DEF 14A 1 t1400426_def14a.htm DEFINITIVE PROXY STATEMENT

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

 

 

Filed by the Registrant x Filed by a Party other than the Registrant ¨

 

Check the appropriate box:

 

¨ Preliminary Proxy Statement
   
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
   
x Definitive Proxy Statement
   
¨ Definitive Additional Materials
   
¨ Soliciting Material Pursuant to §240.14a-12

 

Leggett & Platt, Incorporated
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

x No fee required.

 

  ¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:
     
  (2) Aggregate number of securities to which transaction applies:
     
  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
     
  (4) Proposed maximum aggregate value of transaction:
     
  (5) Total fee paid:
     

 

  ¨ Fee paid previously with preliminary materials.
     
  ¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:
     
  (2) Form, Schedule or Registration Statement No.:
     
  (3) Filing Party:
     
  (4) Date Filed:
     

  

 

 

March 25, 2014

 

Dear Shareholder:

 

I am pleased to invite you to attend the annual meeting of shareholders of Leggett & Platt, Incorporated to be held on Wednesday, May 7, 2014, at 10:00 a.m. Central Time, at the Company’s Wright Conference Center. Directions are included on the back cover of this Proxy Statement.

 

The Proxy Statement contains four proposals from our Board of Directors: (i) the election of eleven directors, (ii) the ratification of the Audit Committee’s selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2014, (iii) an advisory vote to approve named executive officer compensation, and (iv) the approval of the 2014 Key Officers Incentive Plan. The Board encourages you to vote FOR each of these proposals.

 

The Proxy Statement also contains a shareholder proposal seeking to add sexual orientation and gender identity to the Company’s written non-discrimination policy. For reasons explained in the Proxy Statement, the Board encourages you to vote AGAINST this proposal.

 

Your vote is important. Whether or not you plan to attend the meeting, please vote as soon as possible. You may vote your shares online at www.proxypush.com/leg or by returning the enclosed proxy or voting instruction card. Specific instructions for these voting alternatives are contained on the proxy or voting instruction card.

 

I appreciate your continued interest in Leggett & Platt.

 

  Sincerely,
   
  LEGGETT & PLATT, INCORPORATED
   
 
   
  David S. Haffner
  Board Chair and CEO

 

 

  

Leggett & Platt, Incorporated

 

No. 1 Leggett Road

Carthage, Missouri 64836

 

 

 

 

NOTICE OF 2014 ANNUAL MEETING OF SHAREHOLDERS

 

The annual meeting of shareholders of Leggett & Platt, Incorporated (the “Company”) will be held at the Company’s Wright Conference Center, No. 1 Leggett Road, Carthage, Missouri 64836, on Wednesday, May 7, 2014, 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, 2014;

 

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

 

4.To approve the 2014 Key Officers Incentive Plan;

 

5.If properly presented at the meeting, to vote on a shareholder proposal requesting the addition of sexual orientation and gender identity to the Company’s written non-discrimination policy; and

 

6.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 5, 2014.

 

An Annual Report to Shareholders outlining the Company’s operations during 2013 accompanies this Notice of Annual Meeting and Proxy Statement.

 

  By Order of the Board of Directors,
 
  John G. Moore
  Secretary

 

Carthage, Missouri

March 25, 2014

 

 

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting to Be Held on May 7, 2014

 

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/2014/default.asp

 

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

www.proxypush.com/leg

 

 

  

Leggett & Platt, Incorporated

 

 

PROXY STATEMENT

 

TABLE OF CONTENTS

 

  Page
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING     1  
         
CORPORATE GOVERNANCE AND BOARD MATTERS     5  
Corporate Governance     5  
Director Independence     5  
Board Leadership Structure     5  
Communication with the Board     5  
Board and Committee Composition and Meetings     6  
Board’s Oversight of Risk Management     6  
Compensation Committee Interlocks and Insider Participation     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     13  
PROPOSAL 1—Election of Directors     13  
PROPOSAL 2—Ratification of Selection of Independent Registered Public Accounting Firm     18  
Audit and Non-Audit Fees     19  
Pre-Approval Procedures for Audit and Non-Audit Services     19  
Audit Committee Report     19  
PROPOSAL 3—Advisory Vote to Approve Named Executive Officer Compensation     20  
PROPOSAL 4—Approve the 2014 Key Officers Incentive Plan     21  
PROPOSAL 5—Shareholder Proposal Requesting the Addition of Sexual Orientation and Gender Identity to the Company’s Written Non-Discrimination Policy     22  
Discretionary Vote on Other Matters     24  
         
EXECUTIVE COMPENSATION AND RELATED MATTERS     25  
Compensation Discussion & Analysis     25  
Compensation Committee Report     38  
Summary Compensation Table     39  
Grants of Plan-Based Awards in 2013     42  
Outstanding Equity Awards at 2013 Fiscal Year End     43  
Option Exercises and Stock Vested in 2013     45  
Pension Benefits in 2013     46  
Non-Qualified Deferred Compensation in 2013     47  
Potential Payments Upon Termination or Change in Control     48  
         
SECURITY OWNERSHIP     53  
Security Ownership of Directors and Executive Officers     53  
Security Ownership of Certain Beneficial Owners     54  
Section 16(a) Beneficial Ownership Reporting Compliance     54  
         
EQUITY COMPENSATION PLAN INFORMATION     55  
         
APPENDIX A—2014 Key Officers Incentive Plan     A-1  

  

 

 

 

 

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS

AND THE ANNUAL MEETING

 

 

Why did I receive these materials?

 

The Board of Directors (the “Board”) of Leggett & Platt, Incorporated (the “Company” or “Leggett”) is providing these materials to you in connection with its solicitation of proxies for the Company’s annual meeting of shareholders on May 7, 2014. These materials were sent to shareholders on March 25, 2014. As a Leggett shareholder, you are entitled and encouraged to vote on the proposals presented in these proxy materials. We invite you to attend the annual meeting, but you do not have to attend to be able to vote.

 

Where can I obtain financial information about Leggett?

 

Our Annual Report to Shareholders, including our Form 10-K with financial statements for 2013, is enclosed in the same mailing with this proxy statement. The Company’s Proxy Statement and Annual Report to Shareholders (including Form 10-K) are also available at www.leggett.com/proxy/2014/default.asp. Information on our website does not constitute part of this proxy statement.

 

What business will be voted on at the annual meeting?

 

Shareholders will vote on the following proposals at the annual meeting:

 

·Election of eleven directors.

 

·Ratification of PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for 2014.

 

·Advisory vote to approve named executive officer compensation.

 

·Approval of the 2014 Key Officers Incentive Plan.

 

·A shareholder proposal requesting the addition of sexual orientation and gender identity to the Company’s written non-discrimination policy, if properly presented at the meeting.

 

·Any other business that is properly brought before the meeting.

 

The Board recommends that you vote FOR each of the director nominees, the ratification of PwC, the executive compensation package, and the 2014 Key Officers Incentive Plan, and that you vote AGAINST the shareholder proposal. If you return a signed proxy card without marking one or more proposals, your proxy will be voted in accordance with the Board’s recommendations.

 

What shares can I vote?

 

The only class of outstanding voting securities is the Company’s $.01 par value common stock. Each share of common stock issued and outstanding at the close of business on March 5, 2014 (the “Record Date”) is entitled to one vote on each matter submitted to a vote at the annual meeting. On the Record Date, we had 138,711,298 shares of common stock issued and outstanding.

 

You may vote all shares of Leggett common stock you owned on the Record Date. This includes shares held directly in your name as the shareholder of record and shares held for you as the beneficial owner through a broker, trustee or other nominee, sometimes referred to as shares held in “street name.”

 

Shareholder of Record: If your shares are registered directly in your name with our transfer agent, Wells Fargo, you are the shareholder of record, and these proxy materials were sent to you directly. As the shareholder of record, you have the right to grant your proxy vote directly or to vote in person at the annual meeting. We have enclosed a proxy card for you to use.

 

Beneficial Owner: If you hold shares in a brokerage account or through some other nominee, you are the beneficial owner of the shares, and these proxy materials were forwarded to you from the broker, trustee or nominee, together with a voting instruction card. As the beneficial owner, you have the right to direct your broker, trustee or nominee how to vote your shares by proxy. Although you are invited to attend the annual meeting, you may not vote these shares in person unless you obtain a legal proxy from the broker, trustee or nominee.

 

1

  

How do I submit my vote?

 

You may vote your shares (i) online at www.proxypush.com/leg, (ii) by signing and returning the proxy or voting instruction card, or (iii) in person at the meeting. If you vote online, you do not need to return your proxy or voting instruction card, but you will need to have it in hand when you access the voting website. Specific voting instructions are found on the proxy card or voting instruction card included with this proxy statement.

 

Can I change my vote?

 

Shareholder of Record: If you are a shareholder of record, you may change your vote or revoke your proxy any time before the annual meeting by (i) submitting a valid, later-dated proxy, (ii) submitting a valid, subsequent vote online, (iii) notifying the Company’s Secretary that you have revoked your proxy, or (iv) completing a written ballot at the annual meeting.

 

Beneficial Owner: If you hold shares as the beneficial owner, you may change your vote by (i) submitting new voting instructions to your broker, trustee, or nominee or (ii) voting in person at the annual meeting if you have obtained a legal proxy from your broker, trustee, or nominee.

 

How many votes are needed to conduct business at the annual meeting?

 

A majority of the outstanding shares of common stock entitled to vote must be present at the annual meeting, or represented by proxy, in order to meet the quorum requirement to transact business. Both abstentions and broker non-votes (described below) are counted in determining a quorum. If a quorum is not present, the annual meeting will be adjourned for no more than 90 days to reach a quorum.

 

What vote is required to elect a director?

 

A director nominee must receive the affirmative vote of a majority of those shares present (either in person or by proxy) and entitled to vote.

 

As required by our Corporate Governance Guidelines, each nominee has submitted a contingent resignation to the Nominating & Corporate Governance Committee (the “N&CG Committee”) in order to be nominated for election as a director. If a nominee fails to receive a majority of the votes cast in the director election, the N&CG Committee will make a recommendation to the Board of Directors whether to accept or reject the director’s resignation and whether any other action should be taken. If a director’s resignation is not accepted, that director will continue to serve until the Company’s next annual meeting or until his or her successor is duly elected and qualified. If the Board accepts the director’s resignation, it may, in its sole discretion, either fill the resulting vacancy or decrease the size of the Board to eliminate the vacancy.

 

What vote is required to approve the other proposals?

 

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote is required for ratification of the appointment of PwC as Leggett’s independent registered public accounting firm, for approval of the 2014 Key Officers Incentive Plan, and for the shareholder proposal. Since the vote on named executive officer compensation is an advisory vote, the Board will give due consideration to the outcome; however, that proposal is not approved as such.

 

What is the effect of an “abstention” vote on the election of directors and other proposals?

 

A share voted “abstain” with respect to any proposal is considered present and entitled to vote with respect to that proposal. For the proposals requiring a majority vote in order to pass, an abstention will have the effect of a vote against the proposal.

 

What is the effect of a “broker non-vote?”

 

If you are the beneficial owner of shares held through a broker or other nominee and do not vote your shares or provide voting instructions, your broker may vote for you on “routine” proposals but not on “non-routine” proposals. Therefore, if you do not vote on the non-routine proposals or provide voting instructions, your broker will not be allowed to vote your shares—this will result in a broker non-vote. Broker non-votes are not counted as shares present and entitled to vote, so they will not affect the outcome of the vote. All proposals on the agenda are non-routine, other than the ratification of PwC as the Company’s auditor.

 

2

  

Who pays the cost of soliciting votes at the annual meeting?

 

Leggett is making this solicitation and will pay the full cost of preparing, printing, assembling, and mailing these proxy materials. Upon request, we will also reimburse brokers and other nominees for forwarding proxy and solicitation materials to shareholders.

 

We have hired Alliance Advisors, LLC to assist in the solicitation of proxies by mail, telephone, in person, or otherwise. Alliance’s fees are expected to be $4,500 plus expenses. If necessary to assure sufficient representation at the meeting, Company employees, at no additional compensation, may request the return of proxies.

 

Where can I find the voting results of the annual meeting?

 

We will announce preliminary voting results at the annual meeting and plan to issue a press release immediately after the meeting. Within four business days after the annual meeting, we will file a Form 8-K reporting the vote count.

 

What should I do if I receive more than one set of proxy materials?

 

You may receive multiple sets of proxy materials if you hold shares in more than one brokerage account or if you are a shareholder of record and have shares registered in more than one name. Please vote the shares on each proxy card or voting instruction card you receive.

 

We have adopted “householding” which allows us, unless a shareholder withholds consent, to send one proxy statement and annual report to multiple shareholders sharing the same address. Each shareholder at a given address will receive a separate proxy card. If you currently receive multiple sets of proxy materials and wish to have your accounts householded, or if you no longer want to participate in householding and wish to revoke your consent, call Wells Fargo Shareowner Services at 877-602-7615 or send written instructions to Wells Fargo Shareowner Services, Attn: Leggett & Platt, Incorporated, P.O. Box 64854, St. Paul, MN 55164-0854. You will need to provide Leggett’s company number (203) and your 10-digit Wells Fargo account number which is printed at the top of your proxy card.

 

Many brokerage firms practice householding as well. If you have a householding request for your brokerage account, please contact your broker.

 

How may I obtain another set of proxy materials?

 

If you received only one set of proxy materials for multiple shareholders of record and would like us to send you another set this year, please call 800-888-4569 or write to Leggett & Platt, Incorporated, Attn: Investor Relations, No. 1 Leggett Road, Carthage, MO 64836. You can also access a complete set of proxy materials (the Notice of Meeting, Proxy Statement, and Annual Report to Shareholders including Form 10-K) online at www.leggett.com/proxy/2014/default.asp. To ensure that you receive multiple copies in the future, please contact your broker or Wells Fargo at the number or address in the preceding answer to withhold your consent for householding.

 

What is the deadline to propose actions for next year’s annual meeting or to nominate a director?

 

Shareholders may propose actions for consideration at future annual meetings either by presenting them for inclusion in the Company’s proxy statement or by soliciting votes independent of our proxy statement. To be properly brought before the meeting, all shareholder actions must comply with our bylaws, as well as SEC requirements under Regulation 14A. Leggett’s bylaws are posted on our website at www.leggett-search.com/governance. Notices specified for the types of shareholder actions set forth below must be addressed to Leggett & Platt, Incorporated, Attn: Corporate Secretary, No. 1 Leggett Road, Carthage, MO 64836.

 

Shareholder Proposal Included in Proxy Statement: If you intend to present a proposal at the 2015 annual meeting, SEC rules require that the Corporate Secretary receive the proposal at the address given above by November 25, 2014 for possible inclusion in the proxy statement. We will decide whether to include a proposal in the proxy statement in accordance with SEC rules governing the solicitation of proxies.

 

Shareholder Proposal Not Included in Proxy Statement: If you intend to present a proposal at the 2015 annual meeting by soliciting votes independent of the Company’s proxy statement, Section 1.2 of our bylaws requires that the Company receive timely notice of the proposal—no earlier than January 7, 2015 and no later than February 6, 2015. This notice must include

  

3

  

a description of the proposed business, your name and address, the number of shares you hold, any of your material interests in the proposal, and other matters specified in the bylaws. The nature of the business also must be appropriate for shareholder action under applicable law. The bylaw requirements also apply in determining whether notice is timely under SEC rules relating to the exercise of discretionary voting authority.

 

Director Nominee Included in Proxy Statement: If you wish to recommend a director candidate to the N&CG Committee for possible inclusion in the proxy statement, please see the requirements described under Consideration of Director Nominees and Diversity on page 7.

 

Director Nominee Not Included in Proxy Statement: If you intend to nominate a director candidate for election at the 2015 annual meeting outside of the Company’s nomination process, our bylaws require that the Company receive timely notice of the nomination—no earlier than January 7, 2015 and no later than February 6, 2015. This notice must include the information specified in Section 2.2 of the bylaws, including your name and address, the number of shares you hold, and the name, address and occupation of each proposed nominee.

 

4

   

 

 
CORPORATE GOVERNANCE AND BOARD MATTERS
 

 

Corporate Governance

 

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

 

Director Independence

 

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

 

While the Independence Standards help the Board to determine director independence, they are not the exclusive measure for doing so. The Board also reviews the relevant facts and circumstances of any material relationships between the Company and its directors during the independence assessment. Based on its review, the Board has determined that all of its current non-management directors are independent (the director biographies accompanying Proposal 1 “Election of Directors” identify our independent and management directors). In addition, Maurice E. Purnell, Jr., who served as a non-management director through our 2013 annual meeting, was also determined by the Board to be independent.

 

All Audit Committee members meet the higher independence standard for audit committee service under NYSE and SEC rules and are financially literate, as defined by NYSE rules. In addition, all Committee members meet the SEC’s definition of an “audit committee financial expert.” None of the members serves on the audit committee of more than three public companies. Also, all Compensation Committee members satisfy the enhanced independence standards required by the NYSE listing standards.

 

Board Leadership Structure

 

Our Corporate Governance Guidelines allow the roles of Board Chair and CEO to be filled by the same or different individuals. This approach allows the Board flexibility to determine whether the two roles should be separate or combined based upon the Company’s needs and the Board’s assessment of the Company’s leadership from time to time. The Board elected CEO David Haffner as Board Chair following the 2013 shareholder meeting and appointed Richard Fisher as the independent Lead Director, believing this arrangement best serves the Board, the Company and our shareholders.

 

As Lead Director, Mr. Fisher’s responsibilities include:

 

·Serving as the liaison between the Board Chair and the independent directors.

·Acting as the principal representative of the independent directors in communicating with shareholders.

·Approving the schedule, agenda and materials for Board meetings, together with the Board Chair.

·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 Chair’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 (typically, these executive sessions take place at each regularly scheduled quarterly Board meeting).

 

Communication with the Board

 

Shareholders and all other interested parties wishing to contact our Board of Directors may e-mail our Lead Director, Mr. Fisher, 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 sends Mr. Fisher all communications except items unrelated to Board functions (for example, advertisements and junk mail). In his discretion, Mr. Fisher may forward communications to the full Board or to any of the other independent directors for further consideration.

 

5

  

Board and Committee Composition and Meetings

 

The Board held five meetings in 2013, 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 2013 annual meeting.

 

The Board has a standing Audit Committee, Compensation Committee, Nominating & Corporate Governance Committee, and Executive Committee. Except for the Executive Committee (comprised of Richard Fisher—Chair, David Haffner and Ralph Clark), each committee consists entirely of independent directors and operates under a written charter adopted by the Board. The Audit, Compensation and Nominating & Corporate Governance Committee charters are posted on our website at www.leggett-search.com/governance.

 

Audit Committee

 

Judy C. Odom (Chair)

Robert E. Brunner

Robert G. Culp, III

Richard T. Fisher

Joseph W. McClanathan

 

Meetings in 2013: 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 controls 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

 

R. Ted Enloe, III (Chair)

Robert E. Brunner

Richard T. Fisher

Joseph W. McClanathan

Judy C. Odom

Phoebe A. Wood

 

Meetings in 2013: 6

   

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

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

·     Non-CEO executive officer compensation.

·     Cash and equity compensation for directors.

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

·     Grants of awards under incentive and equity 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

 

Ralph W. Clark (Chair)

Robert G. Culp, III

Richard T. Fisher

Joseph W. McClanathan

Judy C. Odom

 

Meetings in 2013: 4

   

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.

·     Director independence and related person transactions.

 

Board’s Oversight of Risk Management

 

The Audit Committee is responsible for oversight of our guidelines and policies to assess and manage risk. The Company’s CEO and other senior management are responsible for assessing and managing various risk exposures on a day-to-day basis. In 2003, we established the Enterprise Risk Management Committee (the “ERM Committee”) which is currently composed of 14 executives and chaired by our CFO. The ERM Committee adopted guidelines by which the Company

 

6

 

identifies, assesses, monitors and reports financial and non-financial risks material to the Company. The ERM Committee meets regularly throughout the year and provides an annual report to senior management and the Audit Committee of (i) the likelihood and significance of risks, (ii) the policies and guidelines regarding risk assessment and management, (iii) management’s steps to monitor and control risks, and (iv) an evaluation of the process. The Audit Committee reviews and discusses the report with management and the independent auditor.

 

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

 

The 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 25. 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 common annual incentive plan across all business units.

 

·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.

 

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

 

·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 3,700 employees contributing their own funds to purchase Company stock under various stock purchase plans.

 

Compensation Committee Interlocks and Insider Participation

 

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

 

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. 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. This procedure is posted on the Company’s website at www.leggett-search.com/governance.

 

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. The Company’s Bylaws and Corporate Governance Guidelines set the director retirement age at 72; however, the Board Chair, CEO or President may request a waiver for any director. At the request of Leggett’s CEO, the N&CG Committee recommended, and the full Board granted, retirement age waivers for Mr. Clark, Mr. Enloe and Mr. Fisher so they may stand for re-election at the 2014 annual meeting.

 

In the case of new director candidates, the N&CG Committee first determines whether the nominee must 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.

 

The Board of Directors may also consider candidates to fill a vacancy in the Board outside of the annual shareholder meeting process. The N&CG Committee will use the same criteria as are used to evaluate a director nominee to be elected by shareholders. In the event of a vacancy to be filled by the Board, the N&CG Committee will recommend one or more candidates for election and proxies will not be solicited.

 

The N&CG Committee seeks to identify and recruit the best available candidates. Qualified candidates will be considered without regard to race, color, religion, sex, ancestry, national origin or disability. The N&CG Committee believes director candidates should have the following minimum qualifications:

 

·Character and integrity.

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

 

7

 

  · A willingness and ability to make a sufficient time commitment to the affairs of the Company in order to effectively perform the duties of a director, including regular attendance at Board and committee meetings.
  · Significant business or public experience relevant and beneficial to the Board and the Company.

 

In addition to the minimum qualifications described above, the N&CG Committee may also consider the following factors in evaluating candidates for recommendation to the Board: 

  · Present and anticipated needs of the Board for particular experience or expertise and whether the candidate would satisfy those needs.
  · Requirement for the Board to have a majority of independent directors and whether the candidate would be considered independent.
  · Whether the candidate would be considered an “audit committee financial expert” or “financially literate” as described in NYSE listing standards, SEC rules and the Audit Committee charter.
  · Accomplishments of each candidate in his or her field.
  · Outstanding professional and personal reputation.
  · Relevant experience, including experience at the strategy/policy setting level, high level managerial experience in a complex organization, industry experience, and familiarity with the products and processes used by the Company.
  · Ability to exercise sound business judgment.
  · Breadth of knowledge about issues affecting the Company.
  · Ability and willingness to contribute special competencies to Board activities.
  · A willingness to assume broad fiduciary responsibility.
  · Fit with the Company’s culture.

 

Following the N&CG Committee’s initial review of a candidate’s qualifications, one or more N&CG Committee members will interview the candidate. The N&CG Committee may arrange subsequent interviews with the Board Chair and/or members of the Company’s management. The N&CG Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, for candidates recommended by a shareholder. 

 

Shareholders who wish to recommend candidates for the N&CG Committee’s consideration must submit a written recommendation to the Secretary of the Company at No. 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.

 

The Corporate Secretary will promptly forward these materials to the N&CG Committee Chair and the Board Chair. The N&CG Committee may contact recommended candidates to request additional information necessary for its evaluation or for disclosure under applicable SEC rules.

 

Separate procedures apply if a shareholder wishes to nominate a director candidate for election at a meeting of shareholders. Those procedures, contained in our bylaws, are discussed on page 3.

 

Although the N&CG Committee does not have a formal policy concerning its consideration of diversity in identifying director nominees, as the foregoing description of the N&CG Committee’s procedure for identifying and evaluating director candidates shows, the N&CG Committee develops the Board’s diversity by seeking candidates with business and public experience relevant to the Board’s current and anticipated needs as well as Leggett’s businesses. The N&CG Committee seeks to identify and recruit the best available candidates, without regard to race, color, religion, sex, ancestry, national origin or disability.

 

8

  

Transactions with Related Persons

 

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

 

The Company’s executive officers and directors are expected to notify the Company’s Corporate Secretary of any current or proposed transaction that may be a related person transaction. The Corporate Secretary will determine if it is a related person transaction and, if so, will include it for consideration at the next meeting of the appropriate Committee. Approval should be obtained in advance of a related person transaction whenever practicable. If it becomes necessary to approve a related person transaction between meetings, the Chair of the appropriate Committee is authorized to act on behalf of the Committee. The Chair will provide a report on the matter to the full Committee at its next meeting.

 

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

 

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 2013 and early 2014, we purchased shares from five of our executive officers: 16,500 shares from Joseph Downes for a total of $493,680; 50,000 shares from Matthew Flanigan for a total of $1,524,400; 162,891 shares from Karl Glassman for a total of $3,484,302; 3,938 shares from John Moore for a total of $125,425; and 10,000 shares from Dennis Park for a total of $310,900. 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 certain relatives of its directors and executive officers, but only two had total compensation in excess of the $120,000 related person transaction threshold: Jason Higdon, Assistant General Counsel, the stepson of Industrial Materials Segment President, Joseph Downes, had total compensation of $156,554 in 2013 (consisting of salary and annual incentive earned in 2013); and Bren Flanigan, Director of Business Development—Industrial Materials, the brother of CFO, Matthew Flanigan, had total compensation of $232,384 in 2013 (consisting of salary and annual incentive earned in 2013 and the grant date fair value of equity awards issued in 2013).

 

9

 

Director Compensation

 

Our non-employee directors receive an annual retainer, consisting of a mix of cash and restricted stock as set forth below. Our employee directors (Mr. Haffner, Mr. Glassman and Mr. Flanigan) do not receive additional compensation for their Board service. Directors may elect to receive restricted stock units (“RSUs”) instead of restricted stock. Electing RSUs enables directors to defer receipt of the shares for 2 to 10 years while accruing dividend equivalents at a 20% discount to market price over the deferral period. The restricted stock and RSUs vest one year after the grant date.

 

 

Item     Amount  
Cash Compensation            
Director Retainer (Non-Employee)     $ 50,000    
Audit Committee Retainer            
Chair       18,000    
Member       8,000    
Compensation Committee Retainer            
Chair       15,000    
Member       6,000    
N&CG Committee Retainer            
Chair       10,000    
Member       5,000    
Equity Compensation—Restricted Stock or RSUs            
Vice Chair/Lead Director Retainer (including director retainer)       250,000    
Director Retainer       125,000    

 

The Compensation Committee reviews director compensation every year and recommends any changes to the full Board for consideration at its May meeting. The Committee considers national survey data and trends but does not target director compensation to any specific percentage of the median. The only modification of the directors’ compensation package in 2013 was to establish the Vice Chair/Lead Director’s equity retainer at $250,000, which was reduced from the $290,000 equity retainer paid to the Independent Chair in 2012.

 

Our non-employee directors’ 2013 compensation is set forth in the following table. Directors may elect to defer their cash compensation into a cash deferral arrangement, stock options or stock units under the Company’s Deferred Compensation Program, described on page 34. We also pay for all travel expenses the directors incur to attend Board meetings.

 

10

  

Director Compensation in 2013

 

 

Director  Fees Earned
or Paid in
Cash
(1)
   Stock
Awards
(2)
   Non-Qualified
Deferred
Compensation
Earnings
(3)
   All Other
Compensation
(4)
   Total 
Robert E. Brunner  $64,000   $125,000        $3,967   $192,967 
Ralph W. Clark   57,500    125,000   $6,873    29,518    218,891 
Robert G. Culp, III   63,000    125,000         2,225    190,225 
R. Ted Enloe, III   65,000    125,000    1,183    10,090    201,273 
Richard T. Fisher   69,000    250,000    237    14,280    333,517 
Joseph W. McClanathan   69,000    125,000    559    3,980    198,539 
Judy C. Odom   79,000    125,000    3,999    20,935    228,935 

Maurice E. Purnell, Jr.(5)

   30,000              1,742    31,742 
Phoebe A. Wood   62,000    125,000    11,375    39,665    238,040 

 

  

 

 

(1)These amounts include cash compensation deferred into stock units under our Deferred Compensation Program by the following directors: Mr. Clark deferred 100% ($57,500); Mr. Fisher deferred 20% ($13,800); Ms. Odom deferred 25% ($19,750); and Ms. Wood deferred 100% ($62,000).

 

(2)These amounts reflect the grant date fair value of the annual restricted stock or RSU awards, which was $125,000 for each director except Mr. Fisher, who received a restricted stock award of $250,000 for his service as the Vice Chair/Lead Director. For a description of the assumptions used in calculating the grant date fair value, see Note L of the Company’s Annual Report on Form 10-K for the year ending December 31, 2013.

 

(3)These amounts include above-market interest accrued on cash deferrals and the 20% discount on dividends paid on stock units acquired under our Deferred Compensation Program and RSUs.

 

(4)Items in excess of $10,000 that are included in the total 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: Mr. Clark—$15,143, Ms. Odom—$15,998, and Ms. Wood—$24,165; and (ii) the discount on stock units purchased with deferred cash compensation: Mr. Clark—$14,375 and Ms. Wood—$15,500.

 

(5)Compensation reported for Mr. Purnell reflects a partial year of service, since he did not stand for re-election at the 2013 annual meeting and his service concluded on May 9, 2013.

 

Six of our non-employee directors held outstanding stock options as of December 31, 2013 as described in the following table. Options that were granted in lieu of cash compensation under our Deferred Compensation Program are listed separately in the “DC Options” column.

 

 

Director  Options   DC
Options
   Total 
Ralph W. Clark   4,741    4,338    9,079 
R. Ted Enloe, III   12,777    21,168    33,945 
Richard T. Fisher   1,454         1,454 
Joseph W. McClanathan   1,454         1,454 
Judy C. Odom   1,454    5,076    6,530 
Phoebe A. Wood   976         976 

 

11

  

Eight of our non-employee directors held unvested stock or stock units as of December 31, 2013 as set forth below. These restricted stock shares and RSUs will vest on May 9, 2014.

 

 

Director  Restricted
Stock
   Restricted
Stock
Units
 
Robert E. Brunner   3,771      
Ralph W. Clark        3,862 
Robert G. Culp, III   3,771      
R. Ted Enloe, III   3,771      
Richard T. Fisher   7,541      
Joseph W. McClanathan        3,862 
Judy C. Odom        3,862 
Phoebe A. Wood   3,771      

 

12

  

 

 
PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING
 

 

1  
PROPOSAL ONE:   Election of Directors

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

 

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

 

 

Robert E. Brunner

Independent Director since 2009

 

Committees:

Audit

Compensation

 

Age: 56

 

Professional Experience:

 

Mr. Brunner was the Executive Vice President of Illinois Tool Works (ITW), a diversified 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 College.

 

Public Company Boards:

 

Mr. Brunner currently serves as a director of NN, Inc., a global manufacturer of precision bearings and plastic, rubber and metal components, and 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 operational and international issues.

     

Ralph W. Clark

Independent Director since 2000

 

Committees:

Executive

Nominating & Corporate Governance,
Chair

 

Age: 73

 

Professional Experience:

 

Mr. Clark held various executive positions at International Business Machines Corporation (IBM) from 1988 until 1994, including Division President—General and Public Sector. He also served as Chairman of Frontec AMT Inc., a software company, from 1994 until his retirement in 1998 when the company was sold.

 

Education:

 

Mr. Clark holds a master’s degree in economics from the University of Missouri.

 

Director Qualifications:

 

Through Mr. Clark’s career with IBM and Frontec and his current board service with privately-held companies, he has valuable experience in general management, marketing, information technology, finance and strategic planning.

 

13

  

 

Robert G. Culp, III

Independent Director since 2013

 

Committees:

Audit

Nominating & Corporate Governance

 

Age: 67

 

Professional Experience:

 

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

 

Education:

 

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

 

Public Company Boards:

 

Mr. Culp is the Chairman of the Board of Culp, Inc., the lead independent director of Old Dominion Freight Line, Inc., a national motor transportation and logistics company, and served as a director of Stanley Furniture Company, Inc., a manufacturer and importer of wooden residential furniture, until 2011.

 

Director Qualifications:

 

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

R. Ted Enloe, III

Independent Director since 1969

 

Committees:

Compensation, Chair

 

Age: 75

 

Professional Experience:

 

Mr. Enloe has been Managing General Partner of Balquita Partners, Ltd., a family securities and real estate investment partnership, since 1996. Previously, he served as President and Chief Executive Officer of Optisoft, Inc., a manufacturer of intelligent traffic systems, from 2003 to 2005. His former positions include Vice Chairman of the Board and member of the Office of the Chief Executive for Compaq Computer Corporation and President of Lomas Financial Corporation and Liberte Investors.

 

Education:

 

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

 

Public Company Boards:

 

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

 

Director Qualifications:

 

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

 

14

  

 

Richard T. Fisher

Independent Director since 1972

 

Committees:

Audit

Compensation

Executive, Chair

Nominating & Corporate Governance

 

Age: 75

 

Professional Experience:

 

Mr. Fisher has been Managing Director of Oppenheimer & Co., an investment banking firm, since 2002. He served as Managing Director of CIBC World Markets Corp., an investment banking firm, from 1990 to 2002.

 

Education:

 

Mr. Fisher holds a degree in economics from the Wharton School of the University of Pennsylvania.

 

Director Qualifications:

 

Mr. Fisher’s career in investment banking provides the Board with a unique perspective on the Company’s strategic initiatives, financial outlook and investor markets. His valuable business skills and long-term perspective of the Company bolster his leadership as the Company’s Lead Independent Director. He served as the independent Board Chair from 2008 until May 2013, when he was elected as the Lead Independent Director.

Matthew C. Flanigan

Management Director since 2010

 

Committees:

None

 

Age: 52

 

Professional Experience:

 

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

 

Education:

 

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

 

Public Company Boards:

 

Mr. Flanigan serves as the lead director of Jack Henry & Associates, Inc., a provider of core information processing solutions for financial institutions.

 

Director Qualifications:

 

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

 

15

  

 

Karl G. Glassman

Management Director since 2002

 

Committees:

None

 

Age: 55

 

Professional Experience:

 

Mr. Glassman was appointed President of the Company in 2013 and has served as Chief Operating Officer since 2006. He previously served the Company as 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.

 

Director Qualifications:

 

With over two decades experience leading the Company’s largest segment and serving as its Chief Operating Officer, Mr. Glassman provides in-depth operational knowledge to the Board and is a key interface between the Board’s oversight and strategic planning and its implementation at all levels of the Company around the world. Mr. Glassman also serves on the Board of Directors of the National Association of Manufacturers.

David S. Haffner

Management Director since 1995

 

Committees:

Executive

 

Age: 61

 

Professional Experience:

 

Mr. Haffner was elected as the Board Chair of the Company in 2013, and continues to serve as Chief Executive Officer of the Company since his appointment in 2006. He previously served the Company as President from 2002 to 2013, Chief Operating Officer from 1999 to 2006, Executive Vice President from 1995 to 2002, and in various capacities since 1983.

 

Education:

 

Mr. Haffner holds a degree in engineering from the University of Missouri and an MBA from the University of Wisconsin—Oshkosh.

 

Public Company Boards:

 

Mr. Haffner serves as a director of Bemis Company, Inc., a manufacturer of flexible packaging and pressure sensitive materials.

 

Director Qualifications:

 

As the Company’s CEO, Mr. Haffner provides comprehensive insight to the Board across the spectrum from strategic planning to implementation to execution and reporting, as well as its relationships with investors, the finance community and other key stakeholders.

 

16

 

Joseph W. McClanathan

Independent Director since 2005

 

Committees:

Audit

Compensation

Nominating & Corporate Governance

 

Age: 61

 

Professional Experience:

 

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

 

Education:

 

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

 

Director Qualifications:

 

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

Judy C. Odom

Independent Director since 2002

 

Committees:

Audit, Chair

Compensation

Nominating & Corporate Governance

 

Age: 61

 

Professional Experience:

 

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

 

Education:

 

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

 

Public Company Boards:

 

Ms. Odom is a director of Harte-Hanks, a direct marketing service company.

 

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.

 

17

 

Phoebe A. Wood

Independent Director since 2005

 

Committees:

Compensation

 

Age: 60

 

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, Coca-Cola Enterprises, Inc., a major bottler and distributor of Coca-Cola products, and Pioneer Natural Resources, an independent oil and gas company.

 

Director Qualifications:

 

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

 

The Board recommends that you vote FOR the election of each of the director nominees.
2  
PROPOSAL TWO:
 
Ratification of Selection of Independent Registered Public Accounting Firm

The Audit Committee has selected PricewaterhouseCoopers LLP (“PwC”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014. PwC (or its predecessor firm) has been our independent registered public accounting firm since 1991.

 

We are asking our shareholders to ratify the Audit Committee’s selection of PwC as our independent registered public accounting firm. Although ratification is not required by the Company’s bylaws or otherwise, the Board is submitting the selection of PwC to our shareholders for ratification as a matter of good corporate practice. If our shareholders fail to ratify the selection, it will be considered a direction to the udit 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 independent registered public accounting firm.

 

18

 

Audit and Non-Audit Fees

 

The fees billed or expected to be billed by PwC for professional services rendered in fiscal years 2013 and 2012 are shown below.

 

Type of Service  2013   2012 
Audit Fees(1)   $1,927,700   $1,896,283 
Audit-Related Fees(2)    16,151    23,963 
Tax Fees(3)    415,268    395,173 
All Other Fees(4)    2,600    2,600 
Total  $2,361,719   $2,318,019 
 
(1)Includes rendering an opinion on the Company’s consolidated financial statements and the effectiveness of internal control over financial reporting; quarterly reviews of our financial statements; statutory audits as required; comfort and debt covenant letters; and services in connection with securities regulatory filings.

(2)Includes consulting on accounting and financial reporting issues; limited procedures reports related to agreements or arbitrations; continuing professional education; audits of employee benefit plans and subsidiaries; and due diligence and audit procedures related to acquisitions and joint ventures.

(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 2013, $185,312 relate to compliance services and $229,956 relate to consulting and planning services.

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

 

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

 

Pre-Approval Procedures for Audit and Non-Audit Services

 

The Audit Committee is responsible for the appointment and compensation of the Company’s independent registered public accounting firm. To fulfill this responsibility, the Audit Committee has established a procedure for pre-approving the services performed by the Company’s auditors. All services provided by PwC in 2013 were approved in accordance with the adopted procedures. There were no services provided or fees paid in 2013 for which the pre-approval requirement was waived.

 

The procedure provides standing pre-approval for:

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

·Audit-Related Services: consultation on new or proposed transactions, statutory requirements, or accounting principles; reports related to contracts, agreements, arbitration, or government filings; continuing professional education; audits of employee benefit plans and subsidiaries; and due diligence and audits related to acquisitions and joint ventures.

·Tax Services: preparation and review of Company and related entity income, sales, payroll, property, and other tax returns and tax filings and permissible tax audit assistance; preparation or review of expatriate and similar employee tax returns and tax filings; tax consulting and advice related to compliance with applicable tax laws; tax planning strategies and implementation; and tax due diligence related to acquisitions and joint ventures.

 

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

 

Audit Committee Report

 

The Audit Committee is composed of five 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.

 

19

 

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

 

At its meetings, the Audit Committee reviewed and discussed the Company’s audited financial statements with management and PwC. The Audit Committee also discussed with PwC all items required by Public Company Accounting Oversight Board Auditing Standard No. 16—Communications with Audit Committees.

 

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

 

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

 

Based on the review and discussions with management and PwC referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s 2013 Annual Report on Form 10-K.

 

Judy C. Odom (Chair)

Robert E. Brunner

Robert G. Culp, III

Richard T. Fisher

Joseph W. McClanathan

 

3  
PROPOSAL THREE:
 
Advisory Vote to Approve Named Executive Officer Compensation

Pursuant to Section 14A of the Securities Exchange Act of 1934, Leggett’s shareholders have the opportunity at the annual meeting to vote on an advisory resolution on our executive compensation package, commonly known as “Say-on-Pay,” to approve the compensation of Leggett’s named executive officers, as described in the “Executive Compensation” section beginning on page 25.

 

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. In each of the three years since Say-on-Pay was implemented, over 90% of the shareholders who voted on the proposal approved the compensation of our named executive officers (with 95% support in 2013).

 

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 utilizes a mixture of cash and equity 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 pursuant to SEC disclosure rules, including the Compensation Discussion and Analysis, the executive compensation tables and the related footnotes and narrative accompanying the tables.

 

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

 

20

 

4  
PROPOSAL FOUR:
 
Approval of the 2014 Key Officers Incentive Plan

At the 2009 Annual Meeting, our shareholders approved the material terms of the 2009 Key Officers Incentive  Plan (the “2009 Plan”). The 2009 Plan provided benefits intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, but such plans must be approved by shareholders every five years. In this proposal, the Board is requesting that shareholders approve the 2014 Key Officers Incentive Plan (the “2014 Plan”).

 

Section 162(m) of the Internal Revenue Code limits the amount of compensation that may be deducted by the Company in any year to those persons named in the Summary Compensation Table on page 39 (not including the Chief Financial Officer). However, qualifying “performance-based” compensation should not be subject to this deduction limit, assuming the other technical requirements of Section 162(m) are also satisfied. Compensation may be “performance-based” if payment is conditioned on the achievement of performance goals set by a committee of outside directors. The Company’s shareholders must approve such performance goals.

 

Subject to shareholder approval, the Compensation Committee (the “Committee”) adopted the 2014 Plan to replace the 2009 Plan. The 2014 Plan is substantially similar to the 2009 Plan, with the addition of pro rating Awards in the case of a Participant’s retirement or disability. If approved by shareholders, the 2014 Plan will become effective as of January 1, 2014. If not approved by shareholders, no performance-based awards will be paid under either the 2009 or the 2014 Plans.

 

Set forth below is a description of the key features of the 2014 Plan. This description is subject to and qualified by the full text of the 2014 Plan attached as Appendix A, which is incorporated by reference.

 

The purpose of the 2014 Plan is to attract, motivate and retain participants who make significant contributions to the Company’s success by allowing them to share in that success through incentive payments based on the Company’s performance. The 2014 Plan is designed for the Company to claim tax deductions for performance-based compensation paid or awarded to participants under the Plan. The Company’s executive officers (currently 11 persons) are eligible for participation in the Plan.

 

The 2014 Plan is administered by the Committee, which has sole responsibility for selecting participants, setting target percentages, establishing performance objectives, performance periods and award formulas, and determining awards.

 

The 2014 Plan provides for the payment of cash awards to participants based on the attainment of certain performance objectives. Performance objectives may differ for each participant and may be based on corporate financial measures, financial measures relating to one or more profit centers, or individual measures. Performance Objectives may include, without limitation, revenue, operating income, return on capital employed, return on equity, cash flow, earnings, total shareholder return, share price performance, compliance, and any of the other performance measures listed in Section 2.2 of the Plan. The 2014 Plan also permits the Committee to adjust the calculations of the Performance Objectives in order to appropriately reflect the underlying operational performance of the Company or applicable Profit Centers during the Performance Period.

 

The Committee will establish the award formula and participants’ target percentages no later than 90 days after the beginning of the year or before 25% of a performance period has elapsed. The Committee may reduce a participant’s award as calculated under the formula by up to 20% but may not increase an award. No participant who is subject to Section 162(m) of the Code will be entitled to an additional award based on another participant forfeiting all or any portion of the discretionary payment. A participant’s award may not exceed two times the participant’s base salary. Participants may elect to defer their awards under the Company’s Deferred Compensation Program.

 

21

 

The Committee has not yet approved the formula for determining awards for 2014 performance under the 2014 Plan. Accordingly, 2014 incentive awards are not determinable at this time. The table below sets forth the amounts that were payable for 2013 performance under the 2009 Plan (which is substantially the same as the 2014 Plan), to each of the individuals and groups listed below.

 

Name  2013
Incentive Award
 
David S. Haffner  $1,318,051 
Karl G. Glassman   773,882 
Matthew C. Flanigan   404,926 
Jack D. Crusa   244,684 
Joseph D. Downes, Jr.   152,100 
All executive officers, as a group   3,871,515 

 

A description of the 2013 awards, performance measures and payout decisions is contained in the Annual Incentive section of the Compensation Discussion and Analysis beginning on page 28. Compensation paid to our most highly compensated officers under the 2009 Plan for the past three years is shown in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 39.

 

The Company intends to file a Form 8-K in late March after the Committee has approved the award formula for 2014. Although not final, we expect the Committee to set the following performance measures and relative weighting of each. The individual performance goals will likely be established separately from this Plan. We further expect that the Committee will set the maximum payout at 150%.

 

Performance Measures  Relative Weight 
Return on Capital Employed   60%
Cash Flow   20%
Individual Performance Goals   20%

 

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. The Committee may approve certain adjustments to the GAAP definition of these measures. Any such adjustments will be explained in the Form 8-K.

 

If, within 24 months after an award is paid, the Company is required to restate previously reported financial results, the Committee will require all participants to repay any amounts paid in excess of the amounts that would have been paid based on the restated financial results. In addition, the Committee may require repayment of the entire award from those participants the Committee determines, in its discretion, to be personally responsible for gross misconduct or fraud that caused the need for the restatement.

 

The Company has a separate incentive plan for other key management employees, the Key Management Incentive Plan. The terms of the Key Management Incentive Plan are substantially the same as those of the 2014 Plan.

 

The Committee may amend or terminate the Plan at any time, provided that no amendment will be made without shareholder approval if such approval is required under applicable law or for bonuses to qualify as “performance-based compensation.”

 

The Board recommends that you vote FOR the 2014 Key Officers Incentive Plan.

 

5  
PROPOSAL FIVE:
 
Shareholder Proposal Requesting the Addition of Sexual
Orientation and Gender Identity to the Company’s Written
Non-Discrimination Policy

The Office of the Comptroller of New York City, as custodian and a trustee of the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Police Pension Fund and the New York City Fire Department Pension Fund, and as custodian of the New York City Board of Education Retirement System, has

 

22

 

notified us of its intent to present the following proposal for consideration at the annual meeting. The addresses and number of shares held by such shareholders are available from the Company upon request to its Secretary.

 

The proposed resolution and supporting shareholder statement are followed by a statement of opposition and a recommendation from the Company’s Board. The Company accepts no responsibility for the proposed shareholder resolution and supporting statement.

 

Proposed Shareholder Resolution and Statement

 

Whereas: Leggett & Platt, Incorporated does not explicitly prohibit discrimination based on sexual orientation and gender identity in its written employment policy;

 

Over 88% of the Fortune 500 companies have adopted written nondiscrimination policies prohibiting harassment and discrimination on the basis of sexual orientation, as have more than 98% of Fortune 100 companies, according to the Human Rights Campaign; over 30% now prohibit discrimination based on gender identity;

 

We believe that corporations that prohibit discrimination on the basis of sexual orientation and gender identity have a competitive advantage in recruiting and retaining employees from the widest talent pool;

 

According to a June, 2008 survey by Harris Interactive and Witeck-Combs, 65% of gay and lesbian workers in the United States reported facing some form of job discrimination related to sexual orientation; an earlier survey found that almost one out of every 10 gay or lesbian adults also reported that they had been fired or dismissed unfairly from a previous job, or pressured to quit a job because of their sexual orientation;

 

Twenty states, the District of Columbia and more than 160 cities and counties, have laws prohibiting employment discrimination based on sexual orientation; 12 states and the District of Columbia have laws prohibiting employment discrimination based on sexual orientation and gender identity;

 

Minneapolis, San Francisco, Seattle and Los Angeles have adopted legislation restricting business with companies that do not guarantee equal treatment for gay and lesbian employees;

 

Our company has operations in, and makes sales to institutions in states and cities that prohibit discrimination on the basis of sexual orientation;

 

National public opinion polls consistently find more than three quarters of the American people support equal rights in the workplace for gay men, lesbians and bisexuals; for example, in a Gallup poll conducted in May, 2007, 89% of respondents favored equal opportunity in employment for gays and lesbians;

 

Resolved: The Shareholders request that Leggett & Platt, Incorporated amend its written equal employment opportunity policy to explicitly prohibit discrimination based on sexual orientation and gender identity or expression and to substantially implement the policy.

 

Supporting Statement: Employment discrimination on the basis of sexual orientation and gender identity diminishes employee morale and productivity. Because state and local laws are inconsistent with respect to employment discrimination, our company would benefit from a consistent, corporate wide policy to enhance efforts to prevent discrimination, resolve complaints internally, and ensure a respectful and supportive atmosphere for all employees. Leggett & Platt, Inc. will enhance its competitive edge by joining the growing ranks of companies guaranteeing equal opportunity for all employees.

 

Company’s Statement in Opposition:

 

We believe the proposed resolution is unnecessary because Leggett is already an equal opportunity employer with a firm and long-standing commitment to preventing discrimination in the workplace. Leggett’s existing anti-discrimination policy states, “Leggett & Platt, Incorporated is committed to equal opportunity and bases workplace decisions solely on the skills and abilities of our applicants and employees. These principles of equal opportunity should be applied in all aspects of employment including: recruiting, hiring, promotion, training, compensation, termination, layoff, transfer, disciplinary actions, and other terms, conditions or privileges of employment.”

 

We are committed to the highest ethical standards, which include assuring equal employment and promotion opportunities free of discrimination on any basis other than merit and performance-related qualifications. Our policies reflect our high standards, and we implement these policies in our business operations through ongoing training.

 

23

 

We believe our written policies should specifically list only those types of discrimination prohibited by federal law. Singling out employees by sexual orientation or gender identity (or any other classification not mandated by federal law) would, in our view, dilute our policy of prohibiting discrimination in any form and divert attention from our primary goal of a completely non-discriminatory workplace. We also believe the addition of sexual orientation and gender identity to the list would result in increased costs by encouraging frivolous lawsuits.

 

Leggett’s shareholders defeated similar proposals at the Company’s last eight annual meetings. We believe this consistent rejection by shareholders sends a clear message to our Board that Leggett should oppose this unnecessary addition to our nondiscrimination policy.

 

The Board of Directors recommends that you vote AGAINST this shareholder proposal.

 

Discretionary Vote on Other Matters

 

We are not aware of any business to be acted upon at the annual meeting other than the five 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.

 

24

 

EXECUTIVE COMPENSATION AND RELATED MATTERS

 

Compensation Discussion & Analysis

 

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

 

·Emphasizes performance-based equity over cash compensation.

 

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

 

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

 

·Motivates our executive officers to take appropriate business risks.

 

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

 

David S. Haffner   Board Chair and Chief Executive Officer (CEO)
Karl G. Glassman   President and Chief Operating Officer (COO)
Matthew C. Flanigan   Executive VP and Chief Financial Officer (CFO)
Joseph D. Downes, Jr.   Senior VP, President—Industrial Materials Segment
Jack D. Crusa   Senior VP, President—Specialized Products Segment

 

Executive Summary

 

The largest component of our executive compensation package, performance stock units (“PSUs”), pay out based upon on our Total Shareholder Return (“TSR”)(1) relative to certain peer companies(2) over rolling 3-year periods. While our long-term results have been strong—a 21% compound annual growth rate over the last 5-year period, compared to 18% for the S&P 500 Index—our 1-year TSR of 18% in 2013 lagged the S&P 500’s 32% TSR. The PSUs that vested at year-end 2013 paid out at 64% of target as a result of Leggett’s comparative TSR downturn in 2013.

 

Our executives’ 2013 annual incentive payouts tracked the Company’s operational success in 2013 in which we generated outstanding cash flow of $474 million (versus a target of $292 million) and 33.5% return on capital employed (versus a target of 33%).(3)

 

This section provides an overview of the Committee’s key actions in 2013, the size and structure of our NEOs’ total direct compensation for the year, and the Committee’s pay practices and 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.

 

 
(1)TSR = (Change in Stock Price + Dividends) ÷ Beginning Stock Price; assumes dividends are reinvested.

 

(2)The peer group for our PSUs consists of those companies in the industrial, materials and consumer discretionary sectors of the S&P 500 and S&P Midcap 400 (about 320 companies).

 

(3)The annual incentive program, including the calculations for cash flow and return on capital employed (ROCE), is described on page 28.

 

25

 

Significant Developments. In 2013, the Compensation Committee:

 

·Renewed the employment agreements with three members of our senior leadership team (CEO, COO and CFO) to provide continuity in executing Leggett’s strategy through 2017.

·Eliminated the excise tax gross-up from executive severance arrangements and prohibited future pledges of Company stock by directors and executive officers.

·Approved the Profitable Growth Incentive (“PGI”) plan that replaced annual option grants for our executives and senior managers in 2013. The PGI is a performance-based equity program with payouts based on revenue growth and EBITDA margin over a 2-year performance period.

 

Total Direct Compensation. The Committee approved the following compensation for the NEOs in 2013:

 

   Cash   Equity     
Name, Title  Base
Salary
   Annual
Incentive
   PSUs   PGI   RSUs   Total Direct
Compensation
 
David S. Haffner, CEO  $1,055,000   $1,318,051   $2,782,770   $780,402   $1,529,000   $7,465,223 
Karl G. Glassman, COO   785,000    773,882    1,515,240    584,384    1,376,100    5,034,606 
Matthew C. Flanigan, CFO   475,000    404,926    785,220    287,452    1,223,200    3,175,798 
Joseph D. Downes, Jr., SVP   338,000    152,100    501,630    214,519         1,206,249 
Jack D. Crusa, SVP   332,000    244,684    425,730    209,932         1,212,346 

 

This table is not a substitute for the Summary Compensation Table (see page 39), but we believe it provides a relevant picture of the Committee’s actions. The Annual Incentive amounts report the award actually earned, based on 2013 performance against the targets established by the Committee. Amounts reported for PSUs and PGI are valued at the grant date fair value of the award, although the ultimate value received by the NEOs could be significantly lower or higher depending upon the Company’s performance. The total compensation figures for Mr. Haffner, Mr. Glassman and Mr. Flanigan appear unusually high for 2013 in the table above due to inclusion of the full grant date value of the restricted stock units (“RSUs”) awarded in connection with their 4-year employment agreements. These awards are reflected as 2013 compensation, although they will vest in annual installments over the term of those agreements.

 

26

 

Structuring the Mix of Compensation. The Committee uses its discretion to determine the appropriate percentage of variable to fixed compensation, as well as the split between cash and equity compensation. The ultimate payment and value of the variable elements of their compensation depends on actual performance and could result in no payout if those conditions are not met. The following table shows the key attributes of the 2013 compensation programs used to drive performance and build long-term shareholder value:

 

Compensation Type   Fixed/Variable   Cash/Equity   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, individual performance goals
Profitable Growth Incentive   Variable   Equity   2 years   Revenue growth and profit margin
Performance Stock Units   Variable   Equity   3 years   TSR relative to peer group
Restricted Stock Units   Variable   Equity   1−4 years   Retention

 

 

Sound Pay Practices. Shaping the NEOs’ 2013 compensation packages were the Company’s existing compensation practices, including:

 

·Strong emphasis on equity-based compensation to align executive and shareholder interests.

 

·Internal pay relationships that reflect our executives’ differences in responsibilities, contributions and market conditions.

 

·Stock ownership requirements at five times, three times or two times base salary, depending upon the executive’s title and responsibilities.

 

·Use of tally sheets to gauge the total compensation package and potential severance payouts, as well as wealth accumulation analysis to monitor long-term alignment with shareholders.

 

·Comparison of base salary and total compensation to market survey data and customized peer group for benchmarking.

 

·Regular analysis of the full compensation program and its components to ensure they do not create an incentive for excessive risk-taking.

 

·Clawback policies to recover cash and equity-based incentive compensation in the event of a financial restatement or if the executive engages in activities adverse to the interests of the Company.

 

·Double-trigger vesting of all incentive awards (other than legacy stock options) following a change-in-control.

 

·No re-pricing or cash buyouts of options or equity awards without shareholder approval.

 

·Minimal perquisite compensation and no tax gross-ups.

 

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

 

27

 

Managing Compensation Risk. The Committee annually 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 employees’ incentives for risk taking with the long-term best interests of our shareholders. We mitigate risk by allocating incentive compensation across multiple components. This structure reduces the incentive to take excessive risk because it:

 

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

 

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

 

·Combines absolute and relative performance measures.

 

Additional safeguards, such as stock ownership guidelines, caps on incentive payouts and clawback policies, further balance risk and reward.

 

Impact of 2013 Say-on-Pay Vote. At our annual meeting of shareholders held on May 9, 2013, 95% of the shareholders who voted 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’ total direct compensation, it’s the foundation for the total package, since the variable compensation components are set as percentages of base salary:

 

Name  Base Salary   Annual Incentive:
Target Percentage
of Base Salary
   PSU Awards:
Target Percentage
of Base Salary (1)
   PGI Awards:
Target Percentage
of Base Salary (1)
 
David S. Haffner  $1,055,000    115%   275%   77%
Karl G. Glassman   785,000    90%   200%   77%
Matthew C. Flanigan   475,000    80%   175%   64%
Joseph D. Downes, Jr.   338,000    50%   150%   64%
Jack D. Crusa   332,000    50%   130%   64%
 
(1)The methods for valuing and calculating the PSU and PGI awards are described in the Equity Awards section on page 31.

 

The Committee reviews and determines the NEOs’ base salaries (along with the rest of their compensation package) during the annual review, which is discussed on page 35.

 

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

 

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

 

28

 

Each executive officer has a target incentive amount—the amount received if he achieved exactly 100% of all performance goals. The target incentive amount is the officer’s base salary multiplied by his target incentive percentage. At the end of the year, the target incentive amount is multiplied by the payout percentages for the various performance metrics (each with its own weighting) to determine the annual incentive payout. The annual incentive payout is calculated as follows and more fully described below:

 

 

Performance Metrics. For the 2013 annual incentive, the Committee selected two performance metrics for corporate participants and two for profit center participants, in addition to the IPGs:

 

Performance Measures  Relative Weight 
Return on Capital Employed(1)    60%
Cash Flow(2)    20%
Individual Performance Goals   20%
 
(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 (Haffner, Glassman and Flanigan): Cash Flow = Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) – Capital Expenditures +/- Change in Working Capital (excluding cash and current maturities of long-term debt) + Non-Cash Impairments. For profit center participants (Downes and Crusa), the same formula is used, but EBITDA is adjusted for currency effects and change in working capital also excludes balance sheet items not directly related to ongoing activities.

 

The Committee chose ROCE as the primary incentive target to improve earnings and maximize returns on key assets while reducing inventory, increasing production and managing working capital. In addition, studies have shown a high correlation between return on capital metrics and TSR, a key feature of the Company’s strategic plan. The annual incentive is also based upon cash flow, which is critical to fund the Company’s dividend, capital expenditures and ongoing operations. 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.

 

Individual Performance Goals. In addition to the financial metrics described above, the annual incentive includes IPGs that are tailored to each executive’s responsibilities and aligned with the Company’s strategic goals.

 

29

 

The executive officers proposed goals for their respective operations, which were reviewed by Mr. Haffner. The Committee then evaluated the proposals and worked with Mr. Haffner to develop his IPGs. The 2013 IPGs covered the following areas of responsibility:

 

Name   Individual Performance Goals
David S. Haffner   Margin enhancement, strategic planning for profitable growth, business unit portfolio management, succession planning
Karl G. Glassman   Margin enhancement, on-site reviews of operations and customer communication, remediation of internal audit findings, succession planning
Matthew C. Flanigan   Margin enhancement, working capital management, continuous improvement projects, information technology initiatives, enterprise risk management
Joseph D. Downes, Jr.   Increase free cash flow of targeted businesses, utilization and efficiency initiatives, working capital management
Jack D. Crusa   Growth of targeted businesses, purchasing function initiatives, divestiture of targeted business, internal audit compliance

 

The Committee evaluated the executives’ achievement of the 2013 IPGs at its February 2014 meeting, using the 1 to 5 performance scale detailed in the tables below.

 

Targets and Payout Schedules. Upon selecting the metrics and IPGs, the Committee established performance achievement targets and payout schedules. In setting the payout schedules, the Committee evaluated various payout scenarios before selecting one that strikes an appropriate balance between accountability to shareholders and motivation for participants. The payouts for each portion of the annual incentive are capped at 150%. The NEOs’ receipt of their annual incentive ultimately depends upon how well they perform against the targets.

 

2013 Corporate Payout Schedule 
ROCE (1)   Cash Flow (1)
(millions)
   Individual Performance Goals
(1-5 scale)
 
Achievement   Payout   Achievement   Payout   Achievement  Payout 
 <29%   0%  $<262    0%  1 – Did not achieve goal   0%
 29%   50%   262    50%  2 – Partially achieved goal   50%
 31%   75%   277    75%  3 – Substantially achieved goal   75%
 33%   100%   292    100%  4 – Fully achieved goal   100%
 35%   125%   306.5    125%  5 – Significantly exceeded goal   up to 150%
 37%   150%   321    150%        

 

2013 Profit Center Payout Schedule 
Free Cash Flow & ROCE
(Relative to Target)
   Individual Performance Goals
(1-5 scale)
 
Achievement (2)   Payout   Achievement  Payout 
 <80%   0%  1 – Did not achieve goal   0%
 80%   60%  2 – Partially achieved goal   50%
 90%   80%  3 – Substantially achieved goal   75%
 100%   100%  4 – Fully achieved goal   100%
 110%   120%  5 – Significantly exceeded goal   up to 150%
 120%   140%        
 125%   150%        
 
(1)The 2013 results for corporate participants (Mr. Haffner, Mr. Glassman and Mr. Flanigan) were 33.5% ROCE (resulting in a 106.3% payout) and $474 million of cash flow (resulting in a 150% payout).

 

30

 

(2)As a profit center participant, Mr. Downes’ target for a 100% payout on the free cash flow for his segment was $66.5 million ($82.7 million actual in 2013), and the target for a 100% payout on ROCE achievement was 34.5% (31.4% actual). Mr. Crusa’s free cash flow target was $46.3 million ($60.8 million actual), and his ROCE target was 32.9% (43.8% actual).

 

The following table provides the details of the 2013 annual incentive payouts for our NEOs:

 

Name   Target Incentive Amount           Weighted Payout Percentage         Annual Incentive Payout
David S. Haffner   $1,173,688     ×     112.3%     =   $  1,318,051
  Salary     ×     Target %         Metric     Payout %     ×        Weight          
  $ 1,055,000           111.25 %(1)         ROCE     106.3 %         60 %          
                            Cash Flow     150 %         20 %          
                            IPGs     92.5 %         20 %          
Karl G. Glassman   $677,063     ×     114.3%     =   $  773,882
  Salary     ×     Target %         Metric     Payout %     ×        Weight          
  $ 785,000           86.25 %(1)         ROCE     106.3 %         60 %          
                            Cash Flow     150 %         20 %          
                            IPGs     102.5 %         20 %          
Matthew C. Flanigan     $362,188     ×     111.8%     =   $  404,926
  Salary     ×     Target %         Metric     Payout %     ×        Weight          
  $ 475,000           76.25 %(1)         ROCE     106.3 %         60 %          
                            Cash Flow     150 %         20 %          
                            IPGs     90 %         20 %          
Joseph D. Downes, Jr.     $169,000     ×     90.0%     =   $  152,100
  Salary     ×     Target %         Metric     Payout %     ×        Weight          
  $ 338,000           50 %         ROCE     82 %         60 %          
                            FCF     149 %         20 %          
                            IPGs     58.8 %         20 %          
                            -1% Compliance Adjustment            
Jack D. Crusa     $166,000     ×     147.4%     =   $  244,684
  Salary     ×     Target %         Metric     Payout %     ×        Weight          
  $ 332,000           50 %         ROCE     150 %         60 %          
                            FCF     150 %         20 %          
                            IPGs     125 %         20 %          
                            3% Compliance Adjustment            
 
(1)Target percentages are prorated to reflect increases approved by the Compensation Committee in connection with the renewed employment agreements signed in February 2013. Mr. Haffner’s target percentage was increased from 100% to 115%, Mr. Glassman’s was increased from 75% to 90%, and Mr. Flanigan’s from 65% to 80%.

 

Equity Awards. In 2013, we granted performance stock units and Profitable Growth Incentive awards to our NEOs and other senior managers. The PSUs and PGI awards tie our executive officers’ pay to the Company’s performance and shareholder returns. The payouts from these equity grants reflect our philosophy that executive compensation should provide greater rewards for superior performance, as well as accountability for underperformance. The application of Mr. Haffner’s PSU and PGI award percentages resulted in his target long-term incentive opportunity for 2013 being weighted 78% on PSUs and 22% on PGI; the average for the remaining NEOs was 71% PSUs and 29% PGI.

 

31

 

Performance Stock Units. Leggett’s long-term strategic plan emphasizes the Company’s Total Shareholder Return (“TSR”) performance versus peer companies. The Committee grants PSUs to a small group of senior management, including the NEOs, to drive and reward those results. The PSU grants are set by multiplying the executive’s base salary by the PSU award percentage (see table on page 28). The PSU percentages are set by the Committee with the intent to place our long-term incentive compensation near the market median.

 

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

 

PSU Payout Schedule

(based on Peer Group TSR)

 

Performance Level  Percentile Rank  Payout % 
Threshold  25th   25%
Target  50th   75%
Maximum  >75th   175%

 

The PSU awards granted in January 2011 vested on December 31, 2013. Leggett’s TSR for that three-year period was in the 45th percentile of the peer group, resulting in a payout of 64% of the base award. Our TSR ranks in the 32nd percentile for the 2012 PSU awards with one year remaining in the performance period, and our TSR for the 2013 PSU awards ranks in the 22nd percentile with two years remaining. The PSUs are paid out 35% in cash and 65% in Company stock, although the Company reserves the right to pay up to 100% in cash.

 

Profitable Growth Incentive. Leggett’s long-term strategic plan also focuses on the Company’s long-term revenue growth while improving profit margins. The Committee established the Profitable Growth Incentive (“PGI”) in 2013 as a performance-based equity program that provides additional incentive to our senior management, including the NEOs, to drive and reward those results. The PGI awards replaced the annual option grants which had been part of our NEOs’ compensation package for many years. Our plan for achieving the Company’s TSR goals stresses growing revenues while improving margins, and the PGI is a targeted pay-for-performance tool intended to drive those results.

 

PGI awards are set by multiplying the executive’s base salary by the PGI award percentage, similar to the PSU grants (see table on page 28). The PGI percentages are set by the Committee and were initially established by converting the grant date value of the executives’ 2012 option awards, such that their total long-term incentive compensation remained near the market median.

 

32

 

The PGI awards are issued as stock units that vest over a 2-year performance period with payouts based on a matrix of revenue growth and EBITDA margin. The metrics for 100% payouts were set at levels above the Company’s recent trends to encourage and reward improved performance. For the 2013-2014 performance period, the payout schedule for our Corporate Participants (Mr. Haffner, Mr. Glassman and Mr. Flanigan) is:

 

 

Each of the Profit Center Participants has his own payout matrix based upon the strategic plans for the operations for which they are responsible. Mr. Downes’ payout matrix is structured in the same manner as shown above, but is based on an EBITDA margin range of 10.4% to 17.4% and a revenue growth range of 1.5% to 8.5%; Mr. Crusa’s payout matrix is based on an EBITDA margin range of 13.8% to 20.8% and a revenue growth range of 5.8% to 12.8%.

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

 

(2)Revenue Growth is the compound annual growth rate of the Company’s (or applicable profit centers’) total incremental revenue during the performance period compared to the revenue of the immediately preceding year. The Revenue Growth rate is subject to adjustment by the difference (positive or negative) between the forecast GDP growth (set prior to the PGI awards) and the actual GDP growth (determined at the end of the performance period), but such adjustment will be made only if the difference is greater than ±1.0%. The forecast GDP growth for the 2013-2014 performance period is 2.8%, representing the weighted average GDP growth in the primary geographies where the Company does business, using data from the International Monetary Fund’s January 2013 World Economic Outlook Update.

 

Fifty percent of the vested PGI awards will be paid out in cash and the Company intends to pay out the remaining 50% in shares of the Company’s common stock, although the Company reserves the right to pay up to 100% in cash.

 

Restricted Stock Units. In connection with the employment agreements the Company entered into with Mr. Haffner, Mr. Glassman and Mr. Flanigan in 2013, each was awarded restricted stock units (“RSUs”) that vested 25% on the date of their agreements and 25% on each of the next three anniversaries. The Committee used these stand-alone awards to retain these key executives during a crucial period in the execution of our strategic plan. These are the only outstanding time-vested RSUs the Company has granted to the NEOs—all other restricted stock is performance based.

 

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

 

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

 

The ESU Program is a non-qualified retirement program that allows executives to make pre-tax deferrals of up to 10% of their compensation into diversified investments. We match 50% of the executive’s contribution in Company stock units and may match up to an additional 50% if the Company meets annual ROCE targets linked to the Incentive Plan. The Company

 

33

 

makes an additional 17.6% contribution to the diversified investments acquired with executive contributions and to Leggett stock units acquired with Company matching funds. 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.

 

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

 

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

 

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

 

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

 

Participants who elect a cash or stock unit deferral may elect to 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. 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 46). Employees who had previously participated in the Retirement Plan were offered a replacement benefit: a tax-qualified defined contribution Section 401(k) Plan (the “Retirement K”). The Retirement K includes an age-weighted Company matching contribution designed to replicate the benefits lost by the Retirement Plan freeze.

 

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

 

Perquisites and Personal Benefits. The Committee believes perquisites should not be a significant part of our executive compensation program. In 2013, perquisites were less than 1% of each NEO’s total compensation. Accordingly, 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 type and appropriate 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 Committee reports its actions to the Board at each Board meeting; the full Board must review and approve certain actions, including employment and severance benefit agreements and amendments to stock plans.

 

The Committee has the authority to engage its own external compensation consultant as needed and engaged Meridian Compensation Partners, LLC as its independent consultant beginning in 2012. The Company conducted a conflict of interest assessment prior to the Committee engaging Meridian (and on an annual basis thereafter), which verified Meridian’s independence and that no conflicts of interest existed. 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 Committee engaged Meridian to perform a competitive review of the Company’s executive pay programs in comparison to market levels. Meridian also advised on selecting a peer group of companies for executive compensation benchmarking, provided comparative data for the annual executive compensation review described below, and assisted with other compensation matters as requested. Representatives from Meridian also attend Committee meetings on request.

 

34

 

John Moore, Senior VP—Chief Legal & HR Officer, also provides compensation data, research and analysis that the Committee may request. In addition to Mr. Moore, the Committee invites Mr. Haffner, our Board Chair and CEO, to attend Committee meetings; however, the Committee meets in executive session without management present to discuss Mr. Haffner’s performance and set his compensation.

 

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

 

The Annual Review and Use of Compensation Data

 

The Committee performs the executive compensation annual review in March of each year. During the annual review, the Committee evaluates the four primary elements of the annual compensation package for executive officers: base salary, annual incentive, PSUs and other equity and incentive awards. Based on this review, the Committee approves any base salary increases and sets the annual incentive target percentage for each executive officer. As discussed above, increases to base salary affect all four elements of the compensation package, because the variable compensation elements (annual incentive, PSUs and PGI) are each set as a percentage of base salary. The Committee also reviews the equity award percentages at its November meeting, then the Committee approves the PSU awards on the first business day of the year and the PGI awards at its February meeting.

 

Prior to the annual review, the Committee reviews the total compensation package for the preceding year as described in the proxy statement. This review includes secondary compensation elements, such as voluntary equity plans and retirement plans, as well as potential payments upon termination or change in control. Decisions about secondary and post-termination compensation elements are made at various times throughout the year as the plans or agreements giving rise to the compensation are reviewed.

 

In connection with the 2013 annual review, the Committee evaluated the following data presented by Mr. Moore and Meridian to consider each executive’s compensation package in the context of past decisions, internal pay relationships and the external market:

 

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

 

·Current annual compensation for each executive officer.

 

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

 

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

 

·Compliance with our stock ownership requirements.

 

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

 

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

 

Benchmarking Against Peer Companies. For 2013, the Committee used a peer group to supplement the compensation survey data described below. The Committee developed the peer group to provide additional insight into company-specific pay levels and practices. The Committee continues to evaluate 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. Additionally, the Committee considered companies that would be likely sources for executive talent and business customers. The Committee approved a final group comprised of 19 U.S.-based diversified manufacturing companies that generally ranged between 50% and 200% Leggett’s revenue and market value. At the time of approval, Leggett was at the 56th percentile of the peer group revenue size and 68th percentile of peer group market value.

 

35

 

In 2013, the Committee reviewed the peer group used in 2012 and approved those same companies for use in 2013:

 

American Axle & Manufacturing Holdings   Mohawk Industries, Inc.
Armstrong World Industries   Mueller Industries
BorgWarner, Inc.   Owens Corning
Carlisle Companies, Inc.   Pall Corp.
Cooper Tire & Rubber Co.   Pentair, Inc.
Donaldson Companies, Inc.   Tempur-Pedic International, Inc.
Gardner Denver, Inc.   Tenneco, Inc.
Harman International Industries   Terex Corp.
Kennametal, Inc.   Timken Co.
Lennox International, Inc.    

 

The Committee plans to review the composition of the peer group annually to ensure these companies remain relevant for comparative purposes.

 

Compensation Survey Data. We also used broad-based compensation surveys to develop a balanced picture of the compensation market. These surveys were published by Towers Watson (“U.S. Compensation Data Bank—General Industry”) and Aon Hewitt (“TCM Total Compensation by Industry—Executive, United States”) (collectively, the “2013 Survey Data”).

 

We sought the largest sample size possible from each survey, given that the validity of data increases with sample size. The Committee uses data from a broad base of companies that most closely match the NEOs’ job descriptions. The industry groups and sample sizes of the surveys with respect to the NEO positions were as follows:

 

    Towers Watson   Aon Hewitt
Survey Group   All industries,
$3-6 billion in revenue
  Manufacturing only,
$3.3 billion median revenue

 

   Companies in Survey Group by Position 
CEO   102    39 
COO   30    14 
CFO   107    40 
SVP, Segment Head   135*   61*

 

               
    *   Business units within $400−800 million median revenue     *   Business units with $1,650 million
median revenue
 

 

 

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 the Committee’s philosophy of paying somewhat below market median for base salaries with the potential to move above the median with outstanding results under variable compensation programs (annual incentive, PSUs and PGI).

 

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 compensation, (iii) internal pay equity, and (iv) individual responsibilities and merit when establishing base salaries, annual incentive percentages, and equity award percentages. While the Committee monitors these pay relationships, it does not target any specific pay ratios.

 

The Committee also considers the Company’s merit increase budget for all salaried U.S. employees in determining salary increases for executive officers. The 2013 merit increase budget of 2.75% was based on the Consumer Price Index, other national economic data and our own business climate.

 

In connection with the 2013 annual review, the Committee took the following actions:

 

·Raised NEO base salaries by a range of 3 to 8%, including Mr. Haffner’s 6% increase to $1,055,000 in connection with the announcement that he would succeed Mr. Fisher as Board Chair at the 2013 Annual Meeting and following his entering into the four-year employment agreement.

 

·Increased Mr. Haffner’s annual incentive target from 100% to 115% of his base salary, Mr. Glassman’s from 75% to 90%, and Mr. Flanigan’s from 65% to 80% in connection with their new employment agreements.

 

36

 

 

Established the award formula for the annual incentive plan’s corporate and profit center participants, upon determining that the payout range (threshold, target and maximum) was consistent with the Company’s full-year sales and earnings projections. Company-wide targets for our corporate participants were increased from a $252 million targeted cash flow under the 2012 plan to $292 million in 2013, and from a 29% return on capital employed target for 2012 to 33% in 2013.
Approved the executive officers’ 2013 Individual Performance Goals, stressing specific and measurable targets that are expected to lead to improvements with long-term returns.

 

Equity Grant Practices

 

The Committee discussed potential equity awards at length at its November 2012 meeting, and then approved the final 2013 PSU grants during a telephone meeting on the first business day of the year. The PGI awards were approved at the Committee’s February meeting. The Committee does not approve equity awards when aware of material inside information.

 

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

 

Clawback Provisions. All equity awards are subject to a clawback provision included in our Flexible Stock Plan which allows the Committee to recover any benefits received on the vesting, exercise, or payment of any award if the employee violates any confidentiality, non-solicitation or non-compete obligations or engages in activity adverse to the interests of the Company, including fraud or conduct contributing to any financial restatement.

 

Executive Stock Ownership Guidelines. The Committee believes executive officers should have 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.

 

Board Chair and CEO 5X base salary
COO, CFO 3X base salary
All other Executive Officers 2X base salary

 

Shares of the Company’s stock owned outright, stock units, and the net shares acquirable upon the exercise of deferred compensation stock options count toward satisfying the ownership totals; however pledged shares do not count toward the mandated ownership levels. A decline in the stock price can cause an executive officer who previously met the threshold to fall below it temporarily. An executive officer who has not met the ownership requirement, or falls below it due to a stock price decline, must hold any net shares acquired upon the exercise of stock options or vesting of stock units until he meets the ownership threshold. As of December 31, 2013, all of our NEOs were in compliance with their stock ownership requirements with holdings well in excess of these threshold levels.

 

Employment and Change in Control Agreements

 

On the Committee’s recommendation, the Board entered into renewed employment agreements with  Mr. Haffner, Mr. Glassman and  Mr. Flanigan in March 2013, with the aim of keeping these members of our senior executive team in place through the annual shareholder meeting in 2017. In connection with the renewed agreements,  Mr. Glassman was appointed President and Chief Operating Officer and  Mr. Flanigan was appointed Executive Vice President and Chief Financial Officer. The executives’ base salaries remained at their current levels under the new employment agreements (although they were increased later in 2013 in connection with the Committee’s annual review, as described above), while their annual incentive percentages were increased from 100% to 115% for  Mr. Haffner, from 75% to 90% for  Mr. Glassman, and from 65% to 80% for  Mr. Flanigan. The executives also received grants of restricted stock units (50,000 to  Mr. Haffner, 45,000 to Mr. Glassman, and 40,000 to  Mr. Flanigan), 25% of which vested upon signing and the remainder in 25% increments on the first, second and third anniversaries of the grant date. The termination provisions of these employment agreements are described on page 48.

 

The Company also entered into amended severance benefit agreements with  Mr. Haffner and  Mr. Glassman in March 2013 and entered into a new severance benefit agreement with  Mr. Flanigan. These agreements eliminated the excise tax gross-ups included in the previous agreements. They are designed to protect both the executive officers’ and the Company’s interests in the event of a change in control of the Company. The material terms and conditions of these agreements and the

 

37

 

Company’s potential financial obligations arising from these agreements are described on page 48. The Company does not offer severance benefits to any other NEOs.

 

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

 

Section 162(m) of the Internal Revenue Code generally disallows an income tax deduction to public companies for compensation over $1 million paid to certain executive officers. Our policy is to take reasonable and practical steps to minimize compensation that exceeds the $1 million cap, but in some circumstances the Committee may determine the best form of compensation for the intended purpose may be one that is not tax-deductible under Section 162(m), such as the inclusion of IPGs in the annual incentive program.

 

In 2013, the Company paid some compensation to  Mr. Haffner that was not deductible for federal income tax purposes and exceeded the $1 million threshold. The non-deductible compensation resulted from base salary, payouts of previously deferred compensation, the vesting of service-based RSUs, and the IPG portion of the annual incentive.

 

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 the Compensation Discussion & Analysis be included in this proxy statement.

 

R. Ted Enloe, III (Chair)

Robert E. Brunner

Richard T. Fisher

Joseph W. McClanathan

Judy C. Odom

Phoebe A. Wood

 

38

 

Summary Compensation Table

 

The following table reports the total 2013 compensation of our Chief Executive Officer, Chief Financial Officer, and our three other most highly compensated executive officers as of December 31, 2013. Collectively, we refer to these five executives as the “Named Executive Officers” or “NEOs.”

 

Name and Principal Position  Year   Salary
(1)
   Stock
Awards
(2)
   Option
Awards
(3)
   Non-Equity
Incentive Plan
Compensation
(1)
   Change in
Pension Value;
Nonqualified
Deferred
Compensation
Earnings
(4)
   All Other
Compensation
(1)(5)
   Total 
David S. Haffner,  2013   $1,041,154   $5,092,172   $0   $1,318,051   $31,195   $558,735   $8,041,307 
Board Chair and  2012    986,923    2,869,074    588,430    1,385,339    89,117    454,244    6,373,127 
Chief Executive Officer  2011    951,346    3,156,557    667,366    742,176    75,816    389,495    5,982,756 
Karl G. Glassman,  2013    775,769    3,475,724    0    773,882    27,238    318,623    5,371,236 
President and  2012    739,231    1,564,787    441,294    807,394    69,012    268,332    3,890,050 
Chief Operating Officer  2011    713,538    1,377,857    500,678    464,400    61,565    238,620    3,356,658 
Matthew C. Flanigan,  2013    467,154    2,295,872    0    404,926    11,993    274,038    3,453,983 
Executive VP and  2012    436,154    798,749    214,554    415,069    31,644    260,837    2,157,007 
Chief Financial Officer  2011    416,539    755,948    244,122    262,899    29,336    207,340    1,916,184 
Joseph D. Downes, Jr.,  2013    335,923    716,149    0    152,100    7,224    158,236    1,369,632 
Senior VP, President—  2012    326,923    521,596    163,459    171,245    11,221    69,684    1,264,128 
Industrial Materials Segment  2011    318,177    582,524    188,108    156,960    8,501    66,212    1,320,482 
Jack D. Crusa,(6)
Senior VP, President—
Specialized Products Segment
  2013    329,692    635,662    0    244,684    11,927    122,316    1,344,281 

 

 

 

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

 

 

               Deferred Compensation Program 
Name  Year   Total Cash
Compensation
Deferred
   ESU
($)
   Cash Deferral
($)
   Stock Units
(#)
 
David S. Haffner  2013   $1,308,888   $233,145    500,000    23,275 
   2012    562,873    234,450         12,874 
   2011    466,636    166,636         16,726 
Karl G. Glassman  2013    352,200    152,200         8,130 
   2012    251,907    151,907         5,569 
   2011    215,111    115,111         5,521 
Matthew C. Flanigan  2013    587,818    84,448         19,804 
   2012    588,530    82,381         21,635 
   2011    420,493    65,240         19,752 
Joseph D. Downes, Jr.  2013    498,432    15,203    120,000    14,508 
   2012    147,090    47,090    100,000      
   2011    144,815    44,815    100,000      
Jack D. Crusa  2013    158,875    54,685         4,214 

 

See the Grants of Plan-Based Awards Table on page 42 for further information on Leggett equity awards received in lieu of cash compensation in 2013.

 

39

  

(2)Amounts reported in this column reflect the grant date fair value of the PSU awards, Profitable Growth Incentive awards (which replaced option grants in 2013) and Restricted Stock Unit awards, as detailed in the table below. The Restricted Stock Unit awards were made in connection with the four-year employment agreements signed by  Mr. Haffner, Mr. Glassman and  Mr. Flanigan in March 2013 and are not recurring, annual grants. For a description of the assumptions used in calculating the grant date fair value, see Note L of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. 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
 
David S. Haffner  2013   $2,782,770   $4,869,848   $780,402   $1,951,004   $1,529,000 
   2012    2,869,074    5,020,880                
   2011    3,156,557    5,523,975                
Karl G. Glassman  2013    1,515,240    2,651,670    584,384    1,460,960    1,376,100 
   2012    1,564,787    2,738,378                
   2011    1,377,857    2,411,250                
Matthew C. Flanigan  2013    785,220    1,374,135    287,452    718,630    1,223,200 
   2012    798,749    1,397,811                
   2011    755,948    1,322,908                
Joseph D. Downes, Jr.  2013    501,630    877,853    214,519    536,297      
   2012    521,596    912,793                
   2011    582,524    1,019,417                
Jack D. Crusa  2013    425,730    745,028    209,932    524,829      

 

(3)Option awards were discontinued in 2013 and were replaced by Profitable Growth Incentive awards to our NEOs and senior managers. Amounts reported in this column for 2011 and 2012 represent the grant date fair value of the stock options calculated using the Black-Scholes option valuation model. For a description of the assumptions used in calculating the grant date fair value of these options, see Note L of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

(4)Amounts reported in this column for 2013 are set forth below.

 

 

Name  Change in
Pension
Value
(a)
   ESU Program
(b)
   Deferred
Stock
Units
(c)
   Total
(d)
 
David S. Haffner  $(12,926)  $19,625   $11,570   $31,195 
Karl G. Glassman   (21,812)   16,518    10,720    27,238 
Matthew C. Flanigan   (10,294)   6,714    5,279    11,993 
Joseph D. Downes, Jr.       6,364    860    7,224 
Jack D. Crusa   (8,393)   6,087    5,840    11,927 

 

(a)Change in the present value of the NEO’s accumulated benefits under the defined benefit Retirement Plan, as described on page 46. The present value of the Retirement Plan benefits decreased in 2013 due to the increase in the Plan’s discount rate from 3.75% to 4.5%.

 

(b)15% discount on dividend equivalents for stock units held in the ESU Program, as described on page 33.

 

(c)20% discount on dividend equivalents for stock units held in the Deferred Compensation Program, as described on page 34.

 

(d)This total excludes negative amounts from Change in Pension Value.

 

40

  

(5)Amounts reported in this column for 2013 are set forth below:

 

 

Name  ESU
Program
(a)
   Deferred
Stock
Units
(b)
   Retirement K
Matching
Contributions
(c)
   Retirement K
Excess
Payments
(c)
   Life and
Disability
Insurance
Benefits
   Perks
(d)
   Total 
David S. Haffner  $319,153   $143,936   $9,180   $75,743   $10,723       $558,735 
Karl G. Glassman   207,738    50,000    9,180    48,067    3,638        318,623 
Matthew C. Flanigan   114,766    125,842    9,180    22,212    2,038        274,038 
Joseph D. Downes, Jr.   57,952    90,807            9,477        158,236 
Jack D. Crusa   72,479    26,047    9,180    11,498    3,112        122,316 

 

 

  

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

 

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

 

(c)The Retirement K and Retirement K Excess Plan are described on page 34.

 

(d)None of the NEOs received perquisites or other personal benefits with an aggregate value of $10,000 or more in 2013. Perquisites for our executive officers in 2013 included: use of a Company car, executive physicals, and spousal travel for business purposes. For disclosure purposes, perquisites are valued at our aggregate incremental cost.

 

(6)Mr. Crusa became an NEO of the Company for the first time in 2013.

 

41

  

Grants of Plan-Based Awards in 2013

 

The following table sets forth, for the year ended December 31, 2013, information concerning each grant of an award made to the NEOs in 2013 under the Company’s Flexible Stock Plan and the Key Officers Incentive Plan.

 

       Award   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
   Grant
Date Fair
Value of
Stock
and
Option
 
Name  Grant
Date
   Type
(1)
   Threshold
($)
   Target
($)
   Maximum
($)
   Threshold
(#)
   Target
(#)
   Maximum
(#)
   or Units
(#)(4)(5)
   Awards
($)
 
David S.    3/27/13    AI   $586,844   $1,173,688   $1,760,531                          
Haffner   1/02/13    PSU                   25,206    75,619    176,444         2,782,770 
    2/28/13    PGI                   6,380    25,520    63,800         780,402 
    3/1/13    RSU                                  50,000    1,529,000 
        DSU                                  23,275    719,679 
Karl G.    3/27/13    AI    338,531    677,063    1,015,594                          
Glassman   1/02/13    PSU                   13,725    41,175    96,075         1,515,240 
    2/28/13    PGI                   4,778    19,110    47,775         584,384 
    3/1/13    RSU                                  45,000    1,376,100 
        DSU                                  8,130    250,000 
Matthew C.    3/27/13    AI    181,094    362,188    543,281                          
Flanigan   1/02/13    PSU                   7,113    21,338    49,788         785,220 
    2/28/13    PGI                   2,350    9,400    23,500         287,452 
    3/1/13    RSU                                  40,000    1,223,200 
        DSU                                  19,804    629,212 
Joseph D.    3/27/13    AI    101,400    169,000    253,500                          
Downes, Jr.   1/02/13    PSU                   4,544    13,631    31,806         501,630 
    2/28/13    PGI                   1,754    7,015    17,538         214,519 
        DSU                                  14,508    454,036 
Jack D. Crusa   3/27/13    AI    99,600    166,000    249,000                          
    1/02/13    PSU                   3,856    11,569    26,994         425,730 
    2/28/13    PGI                   1,716    6,865    17,163         209,932 
        DSU                                  4,214    130,237 

 

 

 

  

(1)Award Type:

 

AI—Annual Incentive
PSU—Performance Stock Units
PGI—Profitable Growth Incentive
RSU—Restricted Stock Units
DSU—Deferred Stock Units

 

(2)The performance metrics, payout schedules and other details of the NEOs’ annual incentive are described on page 28.

 

(3)PSU awards vest at the end of a three-year performance period based on our TSR as measured relative to a peer group. The PSU awards are described on page 32. PGI awards vest at the end of a two-year performance period based on a combination of revenue growth and EBITDA margin. The PGI awards are described on page 32.

 

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

 

(5)The RSU awards were granted in connection with the four-year employment agreements entered into with  Mr. Haffner, Mr. Glassman and  Mr. Flanigan. Twenty-five percent of the RSUs vested upon grant, and the remainder vest in 25% increments on the first, second and third anniversaries of the grant date.

 

42

  

Outstanding Equity Awards at 2013 Fiscal Year-End

 

The following table reports the outstanding stock options, performance stock units, and restricted stock units held by each NEO as of December 31, 2013. The outstanding awards are separated into two categories:

 

General Awards: the PSU and PGI awards that comprise the annual equity component of the compensation package, the one-time restricted stock units awarded in connection with  Mr. Haffner’s,  Mr. Glassman’s and Mr. Flanigan’s 2013 employment agreements, and stock options which were granted annually through 2012.

 

Deferred Compensation Options: options that were granted in lieu of cash compensation under our Deferred Compensation Program, as described on page 34.

 

 

   Option Awards   Stock Awards 
       Securities Underlying
Unexercised Options
           Unvested
Stock Units
   Equity Incentive Plan Awards—
Unearned Shares, Units or
Other Unvested Rights
 
Name  Grant
Date
(1)
   Exercisable
(#)
   Unexercisable
(#)
   Exercise
Price ($)
   Expiration
Date
   Number
of Units
(#)(2)
   Market
Value
($) (3)
   Performance
Period
(4)
   Number
of Units
(#) (5)
   Market or
Payout Value
($) (3)
 
David S. Haffner                                             
General Awards                                  PSU Awards           
    2/9/2005     70,000         28.02    2/8/2015     37,500    1,160,250    2012-2014     90,450    2,798,523 
    1/3/2006     93,400         22.96    1/4/2016               2013-2015     25,206    779,874 
    5/10/2006     87,177         26.67    5/9/2016                           
    1/3/2007     98,475         23.61    1/4/2017               PGI Awards            
    1/2/2008     143,275         16.96    1/2/2018               2013-2014     25,520    789,589 
    1/2/2009     172,200         15.68    1/2/2019                           
    1/4/2010     140,400         20.51    1/3/2020                           
    1/3/2011     90,350    45,175    23.14    1/2/2021                           
    1/3/2012     43,858    87,717    23.14    12/31/2021                           
Subtotal    939,135    132,892              37,500    1,160,250         141,176    4,367,986 
Deferred Compensation Options                                   
    12/21/2004     224,100         27.09    12/20/2014                           
    12/30/2005     266,290         22.96    12/29/2015                           
Subtotal    490,390                                         
Total    1,429,525    132,892              37,500    1,160,250         141,176    4,367,986 
Karl G. Glassman                                              
General Awards                                 PSU Awards           
    2/9/2005     52,500         28.02    2/8/2015     33,750    1,044,225    2012-2014     49,331    1,526,301 
    1/3/2006     74,725         22.96    1/4/2016               2013-2015     13,725    424,652 
    1/3/2007     78,775         23.61    1/4/2017                           
    1/2/2008     114,625         16.96    1/2/2018               PGI Awards            
    1/2/2009     129,150         15.68    1/2/2019               2013-2014     19,110    591,263 
    1/4/2010     105,300         20.51    1/3/2020                           
    1/3/2011     67,783    33,892    23.14    1/2/2021                           
    1/3/2012     32,891    65,784    23.14    12/31/2021                           
Subtotal    655,749    99,676              33,750    1,044,225         82,166    2,542,216 
Deferred Compensation Options                                    
    12/30/2005     81,664         22.96    12/29/2015                           
    12/31/2007     92,913         17.44    12/30/2017                           
Subtotal    174,577                                         
Total    830,326    99,676              33,750    1,044,225         82,166    2,542,216 

 

43

  

 

   Option Awards   Stock Awards 
       Securities Underlying
Unexercised Options
           Unvested
Stock Units
   Equity Incentive Plan Awards—
Unearned Shares, Units or
Other Unvested Rights
 
Name  Grant
Date
(1)
   Exercisable
(#)
   Unexercisable
(#)
   Exercise
Price ($)
   Expiration
Date
   Number
of Units
(#)(2)
   Market
Value
($) (3)
   Performance
Period
(4)
   Number
of Units
(#) (5)
   Market or
Payout Value
($) (3)
 
Matthew C. Flanigan                                  PSU Awards           
General Awards                                              
    2/9/2005     21,900         28.02    2/8/2015     30,000    928,200    2012-2014     25,181    779,100 
    1/3/2006     29,900         22.96    1/4/2016               2013-2015     7,113    220,076 
    1/3/2007     31,775         23.61    1/4/2017                           
    1/4/2010     51,350         20.51    1/3/2020               PGI Awards            
    1/3/2011     33,050    16,525    23.14    1/2/2021               2013-2014     9,400    290,836 
    1/3/2012     15,991    31,984    23.14    12/31/2021                           
Subtotal    183,966    48,509              30,000    928,200         41,694    1,290,012 
Deferred Compensation Options                                         
    12/21/2004     31,721         27.09    12/20/2014                           
    12/30/2005     18,134         22.96    12/29/2015                           
Subtotal        49,855                                         
Total        233,821    48,509              30,000    928,200         41,694    1,290,012 
Joseph D. Downes, Jr.                                              
General Awards                                  PSU Awards           
    2/9/2005     20,200         28.02    2/8/2015               2012-2014     16,444    508,777 
    1/3/2007     26,475         23.61    1/4/2017               2013-2015     4,544    140,591 
    1/4/2010     12,642         20.51    1/3/2020                           
    1/3/2011     25,466    12,734    23.14    1/2/2021               PGI Awards            
    1/3/2012     12,183    24,367    23.14    12/31/2021               2013-2014     1,754    54,269 
Subtotal    96,966    37,101                             22,742    703,637 
Deferred Compensation Options                                         
    12/21/2004     6,460         27.09    12/20/2014                           
Subtotal    6,460                                         
Total    103,426    37,101