Audit Committee Report
In accordance with the charter adopted by the Board, the Audit Committee assists the Board of Directors in overseeing our financial reporting process, internal controls and procedures, and compliance with legal and regulatory requirements. Management is responsible for the company’s financial reporting process and related internal controls, while the independent registered public accounting firm is responsible for independently auditing the company’s financial statements and internal controls in accordance with the auditing standards of the Public Company Accounting Oversight Board (“PCAOB”). The current Audit Committee charter, which provides more information regarding the committee’s responsibilities and processes, is available on the La-Z-Boy website at http://investors.la-z-boy.com, under “Corporate Governance.”
The Audit Committee selects the company’s independent registered public accounting firm and manages all aspects of the relationship, including the firm’s compensation, retention, replacement, and scope of work. In selecting PricewaterhouseCoopers LLP as the company’s independent registered public accounting firm for FY 2021, the committee evaluated the firm’s independence, including reviewing the written disclosures and letter from PricewaterhouseCoopers LLP required by the PCAOB, and discussed with PricewaterhouseCoopers LLP its independence. The committee also discussed with PricewaterhouseCoopers LLP the matters required to be discussed by the applicable requirements of the PCAOB and the SEC. The committee also considered whether PricewaterhouseCoopers LLP’s provision of non-audit services to the company is compatible with the firm’s independence. The committee determined that PricewaterhouseCoopers LLP is independent of the company and management.
In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management and PricewaterhouseCoopers LLP the company’s audited financial statements for the fiscal year ended April 25, 2020.
The Audit Committee met nine times during FY 2020. The committee regularly meets with the senior members of the company’s financial management team and the company’s independent registered public accounting firm. The committee selectively met with key managers of the company to review or discuss potential financial risks related to the company. The committee also regularly met in executive sessions, in separate private sessions with PricewaterhouseCoopers LLP, the key members of the
senior management team and the internal audit team. At these meetings, the committee discussed the company’s financial estimates and judgments, internal controls over financial reporting, accounting principles, and regulatory compliance.
Based on the reviews and discussions described above, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, the inclusion of the audited financial statements in La-Z-Boy’s Annual Report on Form 10-K for the fiscal year ended April 25, 2020, for filing with the SEC.
The Audit Committee
Michael T. Lawton, Chair
Edwin J. Holman
W. Alan McCollough
Rebecca L. O'Grady
Lauren B. Peters
Audit and Other Fees
For professional services rendered to the company for FY 2019 and FY 2020, PricewaterhouseCoopers has billed us as follows:
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FY 2020
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FY 2019
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Audit Fees
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$
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2,154,000
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$
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2,242,000
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Audit-Related Fees
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0
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20,000
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Tax Fees
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79,000
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74,000
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All Other Fees
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3,000
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3,000
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Total Fees
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$
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2,236,000
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$
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2,339,000
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Audit Fees: Consist of fees for the audit work performed on our annual financial statements, our internal controls over financial reporting, management’s assessment of our internal controls over financial reporting, and reviews of the quarterly financial statements included in our quarterly reports on Form 10-Q, as well as audit services that are normally provided in connection with our statutory and regulatory filings.
Audit-Related Fees: Consist of fees for assurance and related services that are traditionally performed by the independent registered public accounting firm.
Tax Fees: Consist of fees for services related to tax compliance and other tax services. For FY 2020, these services related primarily to tax advisory services related to the following: research tax credits, the termination of our defined benefit pension plan, and foreign jurisdictions.
All Other Fees: Consist of subscription fees for PricewaterhouseCoopers’ accounting research software tool and disclosure checklist tool in FY 2020.
Pre-Approval Policy and Procedures
The Audit Committee has a policy that all audit and non-audit services provided by our independent auditor must be approved in advance by the Audit Committee. Between meetings of the Audit Committee, the committee has delegated authority to review and approve such services to its chair. Any such approval by the chair must be reported to the entire Audit Committee at the next scheduled Audit Committee meeting. The Audit Committee approved all audit and non-audit services provided by the independent auditor, PricewaterhouseCoopers, in FY 2020 in accordance with its policy.
COMPENSATION MATTERS
Proposal 3: Advisory Resolution to Approve the Compensation of our Named Executive Officers
Pursuant to regulations under Schedule 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we ask you to approve, on an advisory basis, the compensation of our named executive officers, as disclosed in this Proxy Statement in accordance with the compensation disclosure rules of the SEC, including Item 402 of the SEC’s Regulation S-K.
As described in detail in the Compensation Discussion and Analysis, we seek to closely align the interests of our named executive officers with those of our shareholders. We have endeavored to design our compensation program to reward our named executive officers for individual and company-wide achievements without encouraging them to subject our company to excessive risks. Before voting on this proposal, please read the Compensation Discussion and Analysis and review the compensation disclosure tables and related narrative discussion. Those materials provide a detailed explanation of our executive compensation philosophy and practices.
The vote on this resolution is not intended to address any specific element of compensation but is instead a vote on approving the overall compensation of our named executive officers as described in this Proxy Statement. While the vote is non-binding, we value the opinion of our shareholders, and will consider the outcome of the vote when making future named executive officer compensation decisions.
Our management will present the following resolution at the Annual Meeting:
RESOLVED, the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S–K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby approved.
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a
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THE BOARD RECOMMENDS YOU VOTE “FOR” PROPOSAL 3
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Compensation and Talent Management Committee Report
The Compensation and Talent Management Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement. Based on such review and discussions, the Compensation and Talent Management Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and be incorporated by reference into our Annual Report on Form 10-K for the fiscal year ended April 25, 2020.
The Compensation and Talent Management Committee
Edwin J. Holman, Chair
Sarah M. Gallagher
Janet E. Kerr
Michael T. Lawton
H. George Levy, M.D.
Dr. Nido R. Qubein
Compensation Discussion and Analysis
This section describes our executive compensation philosophy and the material components of our executive compensation program for our named executive officers (“NEOs”). We also explain how and why the Compensation and Talent Management Committee of our Board (or the "Compensation Committee") made the specific compensation decisions involving the NEOs for FY 2020, which ended on April 25, 2020.
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Roadmap
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FY 2020 Financial Performance Highlights
Compensation Philosophy
Pay-for-Performance Overview
CEO Pay-for-Performance Alignment
Shareholder Engagement and Say-on-Pay Vote
Key Executive Compensation Program Changes for FY 2020
Key Executive Compensation Program Changes for FY 2021
Overview of Key Compensation Practices
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Compensation Objectives
Compensation Mix
Overview of Executive Compensation Program Elements
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Compensation Committee's Role
Pay-Setting Process Methodology and Peer Group
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Base Salaries
Incentive Compensation
Retirement Benefits
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Executive Management Stock Ownership Guidelines
Severance Benefits
Recoupment of Incentive Payments
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Our FY 2020 NEOs are:
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Kurt L. Darrow
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Chairman, Chief Executive Officer and President
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Melinda D. Whittington
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Senior Vice President and Chief Financial Officer
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Darrell D. Edwards(1)
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Senior Vice President and Chief Operating Officer
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Otis S. Sawyer
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Senior Vice President and President,
La-Z-Boy Portfolio Brands
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Stephen K. Krull(2)
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Vice President, General Counsel and Secretary
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(1) Mr. Edwards was promoted to Senior Vice President and Chief Operating Officer effective May 8, 2019. Prior to his promotion, Mr. Edwards served as the Senior Vice President and Chief Supply Chain Officer since August 2014.
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(2) Mr. Krull was designated as an executive officer of the company by the Board on August 27, 2019.
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Executive Summary
FY 2020 Financial Performance Highlights
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Revenue of
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GAAP operating income of
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Non-GAAP operating income of
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$1.70B
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$118.8M
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$139.1M
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2.4% decrease from FY 2019
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8.4% decrease from FY 2019
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1.9% increase from FY 2019
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GAAP diluted EPS of
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Non-GAAP diluted EPS of
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Amount returned to shareholders through share repurchases and dividends
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$1.66
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$2.16
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$68.4M
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15.3% increase from $1.44 in FY 19
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0.9% increase from $2.14 in FY 19
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47.3% increase from FY 2019
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See Appendix A of this Proxy Statement for information regarding non-GAAP financial measures, including a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures.
A Focus on Execution and Agility in a Year Capped by an Unprecedented Crisis
Our financial performance in FY 2020 is a story of two very different periods. During the first ten months of FY 2020, strong Retail results, new product introductions, and supply chain excellence translated into solid sales and earnings growth. All that changed in March 2020 when the COVID-19 pandemic and related retail closures, including our own retail stores, forced us to cease production and wait for the economy to re-open.
Despite these unprecedented challenges, we closed the fiscal year with $1.7 billion in sales, generated $164 million in cash from operations, and returned $68.4 million to shareholders through share repurchases and dividends. We did so by remaining focused on the following priorities to deliver on our fundamental goal of providing long-term value to our shareholders:
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Solid execution. Our Retail segment produced excellent results, increasing sales and profits despite a virtual no-volume environment at fiscal year-end. Retail has become a core competency for the organization and is greatly contributing to the value of the La-Z-Boy enterprise. Through the third quarter of FY 2020, the broader La-Z-Boy Furniture Galleries® network, including our company-owned stores, exhibited strength with written same-store sales up 6.4%, validating the power of our iconic La-Z-Boy brand and consumers’ ability to avail themselves of our full product offering and many resources, including free design services.
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Our strong brand. Given the demonstrated strength and relevance of the La-Z-Boy brand, at the beginning of FY 2020, we relaunched our Live Life Comfortably® marketing campaign, featuring Kristen Bell as our new brand ambassador. The initial response to this campaign exceeded expectations, with more consumers, including younger consumers, considering and excited about the La-Z-Boy brand.
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Supply chain strength & continued optimization. The unparalleled strength of our supply chain continued to deliver results in good times and tougher times in FY 2020. While we source component parts globally, our North American manufacturing footprint enabled us to adeptly navigate the tariff environment throughout FY 2020 and to have little supply chain disruption as a result of the COVID-19 pandemic. At the same time, our North American platform affords us the ability to offer consumers mass customization with speed to market — providing La-Z-Boy with a competitive advantage in the marketplace. As part of our supply chain optimization initiative, in FY 2020, we closed our La-Z-Boy branded Upholstery facility in California and shifted production to our other U.S plants. Despite short-term costs, we took these actions because we expect that they will allow us to further optimize operations, strengthen our competitive positioning in the marketplace over time, and provide ongoing annual savings.
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Joybird integration. As we moved through FY 2020, we made progress with Joybird, our direct-to-consumer e-commerce company. Joybird brings to our company a new consumer through a new channel and, as we leverage our supply chain across its business, we are confident of Joybird's prospects to deliver long-term value to La-Z-Boy.
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By executing on the above priorities during FY 2020 and maintaining a strong balance sheet, we believe management had positioned the company well to successfully move through the significant disruption and uncertainty caused by the COVID-19
pandemic in the fourth quarter of FY 2020. With the health, safety and well-being of our employees, customers and communities of paramount importance, we responded in March 2020 with swift and decisive actions to temporarily cease production at our U.S. manufacturing facilities and temporarily close our own retail stores. In addition to the plant and retail closures, our COVID-19 Action Plan included, among other actions, initially furloughing approximately 6,800 employees (about 70% of our global workforce at the time), eliminating all non-essential operating expenses, significantly reducing capital expenditures, freezing the company’s 401(k) match, and temporarily reducing base salaries by 50% for our NEOs and other senior management and 25% for all other salaried employees, with Board members temporarily foregoing the cash portion of their director compensation.
Turning to where we currently stand in FY 2021, we have been able to re-start production at most of our manufacturing facilities and re-open our La-Z-Boy Furniture Galleries® stores. Additionally, as of the beginning of July 2020, we have called back to work approximately 6,000 previously-furloughed employees and have reinstated our salaried employees to their full salaries effective June 1, 2020, although the 50% base salary reduction for our NEOs remains in effect as of the date of this Proxy Statement. In the beginning of June 2020, we also made difficult decisions to prepare our company for success in the new external environment marked by COVID-19 and uncertainty on the timing of a full economic recovery and reduced our global workforce by approximately 10%. This included the closure of our Newton, Mississippi upholstery manufacturing facility built in 1960. These changes are expected to leverage efficiencies across the business, improve competitiveness and position the company to drive long-term value for all stakeholders in the new external landscape.
We are navigating through a new environment which requires us to remain nimble to re-build our business. With an experienced and engaged leadership team, a strong brand, vast distribution, including the vibrant La-Z-Boy Furniture Galleries® store system, and a solid financial foundation to leverage, we are focused on remaining an industry leader and on gaining potential additional market share.
Compensation Philosophy
Our compensation philosophy is to provide a total direct compensation ("TDC") opportunity generally targeted to the median of the competitive market, with consideration of performance, skills, experience and other factors in setting individual pay levels. The majority of each NEO’s annual target compensation is at-risk with the amount realized, if any, based on company and stock price performance. The pay level and at-risk portion increases as an NEO assumes greater levels of responsibility with greater potential impact on the company. Accordingly, our CEO’s pay level and at-risk pay portion are higher than those of other officers due to his greater level of responsibility.
Pay-for-Performance Overview
Our company’s performance drove our NEO compensation in FY 2020. Our annual Management Incentive Plan (“MIP”) and our performance-based shares for the FY 2018-2020 performance period utilized a subset of the following performance metrics: net sales, operating profit, operating cash flow, and relative total shareholder return ("rTSR"). Based on the company's performance, our NEOs earned the following incentive payouts:
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2020 MIP
75% Payout
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Our company financial performance did not meet the threshold level for sales and was just above the target level for operating profit (the two performance metrics that are measured by the MIP), reflecting strong performance during the first three quarters of the fiscal year offset by the impact of the COVID-19 pandemic in the fourth quarter. NEOs received a payout under the FY 2020 MIP that was below target and included a positive adjustment to reflect strong performance despite the unprecedented COVID-19 pandemic impact.
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2018-2020 LTIP
76% Payout
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Our company financial performance did not meet the target levels for net sales and operating margin, two of the performance metrics that are measured for the performance period of the FY 2018-2020 performance-based share award. However, our rTSR was above target. Overall, NEOs received a payout for the 2018-2020 performance-based share award that was below target.
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CEO Pay-for Performance Alignment
The chart below compares the target versus realizable TDC for our CEO, Mr. Darrow, measured as of the end of FY 2020. Over the past three fiscal years, Mr. Darrow's realizable TDC was 65% of his target TDC, which we believe reflects both the rigor of the performance goals set by the Compensation Committee and the company's total shareholder return ("TSR") performance over the same time period.
The charts below compare the realizable TDC for Mr. Darrow relative to our peer group companies, with realizable pay for the past three fiscal years valued as of two different dates for the peer group companies. Over the past three years, Mr. Darrow's relative realizable pay was aligned with the company's rTSR performance when measured using each peer company’s respective fiscal year-end (as shown in the chart below on the left), and was conservative when all peer companies were measured using our fiscal year-end date of April 25, 2020 (as shown in the chart below on the right).
For purposes of the above charts, we have included the following elements in calculating "realizable pay":
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actual base salary paid,
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actual bonus earned for the year (typically paid in the subsequent year),
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for long-term incentives, the intrinsic value as of the applicable measurement date,
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for stock options, the in-the-money value of stock options granted in last three years (vested and unvested) as of the applicable measurement date,
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for restricted stock or stock units, the number of shares granted multiplied by the stock price as of the applicable measurement date, adjusted for dividend reinvestments,
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for performance shares, shares earned or target awards for cycles beginning in the last three years multiplied by the stock price as of the applicable measurement date, adjusted for dividend reinvestments, and
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for performance cash, the dollar amount earned or target awards for cycles beginning in last three years.
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Shareholder Engagement and Say-on-Pay Vote
After eight years of consistently strong (96%+) shareholder support for our annual say-on-pay resolution, our say-on-pay resolution with respect to the FY 2019 NEO compensation program received 83% support at our 2019 Annual Meeting of Shareholders. For a description of our on-going shareholder engagement efforts, please see page 24. In FY 2020, in part to promote engagement with the corporate governance teams of institutional investors, we invited nine of our top shareholders representing over 52% of the company's outstanding common stock to engage with our Lead Director and certain members of management on various strategic and other matters, including company performance and strategy, Board composition and refreshment, corporate governance practices, environmental and sustainability oversight and performance, and executive compensation. In connection with the 2019 Annual Meeting, we invited additional shareholders to engage with us on executive compensation-related matters. Our independent Lead Director, Mr. McCollough, participated in almost all of these shareholder engagements along with certain members of management and they were joined by the chair of the Compensation Committee, Mr. Holman, for certain of these meetings. Both of these shareholder outreach efforts resulted in substantive engagements on corporate governance and executive compensation matters with the holders of over 40% of the company's outstanding common stock.
The Compensation Committee and the Board reviewed a comprehensive summary of the shareholder feedback received on executive compensation-related matters. While shareholders were generally supportive of our executive compensation program and approved of the extent to which it is performance-based, the Compensation Committee made certain changes to the design of our FY 2021 executive compensation program and enhancements to the disclosures of our FY 2020 executive compensation program that it believes are responsive to the key areas of the feedback we received, as summarized in the chart below.
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What We Heard
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What We Did
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Certain shareholders asked for greater transparency on the goal-setting process for our MIP (given the above-target FY 2019 payouts last year) and the threshold and maximum performance goals for performance-based share awards
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Although our FY 2020 MIP payouts were below target, we provided enhanced disclosure of the Compensation Committee's goal-setting process for FY 2020
In addition to disclosing target goals, we disclosed threshold and maximum performance goals for our FY 2018-2020 performance-based share awards. We also disclosed threshold, target, and maximum relative TSR performance goals for all of our outstanding performance-based share awards. We do not disclose the net sales and operating cash flow goals for in process performance-based share performance periods because we believe doing so would cause competitive harm.
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Certain shareholders stated that they preferred equal weighting of performance in each year of the 3-year performance period of our performance-based share awards (rather than the prior practice of assigning different weightings to the performance of each year with the first year having the highest assigned weighting)
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At the time we engaged with shareholders, the Compensation Committee had already approved the FY 2020-2022 performance-based share awards using the prior-year performance measurement approach. However, the Compensation Committee considered shareholder feedback and for the FY 2021-2023 performance-based share awards, included equal weighting of performance in each year of the 3-year performance period for net sales and operating cash flow. relative TSR performance continues to be measured on a 3-year cumulative basis.
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Given the unique nature of our Performance Compensation Retirement Plan, certain shareholders requested additional disclosure on the plan
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We have included enhanced disclosure of the performance-based nature and other features of the Performance Compensation Retirement Plan in this Proxy Statement
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Key Executive Compensation Program Changes for FY 2020
We continue to monitor all of our executive compensation program elements and practices to determine how they compare with current market practices and align with our overall compensation philosophy. Our Compensation Committee has worked with FW Cook, the committee’s independent executive compensation consultant, to evaluate our executive compensation program for FY 2020. Based on this review and, in certain instances, in response to the COVID-19 pandemic, the Compensation Committee made the following changes to the FY 2020 program as compared with the FY 2019 program:
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For the FY 2020 long-term incentive awards, the Compensation Committee approved a change in the mix of the equity awards to provide 25% restricted share awards, 25% stock options, and 50% performance-based share awards. The change was made in light of the prevalence of restricted share awards and restricted stock unit awards among our peer companies and to provide a small but meaningful retention and shareholder alignment component in the overall mix. The design of the performance-based share awards is otherwise the same as for the FY 2019 grants.
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As part of expense-reduction measures in our COVID-19 action plan, the Compensation Committee approved a temporary base salary reduction in the amount of 50% for our NEOs, which was effective from March 29, 2020 through the end of FY 2020 and remains in effect until further action is taken by the Compensation Committee.
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In order to preserve liquidity as part of our COVID-19 action plan, the Compensation Committee delayed the payout of a portion of the FY 2020 MIP bonuses earned by our NEOs and other members of senior management from June 2020 to later in calendar year 2020.
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Key Executive Compensation Program Changes for FY 2021
The COVID-19 pandemic has had a significant impact on the global economy and furniture industry and the company in particular. As discussed above, the company has taken numerous actions to mitigate the financial impact of the COVID-19 pandemic, which include changes to the executive compensation program. The Compensation Committee made the following modifications to the executive compensation program for FY 2021. In making these changes, the Compensation Committee sought to balance the drive to reduce expenses and preserve liquidity, with its desire to appropriately incentivize and retain members of senior leadership as they continue to manage the company’s performance during a period of economic challenges and uncertainty.
Base Salary
As of the date of filing this Proxy Statement, the temporary base salary reductions in the amount of 50% for our NEOs, which took effect on March 29, 2020, remain in effect until further action is taken by the Compensation Committee. The Board and Compensation Committee continue to monitor and evaluate our business performance, liquidity and trends during the first quarter of FY 2021 and currently intend to consider restoration of base salaries for our NEOs during the second quarter of FY 2021.
Short-term Incentive Awards (MIP)
In order to reflect the severe impact of the COVID-19 pandemic in the first quarter of FY 2021 on the company's shareholders and employees, the Compensation Committee reduced the maximum opportunity under the FY 2021 MIP by 25% (i.e., payouts are capped at 150% of target as compared to the 200% maximum payout opportunity under the FY 2020 MIP). As of the time this Proxy Statement was filed, the performance goals for the FY 2021 MIP had not yet been finalized. However, they are expected, at this time, to be based on similar performance metrics as under the FY 2020 MIP.
Long-term Incentive Equity Awards
In light of the uncertainty created by the COVID-19 pandemic, in addition to the changes discussed above in response to shareholder and proxy advisor feedback, the Compensation Committee approved one additional design change for the FY 2021 long-term incentive equity awards to NEOs. The FY 2021 equity mix reverted back to the mix used in FY 2019 and prior years of 50% performance-based shares and 50% stock options. This change was made to more closely align the interests of our NEOs with the interests of our shareholders, who have experienced the negative impact of the COVID-19 pandemic on TSR due to a lower stock price.
Stock options grants and performance-based share awards under our FY 2021 long-term incentive program were made on June 22, 2020, in accordance with our normal equity grant practice. The performance metrics approved for the FY 2021-2023 performance-based share awards are the same as those for the FY 2020-2022 performance-based share awards with an increased weighting of TSR in order to more closely align the interests of our NEOs and senior management with those of our shareholders. The setting of the performance goals for the FY 2021-2023 performance-based share awards has been delayed until August 2020 to allow for the impact of the COVID-19 pandemic to be more fully understood so that appropriately rigorous and challenging performance goals may be set.
The Compensation Committee will continue to evaluate our executive compensation program to align and incentivize our NEOs and other members of senior management with the company’s short and long-term goals. In doing so, the Compensation Committee will continue to assess the developing impact of the COVID-19 pandemic in reviewing and determining the FY 2021 short-term and long-term incentive compensation design.
Overview of Key Compensation Practices
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What We Do
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Pay for performance – Our NEO compensation program emphasizes variable pay over fixed pay. A majority of their target annual compensation is at risk and linked to our financial or stock performance.
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Establish and monitor compliance with stock ownership guidelines for executives – Our expectations for stock ownership further align NEOs’ interests with those of our shareholders
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Use relative TSR in long-term performance-based share awards
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Require company contributions to the Performance Compensation Retirement Plan to be determined by company performance
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Mitigate undue risk – we have maximum caps on potential incentive payments and a clawback policy on performance-based compensation
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Appoint only independent directors to the Compensation Committee
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The Compensation Committee engages an independent compensation consultant to assist it and the Board with executive compensation program design and review
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Provide severance and change-in-control arrangements that are designed to be aligned with market practices, including the use of double-trigger change-in-control severance agreements
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Prohibit hedging and short sales by executive officers and directors
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What We Don’t Do
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Do not provide employment agreements
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Do not gross up excise taxes upon a change in control
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Do not reprice options without shareholder approval
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Do not pay dividends on unearned performance-based shares or units
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Do not have single trigger vesting of equity-based awards upon a change in control
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Do not provide excessive perquisites
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Executive Compensation Framework
Compensation Objectives
We design our executive pay program to support our business strategy and provide meaningful award opportunities that are aligned with the achievement of strategic and financial objectives.
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Pay for performance. We provide the majority of our NEOs' target TDC in annual and long-term incentive awards that are earned, or increase in value, based on company and stock performance.
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Reward for TSR. We align our NEOs’ interests with our shareholders’ interests by providing a significant portion of their annual target pay opportunity in the form of long-term equity incentives (for FY 2020, performance-based shares, stock options and restricted shares) whose value is dependent on our stock price and absolute TSR performance, and by basing a portion of the performance-based share awards on rTSR.
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Require significant stock ownership. We require our NEOs to own meaningful amounts of our stock over a sustained period to ensure they have the perspective of long-term shareholders.
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Provide market competitive opportunities. We design our compensation packages, including base salaries and incentive opportunities, to be market competitive based on data from U.S. retailers, and manufacturers with a retail focus.
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Manage costs. In designing our executive pay program, we take into account the cost of various elements (share usage, cash flow, and accounting impacts).
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Compensation Mix
In line with our pay-for-performance philosophy, the majority of each NEO’s target TDC is performance-based and therefore, “at risk.” Target TDC is composed of base salary, target annual bonus, and the target value of annual long-term equity incentives. Target TDC is used in the competitive review of target pay opportunities for each NEO. The chart below shows the percentage of each element in the target TDC for our CEO and the average for our other NEOs.
Overview of Executive Compensation Program Elements
To best achieve our objectives for the executive pay program, we provide a compensation package composed of the following primary elements:
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Component
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Description
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Performance-
Based?
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Page
Reference
|
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Base Salary
|
Fixed compensation for services rendered.
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No1
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See pg. 40
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Management Incentive Program (MIP)
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Short-term incentive plan that pays cash bonuses to participants based on performance against pre-established goals for net sales and operating profit.
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Yes
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See pg. 41
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Long-Term Incentives
|
Annual equity awards (for FY 2020, stock options, performance-based shares, and restricted shares)
• Stock options attain value only if our stock price increases following the date of grant.
• Performance-based shares are earned based on performance against pre-established goals for net sales and operating cash flow, and TSR relative to the S&P Small-Cap Consumer Durables and Apparel sub-index.
• Restricted shares vest equally over four years, subject to continued service. Awards may increase or decrease in value before vesting based on the company’s stock price performance.
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Yes
|
See pg. 43
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Retirement Benefits
|
A qualified 401(k) plan and non-qualified executive deferred compensation plan. Amounts contributed to 401(k) and deferred compensation plans are determined by an NEO’s election. Matching contributions to 401(k) plans in excess of IRC limitations may be credited to the executive deferred compensation plan.
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No2
|
See pg. 46
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Performance Compensation Retirement Plan
|
A non-qualified retirement account to which contributions (percentage of the sum of base salary plus bonus earned) are made by the company depending on performance relative to pre-established performance criteria (for FY 2020, operating income).
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Yes
|
See pg. 46
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(1)
|
Although base salary is not tied to the achievement of performance goals, the Compensation Committee considers performance in making any adjustments to base salaries.
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(2)
|
NEOs may only contribute or elect to defer amounts earned and paid during the year (i.e., actual base salaries and bonuses earned).
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The mechanics of these pay elements and our pay decisions are detailed below. In addition, we have change-in-control agreements with our NEOs, and they participate in a severance plan. Additional information regarding the change-in-control agreements and executive severance plan can be found on page 48. We believe these elements assist us in attracting and retaining quality executive talent and support continuity of our leadership.
Determining Executive Compensation
Compensation Committee’s Role
Each year, the Compensation Committee reviews and approves the overall design of our executive pay program and all pay elements for the NEOs. The CEO, chief financial officer, and chief human resources officer provide input on program design (including goals and weighting) and information on the company’s and the furniture industry’s performance.
The Compensation Committee has sole authority to retain and terminate consultants used to assist in the evaluation of executive compensation. For FY 2020, the Compensation Committee retained FW Cook as its independent executive compensation consultant to advise the committee on matters related to executive compensation. Under the Compensation Committee’s direction, FW Cook interacted with members of the senior executive team to provide insight into company and industry practices and ensure that executives were informed with regard to emerging best practices and market trends.
The Compensation Committee annually reviews the independence of its consultants by considering the factors specified in the NYSE’s rules related to compensation advisor independence. With respect to FY 2020, FW Cook provided a report addressing the following factors: (1) other services the consultant provided to us, if any; (2) the fees we paid as a percentage of the consultant’s total revenue; (3) the consultant’s policies and procedures designed to prevent a conflict of interest; (4) any business or personal relationship of the consultant with a member of the committee; (5) any company stock owned by the consultant; and (6) any
business or personal relationships between our executive officers and the consultant. In FY 2020, the Compensation Committee discussed FW Cook’s independence along with these factors and concluded that FW Cook’s work did not present any conflict of interest.
Pay-Setting Process Methodology and Peer Group
For each NEO, we establish a salary range and the target annual and long-term incentive award opportunities based on market median pay levels. In setting individual pay levels, we consider market pay data and company performance. We also consider each NEO’s duties and responsibilities, skills, experience, and performance, as well as our business needs, cost, and internal pay equity.
In setting individual NEO pay levels and opportunities, the Compensation Committee annually reviews compensation data and practices for a peer group of companies in sectors in which the company generally competes to attract talented, high-performing executives. Reflecting the company's business model, the company seeks executive talent with one or more of retail, wholesale, manufacturing and e-commerce experience. Because the company has few competitors comparable in terms of its business model, its peer group includes a mix of such types of companies.
The Compensation Committee worked with FW Cook to review and approve the peer group of companies for FY 2020. FW Cook screened for potential peers:
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a
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in similar industries
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a
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in similar geographies
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a
|
with a business focus on furniture
|
a
|
with robust supply chain and manufacturing operations
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a
|
with recognizable brands
|
a
|
with brick-and-mortar and online retail presence
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|
a
|
of similar size
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|
The Compensation Committee evaluates each peer company annually to determine whether its inclusion remains appropriate. Based on its review and the advice of FW Cook, the Compensation Committee made no changes to the peer group from FY 2019 for FY 2020. The peer group used to evaluate FY 2020 executive compensation decisions is composed of the following 16 publicly-traded companies:
FY 2020 Peer Group
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|
Aaron’s, Inc.
Callaway Golf Company
Ethan Allen Interiors, Inc.
Haverty Furniture Companies, Inc.
Herman Miller, Inc.
HNI Corporation
|
Interface, Inc.
Knoll, Inc.
Libbey Inc.
Overstock.com, Inc.
Pier 1 Imports, Inc.
RH
|
Sleep Number Corporation
Steelcase Inc.
Tempur Sealy International, Inc.
Wolverine Worldwide, Inc.
|
The Compensation Committee generally believes that peer group consistency from year to year maximizes year-over-year comparability. However, based on its review and the advice of FW Cook, the Compensation Committee made the following two changes to the peer group used to evaluate FY 2021 executive compensation decisions: removing Libbey Inc. and Pier 1 Imports, Inc., each of which have filed for bankruptcy, and replacing them with Helen of Troy Limited and iRobot Corporation.
FY 2021 Peer Group
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Aaron’s, Inc.
Callaway Golf Company
Ethan Allen Interiors, Inc.
Haverty Furniture Companies, Inc.
Helen of Troy Limited
Herman Miller, Inc.
|
HNI Corporation
iRobot Corporation
Interface, Inc.
Knoll, Inc.
Overstock.com, Inc.
RH
|
Sleep Number Corporation
Steelcase Inc.
Tempur Sealy International, Inc.
Wolverine Worldwide, Inc.
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The following chart illustrates the company's position compared to the FY 2020 peer group median of revenue, market capitalization, operating income, total assets, and number of employees (calculated using data provided to the Compensation Committee by FW Cook in April 2019):
To aid in its oversight of our executive compensation program, in November 2019, the Compensation Committee requested that FW Cook conduct a competitive review of target pay opportunities for each of the NEO positions. The analysis included base salary, short-term incentives, and long-term incentives and compared the compensation of the NEOs within the peer group companies, supplemented by data from third-party general industry surveys. The FY 2020 target TDC of our NEOs, on average, was aligned with the median TDC for corresponding executives among the peer companies.
In addition, the Compensation Committee annually reviews current and historical compensation for the NEOs, as well as estimated amounts to be paid to the NEOs under various employment termination situations, including severance and a change in control of the company. Periodically, we also review market practices for executive retirement benefits and deferred compensation plans.
Our process for setting compensation for our NEOs includes a formal, individual performance evaluation each year for each NEO. The independent members of our board of directors assess our CEO’s performance each year. This assessment includes an evaluation of critical areas, including customer relations, human capital, shareholder value, operating results, and strategic goals. Every third year, the committee’s independent compensation consultant coordinates the committee’s evaluation of the CEO’s performance focusing on the same criteria. The consultant compiles the evaluations provided by each board member and prepares a detailed report for the board. The CEO assesses the individual performance of the other NEOs each year based on their overall performance throughout the year, accomplishment of specific goals, and their future potential within the organization. This assessment is used in determining base salary as noted below.
CEO and Other NEO Compensation
Base Salaries
We set base salaries for our NEOs based on their scope of responsibility, skills, experience, leadership, and performance. We consider market competitiveness, specific job responsibilities, internal pay relationships, and total cost. Consistent with our practices for all management employees, NEOs are eligible for annual merit salary increases based on individual performance, comparison with market levels, and the total salary budget.
Salary Changes in FY 2020
In April 2019, the Compensation Committee reviewed the salary levels for each of the then-serving NEOs. As part of the salary review process, the committee reviewed and considered the performance of each NEO, relevant market data, the comparison of compensation among various levels of management, and the company’s overall performance. Mr. Darrow's and Mr. Sawyer's increases were reflective of their consistent and sustained delivery of financial results and of executive market data. Mr. Edward’s increase was reflective of strong performance and his assumption of additional responsibilities, which include leading the company’s international manufacturing operations. Ms. Whittington’s increase reflected strong performance in her strategic role over the last year. Based on these considerations, the Compensation Committee approved salary increases for the NEOs, effective July 1, 2019.
Due to the COVID-19 pandemic, effective March 29, 2020, the Compensation Committee approved temporary base salary reductions of 50% for each of the NEOs. These temporary base salary reductions remained in effect as of the end of FY 2020 and are reflected in the base salary amounts shown in the FY 2020 Summary Compensation Table on page 49.
A two-year base salary history that does not reflect the temporary salary reductions for each of the NEOs is presented in the following table:
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NEO
|
FY 2019
Salary
$(1)
|
|
FY 2020
Salary
$(1)
|
|
%
Change
|
|
|
Kurt L. Darrow
|
1,025,000
|
|
1,056,000
|
|
3.02
|
%
|
|
Melinda D. Whittington
|
525,000
|
|
557,000
|
|
6.10
|
%
|
|
Darrell D. Edwards
|
494,000
|
|
534,000
|
|
8.10
|
%
|
|
Otis S. Sawyer
|
448,000
|
|
461,000
|
|
2.90
|
%
|
|
Stephen K. Krull(2)
|
|
402,000
|
|
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|
(1)
|
Salary increases become effective on July 1, two months after the start of the fiscal year. In addition, the temporary base salary reductions of 50% for the NEOs were effective on March 29, 2020. As a result, the amounts shown here for FY 2020 are higher than those shown in the FY 2020 Summary Compensation Table on page 49.
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(2)
|
As noted earlier, Mr. Krull was designated as an executive officer of the company on August 27, 2019.
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Incentive Compensation
We award incentive compensation, including under the La-Z-Boy Incorporated 2017 Omnibus Incentive Plan (the “Omnibus Incentive Plan”), to reward participants for achievement of both short-term and long-term company performance goals and to enhance our ability to attract and retain employees. The Compensation Committee believes that designing the incentive compensation program with multiple objectives and performance periods promotes behavior that creates shareholder value while mitigating incentives to pursue risky or unsustainable results.
Short Term Incentive Awards (Management Incentive Program)
Our annual cash bonus program, which we refer to as the Management Incentive Program or MIP, is a short-term incentive award plan that we designed to motivate and reward NEOs for achieving annual performance goals.
Pay-for-Performance Linkage — FY 2020 MIP Payouts Were Below Target, Reflecting the Impact of the COVID-19 Pandemic
Our FY 2020 company financial performance results, on a consolidated basis, were below the established target levels, reflecting strong sales and operating profit results during the first three quarters of the fiscal year offset by the impact of the COVID-19 pandemic on sales and operating profit in the fourth quarter. In line with our compensation philosophy and in accordance with standards we set at the outset of the year, MIP payments to our NEOs for FY 2020 were below target but above threshold levels.
FY 2020 MIP Performance Goals
FY 2020 financial performance metrics were:
The Compensation Committee selected net sales and operating profit as the financial performance metrics to focus management on:
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•
|
these major drivers of increased shareholder value in the company's long-term strategic plan, and
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•
|
the appropriate balance between top-line growth and improved profitability.
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To reflect the NEOs' ability to influence the overall company and to promote collaboration across the businesses, the NEOs' performance goals are for the company’s consolidated financial performance.
In setting the performance goals shown below, the Compensation Committee considered prior-year results and forecasted financial results to ensure the rigor of the goals and that target pay is provided only for improved company performance. Therefore, for net sales, the threshold goal was set at the company's actual GAAP net sales for FY 2019. Given the uncertainty on tariffs and economic demand at the beginning of FY 2020, the Compensation Committee ensured that the target operating profit represented meaningful improvement from actual GAAP operating profit for FY 2019 while widening the overall operating performance range. Achievement between the threshold, target, inflection point and maximum performance levels is calculated using straight-line
interpolation between the relevant two endpoints. Under the FY 2020 MIP design, the Compensation Committee designed the inflection point in order to make it even more challenging to earn additional pay approaching the maximum performance level.
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Performance Level
|
|
Payout Level
(% of Target)
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Net Sales
(in Millions)
|
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Operating
Profit
(in Millions)
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Maximum
|
|
200
|
%
|
|
$1,918
|
|
|
$157.5
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Inflection point
|
|
150
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%
|
|
$1,878
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|
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$147.5
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|
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Target
|
|
100
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%
|
|
$1,845
|
|
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$140.0
|
|
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Threshold
|
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50
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%
|
|
$1,745
|
|
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$105.0
|
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Actual (as adjusted for compensation purposes)(1)
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$1,704
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$140.3
|
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|
Actual at quarter-end Q3 FY 2020 (as adjusted for compensation purposes)(1)
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$1,337
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$106.0
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Individual Metric Payout
|
|
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0
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%
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102
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%
|
|
Individual Metric Weight
|
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|
50
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%
|
50
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%
|
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Formulaic Payout (% of Target)
|
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51
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%
|
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Overall Payout (% of Target)(2)
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75
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%
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(1)
|
The Compensation Committee includes certain pre-established adjustments to the performance metrics to provide NEOs with an incentive to take actions that are deemed to be in the long-term interests of the business, but that might otherwise adversely affect payouts on the annual cash incentive awards. In calculating FY 2020 performance for operating profit, pursuant to the pre-established adjustments, goodwill impairment charges, purchase accounting charges related to acquisitions, impacts from our supply chain optimization initiative (including the closure and sale of our Redlands, CA upholstery manufacturing facility and relocation of our Newton, MS leather cut-and-sew operations), and charges for the disposal of our former world headquarters were excluded.
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(2)
|
Please see FY 2020 MIP Performance Results below for discussion of this adjustment.
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FY 2020 MIP Performance Results
Given the unprecedented and unforeseeable impact of the COVID-19 pandemic on the general economy, the retail and furniture industries, and the company's operations and financial performance during the fourth quarter of FY 2020, the Compensation Committee felt that it was necessary to consider the formulaic MIP payout in conjunction with a qualitative assessment of company and management performance for FY 2020. The Compensation Committee determined that:
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|
•
|
management's strong execution in the first three quarters of FY 2020 against the net sales and operating profit performance goals, along with
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•
|
management's continued focus, agility and resilience during the fourth quarter of FY 2020,
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resulted in the strength of the company's balance sheet and liquidity, which are key determinants of the company's ability to weather the COVID-19 pandemic going forward. In order to ground its assessment in the strategic and operational goals set at the beginning of FY 2020, the Compensation Committee considered performance through the first three quarters separately from performance in the fourth quarter of FY 2020. In applying its judgment to determine the actual payout under the MIP, the Compensation Committee used the following logic:
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•
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Financial performance against our annual operating plan targets for the first three quarters of FY 2020 was strong and above target, while performance in the fourth quarter was significantly below threshold due to the impact of the COVID-19 pandemic. The Compensation Committee considered that if actual performance through the third quarter was weighted at 75% and performance for the fourth quarter was measured as a zero payout weighted at 25%, the resulting total payout would approximate 100% of target.
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•
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To further align the MIP payout with the negative impact of the COVID-19 pandemic on our shareholders and other stakeholders, the Compensation Committee applied a 25% reduction to the amount determined above, resulting in a final payout of 75% of target.
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In order to provide linkage between incentive plan payouts and the quality of management's performance, the Compensation Committee has discretion to adjust incentive awards for the NEOs. Therefore, the Compensation Committee adjusted the full-year FY 2020 MIP formulaic payouts from 51% to 75% of target, which reflects management's strong performance in FY 2020 both before and during the COVID-19 pandemic while still taking into account the impact of the COVID-19 pandemic on our shareholders and other stakeholders.
FY 2020 NEO Target Awards and Payouts
For FY 2020, the Compensation Committee established target incentive awards, specified as a percentage of base salary, for each NEO using competitive market median data and the company’s historical compensation practices for employees in those salary grades. The NEOs have the opportunity to earn awards between 50% of their target incentive award if we meet minimum performance goals to a maximum of 200% of their target incentive awards if we meet the relevant performance goals.
Our NEOs’ FY 2020 target awards, achieved performance levels, and actual MIP amount were as follows:
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FY 2020
Target
Incentive
(% of base salary)
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|
Achieved
Performance
Level
(% of target
performance)
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|
Actual
FY 2020
Incentive
Payout
($)
|
|
|
Kurt L. Darrow
|
115
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%
|
75
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%
|
|
$868,377
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|
Melinda D. Whittington
|
75
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%
|
75
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%
|
|
$297,252
|
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Darrell D. Edwards
|
75
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%
|
75
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%
|
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$284,104
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Otis S. Sawyer
|
60
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%
|
75
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%
|
|
$198,459
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|
|
Stephen K. Krull
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50
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%
|
75
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%
|
|
$144,341
|
|
Our MIP Payout History Demonstrates the Rigor of Our Performance Goals
The Compensation Committee seeks to set target performance goals that are challenging but reasonably achievable with strong management performance. Maximum performance goals have been designed to be difficult to achieve given historical financial performance and the company's forecasted financial results at the time the performance metrics were approved. Over the last five fiscal years, the actual performance results for the MIP have averaged approximately 96% of target and ranged from a low of 42% of target to a high of 157% of target as shown in the chart below:
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FY
|
|
MIP Payout (as % of target)
|
|
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FY 2020
|
|
75
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%
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|
FY 2019
|
|
157
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%
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|
FY 2018
|
|
42
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%
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FY 2017
|
|
89
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%
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|
FY 2016
|
|
118
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%
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|
|
Average Payout
|
96
|
%
|
Long-Term Incentive Equity Awards
The long-term incentive award provisions of our Omnibus Incentive Plan provide for equity-based compensation (restricted shares, restricted stock units, stock options, or other forms of equity-based compensation) that we design to align NEO pay with long-term shareholder returns, motivate our NEOs to focus on long-term business objectives, and encourage long-term strategic thinking. The value our NEOs receive from these awards varies based on the company’s performance and the future price appreciation and TSR of our common stock.
FY 2020 Equity Grants
Each year, the Compensation Committee establishes long-term incentive award types, mix, and award levels for each eligible pay grade based on our objectives for the equity grants and after considering market median practices, total cost (including share usage, accounting, and tax impacts), and past practices. We review the accounting treatment of the relevant incentive award types, including stock options, performance-based share awards, and restricted share awards. The Compensation Committee approves annual equity-based awards that are generally granted in the first quarter of the fiscal year.
For the FY 2020 long-term incentive awards, the Compensation Committee approved a change in the mix of the equity awards to provide 25% restricted share awards, 25% stock options, and 50% performance-based share awards. The change was made in light of the prevalence of restricted share awards among our peer companies and to provide a small but meaningful retention and shareholder alignment component in the overall mix. Early in FY 2020, pursuant to the Omnibus Incentive Plan, we granted to our NEOs stock options, performance-based shares, and restricted shares.
Stock Options (25% of total FY 2020 long-term incentive opportunity)
Stock options entitle NEOs to purchase stock at an exercise price equal to the closing price on date of grant, subject to the vesting terms applicable to the award. Options expire at the end of ten years if they have not been exercised by that time. Stock options deliver value to NEOs if the company’s stock price rises, directly aligning executive compensation with the value created for shareholders as reflected in stock price appreciation from the date of grant. The stock options we granted in FY 2020 vest in equal installments over four years (25% per year), subject to the recipient's continued employment.
Performance-Based Share Awards (50% of total FY 2020 long-term incentive opportunity)
Performance-based share awards provide our NEOs the opportunity to earn a defined number of shares of our common stock if we achieve pre-set performance goals and the NEO remains employed through the conclusion of the performance period. The value of any earned shares depends on La-Z-Boy’s future stock price. An NEO’s award opportunity ranges from 50% of the NEO’s target number of shares if we meet minimum threshold performance goals to a maximum of 200% of the target number of shares. If the performance goals are not achieved, the performance-based share awards associated with that performance metric will not vest. Following the conclusion of the three-year performance period, we pay out the shares that our NEOs earned.
The number of shares our NEOs receive, if any, will depend on how the company performs against sales growth and operating cash flow performance goals for each of FYs 2020, 2021, and 2022, and against rTSR goals over the three-year performance period. TSR is measured cumulatively over the entire three-year performance period relative to the TSR of the other constituents of the S&P Small-Cap Consumer Durables and Apparel sub-index. For the overall payout, the weightings of each of the performance goals and the annual periods in the three-year performance period are shown in the table below. For the performance-based share awards, the Compensation Committee seeks to set target performance goals that are challenging but reasonably achievable with strong management performance.
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Metric (Total Weight)
|
FY 2020
Weight
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FY 2021
Weight
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|
FY 2022
Weight
|
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|
Sales Growth (40%)
|
20
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%
|
12
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%
|
8
|
%
|
|
Operating Cash Flow (40%)
|
20
|
%
|
12
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%
|
8
|
%
|
|
Total Share Allocation by Year
|
40
|
%
|
24
|
%
|
16
|
%
|
|
rTSR (20%)(1)
|
20%
|
|
|
|
|
(1)
|
This 20% portion of the performance-based share awards is earned based on the company's rTSR performance, which is measured over the three-year cumulative performance period, FY 2020-FY 2022.
|
NEOs may earn shares based on each factor independent of our performance on the other factors. Each factor includes a minimum performance level that must be achieved before any shares are earned based on that factor. No shares are earned if the company performs below the threshold performance level of all three factors. Payout for performance between threshold and target and between target and maximum is interpolated for performance between levels. The actual number of shares NEOs earn can be more or less than target level depending on the company’s performance.
The Compensation Committee utilized sales performance as an element in both the company’s FY 2020 MIP and FY 2020-2022 long-term equity incentive program in recognition that this measure is viewed as a core driver of the company’s performance and shareholder value creation. In designing the company’s executive compensation program, the Compensation Committee supplemented this measure with additional performance measures in order to strike an appropriate balance with respect to incentivizing top-line growth, profitability, liquidity and shareholder returns over both the short-term and long-term horizons.
Restricted Shares (25% of total FY 2020 long-term incentive opportunity)
Restricted share awards are an incentive for executives to remain with our company and to work to enhance the value of the company's stock over time. Executives receive value from restricted share awards only if they are still employed by the company when the awards vest. For our NEOs, the restricted shares granted in FY 2020 vest in equal installments over four years (25% per year).
Prior LTIP Equity Grant Performance Achievement and Payouts
Each of our NEOs earned payouts on the performance-based share awards granted in FY 2018 for the three-year performance period that ended with our FY 2020 year end, except for Ms. Whittington and Mr. Krull, each of whom joined the company after the FY 2018 awards were granted. The design and structure of these performance-based shares was similar to those granted in FY 2019 and FY 2020, except operating margin was used instead of operating cash flow as a performance metric and rTSR was measured against the constituents of the S&P Small-Cap 600 Index. The following table shows how the company performed against the sales and operating margin goals for each of the three fiscal years, and the company’s rTSR versus the S&P Small-Cap 600 Index for the three-year performance period. Following the end of the three-year performance period, we paid out earned shares, the number and value of which are shown in the FY 2020 Option Exercises and Stock Vested table on page 54.
Performance Period FY 2018-2020 – Overall payout of 76% of target
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Threshold, Target and Maximum Goals
|
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Results
|
|
Payout as % of Target
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|
Sales
(in Billions)
|
|
Operating Margin
|
|
Relative
TSR Over
3 Years
|
|
Sales
(in Billions)
|
|
Operating Margin
|
|
Relative
TSR Over
3 Years
|
|
Sales
|
|
Operating Margin
|
|
Relative
TSR Over
3 Years
|
|
FY
2018
|
Threshold
|
|
$1.520
|
|
8.12
|
%
|
Threshold 25th percentile
Target
50th
percentile
Maximum
75th percentile
|
|
$
|
1.584
|
|
8.11
|
%
|
52nd
Percentile
|
|
84
|
%
|
0
|
%
|
108%
|
|
Target
|
|
$1.615
|
|
8.62
|
%
|
|
Maximum
|
|
$1.683
|
|
9.12
|
%
|
|
FY
2019
|
Threshold
|
|
$1.615
|
|
8.17
|
%
|
$
|
1.745
|
|
7.29
|
%
|
200
|
%
|
0
|
%
|
|
Target
|
|
$1.665
|
|
8.67
|
%
|
|
Maximum
|
|
$1.740
|
|
9.17
|
%
|
|
FY
2020
|
Threshold
|
|
$1.665
|
|
8.22
|
%
|
$
|
1.704
|
|
8.61
|
%
|
76
|
%
|
89
|
%
|
|
Target
|
|
$1.740
|
|
8.72
|
%
|
|
Maximum
|
|
$1.815
|
|
9.22
|
%
|
The Compensation Committee includes certain pre-established adjustments to the performance metrics to provide NEOs with an incentive to take actions that are considered to be in the long-term interests of the business, but that might otherwise adversely affect payouts on the awards. In calculating FY 2020 performance for operating cash flow, pursuant to the pre-established adjustments, purchase accounting charges related to acquisitions and impacts from our supply chain optimization initiative (including the closure and sale of our Redlands, California upholstery manufacturing facility and relocation of our Newton, Mississippi leather cut-and-sew operations) were excluded.
The performance-based share awards granted in FY 2019 and FY 2020 provide NEOs with the opportunity to earn a portion of the awards based on sales and operating cash flow targets established for each of the three years covered by the grant and based on the company's rTSR versus the other constituents of the S&P Small-Cap Consumer Durables and Apparel sub-index over the three-year performance period. Performance goals and results for performance through the end of FY 2020 are shown in the following tables. For the rTSR component, threshold, target, and maximum performance levels are the 25th, 50th, and 75th percentiles, respectively. While we set the net sales and operating cash flow goals for each of the three years at the start of the performance period, we do not disclose the net sales and operating cash flow goals for uncompleted years, because we believe doing so would cause competitive harm.
Performance Period FY 2019-2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Goals
|
|
|
Results
|
|
Payout as % of Target
|
|
|
Sales
(in Millions)
|
|
Operating Cash Flow (in Millions)
|
|
Relative
TSR Over
3 Years*
|
|
Sales
(in Millions)
|
|
Operating
Cash Flow
(in Millions)
|
|
|
Sales
|
|
Operating Cash Flow
|
|
|
FY 2019
|
|
$1,652
|
|
|
$163.8
|
|
Target
50th
percentile
|
|
|
$1,686
|
|
|
$175.8
|
|
|
153
|
%
|
140
|
%
|
|
FY 2020
|
|
$1,668
|
|
|
$167.9
|
|
|
$1,563
|
|
|
$160.3
|
|
0
|
%
|
91
|
%
|
|
FY 2021 (in process)
|
|
|
|
|
|
|
* For rTSR performance over the 3-year performance period, the threshold goal is the 25th percentile and the maximum goal is the 75th percentile of the other constituents of the S&P Small-Cap Consumer Durables and Apparel sub-index.
The Compensation Committee includes certain pre-established adjustments to the performance metrics to provide NEOs with an incentive to take actions that are considered to be in the long-term interests of the business, but that might otherwise adversely affect payouts on the awards. In calculating FY 2020 performance for sales and operating cash flow, pursuant to the pre-established adjustments, the positive or negative contribution from certain acquisitions as projected in the pro forma financial statements presented to the Board when such acquisitions were approved was excluded. Additionally, in calculating FY 2020 performance for operating cash flow, pursuant to the pre-established adjustments, purchase accounting charges related to acquisitions were excluded.
Performance Period FY 2020-2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Goals
|
|
|
Results
|
|
Payout as % of Target
|
|
|
Sales
(in Millions)
|
|
Operating Cash Flow (in Millions)
|
|
Relative
TSR Over
3 Years*
|
|
Sales
(in Millions)
|
|
Operating
Cash Flow
(in Millions)
|
|
|
Sales
|
|
Operating Cash Flow
|
|
|
FY 2020
|
|
$1,845
|
|
|
$146.5
|
|
Target
50th
percentile
|
|
|
$1,704
|
|
|
$175.7
|
|
|
0
|
%
|
185
|
%
|
|
FY 2021 (in process)
|
|
|
|
|
|
|
|
FY 2022
|
|
|
|
|
|
|
* For relative TSR performance over the 3-year performance period, the threshold goal is the 25th percentile and the maximum goal is the 75th percentile of the other constituents of the S&P Small-Cap Consumer Durables and Apparel sub-index.
In calculating FY 2020 performance for operating cash flow, pursuant to the pre-established adjustments, purchase accounting charges related to acquisitions and impacts from our supply chain optimization initiative (including the closure and sale of our Redlands, California upholstery manufacturing facility and relocation of our Newton, Mississippi leather cut-and-sew operations) were excluded.
These awards for the grants made in FY 2019 and FY 2020 have been earned contingent on the NEO remaining with the company through the end of the respective three-year performance period, after which they will be paid. For information on the treatment of these awards at retirement, see Payments Made Upon Disability or Retirement on page 56.
Our LTI Payout History Demonstrates the Rigor of Our Performance Goals
The committee seeks to set target performance goals that are challenging but reasonably achievable with strong management performance. Maximum performance levels have been designed to be difficult to achieve given historical financial performance and the company's forecasted financial results at the time the performance metrics were approved. Over the last five fiscal years, the actual performance results for the performance-based share awards have averaged approximately 74% of target and ranged from a low of 54% of target to a high of 92% of target as shown in the chart below:
|
|
|
|
|
|
|
|
FY Award
|
Performance Cycle
|
Payout Achievement
|
|
|
FY 2018
|
FY18-19-20
|
76
|
%
|
|
FY 2017
|
FY17-18-19
|
61
|
%
|
|
FY 2016
|
FY16-17-18
|
92
|
%
|
|
FY 2015
|
FY15-16-17
|
54
|
%
|
|
FY 2014
|
FY14-15-16
|
87
|
%
|
|
|
Average Payout
|
74
|
%
|
Retirement Benefits
We provide retirement benefit plans as an incentive for employees to remain with the company long-term and to assist with retirement planning. Our NEOs are eligible to participate in the same retirement benefit program that we offer to salaried employees at the corporate level.
Our NEOs are eligible to participate in our 401(k) plan to which the company may contribute. The match varies by operating unit and ranges from 0% to a maximum of 4% if the employee contributes at least 6% of his or her eligible compensation. As noted above, the 401(k) plan match was suspended on March 29, 2020, as part of the company's response to the COVID-19 pandemic.
Performance Compensation Retirement Plan
Our pay-for-performance compensation philosophy extends to our Performance Compensation Retirement Plan, in which our NEOs, executive management employees, and certain other key management employees designated by the Compensation Committee participate. This plan is designed so that contributions are only made to the plan to the extent the company achieves pre-set performance goals and, accordingly, contributions will fluctuate year to year based on company performance, thus creating another pay-for-performance element in the company's compensation program.
Key features of the plan are:
|
|
|
|
•
|
Performance criteria. The Compensation Committee establishes company performance criteria and minimum threshold performance levels to determine contributions to the plan. If the company performs at or above the threshold level for the year, we issue credits to each plan participant’s account, and those credits later convert to cash when a vested participant receives a distribution following separation from service. The credits represent a
|
percentage of the base salary and bonus a participant earned during the fiscal year, and the percentages come from a sliding scale that produces a larger contribution for better performance.
|
|
|
|
•
|
Governance. We will rescind any contribution credits if we later determine that it resulted from financial errors or omissions.
|
|
|
|
|
•
|
Promotion of Employee Retention - Vesting. The plan's vesting provisions are designed to promote employee retention. Participants are only entitled to distributions from their accounts when their employment by the company ends (except where applicable law requires a delay or a participant elects to delay distribution) as long as the participant is vested at that time. To be vested, a participant must be at least age 55 and the sum of the participant's age and credited years of vesting service must equal or exceed 65. If a participant is not vested when the participant separates from service, the participant forfeits all contribution credits in the participant's account. Contribution credits created in prior years increase each year based on an interest rate that corresponds to yields on 20-year AA corporate bonds.
|
|
|
|
|
•
|
Payment Cap. A payment cap that applies to distributions if made over a 20-year period is also designed to promote employee retention. Accounts are generally distributed on a monthly basis over a period of 5, 10, or 20 years, as the participant elects or, if the participant does not make a valid election, over a 20-year period. Account balances are reduced to ensure that monthly payments for a 20-year payout period do not exceed 65% of the monthly average of the employee's total cash compensation in the final three complete fiscal years of service as an employee of the company.
|
For FY 2020, the Compensation Committee set total operating income as the performance criterion. NEOs received contribution credits based on operating income performance relative to threshold and target performance levels and individual percentage factors as follows:
|
|
|
|
|
|
Performance Level
|
Contribution Percentage Factor*
|
|
Target and Above
|
CEO: 35%
Other NEOs: 25%
|
|
Threshold
|
CEO: 17.5%
Other NEOs: 12.5%
|
|
Below Threshold
|
All NEOs: 0%
|
|
|
|
|
*
|
The contribution percentage increases proportionately for performance between threshold and target levels.
|
Actual FY 2020 operating income performance exceeded the target performance level. As a result, Mr. Darrow and each of the other NEOs received contributions of 35% and 25%, respectively, of the sum of their base salary and formulaic bonus earned for FY 2020.
FY 2020 Performance Compensation Retirement Plan Goals, Results, and Contribution Percentage
|
|
|
|
|
|
|
|
Performance Level
|
Operating Profit
(in Millions)
|
|
|
Target
|
|
$140.0
|
|
|
Threshold
|
|
$105.0
|
|
|
Actual(1)
|
|
$140.3
|
|
|
CEO Contribution Percentage
|
35
|
%
|
|
Other NEOs Contribution Percentage
|
25
|
%
|
|
|
|
|
(1)
|
The Compensation Committee includes certain pre-established adjustments to the performance metric to provide NEOs with an incentive to take actions that are deemed to be in the long-term interests of the business, but that might otherwise adversely affect contributions to the plan. In calculating FY 2020 performance for operating profit, pursuant to the pre-established adjustments, goodwill impairment charges, purchase accounting charges related to acquisitions, impacts from our supply chain optimization initiative (including the closure and sale of our Redlands, California upholstery manufacturing facility and relocation of our Newton, Mississippi leather cut-and-sew operations), and charges for the disposal of our former world headquarters were excluded.
|
Executive Deferred Compensation Plan
Our 2005 Executive Deferred Compensation Plan allows executives to defer pay they have earned. Participants may elect to defer up to 100% of their salaries and annual cash incentive awards made under the MIP. In addition, the company may contribute to this plan any company 401(k) match that cannot be credited to executives’ accounts under the 401(k) plan due to the Internal Revenue Code compensation limitations that apply to the tax-qualified retirement plans. Such limits may apply because the executive’s contributions and the company’s matching contributions were limited by either the annual contribution limit — $19,500
for 2020 — or the annual compensation limit — $285,000 for 2020. NEOs salary and bonus deferrals are detailed in the FY 2020 Non-Qualified Deferred Compensation table on page 55.
Governance Features and Other Benefits
Executive Management Stock Ownership Guidelines
The Compensation Committee annually monitors compliance by our executive management with stock ownership guidelines. We establish a minimum fixed number of shares of company stock that we expect each executive to own based on a multiple of the executive’s annual base salary at the time we set the guideline. Executives are expected to achieve compliance with the initial guideline within five years. We reset the stock ownership requirement every three years and did so in June 2019 based on each executive’s salary and a representative share price at the end of FY 2019. The committee will reassess the share requirement again in 2022, and, subject to variation in our stock price, executives can expect their requirements to increase as their compensation increases. Current stock ownership guideline values and approximate share requirements for the NEOs are as follows:
|
|
|
|
|
|
|
|
|
Guideline Value
(Multiple of Salary)
|
Share Requirement
|
|
|
CEO
|
5x
|
154,000
|
|
|
Other NEOs
|
3x
|
36,000 – 48,000
|
|
In determining compliance with the guidelines, we include shares owned directly, shares held in a family trust or qualified retirement program, performance-based shares contingently earned for completed performance periods but not yet paid out, and restricted share awards. As of April 25, 2020, each of the NEOs was in compliance with the stock ownership guidelines or within the five-year transition period.
Severance Benefits
Named Executive Officer Change-in-Control Agreements
We have change-in-control agreements with our NEOs to support continuity of our leadership in the event the company’s ownership changes. Under the agreements, a change in control generally occurs when a person, entity or group acquires ownership of 30% of a company’s stock, increases its holding to more than 50% of the value or voting power of a company’s stock, or acquires 40% or more of a company’s assets, or if a majority of a company’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the directors who were serving before the date of the appointment or election.
Our agreements provide that an NEO will receive severance in cash if we have a change in control and in the succeeding two years (or three years for our CEO), the NEO’s employment terminates under certain conditions. In that event, we would pay an NEO two times (or three times for our CEO) the sum of the executive’s base salary at the time of termination plus the average of the annual bonuses the executive received over the previous three years. The NEO is responsible for any excise tax, and the company does not pay any excise tax gross-ups. We utilize a “best-net” approach where we reduce payments to the safe harbor limit to avoid excise tax only if doing so results in a greater after-tax benefit to the NEO. During the period that we pay severance, we also continue to provide medical, dental, and life insurance benefits. Similar to this severance arrangement, our executives receive accelerated vesting in outstanding stock options or stock appreciation rights issued under our Omnibus Incentive Plan following a change in control only if their employment is terminated. Additional information regarding the change-in-control severance agreements and estimated termination payments to NEOs is presented on pages 55-58.
Named Executive Officer Severance Plan
The severance plan for the NEOs is designed to assist the company in attracting and retaining quality executive talent while providing the company some protection against competition and solicitation by former executives.
The severance plan requires the company to pay an NEO severance if the company discharges the executive other than “for cause” or if the NEO leaves the company with “good reason.” Following a qualifying termination of employment, the company would pay the CEO severance for 24 months and pay the other NEOs severance for 12 months at the level of their base salary when their employment ended. Discharge “for cause” includes employee acts of fraud, reckless misconduct, substandard performance that is not corrected, and similar acts or failures to act. Resignation for “good reason” includes a resignation triggered by a reduction in the executive’s pay unless similarly situated employees are similarly affected or a requirement that the executive relocate. NEOs will receive medical and dental benefits during the time they receive severance. If an NEO’s employment terminates following a change in control of the company, the NEO receives benefits under the severance plan only to the extent they exceed benefits the NEO receives pursuant to the NEO’s change-in-control agreement with the company. Information regarding the change-in-control severance agreements and estimated termination payments to NEOs is presented on pages 55-58.
We established the severance periods of 24 and 12 months based on the market and peer company analysis. To receive severance, NEOs must execute a release of claims and comply with non-competition and non-solicitation covenants for the duration of the
severance term. NEOs are entitled to receive and retain only that portion of the severance pay that is in excess of compensation they receive from other employment during the severance period.
Recoupment of Incentive Payments
In accordance with our policy, we will require a management employee to reimburse us for annual or long-term incentive payments we made to the employee, and we will rescind any contribution credits we made for the employee under the Performance Compensation Retirement Plan, to the extent our Board determines that the employee engaged in misconduct that resulted in a material inaccuracy in our financial statements or the performance metrics we used to make incentive payments or awards, and the employee received a higher payment as a result of the inaccuracies. If we determine that any contribution credits we made to the Performance Compensation Retirement Plan were based on erroneous financial statements or other financial errors or misstatements, we will adjust all participants’ accounts to reflect contribution credits calculated based on complete and accurate financial information.
Executive Compensation Tables
FY 2020 Summary Compensation Table
The Summary Compensation Table presents FY 2018, 2019, and 2020 “total compensation” (see footnotes for the included pay elements) for the NEOs. Ms. Whittington was not an NEO prior to FY 2019 and Mr. Krull was not an NEO prior to FY 2020.
|
|
|
|
•
|
Actual value realized in FY 2020 for previously granted long-term incentives is presented in the FY 2020 Option Exercises and Stock Vested table on page 54.
|
|
|
|
|
•
|
Target annual and long-term incentive opportunities for FY 2020 are presented in the FY 2020 Grants of Plan-Based Awards table on page 51.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal
Position
|
Fiscal
Year
|
Salary
($)
|
|
Stock Awards
($)(1)
|
|
Option Awards
($)(2)
|
|
Non-Equity Incentive Plan
Compensation
($)(3)
|
|
All Other Compensation
($)(4)
|
|
Total
($)
|
|
|
Kurt L. Darrow
|
2020
|
1,006,814
|
|
1,999,820
|
|
659,917
|
|
868,377
|
|
721,194
|
|
5,256,122
|
|
|
Chairman, President and
|
2019
|
1,019,980
|
|
1,339,068
|
|
1,281,250
|
|
1,841,575
|
|
1,079,137
|
|
6,561,010
|
|
|
Chief Executive Officer
|
2018
|
989,981
|
|
1,277,607
|
|
1,243,749
|
|
478,161
|
|
444,203
|
|
4,433,701
|
|
|
Melinda D. Whittington
|
2020
|
528,448
|
|
527,407
|
|
174,037
|
|
297,252
|
|
225,207
|
|
1,752,351
|
|
|
Senior Vice President and Chief Financial Officer
|
2019
|
457,684
|
|
1,005,917
|
|
328,129
|
|
538,923
|
|
88,828
|
|
2,419,481
|
|
|
Darrell D. Edwards
|
2020
|
505,074
|
|
505,630
|
|
166,851
|
|
284,104
|
|
219,209
|
|
1,680,868
|
|
|
Senior Vice President and
|
2019
|
490,824
|
|
322,696
|
|
308,752
|
|
577,945
|
|
275,247
|
|
1,975,464
|
|
|
Chief Operating Officer
|
2018
|
466,658
|
|
304,937
|
|
296,875
|
|
146,997
|
|
118,107
|
|
1,333,574
|
|
|
Otis S. Sawyer
|
2020
|
441,019
|
|
349,191
|
|
115,233
|
|
198,459
|
|
179,282
|
|
1,283,184
|
|
|
Senior Vice President and
|
2019
|
445,750
|
|
234,097
|
|
223,996
|
|
419,896
|
|
220,663
|
|
1,544,402
|
|
|
President of La-Z-Boy
Portfolio Brands
|
2018
|
431,538
|
|
373,303
|
|
217,499
|
|
108,748
|
|
93,113
|
|
1,224,201
|
|
|
Stephen K. Krull
|
2020
|
384,909
|
|
247,239
|
|
81,591
|
|
144,341
|
|
142,182
|
|
1,000,262
|
|
|
Vice President, General Counsel and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects the total grant date fair value of the restricted share awards and the performance-based share awards granted during the fiscal year, with the performance-based share awards calculated based on the probable level of achievement at the time of grant. For additional information regarding the assumptions we used in valuing the FY 2020 awards, refer to Note 14, “Stock-Based Compensation” of Item 8, “Financial Statements and Supplementary Data” of our Form 10-K for the fiscal year ended April 25, 2020, as filed with the SEC. Maximum value of performance-based shares is shown as follows:
|
|
|
|
|
|
|
|
|
Name
|
FY 2020
|
|
|
Kurt L. Darrow
|
$
|
2,679,664
|
|
|
Melinda D. Whittington
|
$
|
706,691
|
|
|
Darrell D. Edwards
|
$
|
677,531
|
|
|
Otis S. Sawyer
|
$
|
467,891
|
|
|
Stephen K. Krull
|
$
|
331,303
|
|
|
|
|
|
(2)
|
Reflects the total grant date fair value of the stock option awards granted during the fiscal year. For additional information regarding the assumptions we used in valuing the FY 2020 awards, refer to Note 14, “Stock-Based Compensation” of Item 8, “Financial Statements and Supplementary Data” of our Form 10-K for the fiscal year ended April 25, 2020, as filed with the SEC.
|
|
|
|
|
(3)
|
Consists of cash awards for the achievement of performance goals for the respective year made under our MIP. For a discussion of the Compensation Committee's adjustment of the FY 2020 payout from 51% to 75% of target, please see FY 2020 MIP Performance Results on page 42. Payments are generally made in the first quarter following completion of the fiscal year; for the FY 2020 award, a portion will be paid later in calendar year 2020.
|
|
|
|
|
(4)
|
All Other Compensation for FY 2020 consists of the following:
|
|
|
|
|
•
|
Company contributions to the 401(k) Plan and contributions or credits to the Executive Deferred Compensation and Performance Compensation Retirement Plans of the following amounts: Mr. Darrow – $672,368, Ms. Whittington – $224,846, Mr. Edwards – $218,864, Mr. Sawyer – $178,906, and Mr. Krull – $141,905.
|
|
|
|
|
•
|
For Mr. Darrow, our incremental cost of $47,496 for his personal use of the company aircraft, which is calculated by multiplying the aircraft’s hourly variable operating cost by a trip’s flight time. Variable operating costs consist of fuel, landing and parking fees, variable maintenance, variable pilot expenses for travel, and any special catering costs and other miscellaneous variable costs. On certain occasions, his spouse and other family members or guests accompanied Mr. Darrow on a flight. No additional incremental operating cost is incurred in such situations under the foregoing methodology. We did not pay Mr. Darrow any amounts in connection with taxes on income imputed to him for personal use of our aircraft.
|
|
|
|
|
•
|
Company-paid life insurance premiums and tax reimbursements related to company contributions to the deferred compensation plans (made in the prior year), which tax reimbursements were of the following amounts: Mr. Darrow – $638 and Ms. Whittington – $14.
|
FY 2020 Grants of Plan-Based Awards
The following table provides details of all incentive plan-based awards granted to the NEOs during FY 2020. Specifically, the table presents the following FY 2020 incentive awards:
|
|
|
|
•
|
Annual management incentive award (MIP) potential award range (see “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” columns). The actual awards are shown in the FY 2020 Summary Compensation Table (see page 49).
|
|
|
|
|
•
|
Performance-based shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(1)
|
|
Estimated Future Payout
Under Equity Incentive
Plan Awards(2)
|
|
All Other
Stock
Awards:
Number
of Shares
or Units (3)
(#)
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
Options(4)
(#)
|
|
Exercise
or Base
Price of
Option
Awards
($/Share)
|
|
Grant Date
Fair Value
of Stock
& Option
Awards(5)
($)
|
|
|
Name
|
Grant
Date
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
|
|
Kurt L. Darrow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Annual Incentive (MIP)
|
|
289,459
|
|
1,157,836
|
|
2,315,672
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Shares
|
6/17/2019
|
|
|
|
|
1,746
|
|
43,651
|
|
87,302
|
|
|
|
|
|
1,339,832
|
|
|
Non-Qualified Stock Options
|
6/17/2019
|
|
|
|
|
|
|
|
|
|
83,113
|
|
30.24
|
|
659,917
|
|
|
Restricted Shares(5)
|
6/17/2019
|
|
|
|
|
|
|
|
|
21,825
|
|
|
|
659,988
|
|
|
Melinda D. Whittington
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Annual Incentive (MIP)
|
|
99,084
|
|
396,336
|
|
792,672
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Shares
|
6/17/2019
|
|
|
|
|
460
|
|
11,512
|
|
23,024
|
|
|
|
|
|
353,345
|
|
|
Non-Qualified Stock Options
|
6/17/2019
|
|
|
|
|
|
|
|
|
|
21,919
|
|
30.24
|
|
174,037
|
|
|
Restricted Shares(5)
|
6/17/2019
|
|
|
|
|
|
|
|
|
5,756
|
|
|
|
174,062
|
|
|
Darrell D. Edwards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Annual Incentive (MIP)
|
|
94,702
|
|
378,806
|
|
757,612
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Shares
|
6/17/2019
|
|
|
|
|
441
|
|
11,037
|
|
22,074
|
|
|
|
|
|
338,766
|
|
|
Non-Qualified Stock Options
|
6/17/2019
|
|
|
|
|
|
|
|
|
|
21,014
|
|
30.24
|
|
166,851
|
|
|
Restricted Shares(5)
|
6/17/2019
|
|
|
|
|
|
|
|
|
5,518
|
|
|
|
166,864
|
|
|
Otis S. Sawyer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Annual Incentive (MIP)
|
|
66,153
|
|
264,611
|
|
529,222
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Shares
|
6/17/2019
|
|
|
|
|
305
|
|
7,622
|
|
15,244
|
|
|
|
|
|
233,946
|
|
|
Non-Qualified Stock Options
|
6/17/2019
|
|
|
|
|
|
|
|
|
|
14,513
|
|
30.24
|
|
115,233
|
|
|
Restricted Shares(5)
|
6/17/2019
|
|
|
|
|
|
|
|
|
3,811
|
|
|
|
115,245
|
|
|
Stephen K. Krull
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Annual Incentive (MIP)
|
|
48,114
|
|
192,455
|
|
384,910
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Shares
|
6/17/2019
|
|
|
|
|
216
|
|
5,397
|
|
10,794
|
|
|
|
|
|
165,651
|
|
|
Non-Qualified Stock Options
|
6/17/2019
|
|
|
|
|
|
|
|
|
|
10,276
|
|
30.24
|
|
81,591
|
|
|
Restricted Shares(5)
|
6/17/2019
|
|
|
|
|
|
|
|
|
2,698
|
|
|
|
81,588
|
|
|
|
|
|
(1)
|
The amounts consist of the threshold, target and maximum payout opportunities under the MIP, with payout based on net sales and operating profit performance results.
|
|
|
|
|
(2)
|
The amounts consist of the threshold, target and maximum performance-based shares that could vest based on performance with respect to sales growth, operating cash flow and relative TSR over the FY 2020–FY 2022 performance period. The “Threshold” estimated future payout shown reflects meeting the threshold for just the sales growth or operating cash flow goal in the third year of the performance cycle.
|
|
|
|
|
(3)
|
Represent shares of restricted stock granted under the Omnibus Incentive Plan in FY 2020, 1/4 of which vest per year on the anniversary of the grant date, subject to the NEO's continued employment through the applicable vesting date.
|
|
|
|
|
(4)
|
The amounts reported in this column represent stock options granted to each NEO under the Omnibus Incentive Plan in FY 2020. These stock options vest 1/4 per year on the anniversary of the grant date, subject to the NEO's continued employment through the applicable vesting date, and have a ten-year term from the grant date.
|
|
|
|
|
(5)
|
Reflects the total grant date fair value of the equity awards granted during the fiscal year, with the performance-based shares based on the probable level of achievement. For additional information regarding the assumptions we used in valuing the awards, refer to Note 14, “Stock-Based Compensation” of Item 8, “Financial Statements and Supplementary Data” of our Form 10-K for the fiscal year ended April 25, 2020, as filed with the SEC.
|
Outstanding Equity Awards at 2020 Fiscal Year-End
The following table presents all outstanding stock options/stock appreciation rights and unvested stock awards (performance-based shares and restricted shares) held by the NEOs at the end of the fiscal year. Market values for the unvested stock awards are presented based on the closing price of the company’s stock on April 24, 2020, of $21.07.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option/SAR Awards
|
|
Stock Awards
|
|
Name
|
Grant
FY
|
Number of
Securities
Underlying
Unexercised
Options/SARs
Exercisable
(#)
|
|
Number of
Securities
Underlying
Unexercised
Options/SARs
Unexercisable
(#)(1)
|
|
Option/
SAR
Exercise
Price
($)
|
|
Option/
SAR
Expiration
Date
|
|
Number of
Shares or
Units of
Stock that
Have Not
Vested
(#)(2)
|
|
Market Value
of Shares
or Units
of Stock
That Have
Not Vested
($)
|
|
Equity
Incentive
Plan Awards:
Number of
Unearned of
Shares ,
or Units or
other Rights
That Have
Not Vested
(#)(3)
|
|
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares,
Units or
Other Rights
That Have
Not Vested
($)(3)
|
|
|
Kurt L. Darrow
|
|
|
|
|
|
|
|
|
|
|
|
Performance-Based Shares
|
|
|
|
|
43,231
|
|
910,877
|
|
40,105
|
|
845,012
|
|
|
Stock Options
|
2020
|
—
|
|
83,113
|
|
30.24
|
|
6/17/2029
|
|
|
|
|
|
|
|
2019
|
33,193
|
|
99,579
|
|
33.15
|
|
6/18/2028
|
|
|
|
|
|
|
|
2018
|
86,854
|
|
86,854
|
|
27.25
|
|
6/19/2027
|
|
|
|
|
|
|
|
2017
|
42,613
|
|
37,744
|
|
25.99
|
|
6/20/2026
|
|
|
|
|
|
|
|
2016
|
120,872
|
|
—
|
|
26.69
|
|
6/15/2025
|
|
|
|
|
|
|
Restricted Shares
|
|
|
|
|
|
|
21,825
|
|
459,853
|
|
|
|
|
Melinda D. Whittington
|
|
Performance-Based Shares
|
|
11,196
|
|
235,900
|
|
10,470
|
|
220,603
|
|
|
Stock Options
|
2020
|
—
|
|
21,919
|
|
30.24
|
|
6/17/2029
|
|
|
|
|
|
|
|
2019
|
8,500
|
|
25,503
|
|
33.15
|
|
6/18/2028
|
|
|
|
|
|
|
Restricted Shares
|
|
|
|
|
|
|
20,756
|
|
437,329
|
|
|
|
|
Darrell D. Edwards
|
|
Performance-Based Shares
|
|
10,611
|
|
223,574
|
|
9,975
|
|
210,173
|
|
|
Stock Options
|
2020
|
—
|
|
21,014
|
|
30.24
|
|
6/17/2029
|
|
|
|
|
|
|
|
2019
|
7,998
|
|
23,997
|
|
33.15
|
|
6/18/2028
|
|
|
|
|
|
|
|
2018
|
20,730
|
|
20,733
|
|
27.25
|
|
6/19/2027
|
|
|
|
|
|
|
|
2017
|
19,947
|
|
6,649
|
|
25.99
|
|
6/20/2026
|
|
|
|
|
|
|
|
2016
|
20,485
|
|
—
|
|
26.69
|
|
6/15/2025
|
|
|
|
|
|
|
|
2015
|
17,943
|
|
—
|
|
23.63
|
|
6/16/2024
|
|
|
|
|
|
|
Restricted Shares
|
|
|
|
|
|
|
5,518
|
|
116,264
|
|
|
|
|
Otis S. Sawyer
|
|
Performance-Based Shares
|
|
7,555
|
|
159,184
|
|
7,005
|
|
147,595
|
|
|
Stock Options
|
2020
|
—
|
|
14,513
|
|
30.24
|
|
6/17/2029
|
|
|
|
|
|
|
|
2019
|
5,803
|
|
17,409
|
|
33.15
|
|
6/18/2028
|
|
|
|
|
|
|
|
2018
|
15,188
|
|
15,189
|
|
27.25
|
|
6/19/2027
|
|
|
|
|
|
|
|
2017
|
19,476
|
|
6,494
|
|
25.99
|
|
6/20/2026
|
|
|
|
|
|
|
|
2016
|
4,826
|
|
—
|
|
26.69
|
|
6/15/2025
|
|
|
|
|
|
|
Restricted Shares
|
|
|
|
|
|
|
6,561
|
|
138,240
|
|
|
|
|
Stephen K. Krull
|
|
Performance-Based Shares
|
|
2,008
|
|
42,309
|
|
3,238
|
|
68,225
|
|
|
Stock Options
|
2020
|
—
|
|
10,276
|
|
30.24
|
|
6/17/2029
|
|
|
|
|
|
|
Restricted Shares
|
|
|
|
|
|
|
6,448
|
|
135,859
|
|
|
|
|
|
|
|
(1)
|
Unvested stock options will vest as follows:
|
|
|
|
|
|
|
Grant FY
|
Options Vesting Schedule
|
|
2020
|
Unvested options vest 1/4 on June 17, 2020, 1/4 on June 17, 2021, 1/4 on June 17, 2022, and 1/4 on June 17, 2023.
|
|
2019
|
1/3 of the unvested options vest on June 18, 2020, 1/3 on June 18, 2021, and 1/3 on June 18, 2022.
|
|
2018
|
1/2 of the unvested options vest on June 19, 2020 and 1/2 on June 19, 2021.
|
|
2017
|
Unvested options vest June 20, 2020.
|
|
|
|
|
(2)
|
The earned but unvested performance-based shares will vest as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2020
Grant(a)
|
|
FY 2019
Grant(b)
|
|
Total
|
|
|
Kurt L. Darrow
|
16,238
|
|
26,993
|
|
43,231
|
|
|
Melinda D. Whittington
|
4,283
|
|
6,913
|
|
11,196
|
|
|
Darrell D. Edwards
|
4,106
|
|
6,505
|
|
10,611
|
|
|
Otis S. Sawyer
|
2,836
|
|
4,719
|
|
7,555
|
|
|
Stephen K. Krull
|
2,008
|
|
—
|
|
2,008
|
|
|
|
|
|
(a)
|
Earned and unvested shares are shown and vest on April 30, 2022.
|
|
|
|
|
(b)
|
Earned and unvested shares are shown and vest on April 24, 2021.
|
Unvested restricted shares will vest as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2020
Grant(a)
|
|
FY 2019
Grant(b)
|
|
FY 2018
Grant(c)
|
|
Total
|
|
|
Kurt L. Darrow
|
21,825
|
|
—
|
|
—
|
|
21,825
|
|
|
Melinda D. Whittington
|
5,756
|
|
15,000
|
|
—
|
|
20,756
|
|
|
Darrell D. Edwards
|
5,518
|
|
—
|
|
—
|
|
5,518
|
|
|
Otis S. Sawyer
|
3,811
|
|
—
|
|
2,750
|
|
6,561
|
|
|
Stephen K. Krull
|
2,698
|
|
3,750
|
|
—
|
|
6,448
|
|
|
|
|
|
(a)
|
Unvested restricted shares vest 1/4 on June 17, 2020, 1/4 on June 17, 2021, 1/4 on June 17, 2022, and 1/4 on June 17, 2023.
|
|
|
|
|
(b)
|
For Ms. Whittington's award, 1/3 of unvested restricted shares vest on June 18, 2020, 1/3 on June 18, 2021, and 1/3 on June 18, 2022. For Mr. Krull's award, 1/3 of unvested restricted shares vest on January 7, 2021, 1/3 on January 7, 2022, and 1/3 on January 7, 2023.
|
|
|
|
|
(c)
|
1/2 of the unvested shares vest on June 19, 2020 and 1/2 on June 19, 2021.
|
|
|
|
|
(3)
|
Unearned performance-based shares are shown assuming target performance for FY 2020 and FY 2019 for each goal.
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Performance-Based Shares
|
Total
|
|
|
FY 2020
Grant at Target(a)
|
|
FY 2019
Grant at Target(b)
|
|
|
Kurt L. Darrow
|
26,191
|
|
13,914
|
|
40,105
|
|
|
Melinda D. Whittington
|
6,907
|
|
3,563
|
|
10,470
|
|
|
Darrell D. Edwards
|
6,622
|
|
3,353
|
|
9,975
|
|
|
Otis S. Sawyer
|
4,573
|
|
2,432
|
|
7,005
|
|
|
Stephen K. Krull
|
3,238
|
|
—
|
|
3,238
|
|
|
|
|
|
(a)
|
Three-year performance period ends FY 2022 (April 2022).
|
|
|
|
|
(b)
|
Three-year performance period ends FY 2021 (April 2021).
|
FY 2020 Option Exercises and Stock Vested
The following table provides details for each of the NEOs regarding stock options exercised and stock awards vested during FY 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Option Awards
|
|
Stock Awards
|
|
Number of
Shares Acquired
on Exercise (#)
|
|
Value Realized on
Exercise ($)(1)
|
|
Number of
Shares Acquired
on Vesting (#)
|
|
Value Realized on
Vesting ($)(2)
|
|
|
Kurt L. Darrow
|
70,613
|
|
639,641
|
|
|
34,541
|
|
951,259
|
|
|
Melinda D. Whittington
|
—
|
|
—
|
|
|
5,000
|
|
148,950
|
|
|
Darrell D. Edwards
|
14,820
|
|
356,810
|
|
|
8,244
|
|
227,040
|
|
|
Otis S. Sawyer
|
—
|
|
—
|
|
|
7,416
|
|
210,988
|
|
|
Stephen K. Krull
|
—
|
|
—
|
|
|
1,250
|
|
39,188
|
|
|
|
|
|
(1)
|
Amounts reflect the difference between the exercise price of the stock option/stock appreciation right and the market price of La-Z-Boy’s common stock at the time of exercise.
|
|
|
|
|
(2)
|
The dollar value of the vested performance-based shares is based on the closing price of the company’s common stock on the date that the Compensation Committee certified the payout, June 22, 2020. The dollar value of the vested restricted shares reflects the total pre-tax value realized (based on the closing price of the company's common stock on the vesting date).
|
FY 2020 Non-Qualified Deferred Compensation Plans
As described in the Compensation Discussion and Analysis above, our NEOs are eligible to receive contribution credits under our Performance Compensation Retirement Plan, and eligible to participate in our Executive Deferred Compensation Plan. The following table provides details for the NEOs regarding the Performance Compensation Retirement Plan. Contributions are made in the first quarter following the completion of the fiscal year.
FY 2020 - Non-Qualified Deferred Compensation
Pursuant to Performance Compensation Retirement Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Executive
Contribution
in FY 2020
($)(1)
|
|
Registrant
Contributions
in FY 2020
($)(2)
|
|
Aggregate
Earnings
in FY 2020
($)(3)
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance
at FYE 2020
($)(4)
|
|
|
Kurt L. Darrow
|
—
|
|
559,059
|
|
144,293
|
|
—
|
|
4,584,732
|
|
|
Melinda D. Whittington
|
—
|
|
182,645
|
|
—
|
|
—
|
|
182,645
|
|
|
Darrell D. Edwards
|
—
|
|
174,566
|
|
35,282
|
|
—
|
|
1,161,872
|
|
|
Otis S. Sawyer
|
—
|
|
143,993
|
|
33,094
|
|
—
|
|
1,065,521
|
|
|
Stephen K. Krull
|
—
|
|
120,765
|
|
—
|
|
—
|
|
120,765
|
|
|
|
|
|
(1)
|
No executive contributions are permitted under the plan.
|
|
|
|
|
(2)
|
Mr. Darrow and the other NEOs received company contributions equal to 35% and 25%, respectively, of the sum of their base salary and bonus earned for FY 2020. Contributions are made in the first quarter following the completion of the fiscal year. These contributions are included in the FY 2020 Summary Compensation Table as part of All Other Compensation.
|
|
|
|
|
(3)
|
Earnings were not reported in the FY 2020 Summary Compensation Table because they were not above-market or preferential. Aggregate earnings are based on an interest rate that corresponds to yields on 20-year AA corporate bonds.
|
|
|
|
|
(4)
|
Accrued balances reflect total company contributions for FY 2020. Please refer to pages 46-47 for a discussion of vesting and distribution criteria. Amounts in this column include the following amounts that were previously reported in the Summary Compensation Table as compensation for FY 2019 and FY 2018: Mr. Darrow – $1,345,089, Mr. Edwards – $369,734, Mr. Sawyer – $306,693.
|
The following table provides details of the NEOs non-qualified deferred compensation accounts as of April 25, 2020. Company contribution amounts reflect contributions that could not be made under the 401(k) plan due to IRS rules. Aggregate balances include deferred salary and MIP awards earned in prior years but voluntarily deferred by the officers. Additional discussion of our non-qualified deferred compensation program is presented below the table.
FY 2020 Non-Qualified Deferred Compensation
Pursuant to Executive Deferred Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Executive
Contribution
in FY 2020
($)(1)
|
|
Registrant
Contributions
in FY 2020
($)(2)
|
|
Aggregate
Earnings
in FY 2020
($)(3)
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance
at FYE 2020
($)(4)
|
|
|
Kurt L. Darrow
|
—
|
|
104,082
|
|
9,067
|
|
(73,550
|
)
|
3,460,686
|
|
|
Melinda D. Whittington
|
—
|
|
31,997
|
|
(1,717
|
)
|
—
|
|
32,500
|
|
|
Darrell D. Edwards
|
23,362
|
|
32,477
|
|
(128,550
|
)
|
—
|
|
1,937,998
|
|
|
Otis S. Sawyer
|
—
|
|
23,838
|
|
3,169
|
|
—
|
|
376,043
|
|
|
Stephen K. Krull
|
—
|
|
8,587
|
|
(836
|
)
|
—
|
|
7,751
|
|
|
|
|
|
(1)
|
Elective deferrals of base salary and/or FY 2019 MIP awards paid in FY 2020.
|
|
|
|
|
(2)
|
Company contributions to the Executive Deferred Compensation Plan relating to 401(k) contributions that could not be made under the qualified plans. Executive must elect to make sufficient 401(k) deferrals to be entitled to the maximum employer matching contribution under the 401(k) plan for the plan year. Amounts are included in All Other Compensation in the FY 2020 Summary Compensation Table.
|
|
|
|
|
(3)
|
Earnings were not reported in the FY 2020 Summary Compensation Table because they were not above-market or preferential.
|
|
|
|
|
(4)
|
Amounts shown are fully vested except for Ms. Whittington, whose vested balance is $8,125 and Mr. Krull, whose vested balance is $1,938. Amounts in this column include the following amounts that were previously reported in the FY 2020 Summary Compensation Table as compensation for FY 2019 and FY 2018: Mr. Darrow – $57,266, Ms. Whittington – $2,154, and Mr. Edwards – $394,331.
|
All of the executives’ deferrals and any company match amounts are added to a recordkeeping account. The account is credited with earnings or losses, depending upon actual performance of the investment options (mutual funds and similar vehicles) the participant has chosen. These are the same investment options available to all other plan participants.
Payment of a participant’s account balance is deferred until the date the participant designated when making the deferral election. Permissible distribution election changes require that the distribution be deferred at least five years beyond the previously-scheduled payment commencement date and to be effective, changes must be made at least one year before the termination of employment. The deferral amounts are paid either in one lump sum or in annual installments for up to 15 years. Upon a participant’s death, any remaining balance in the participant’s account is paid to the participant’s designated beneficiary.
2020 Estimated Payments Upon Termination or Change in Control
This section presents the estimated incremental payments that would be made to the NEOs upon termination of their employment. Estimated payouts are provided for the following termination events:
|
|
|
|
•
|
Amounts payable upon termination, regardless of manner.
|
|
|
|
|
•
|
Amounts potentially payable upon disability, retirement or death.
|
|
|
|
|
•
|
Amounts potentially payable upon a change in control and a subsequent termination of employment.
|
|
|
|
|
•
|
Amounts potentially payable upon involuntary termination without cause or termination by the NEO with “good reason” under the terms of the severance plan.
|
Payments Made Upon Termination
When an NEO’s employment terminates, the NEO is entitled to receive amounts the NEO earned while employed. These amounts, which are not included in the table below, consist of:
|
|
|
|
•
|
Accrued salary and any earned, but unused vacation time.
|
|
|
|
|
•
|
Amounts vested under retirement and non-qualified deferred compensation plans.
|
An NEO receives no other payments except when the termination is due to the NEO’s disability, retirement, or death, change in control of the company, or involuntary termination without cause or termination by the NEO with “good reason.” Payments upon disability, retirement, or death are based on plan provisions that apply to all participants in the pertinent plans. Payments made to NEOs upon a termination of employment due to the executive’s disability, retirement, or death, or change in control of the company are described below. Payments made upon involuntary termination without cause or termination by the NEO with “good
reason” are described in Named Executive Officer Severance Plan on page 48. We have change-in-control severance agreements only with NEOs. The Table of Estimated Payments Upon Termination or Change in Control on pages 57-58 details each type of payment.
Payments Made Upon Disability or Retirement
In the event of disability or retirement, the NEO will receive the following incremental benefits:
|
|
|
|
•
|
Stock options: Accelerated vesting of unvested options if an NEO becomes disabled. For grants made prior to FY 2019, there is accelerated vesting of unvested options upon retirement. For grants beginning with FY 2019, unvested options granted at least ten months prior to the retirement date will fully vest upon retirement.
|
|
|
|
|
•
|
Performance-based shares: The NEO is eligible to receive a partial payout following the end of the three-year performance period based on the company’s performance in any fiscal years that have been completed at the time the NEO retires or becomes disabled.
|
|
|
|
|
•
|
Restricted Shares: Restrictions lapse if an NEO becomes disabled. An NEO who retires forfeits any shares that are still restricted.
|
|
|
|
|
•
|
MIP awards: Payment of a MIP award following conclusion of the fiscal year, determined by applying the bonus percentage the NEO would have been entitled to based on the company’s performance to the NEO’s actual earnings during the year. The MIP awards earned and paid for FY 2020 performance, which are reported in the FY 2020 Summary Compensation Table on page 49, are not included in the table below.
|
Additionally, the NEO or his or her beneficiary will receive benefits under disability plans available generally to all salaried employees. These potential payments are not reflected in the table.
Payments Made Upon Death
In the event of death, the NEO’s beneficiary will receive the following incremental benefits:
|
|
|
|
•
|
Stock options: Accelerated vesting of unvested options.
|
|
|
|
|
•
|
Performance-based shares: Unless the Compensation Committee in its discretion determines otherwise, we will make a partial payout at the end of the performance period based on the company’s performance in any fiscal years that had been completed at the time of the NEO’s death.
|
|
|
|
|
•
|
Restricted Shares: All restrictions lapse.
|
|
|
|
|
•
|
MIP awards: Payment of a MIP award following conclusion of the fiscal year, determined by applying the bonus percentage the NEO would have been entitled to based on the company’s performance to the executive’s actual earnings during the year. The MIP awards earned and paid for FY 2020 performance, which are reported in the FY 2020 Summary Compensation Table on page 49, are not included in the following table.
|
Additionally, the NEO or his or her beneficiary will receive benefits under life insurance plans available generally to all salaried employees. These potential payments are not reflected in the table.
Change in Control
We have change-in-control severance agreements with our NEOs to ensure continued management in the event of an actual or threatened change in control of the company. The agreements provide that if an NEO’s employment is terminated other than upon death, disability or for cause within two years (three years for the CEO) after a change in control, the executive will be entitled to the following:
|
|
|
|
•
|
For executives other than our CEO, two times the executive’s base salary at the time of termination plus two times the average of the annual bonuses the executive received over the previous three years. Our CEO would be entitled to three times his base salary and three times his average bonus.
|
|
|
|
|
•
|
Continuation of medical and dental benefits and life insurance for three years for the CEO and two years for the other NEOs.
|
|
|
|
|
•
|
Reimbursement of certain legal fees and expenses incurred by the executive in enforcing the agreement.
|
The agreements automatically renew for an additional one-year period unless either the company or the NEO gives the other at least 90 days’ prior notice of non-extension. If a change in control occurs, the agreements automatically extend for 36 months.
The NEO is responsible for any excise tax, and the company does not pay any gross-up. We utilize a “best-net” approach where we reduce payments to the safe harbor limit to avoid excise taxes only if doing so results in a greater after-tax benefit to the NEO.
Performance-based shares granted under our Omnibus Incentive Plan will be paid as if their terms were complete, based on the best financial information available about the company’s performance as of the close of business on the day immediately before a “corporate transaction” (as defined in the plan). In determining the extent to which performance criteria have been satisfied, where the performance criteria are based on results that accumulate over the term of the award or over one year of the term, the
performance requirement will be prorated in accordance with the portion of the term or year that was completed before the corporate transaction.
NEOs receive accelerated vesting of outstanding stock options or restricted shares issued under our Omnibus Incentive Plan following a change in control only if their employment is terminated.
Table of Estimated Payments Upon Termination or Change in Control
In the following table, we estimate incremental payments (payable as the result of the specified termination event) that would have been payable to NEOs in the event of change in control, disability, retirement, death, or involuntary termination under the terms of the severance plan. The value of equity awards is based on the closing price of $21.07 of the company’s stock on April 24, 2020 (the last business day of FY 2020). The amounts provided below are estimates of amounts that would have been payable. The actual amounts paid in future years, if any, will depend on the executive’s pay, terms of separation, severance plan, and change-in-control agreement in place, and the company’s stock price at the time of termination.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Benefit
|
Change in
Control ($)(1)(8)
|
|
Retirement
($)(2)(3)(4)
|
|
Disability
($)(2)(4)(8)
|
|
Death
($)(2)(5)(8)
|
|
Involuntary
Termination
Other than
for Cause or
Resignation
with Good
Reason Under
Severance
Plan ($)
|
|
|
Kurt L. Darrow
|
|
Base Salary (3 times annual salary)
|
3,168,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Annual Incentive (3 times average actual MIP amount paid in prior 3 years)
|
3,259,884
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Stock Options (accelerated vesting)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Restricted Shares (accelerated vesting)
|
459,853
|
|
—
|
|
459,853
|
|
459,853
|
|
—
|
|
|
Performance-Based Shares (accelerated vesting)
|
1,781,595
|
|
910,877
|
|
910,877
|
|
910,877
|
|
—
|
|
|
Broad-Based Benefits(6)
|
22,717
|
|
—
|
|
—
|
|
—
|
|
13,761
|
|
|
Severance Payment
|
—
|
|
—
|
|
—
|
|
—
|
|
2,112,000
|
|
|
Total Incremental Pay(7)
|
8,692,049
|
|
910,877
|
|
1,370,730
|
|
1,370,730
|
|
2,125,761
|
|
|
Melinda D. Whittington
|
|
Base Salary (2 times annual salary)
|
1,114,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Annual Incentive (2 times average actual MIP amount paid in prior 3 years)
|
1,077,846
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Stock Options (accelerated vesting)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Restricted Shares (accelerated vesting)
|
437,329
|
|
—
|
|
437,329
|
|
437,329
|
|
—
|
|
|
Performance-Based Shares (accelerated vesting)
|
462,655
|
|
—
|
|
235,900
|
|
235,900
|
|
—
|
|
|
Broad-Based Benefits(6)
|
32,845
|
|
—
|
|
—
|
|
—
|
|
16,076
|
|
|
Severance Payment
|
—
|
|
—
|
|
—
|
|
—
|
|
557,000
|
|
|
Total Incremental Pay(7)
|
3,124,675
|
|
—
|
|
673,229
|
|
673,229
|
|
573,076
|
|
|
Darrell D. Edwards
|
|
Base Salary (2 times annual salary)
|
1,068,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Annual Incentive (2 times average actual MIP amount paid in prior 3 years)
|
632,931
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Stock Options (accelerated vesting)
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
Restricted Shares (accelerated vesting)
|
116,264
|
|
—
|
|
116,264
|
|
116,264
|
|
—
|
|
|
Performance-Based Shares (accelerated vesting)
|
439,267
|
|
223,574
|
|
223,574
|
|
223,574
|
|
—
|
|
|
Broad-Based Benefits(6)
|
18,061
|
|
—
|
|
—
|
|
—
|
|
8,685
|
|
|
Severance Payment
|
—
|
|
—
|
|
—
|
|
—
|
|
534,000
|
|
|
Total Incremental Pay(7)
|
2,274,523
|
|
223,574
|
|
339,838
|
|
339,838
|
|
542,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Benefit
|
Change in
Control ($)(1)(8)
|
|
Retirement
($)(2)(3)(4)
|
|
Disability
($)(2)(4)(8)
|
|
Death
($)(2)(5)(8)
|
|
Involuntary
Termination
Other than
for Cause or
Resignation
with Good
Reason Under
Severance
Plan ($)
|
|
|
Otis S. Sawyer
|
|
Base Salary (2 times annual salary)
|
922,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Annual Incentive (2 times average actual MIP amount paid in prior 3 years)
|
497,924
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Stock Options (accelerated vesting)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Restricted Shares (accelerated vesting)
|
138,240
|
|
—
|
|
138,240
|
|
138,240
|
|
—
|
|
|
Performance-Based Shares (accelerated vesting)
|
311,288
|
|
159,184
|
|
159,184
|
|
159,184
|
|
—
|
|
|
Broad-Based Benefits(6)
|
12,115
|
|
—
|
|
—
|
|
—
|
|
5,880
|
|
|
Severance Payment
|
—
|
|
—
|
|
—
|
|
—
|
|
461,000
|
|
|
Total Incremental Pay(7)
|
1,881,567
|
|
159,184
|
|
297,424
|
|
297,424
|
|
466,880
|
|
|
Stephen K. Krull
|
|
Base Salary (2 times annual salary)
|
804,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Annual Incentive (2 times average actual MIP amount paid in prior 3 years)
|
199,668
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Stock Options (accelerated vesting)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Restricted Shares (accelerated vesting)
|
135,859
|
|
—
|
|
135,859
|
|
135,859
|
|
—
|
|
|
Performance-Based Shares (accelerated vesting)
|
103,475
|
|
—
|
|
42,309
|
|
42,309
|
|
—
|
|
|
Broad-Based Benefits(6)
|
27,625
|
|
—
|
|
—
|
|
—
|
|
13,535
|
|
|
Severance Payment
|
—
|
|
—
|
|
—
|
|
—
|
|
402,000
|
|
|
Total Incremental Pay(7)
|
1,270,627
|
|
—
|
|
178,168
|
|
178,168
|
|
415,535
|
|
|
|
|
|
(1)
|
Amounts shown for performance-based shares reflect their values as of April 25, 2020, as if the entire three-year performance period had been completed, computed based on estimated financial performance information available at that time.
|
|
|
|
|
(2)
|
Reflects value as of April 25, 2020, of all outstanding unvested stock options.
|
|
|
|
|
(3)
|
Ms. Whittington and Mr. Krull are not eligible for retirement, which requires that they be at least 55 years old and have at least 10 years of service with the company.
|
|
|
|
|
(4)
|
Amounts shown for performance-based shares reflect their values as of April 25, 2020, based on targets for FY 2019 and 2020 and actual performance against those targets. In its discretion, the Compensation Committee may reduce or eliminate payments that otherwise would be made under these awards upon disability or retirement.
|
|
|
|
|
(5)
|
Amounts shown for performance-based shares reflect their values as of April 25, 2020, based on targets for FY 2019 and 2020 and actual performance against those targets. In its discretion, the Compensation Committee may eliminate payments that otherwise would be made under these awards upon death.
|
|
|
|
|
(6)
|
Change in Control: two years’ (three years for CEO) continuation of medical, dental and life insurance coverage. Severance Plan: continuation of medical and dental insurance while the executive receives severance.
|
|
|
|
|
(7)
|
Total incremental pay represents amounts received by the officer before the officer’s payment of applicable excise and income taxes or the application of the best net reduction.
|
CEO Pay Ratio
For FY 2020, our last completed fiscal year, the median annual total compensation of all our employees (other than our CEO) was $38,115 and the annual total compensation of our CEO was $5,256,122. Accordingly, the ratio of our CEO’s annual total compensation to the median annual compensation of all other employees was estimated to be 138:1. We believe this ratio is a reasonable estimate calculated in a manner consistent with applicable SEC rules. Given the rule’s flexibility, the method we used to determine the median employee may be different from our peers, so the ratios may not be comparable.
Since February 1, 2018, the date as of which we last identified our median employee, our company experienced changes in our employee population, so we recalculated the median employee in FY 2020. In FY 2019, we acquired Stitch Industries, Inc. (Joybird) and the business comprising the assets acquired from EBCO, Inc. This population is included in the FY 2020 median employee calculation.
To identify, and to determine the annual total compensation of, the median employee, we used the following methodology and assumptions:
|
|
|
|
•
|
We collected the compensation data of all of our employees globally, as of February 1, 2020, for the prior twelve-month period.
|
|
|
|
|
•
|
We annualized compensation for employees who were hired between February 1, 2019 and January 31, 2020. The compensation in non-U.S. currencies was converted to U.S. dollars using exchange rates as of January 31, 2020.
|
|
|
|
|
•
|
We used total compensation received as our consistently applied compensation measure, calculated as the sum of the following amounts: (i) base pay (including overtime for hourly employees), (ii) bonuses (including non-cash equivalents) and sales commissions, and (iii) with respect to employees on the Mexican payroll system, cash allowances.
|
We calculated the median employee’s FY 2020 annual total compensation using the same methodology we used in the FY 2020 Summary Compensation Table.
SECURITIES OWNERSHIP
Security Ownership of Directors and Executive Officers
The following table shows the number of shares of the company's common stock reported to us as beneficially owned by each of our directors, director nominees and NEOs as of July 7, 2020, and by all directors and executive officers as a group as of that date, including shares of the company's common stock that they have a right to acquire within 60 days after July 7, 2020, by the exercise of stock options or settlement of RSUs.
Mr. Darrow beneficially owned 2.55% of the total number of outstanding shares of common stock as of July 7, 2020. No other director or NEO beneficially owned 1% or more of the total number of outstanding shares as of July 7, 2020. Each person has sole voting and investment power for the number of shares shown unless otherwise noted.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Beneficial Owners
|
Shares Owned Directly or Indirectly(1)
|
RSUs Held by Non-Employee Directors(2)
|
Shares Individuals Have Rights to Acquire within 60 Days(3)
|
Total Shares Beneficially Owned
|
|
Kurt L. Darrow
|
562,514
|
|
—
|
|
634,053
|
|
1,196,567
|
|
|
Darrell D. Edwards
|
40,542
|
|
—
|
|
170,107
|
|
210,649
|
|
|
Sarah M. Gallagher
|
—
|
|
12,446
|
|
—
|
|
12,446
|
|
|
Edwin J. Holman
|
3,095
|
|
43,467
|
|
—
|
|
46,562
|
|
|
Janet E. Kerr
|
350
|
|
43,467
|
|
—
|
|
43,817
|
|
|
Stephen K. Krull
|
7,098
|
|
—
|
|
2,569
|
|
9,667
|
|
|
Michael T. Lawton
|
—
|
|
21,895
|
|
—
|
|
21,895
|
|
|
H. George Levy, MD
|
19,993
|
|
43,467
|
|
—
|
|
63,460
|
|
|
W. Alan McCollough
|
7,668
|
|
43,467
|
|
—
|
|
51,135
|
|
|
Rebecca L. O’Grady
|
—
|
|
3,148
|
|
—
|
|
3,148
|
|
|
Lauren B. Peters
|
—
|
|
12,446
|
|
—
|
|
12,446
|
|
|
Dr. Nido R. Qubein
|
7,000
|
|
43,467
|
|
—
|
|
50,467
|
|
|
Otis S. Sawyer
|
68,604
|
|
—
|
|
106,453
|
|
175,057
|
|
|
Melinda D. Whittington
|
22,448
|
|
—
|
|
22,479
|
|
44,927
|
|
|
All directors and executive officers as a group (14 persons)
|
739,312
|
|
267,270
|
|
935,661
|
|
1,942,243
|
|
|
|
|
|
(1)
|
Represents shares as to which the individual has sole voting and investment power or for which the individual shares such power with his or her spouse. None of these shares has been pledged as security. The shares shown include restricted shares as follows: Mr. Darrow - 16,369 shares, Mr. Edwards - 4,139 shares, Mr. Krull - 5,774 shares, Mr. Sawyer - 5,609 shares, and Ms. Whittington - 14,317 shares.
|
|
|
|
|
(2)
|
RSUs held by each non-employee director vest and settle in shares of common stock when the director leaves the Board.
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|
|
|
|
(3)
|
Includes 172,148 stock options and 43,231 performance-based shares for Mr. Darrow; 42,128 stock options and 10,611 performance-based shares for Mr. Edwards; and 30,086 stock options and 7,555 performance-based shares for Mr. Sawyer, of which the NEO has the right to acquire beneficial ownership were he to retire within 60 days of July 7, 2020.
|
Security Ownership of 5% Beneficial Owners
The following table provides information about entities that beneficially owned more than 5% of our common stock, as of December 31, 2019, according to reports filed with the SEC. To our knowledge, except as noted in the table below, no person or entity is the beneficial owner of more than 5% of our common stock.
|
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner
|
Amount and Nature of
Beneficial
Ownership
|
|
Percent of Class
|
|
|
BlackRock, Inc. and subsidiaries
|
|
|
|
55 East 52nd Street
|
|
|
|
New York, NY 10055(1)
|
7,043,189
|
|
15.2
|
%
|
|
The Vanguard Group
|
|
|
|
100 Vanguard Blvd.
|
|
|
|
Malvern, PA 19355(2)
|
4,896,672
|
|
10.6
|
%
|
|
Wellington Management Group LLP
|
|
|
|
280 Congress Street
|
|
|
|
Boston, MA 02210(3)
|
4,249,284
|
|
9.2
|
%
|
|
Dimensional Fund Advisors LP
|
|
|
|
Building One
|
|
|
|
6300 Bee Cave Road
|
|
|
|
Austin, TX 78746(4)
|
2,992,562
|
|
6.5
|
%
|
|
|
|
|
(1)
|
Based on a Schedule 13G/A filed with the SEC on February 4, 2020, in which BlackRock, Inc., a parent holding company, reported that, as of December 31, 2019, it had sole voting power with respect to 6,930,155 shares and sole dispositive power with respect to 7,043,189 shares, and shared voting and dispositive power with respect to none of the shares.
|
|
|
|
|
(2)
|
Based on a Schedule 13G/A filed with the SEC on February 12, 2020, in which The Vanguard Group, an investment adviser, reported that, as of December 31, 2019, it had sole voting power over 65,505 shares, shared voting power over 8,854 shares, sole dispositive power over 4,828,278 shares, and shared dispositive power over 68,394 shares. Vanguard Fiduciary Trust Company, a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 59,540 shares as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 14,819 shares as a result of its serving as investment manager of Australian investment offerings.
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|
|
|
|
(3)
|
Based on a Schedule 13G/A filed with the SEC on January 27, 2020, in which Wellington Management Group LLP, a parent holding company of certain holding companies and investment advisers, reported that, as of December 31, 2019, it had shared voting power with respect to 3,881,404 shares, shared dispositive power with respect to 4,249,284 shares, and sole voting and dispositive power with respect to none of the shares.
|
|
|
|
|
(4)
|
Based on a Schedule 13G filed with the SEC on February 12, 2020, in which Dimensional Fund Advisors LP, an investment adviser, reported that, as of December 31, 2019, it had sole voting power over 2,840,610 shares, sole dispositive power over 2,992,562 shares, and shared voting and dispositive power with respect to none of the shares.
|