

 

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The Committee may require an award recipient to forfeit and repay to the Company any or all of the income or other benefit received on the vesting, exercise, or payment of an award (i) in the preceding two years if, in its discretion, the Committee determines that the recipient engaged in any of the foregoing activities and that such activity resulted in a significant financial or reputational loss to the Company, (ii) to the extent required under applicable law or securities exchange listing standards, or (iii) to the extent required or permitted under any written policy of the Company dealing with recoupment of compensation, subject to any limits of applicable law.

New Plan Benefits

Our Compensation Committee has discretion to select the individuals who will receive awards under the Plan and the amount of any such awards. As a result, the future recipients of awards (and the amounts of those awards) under the Plan, if approved by the shareholders, are not presently determinable. In addition, since our directors and executive officers are eligible to receive awards under the Plan, they have an interest in this proposal.

Federal Income Tax Consequences

The following is a summary of the current general federal income tax consequences of awards granted under the Plan to U.S. taxpayers. Tax consequences for any particular individual or transaction may be different and are subject to change.

Non-Qualified Stock Options and Stock Appreciation Rights. A recipient recognizes no taxable income upon the grant of NQSOs or SARs. Upon exercise of either, the recipient will recognize taxable ordinary income equal to the difference between the fair market value of Company stock on the exercise date and the exercise price. Any additional gain or loss recognized upon the subsequent sale or exchange of the stock will be taxed as a short-term or long-term capital gain or loss, as the case may be.

Incentive Stock Options. A recipient recognizes no taxable income upon the grant or exercise of an ISO (except for purposes of the Alternative Minimum Tax, in which case income recognition is the same as for NQSOs). If a recipient exercises an option and sells the shares more than two years after the grant date and more than one year after the exercise date, they will recognize a long-term capital gain or loss equal to the difference between the sale price and the exercise price. If a recipient exercises an option and sells the shares before the end of the 2-year or 1-year holding periods, they will generally recognize: (1) taxable ordinary income equal to the excess of  (i) the fair market value of the shares at exercise (or at sale, if less) over (ii) the exercise price of the option, plus (2) if the sale price exceeds the sum of the exercise price and the amount of the ordinary income recognized as a result of the sale, short-term or long-term capital gain equal to such difference.

Restricted Stock, Stock Units and Performance Awards. A recipient of restricted stock, stock units, performance awards or other awards that are subject to forfeiture prior to vesting generally will recognize no taxable income at the time of grant. As to restricted stock, when the restrictions have lapsed or the performance criteria have been met (upon vesting), the recipient will recognize taxable ordinary income equal to the excess of the fair market value of the Company's stock on the vesting date over the amount paid, if any, for the shares; however, the recipient may elect to be taxed based on the fair market value of the award at the time of grant. As to stock units or performance awards, when vested shares are issued, the recipient will recognize taxable ordinary income equal to the excess of the fair market value of the Company's stock on the issuance date over the amount paid, if any, for the shares, or, if the units or awards are settled in cash, equal to the cash paid.

Deferred Compensation. Participants may defer receipt of certain compensation by electing a future distribution date under the terms of an award or program under the Plan. Generally, such deferred compensation becomes taxable when the amounts are distributed. Code Section 409A significantly restricts the ability to defer taxation of compensation, including the deferral of income related to awards granted under the Plan. Any deferral of compensation under the Plan or the terms of an award that does not meet the requirements of Section 409A may cause the recipient to be subject to additional taxation and penalties.

Change in Control. If there is an acceleration of the vesting or payment of benefits or an acceleration of the exercisability of options upon a change in control of the Company, all or a portion of the accelerated benefits may constitute "excess parachute payments" under Section 280G of the Code. The recipient of an excess parachute payment incurs an excise tax of 20% of the amount of the payment in excess of their average annual compensation over the five calendar years preceding the year of the change in control. The Company is not entitled to a deduction for excess parachute payments. The Company does not make gross-up payments to employees in the event Section 280G excise taxes are triggered.

Tax Effect to the Company. The Company will generally receive a tax deduction equal to the taxable ordinary income recognized by a recipient from an award granted under the Plan. The Company's deduction will be taken in the same year the recipient recognizes taxable income.

 

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   Proposals to be Voted on at the Annual Meeting

 

For tax years prior to 2018, Section 162(m) of the Internal Revenue Code generally disallowed an income tax deduction to public companies for compensation over $1 million paid to certain executive officers; however, qualifying performance-based compensation was not subject to the deduction limit if certain requirements were met. On December 22, 2017, the U.S. federal government enacted the Tax Cuts and Jobs Act, 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 certain executive officers, including compensation arising from awards under the Plan, will no longer be tax deductible unless grandfathered under the exception for pre-existing contractual arrangements.

Vote Required to Approve the Amendment

The adoption of this proposal requires the affirmative vote of (i) a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting and (ii) a majority of the votes cast on this proposal.

 

 

The Board recommends that you vote FOR the amendment of the Flexible Stock Plan.

 

 

 

4  

PROPOSAL FOUR: 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, 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 XX.

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 92% support in 2019).

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.

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.

 

 

The Board recommends that you vote FOR the Company's named executive officer 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 four 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, currently consisting of four 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.

 

   

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 (NEOs):

 

Name

   Title

Karl G. Glassman

  

President and Chief Executive Officer (CEO)

Jeffrey L. Tate

   Executive Vice President and Chief Financial Officer, beginning September 3, 2019 (CFO)

Matthew C. Flanigan

  

Executive Vice President and Chief Financial Officer, through September 2, 2019 (Former  CFO)

J. Mitchell Dolloff

  

Executive Vice President and Chief Operating Officer (COO),

President—Specialized Products and Furniture Products

Perry E. Davis

  

Executive Vice President, President—Residential Products and Industrial Products

Scott S. Douglas

  

Senior Vice President—General Counsel and Secretary

Effective January 1, 2020, Mr. Glassman became Chairman and CEO; Mr. Dolloff became President and COO, President—Bedding Products; and Mr. Davis became Senior Vice President—Operations, followed by his retirement on February 7, 2020. Since this CD&A and the following compensation tables primarily address matters from 2019, we will refer to the NEOs according to the titles held in 2019 as listed in the table above.

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.

 

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   Compensation Discussion & Analysis

 

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 threshold performance levels are not achieved. The following table shows the key attributes of our executive 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

 

Performance Stock Units

  

Variable

  

Equity-
Based

  

 

3 years

 

  

Total shareholder return (TSR)(1) relative to peer group and the compound annual growth rate of earnings before interest and taxes (EBIT CAGR)

 

 

  (1) 

TSR is the change in stock price over the performance period plus reinvested dividends, divided by the beginning stock price. Leggett's three-year TSR is measured relative to approximately 300 peer companies making up the industrial, materials and consumer discretionary sectors of the S&P 500 and S&P Midcap 400.

 

 

LOGO

* Excludes former CFO and one-time awards to the new CFO.

Incentive Payouts in 2019

Our executives' 2019 annual incentive payouts under the Key Officers Incentive Plan (KOIP) tracked the Company's operational results in 2019, in which we generated cash flow, as defined in the KOIP, of $597.8 million (versus a target of $375 million, resulting in a 150% payout) and 40.5% return on capital employed (versus a target of 37.5%, resulting in a 121.3% payout). Each of the NEOs (except Mr. Flanigan and Mr. Tate due to the CFO transition) also had individual performance goals (IPGs) which accounted for 20% of their target annual incentive payout. The Key Officers Incentive Plan, including the calculations and targets for adjusted cash flow and return on capital employed (ROCE), is described on page 32.

 

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   Compensation Discussion & Analysis

 

With respect to our executives' long-term incentive (LTI) awards which vested at the end of 2019, the Company's 6.1% EBIT CAGR over the two-year performance period for the 2018 transition PSU awards resulted in a 126.3% payout for Corporate participants. This one-time transition PSU award was granted in 2018 to offset the gap in realizable pay opportunity when the former Profitable Growth Incentive program was eliminated in 2018 to shift that portion of our executives' LTI from a two-year to a three-year performance period.

Leggett's cumulative TSR from 2017 to 2019 was 15%, which placed us in the 37th percentile of the peer group resulting in a 49% payout for the three-year PSUs granted in 2017. The pre-2018 Performance Stock Units, including the calculation of relative TSR and the vesting schedule, are described on page 36.

CEO Incentive Compensation Vesting in 2019

 

LOGO

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 named executive officers' (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 Hedging or Pledging - We do not permit our executive officers to engage in either hedging or pledging activities with respect to Leggett shares.    
      

Incentive Award Caps - All of our variable compensation plans have maximum payout limits.

 

          x   

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.

 

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

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

 

          x    No Employment Agreements - All of our NEOs are employed at-will, except for Mr. Tate's 24-month Separation Agreement (see page 40).    
      

Stock Ownership Requirements - All NEOs are subject to robust stock ownership requirements.

 

          x    No Tax Gross-Ups    
      

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

 

          x    No Share Recycling    
      

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

 

            x    No Repricing of Options or Cash Buyouts    

 

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   Compensation Discussion & Analysis

 

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 (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 is designed to reduce 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 clawbacks for performance-based compensation.

Impact of 2019 Say-on-Pay Vote

At our annual meeting of shareholders held on May 7, 2019, 92% 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.

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

   2019
Base Salary
   Annual Incentive:
Target Percentage
of Base Salary
 

PSU Awards:
        Target Percentage             

of Base Salary

Karl G. Glassman, CEO

     $ 1,225,000        120 %       433 %

Jeffrey L. Tate, CFO

       550,000        80 %       250 %

Matthew C. Flanigan, Former CFO

       572,000        80 %       0 %

J. Mitchell Dolloff, COO

       600,000        100 %       300 %

Perry E. Davis, EVP

       530,000        80 %       250 %

Scott S. Douglas, SVP

       420,000        60 %       175 %

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 38.

 

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   Compensation Discussion & Analysis

 

Annual Incentive

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

Our executive officers are divided into two groups under the KOIP for 2019, depending upon their areas of responsibility: (i) corporate participants (Glassman, Tate, Flanigan, Dolloff, and Douglas), whose performance criteria and payouts are based on the Company's overall results, and (ii) profit center participants (Davis) whose performance targets are set for the operations under their control. The NEOs also have individual performance goals (IPGs) as part of their 2019 annual incentive, except for Mr. Flanigan and Mr. Tate due to the CFO transition during the year.

Each NEO has a target incentive amount—the amount received for achieving 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(1) as the primary incentive target with a 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(2) with a 20% weighting, which is critical to fund the Company's ongoing operations, capital expenditures, dividends and deleveraging. 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.

 

(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: 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: 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.

ROCE and cash flow calculations are adjusted for all items of gain, loss or expense (i) from non-cash impairments; (ii) related to loss contingencies identified 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. Financial results from acquisitions are excluded from calculations in the year of acquisition. Financial results from businesses divested during the year are included, but targets relating to the divested businesses will be prorated to reflect only that portion of the year prior to the divestiture. Financial results from businesses classified as discontinued operations are included in the calculations. Financial results exclude (i) certain currency and hedging-related gains and losses, (ii) gains and losses from asset disposals, and (iii) items that are outside the scope of the Company's core, on-going business activities.

Since Mr. Flanigan and Mr. Tate did not have IPGs for 2019, their 2019 annual incentive was based 70% on ROCE and 30% on cash flow.

Individual Performance Goals. In addition to the financial metrics described above, the annual incentive includes IPGs for most participants at a 20% weighting that are tailored to each executive's responsibilities and aligned with the Company's strategic goals. The Committee approved the 2019 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

 

Acquisition integration, succession planning, CFO onboarding, and communications strategy

J. Mitchell Dolloff, COO

 

Implementation of growth strategy and succession planning

Perry E. Davis, EVP

 

Acquisition integration and succession planning

Scott S. Douglas, SVP

 

Implementation of growth strategy, succession planning, and operational initiatives

 

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   Compensation Discussion & Analysis

 

Targets and Payout Schedules. Upon selecting the metrics and IPGs, the Committee established performance 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. The payout for each portion of the annual incentive is capped at 150%.

2019 Corporate Payout Schedule

 

 

ROCE(1)

        

 

Cash Flow (millions) (1)

        

 

Individual Performance Goals

 

 

Achievement

 

  

 

Payout

 

    

 

Achievement

 

    

 

Payout

 

    

 

Achievement

 

  

 

Payout

 

 

<30.5%

     0%          <$300        0      1—Did not achieve goal      0%      

30.5%

     50%          300        50      2—Partially achieved goal      50%    

37.5%

     100%          375        100      3—Substantially achieved goal      75%      

44.5%

     150%          450        150      4—Fully achieved goal      100%    
                5—Significantly exceeded goal      up to 150%      

2019 Profit Center Payout Schedule

 

 

ROCE and Free Cash Flow

(Relative to Target)

 

         Individual Performance Goals  

 

Achievement(2)

 

 

 

Payout

 

        

 

Achievement

 

  

 

Payout

 

 

<80%

    0%        1—Did not achieve goal      0%      

 80%

    60%        2—Partially achieved goal      50%    

    100%

    100%        3—Substantially achieved goal      75%      

  125%

    150%        4—Fully achieved goal      100%    
       5—Significantly exceeded goal      up to 150%      

 

  (1)

The 2019 results for corporate participants (Glassman, Tate, Flanigan, Dolloff, and Douglas) were 40.5% ROCE (resulting in a 121.3% payout) and $597.8 million of cash flow (resulting in a 150% payout).

 

  (2)

As a profit center participant, Mr. Davis' target for a 100% payout was 30.0% ROCE (31.9% actual) and $225.2 million free cash flow ($332.9 million actual) for the Residential Products and Industrial Products Segments.

 

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   Compensation Discussion & Analysis

 

The following table provides the details of the 2019 annual incentive payouts for our NEOs:

 

 

  Name

 

 

 

Target Incentive Amount

 

         

 

Weighted Payout Percentage

 

         

 

Annual Incentive Payout

 

 

Karl G. Glassman, CEO

 

 

$1,470,000

 

 

 

x

 

 

129.8%

 

 

 

=

 

 

 

$1,908,060

 

 

 

Salary

 

 

 

x

 

 

 

Target %

 

   

Metric

 

 

Payout 

% 

 

 

x

 

 

 

Weight

 

   
 

 

$1,225,000

 

   

 

120%

 

   

ROCE

 

 

121.3%

 

   

 

60%

 

   
         

Cash Flow

 

 

150%

 

   

 

20%

 

   
                                   

IPGs

 

 

135%

 

         

 

20%

 

               

Jeffrey L. Tate, CFO

 

 

$145,200*

 

 

 

x

 

 

129.9%

 

 

 

=

 

 

 

$188,615

 

 

 

Salary

 

 

 

x

 

 

 

Target %

 

   

Metric

 

 

Payout %

 

 

 

x

 

 

 

Weight

 

   
 

 

$550,000

 

   

 

80%

 

   

ROCE

 

 

121.3%

 

   

 

70%

 

   
 

 

* Prorated by 33% for partial year

 

   

Cash Flow

 

 

150%

 

   

 

30%

 

   

Matthew C. Flanigan, Former CFO

 

 

$457,600

 

 

 

x

 

 

129.9%

 

 

 

=

 

 

 

$594,422

 

 

 

Salary

 

 

 

x

 

 

 

Target %

 

 

 

x

 

 

Metric

 

 

Payout 

% 

 

 

x

 

 

 

Weight

 

   
 

 

$572,000

 

   

 

80%

 

   

ROCE

 

 

121.3%

 

   

 

70%

 

   
         

Cash Flow

 

 

150%

 

   

 

30%

 

   

J. Mitchell Dolloff, COO

 

 

$600,000

 

 

 

x

 

 

132.8%

 

 

 

=

 

 

 

$796,800

 

 

 

Salary

 

 

 

x

 

 

 

Target %

 

   

Metric

 

 

Payout %

 

 

 

x

 

 

 

Weight

 

   
 

 

$600,000

 

   

 

100%

 

   

ROCE

 

 

121.3%

 

   

 

60%

 

   
         

Cash Flow

 

 

150%

 

   

 

20%

 

   
         

IPGs

 

 

150%

 

   

 

20%

 

   

Perry E. Davis, EVP

 

 

$424,000

 

 

 

x

 

 

123.0%

 

 

 

=

 

 

 

$521,520

 

 

 

Salary

 

 

 

x

 

 

 

Target %

 

   

Metric

 

 

Payout 

% 

 

 

x

 

 

 

Weight

 

   
 

 

$530,000

 

   

 

80%

 

   

ROCE

 

 

112%

 

   

 

60%

 

   
         

FCF

 

 

150%

 

   

 

20%

 

   
         

IPGs

 

 

125%

 

   

 

20%

 

   
                                   

+1% Compliance Adjustment

 

               

Scott S. Douglas, SVP

 

 

$252,000

 

 

 

x

 

 

129.8%

 

 

 

=

 

 

 

$327,096

 

 

 

Salary

 

 

 

x

 

 

 

Target %

 

   

Metric

 

 

Payout 

% 

 

 

x

 

 

 

Weight

 

   
 

 

$420,000

 

   

 

60%

 

   

ROCE

 

 

121.3%

 

   

 

60%

 

   
         

Cash Flow

 

 

150%

 

   

 

20%

 

   
                                   

IPGs

 

 

135%

 

         

 

20%

 

               

Equity-Based Awards

We grant performance stock units to our NEOs and other senior managers to tie their 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.

2018 and 2019 Three-Year Performance Stock Units. Leggett's long-term strategic plan emphasizes profitable growth and the Company's TSR relative to peer companies. The PSU awards granted in 2018 and 2019 support our operational and market-based goals by allocating 50% of payout to EBIT CAGR results and 50% to our relative TSR performance.

 

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   Compensation Discussion & Analysis

 

The PSU grants are determined by multiplying the executive's base salary by the PSU award percentage approved by the Committee (see the table on page 31). The vesting schedules for the three-year PSU awards granted in 2018 and 2019 are as follows:

 

 

Relative TSR (1)

Percentile

 

  

 

Relative TSR
Vesting %

 

25%

   25%

30%

   35%

35%

   45%

40%

   55%

45%

   65%

50%

   75%

55%

   100%

60%

   125%

65%

   150%

70%

   175%

75%

   200%

 

 

 

 

EBIT CAGR(2)

%

 

  

 

EBIT CAGR

Vesting %

 

2%    75%
4%    100%
6%    125%
8%    150%
10%    175%
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 (approximately 300 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.

 

(2)

EBIT CAGR is the Company's or applicable Segments' 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.

2018 Two-Year Transition Performance Stock Units. As discussed above, 2018 was a year of transition for our LTI programs. 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 (see the vesting schedule above) over a two-year performance period. This transition PSU award was set at 50% of the executive officers' 2018 PSU award percentages described above. This transition award created a one-time spike in the grant date value of 2018 equity-based awards reported in the Summary Compensation Table, but the realizable pay opportunity will remain steady from 2018 to 2021 as the transition from two-year to three-year vesting takes place.

The two-year performance period for the transition PSUs ended December 31, 2019. Corporate participants received a 126.3% payout as a result of 6.1% EBIT CAGR over those two years, and Mr. Davis received a 30% payout for the profit centers for which he was responsible. Mr. Dolloff's responsibilities changed during the two-year performance period, so his 105.8% payout was based 50% on the 2018 results for the profit centers for which he was then responsible and 50% on 2019 corporate results after becoming COO at the start of the year. The transition PSUs were paid out 50% in Company stock and 50% in cash, although the Company reserved the right to pay up to 100% in cash.

 

 

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   Compensation Discussion & Analysis

 

Pre-2018 Performance Stock Units. Prior to 2018, the three-year PSUs were based solely on Leggett's relative TSR with the following vesting schedule:

 

  Performance Level    Percentile Rank    Payout %

Threshold

   25th      25%

Target

   50th      75%

Maximum

   >75th    175%

The final grant of these awards was in 2017 with the performance period ending on December 31, 2019. Leggett's TSR for that three-year period ranked at the 37th percentile, resulting in a 49% payout. The 2017 PSUs were paid out 65% in Company stock and 35% in cash, although the Company reserved the right to pay up to 100% in cash.

Other Compensation Programs

The NEOs (other than Mr. Tate, who joined the Company in 2019) 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 401(k) and non-qualified excess plans in which some of our executives choose to participate.

Executive Stock Unit Program. All our NEOs (other than Mr. Tate) have significant holdings in the ESU Program, our primary executive retirement plan. These accounts are held until the executive terminates his 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 Key Officers 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.

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 grant date (December 15 of the year in which the deferral election is made).

 

   

Cash deferrals accruing interest at a 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 48). Employees who had previously participated in the Retirement Plan were offered a replacement benefit: a tax-qualified defined contribution Section 401(k) Plan (Retirement K). The Retirement K includes an age-weighted Company matching contribution designed to replicate the benefits lost by the Retirement Plan freeze. Employees who did not participate in the Retirement Plan when it was frozen in 2006 are eligible to contribute to the Company's 401(k) plan with an alternate matching contribution schedule.

 

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   Compensation Discussion & Analysis

 

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 due to 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 2019, perquisites were less than 1% of each NEO's total compensation and consisted of use of a Company car, executive physicals, bedding product samples, and limited personal use of corporate aircraft by our CEO.

Given the location of the Company's headquarters away from any major metropolitan area, the Committee wished to facilitate Mr. Glassman's schedule and allow him to more efficiently attend to Company business by offering him limited personal use of corporate aircraft, when the aircraft is not scheduled for business purposes. The use of corporate aircraft for personal travel by Mr. Glassman and his guests 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 does 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.

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 any employment and severance benefit agreements and amendments to stock plans.

In 2019, the Committee engaged Meridian Compensation Partners, LLC to perform a competitive review of the Company's long-term incentive programs in comparison to market practices. 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 conducts an annual conflict of interest assessment, which the Committee reviews 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.

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, 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 long-term incentive 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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   Compensation Discussion & Analysis

 

The Annual Review and Use of Compensation Data

 

 

The Committee conducts an annual review of executive compensation at its November meeting to set the executive officers' compensation for the upcoming year.

During the annual review, the Committee evaluates the three primary elements of the annual compensation package for executive officers: base salary, annual incentive, and long-term incentive awards. As discussed above, increases to base salary affect the other elements of the compensation package because the variable compensation elements (annual incentive and long-term incentive awards) 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 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 maximum payout).

 

   

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 and a summary of outstanding equity awards.

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 used in setting executive compensation, the Committee has discretion in determining the nature and extent of its use.

Benchmarking Against Peer Companies. In the annual review, the Committee 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.

Prior to the annual review to set 2019 compensation, the Committee adjusted the prior year's peer group by replacing Autoliv, Inc. and Mohawk Industries, Inc. with Cooper-Standard Holdings Inc. and Flowserve Corporation to keep Leggett positioned near the group's median revenue and market capitalization. The Committee approved the following peer group of 17 U.S.-based, publicly-traded manufacturing companies:

 

Allegion PLC    HNI Corporation
American Axle & Manufacturing Holdings, Inc.    Lennox International Inc.
A. O. Smith Corporation    Masco Corporation
Carlisle Companies, Incorporated    Owens Corning
Cooper-Standard Holdings Inc.    PENTAIR plc
Dana Incorporated    Tempur Sealy International, Inc.
Flowserve Corporation    Tenneco Inc.
Fortune Home Brands & Security, Inc.    USG Corporation
Herman Miller, Inc.   

 

 

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   Compensation Discussion & Analysis

 

Compensation Survey Data. The Committee used broad-based compensation surveys published by Willis Towers Watson (General Industry Executive Compensation Survey) and Aon Hewitt (Total Compensation Measurement) 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 (with median revenue of $4.1 billion) from the Willis Towers Watson survey and large manufacturing companies (with median revenue of $4.1 billion) from the Aon Hewitt survey. The Committee referenced market benchmarks 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, but not limited to, tenure, responsibilities, and performance.

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 long-term incentive 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.

Changes to the NEOs' 2019 Compensation. In connection with the November 2018 review relating to the executive officers' 2019 compensation:

 

   

Mr. Glassman's base salary and Annual Incentive percentage were unchanged from 2018, and his PSU award percentage was increased from 400% to 433%.

 

   

Mr. Flanigan's base salary and Annual Incentive percentage were unchanged from 2018, and, given his pending retirement in 2019, he was not granted a 2019 PSU award.

 

   

In connection with Mr. Dolloff's promotion to COO on January 1, 2019, his base salary was increased from $512,000 to $600,000, his Annual Incentive percentage was increased from 80% to 100%, and his PSU award percentage was increased from 250% to 300%.

 

   

Mr. Davis' base salary was increased from $512,000 to $530,000, and his Annual Incentive and PSU award percentages were unchanged.

 

   

Mr. Douglas' base salary was increased from $380,000 to $420,000, his Annual Incentive percentage was increased from 50% to 60%, and his PSU award percentage was increased from 155% to 175%.

Setting the CFO's 2019 Compensation. The Committee followed a similar process to the annual review, including benchmarking data, in connection with approving the compensation package and initial awards granted to Mr. Tate when he was hired in August 2019 as the incoming CFO.

 

   

In keeping with the structure of the other NEOs' compensation package, Mr. Tate's annual salary was set at $550,000 (prorated for 2019), his annual incentive percentage under the KOIP was set at 80% (also prorated for 2019), and his PSU award multiple was set at 250%.

 

   

The Committee authorized the grant of two interim PSU awards to Mr. Tate based upon his starting base salary and PSU award multiple, but adjusted for the length of time remaining in their respective performance periods—for the 2018 PSU award with one year remaining in the three-year performance period, he received a one-third prorated award, and for the 2019 PSU award with two years remaining, he received a two-thirds prorated award.

 

   

As an inducement to join the Company and in connection with his appointment as CFO, Mr. Tate received a sign-on grant of $500,000 in time-based restricted stock units (RSUs), which vest in one-third increments on the first, second and third anniversaries of the grant date. He also received a one-time cash incentive of $250,000, which was subject

 

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   Compensation Discussion & Analysis

 

 

to a Separation Agreement he entered into with the Company. Under the Separation Agreement, if Mr. Tate is terminated for cause or voluntarily terminates employment (other than for good reason, as defined in the Separation Agreement) (i) within 12 months of his start date, he must repay the full $250,000 cash incentive and (ii) if such a termination occurs between 12 and 24 months of his start date, he must repay $125,000 of the cash incentive. The Separation Agreement further provides that if Mr. Tate is terminated by the Company other than for cause, death or disability, or he terminates for good reason, the Company must pay (i) 12 months of his base salary for a termination that occurs within 12 months of his start date, (ii) six months of his base salary for a termination that occurs between 12 and 24 months from his start date, (iii) pro-rata cash incentive award under the KOIP for the year of termination based upon the results achieved under the KOIP for the year, (iv) lump sum payment equal to 18 months of COBRA medical coverage, and (v) reasonable and customary outplacement services for the shorter of 12 months following the date of termination and the date Mr. Tate accepts an offer of employment.

Equity Grant Practices

 

 

The Committee discussed the 2019 LTI awards at length at its November 2018 meeting in connection with the annual review, then approved the 2019 PSU awards at its March 2019 meeting. The Committee does not approve grants of equity-based awards when it is 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 executives' 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 cancel all or any portion of an award if the recipient (i) violates any confidentiality, non-solicitation or non-compete obligations or terms in an award, employment agreement, confidentiality agreement, separation agreement, and/or any other similar agreement, (ii) engages in improper conduct contributing to the need to restate any external Company financial statement, (iii) commits an act of fraud or significant dishonesty, or (iv) commits a significant violation of any of the Company's written policies or applicable laws. Under the Flexible Stock Plan, the Committee may require an award recipient to forfeit and repay to the Company any or all of the income or other benefit received on the vesting, exercise, or payment of an award (i) in the preceding two years if, in its discretion, the Committee determines that the recipient engaged in any of the foregoing activities and that such activity resulted in a significant financial or reputational loss to the Company, (ii) to the extent required under applicable law or securities exchange listing standards, or (iii) to the extent required or permitted under any written policy of the Company dealing with recoupment of compensation, subject to any limits of applicable law. In addition, the award documents for our PSU awards 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, COO and EVP

   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. After five years from appointment, 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 the ownership threshold is met. As of March 6, 2020, all our NEOs were in compliance with their stock ownership requirements.

 

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   Compensation Discussion & Analysis

 

Hedging and Pledging Policy. The Company's insider trading policy prohibits its directors, officers and employees from transactions related to Leggett securities involving short sales, having put equivalent positions, buying or selling exchange-traded options and hedging transactions, which include purchase and sale of options, zero cost collars and forward sale contracts. The policy also prohibits all directors and Section 16 officers from pledging Leggett securities as collateral for a loan, including in a margin account.

Change in Control Agreements

 

 

Our NEOs do not have employment agreements and are all considered at-will employees, except for Mr. Tate's 24-month Separation Agreement (see page 40).

Each of our NEOs has a severance benefit agreement which is designed to protect both the executive officer's and the Company's interests in the event of a change in control of the Company, as described on page 49.

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 disallowed an income tax deduction to public companies for compensation over $1 million paid to certain executive officers; however, qualifying performance-based compensation was not subject to the deduction limit if certain requirements were met. On December 22, 2017, the U.S. federal government enacted the Tax Cuts and Jobs Act, 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 tax 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.

 

Robert E. Brunner (Chair)

R. Ted Enloe, III

 

Manuel A. Fernandez

Jai Shah

 

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   Executive Compensation and Related Matters

 

Summary Compensation Table

 

The following table reports the total 2019 compensation of our Chief Executive Officer, the two Chief Financial Officers serving the Company in 2019, and our three other most highly compensated executive officers as of December 31, 2019. Collectively, we refer to these six executives as the "Named Executive officers" or "NEOs."

 

Name and Principal Position

   Year      Salary(2)(3)      Bonus(2)     

Stock

Awards(2)(4)

    

Non-Equity

Incentive Plan

Compensation(2)(3)

    

Change in

Pension Value;

Nonqualified

Deferred

Compensation

Earnings(5)

    

All Other

Compensation

(3)(6)

     Total  

Karl G. Glassman(1)

  

 

2019

 

  

$

1,225,000

 

     

$

6,117,860

 

  

$

1,908,060

 

  

$

163,436

 

  

$

779,556

 

  

$

10,193,912

 

President and Chief Executive

Officer

  

 

2018

 

  

 

1,223,077

 

     

 

7,174,230

 

  

 

1,405,320

 

  

 

76,241

 

  

 

689,062

 

  

 

10,567,930

 

  

 

2017

 

  

 

1,154,808

 

           

 

4,217,693

 

  

 

1,068,809

 

  

 

79,137

 

  

 

496,581

 

  

 

7,017,028

 

Jeffrey L. Tate(2)

  

 

2019

 

  

 

167,115

 

  

$

250,000

 

  

 

1,645,901

 

  

 

188,615

 

     

 

36,468

 

  

 

2,288,099

 

Executive VP and Chief Financial

Officer since September 3, 2019

                                                                       

Matthew C. Flanigan

  

 

2019

 

  

 

587,400

 

        

 

594,422

 

  

 

67,477

 

  

 

442,884

 

  

 

1,692,183

 

Executive VP and Chief Financial

Officer through September 2, 2019

  

 

2018

 

  

 

571,154

 

     

 

2,093,560

 

  

 

442,957

 

  

 

29,037

 

  

 

403,505

 

  

 

3,540,213

 

  

 

2017

 

  

 

542,731

 

           

 

1,388,732

 

  

 

334,840

 

  

 

28,845

 

  

 

367,827

 

  

 

2,662,975

 

J. Mitchell Dolloff(1)

  

 

2019

 

  

 

596,615

 

     

 

2,076,245

 

  

 

796,800

 

  

 

25,861

 

  

 

355,070

 

  

 

3,850,591

 

Executive VP and Chief Operating

  

 

2018

 

  

 

511,539

 

     

 

1,874,222

 

  

 

380,518

 

  

 

20,363

 

  

 

212,037

 

  

 

2,998,679

 

Officer, President—Specialized and Furniture Products

  

 

2017

 

  

 

479,808

 

           

 

891,059

 

  

 

437,625

 

  

 

17,098

 

  

 

200,874

 

  

 

2,026,464

 

Perry E. Davis(1)

  

 

2019

 

  

 

529,308

 

     

 

1,528,251

 

  

 

521,520

 

  

 

62,778

 

  

 

149,270

 

  

 

2,791,127

 

Executive VP, President—

  

 

2018

 

  

 

511,539

 

     

 

1,874,222

 

  

 

468,173

 

  

 

17,588

 

  

 

164,184

 

  

 

3,035,706

 

Residential and Industrial Products

  

 

2017

 

  

 

479,808

 

           

 

891,059

 

  

 

407,250

 

  

 

20,346

 

  

 

133,114

 

  

 

1,931,577

 

Scott S. Douglas

  

 

2019

 

  

 

418,462

 

     

 

847,666

 

  

 

327,096

 

  

 

63,853

 

  

 

131,007

 

  

 

1,788,084

 

Senior VP— General Counsel and

  

 

2018

 

  

 

378,077

 

     

 

862,247

 

  

 

174,420

 

  

 

8,747

 

  

 

139,845

 

  

 

1,563,336

 

Secretary

  

 

2017

 

  

 

321,923

 

           

 

489,753

 

  

 

121,440

 

  

 

16,591

 

  

 

111,575

 

  

 

1,061,282

 

 

(1)

Effective January 1, 2020, Mr. Glassman became Chairman and CEO; Mr. Dolloff became President and COO, President—Bedding Products; and Mr. Davis became Senior Vice President—Operations, followed by his retirement on February 7, 2020.

 

(2) 

Mr. Tate became an NEO of the Company upon his appointment as Chief Financial Officer on September 3, 2019. Mr. Tate's salary and annual incentive award under the KOIP were prorated for the partial year he worked for the Company. As an inducement to join the Company, Mr. Tate received a one-time cash incentive of $250,000, which is subject to the Separation Agreement he entered into with the Company, as described on page 40. He also received a sign-on grant of $500,000 in time-based restricted stock units (RSUs), which vest in one-third increments on the first, second and third anniversaries of the grant date. Mr. Tate also received two interim PSU awards based upon his starting base salary and 250% PSU award multiple, but adjusted for the length of time remaining in their respective performance periods—for the 2018 PSU award with one year remaining in the three-year performance period, he received a one-third prorated award, and for the 2019 PSU award with two years remaining, he received a two-thirds prorated award.

 

2020 Proxy Statement | Leggett & Platt      42 


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   Executive Compensation and Related Matters

 

(3) 

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, Leggett stock units, or an option to purchase Leggett stock), as follows:

 

                         

Deferred Compensation Program

 

Name

   Year     

Total Cash

Compensation

Deferred

    

ESU

($)

    

Cash

Deferral

($)

    

Stock

Options

(#)

    

Stock

Units

(#)

 

Karl G. Glassman

  

 

2019

 

  

$

1,510,297

 

  

$

310,297

 

     

 

55,051

 

  

 

24,285

 

  

 

2018

 

  

 

1,258,847

 

  

 

258,847

 

        

 

29,556

 

    

 

2017

 

  

 

1,019,455

 

  

 

219,455

 

           

 

40,917

 

  

 

10,311

 

Jeffrey L. Tate

  

 

2019

 

  

 

34,848

 

  

 

34,848

 

                          

Matthew C. Flanigan

  

 

2019

 

  

 

1,219,147

 

           

 

37,393

 

  

 

2018

 

  

 

1,042,259

 

           

 

30,297

 

    

 

2017

 

  

 

900,820

 

                             

 

24,724

 

J. Mitchell Dolloff

  

 

2019

 

  

 

853,362

 

  

 

136,350

 

        

 

22,267

 

  

 

2018

 

  

 

428,805

 

  

 

86,266

 

        

 

9,659

 

    

 

2017

 

  

 

482,504

 

  

 

88,817

 

                    

 

11,773

 

Perry E. Davis

  

 

2019

 

  

 

234,936

 

  

 

49,951

 

  

$

184,985

 

     
  

 

2018

 

  

 

167,494

 

  

 

95,011

 

  

 

72,483

 

     
    

 

2017

 

  

 

246,294

 

  

 

85,904

 

  

 

160,390

 

                 

Scott S. Douglas

  

 

2019

 

  

 

402,805

 

  

 

71,572

 

     

 

45,587

 

  
  

 

2018

 

  

 

239,447

 

  

 

52,305

 

        

 

5,311

 

    

 

2017

 

  

 

200,314

 

  

 

41,430

 

                    

 

4,370

 

 

  

See the Grants of Plan-Based Awards Table on page 45 for further information on Leggett equity-based awards received in lieu of cash compensation in 2019.

 

(4) 

Amounts reported in this column reflect the grant date fair value of the PSU awards (including the one-time transition PSU award in 2018), the Profitable Growth Incentive awards (which were discontinued in 2018), and Mr. Tate's RSU award, as detailed in the table below. For a description of the assumptions used in calculating the grant date fair value, see Note M to Consolidated Financial Statements to our Annual Report on Form 10-K for the year ended December 31, 2019. 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

    

RSU Awards:

Grant Date

Fair Value

 

Karl G. Glassman

  

 

2019

 

  

$

6,117,860

 

  

$

12,235,720

 

        
  

 

2018

 

  

 

7,174,230

 

  

 

14,348,461

 

        
    

 

2017

 

  

 

3,346,963

 

  

 

5,857,184

 

  

$

870,730

 

  

$

2,176,826

 

        

Jeffrey L. Tate

  

 

2019

 

  

 

1,217,507

 

  

 

2,435,013

 

                    

$

428,394

 

Matthew C. Flanigan

  

 

2019

 

              
  

 

2018

 

  

 

2,093,560

 

  

 

4,187,120

 

        
    

 

2017

 

  

 

1,012,463

 

  

 

1,771,809

 

  

 

376,269

 

  

 

940,673

 

        

J. Mitchell Dolloff

  

 

2019

 

  

 

2,076,245

 

  

 

4,152,491

 

        
  

 

2018

 

  

 

1,874,222

 

  

 

3,748,444

 

        
    

 

2017

 

  

 

611,538

 

  

 

1,070,191

 

  

 

279,521

 

  

 

698,803

 

        

Perry E. Davis

  

 

2019

 

  

 

1,528,251

 

  

 

3,056,503

 

        
  

 

2018

 

  

 

1,874,222

 

  

 

3,748,444

 

        
    

 

2017

 

  

 

611,538

 

  

 

1,070,191

 

  

 

279,521

 

  

 

698,803

 

        

Scott S. Douglas

  

 

2019

 

  

 

847,666

 

  

 

1,695,332

 

        
  

 

2018

 

  

 

862,247

 

  

 

1,724,494

 

        
    

 

2017

 

  

 

332,413

 

  

 

581,722

 

  

 

157,340

 

  

 

393,350

 

        

 

2020 Proxy Statement | Leggett & Platt      43 


Table of Contents

 

                                                                                                

 

   Executive Compensation and Related Matters

 

(5) 

Amounts reported in this column for 2019 are set forth below:

 

Name

  

Change

in Pension

Value(a)

    

ESU

Program(b)

    

Deferred

Stock

Units(c)

    

Cash

Deferrals(d)

     Total  

Karl G. Glassman

  

$

70,512

 

  

$

45,850

 

  

$

47,074

 

           

$

163,436

 

Jeffrey L. Tate

                                            

Matthew C. Flanigan

  

 

32,525

 

  

 

19,354

 

  

 

15,598

 

           

 

67,477

 

J. Mitchell Dolloff

           

 

9,067

 

  

 

16,794

 

           

 

25,861

 

Perry E. Davis

  

 

41,578

 

  

 

12,810

 

           

$

8,390

 

  

 

62,778

 

Scott S. Douglas

  

 

53,837

 

  

 

7,943

 

  

 

2,073

 

           

 

63,853

 

 

  (a)

Change in the present value of the NEO's accumulated benefits under the defined benefit Retirement Plan, as described on page 48.

 

  (b)

15% discount on dividend equivalents for stock units held in the ESU Program, as described on page 36.

 

  (c)

20% discount on dividend equivalents for stock units held in the Deferred Compensation Program, as described on page 36.

 

  (d) 

Above-market portion of the interest earned on cash deferrals under the Deferred Compensation Program, as described on page 36.

 

(6) 

Amounts reported in this column for 2019 are set forth below:

 

Name

  

ESU

Program(a)

    

Deferred

Stock

Units(b)

    

401(k) Matching

Contributions(c)

    

Retirement

K Excess

Payments(c)

    

Life and

Disability

Insurance

Benefits

     Perks(d)      Total  

Karl G. Glassman

  

$

389,952

 

  

$

200,000

 

  

$

10,080

 

  

$

102,700

 

  

$

7,125

 

  

$

69,699

 

  

$

779,556

 

Jeffrey L. Tate

  

 

35,911

 

                             

 

557

 

           

 

36,468

 

Matthew C. Flanigan

  

 

91,531

 

  

 

304,787

 

           

 

42,547

 

  

 

4,019

 

           

 

442,884

 

J. Mitchell Dolloff

  

 

159,880

 

  

 

179,253

 

                    

 

2,070

 

  

 

13,867

 

  

 

355,070

 

Perry E. Davis

  

 

95,056

 

           

 

10,808

 

  

 

27,750

 

  

 

5,860

 

  

 

10,524

 

  

 

149,270

 

Scott S. Douglas

  

 

87,793

 

           

 

9,947

 

  

 

16,892

 

  

 

5,840

 

  

 

10,535

 

  

 

131,007

 

 

  (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 Company's 401(k) and Retirement K Excess Plan are described on page 36.

 

  (d)

Perquisites or other personal benefits with an aggregate value of $10,000 or more are included in the Summary Compensation Table. For disclosure purposes, perquisites are valued at the Company's incremental cost. Perquisites for our executive officers in 2019 consisted of use of a Company car, product samples, and limited personal use of corporate aircraft by the CEO. 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 incremental cost for Mr. Glassman's personal use of corporate aircraft in 2019 was $61,272 based upon the Company's average variable cost per passenger mile (including, but not limited to fuel, maintenance, and landing fees) for the Company's fleet over the course of 2019 multiplied by the passenger miles attributable to Mr. Glassman's personal use.

 

2020 Proxy Statement | Leggett & Platt      44 


Table of Contents

 

                                                                                                

 

   Executive Compensation and Related Matters

 

Grants of Plan-Based Awards in 2019

 

The following table sets forth, for the year ended December 31, 2019, information concerning each grant of an award made to the NEOs in 2019 under the Company's Flexible Stock Plan and the Key Officers Incentive Plan.

 

              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

or  Units (4)
(#)

 

   

All Other
Option
Awards:
Securities
Underlying
Options
(5)
(#)

 

   

Exercise
or Base
Price of
Option
Awards
(6)
($/Sh)

 

   

Grant

Date Fair

Value of

Stock

and

Option
Awards

($)

 

 

Name

  Grant
Date
    Award
Type
(1)
 

Threshold

($)

   

Target

($)

   

Maximum

($)

   

Threshold

(#)

   

Target

(#)

   

Maximum

(#)

 

Karl G. Glassman

 

 

2/26/19

 

 

AI

 

$

735,000

 

 

$

1,470,000

 

 

$

2,205,000

 

             
 

 

3/8/19

 

 

PSU

       

 

59,868

 

 

 

119,735

 

 

 

239,470

 

       

$

6,117,860

 

 

 

 

 

DSU

             

 

24,285

 

     

 

1,000,000

 

   

 

12/17/18

 

 

DSO

                                                         

 

55,051

 

 

 

36.33

 

 

 

301,074

 

Jeffrey L. Tate

 

 

9/3/19

 

 

AI

 

 

72,600

 

 

 

145,200

 

 

 

217,800

 

             
 

 

9/3/19

 

 

Int PSU

       

 

11,763

 

 

 

23,525

 

 

 

47,050

 

       

 

803,614

 

 

 

9/3/19

 

 

Int PSU

       

 

5,883

 

 

 

11,765

 

 

 

23,530

 

       

 

413,893

 

   

 

9/3/19

 

 

RSU

                                                 

 

12,830

 

                 

 

428,394

 

Matthew C. Flanigan

 

 

2/26/19

 

 

AI

 

 

228,800

 

 

 

457,600

 

 

 

686,400

 

             
   

 

 

 

DSU

                                                 

 

37,393

 

                 

 

1,523,934

 

J. Mitchell Dolloff

 

 

2/26/19

 

 

AI

 

 

300,000

 

 

 

600,000

 

 

 

900,000

 

             
 

 

3/8/19

 

 

PSU

       

 

20,318

 

 

 

40,635

 

 

 

81,270

 

       

 

2,076,245

 

   

 

 

 

DSU

                                                 

 

22,267

 

                 

 

896,265

 

Perry E. Davis

 

 

2/26/19

 

 

AI

 

 

254,400

 

 

 

424,000

 

 

 

636,000

 

             
   

 

3/8/19

 

 

PSU

                         

 

14,955

 

 

 

29,910

 

 

 

59,820

 

                         

 

1,528,251

 

Scott S. Douglas

 

 

2/26/19

 

 

AI

 

 

126,000

 

 

 

252,000

 

 

 

378,000

 

             
 

 

3/8/19

 

 

PSU

       

 

8,295

 

 

 

16,590

 

 

 

33,180

 

       

 

847,666

 

   

 

12/17/18

 

 

DSO