AWARD FORMULA FOR 2017 LEGGETT & PLATT, INCORPORATED 2014 KEY OFFICERS INCENTIVE PLAN
Exhibit 10.1
AWARD FORMULA FOR 2017
LEGGETT & PLATT, INCORPORATED
2014 KEY OFFICERS INCENTIVE PLAN
The 2014 Key Officers Incentive Plan (the “Plan”) provides cash Awards to Participants based on the Company’s operating results for the prior year. Capitalized terms not defined in this document have the meaning ascribed under the Plan. There are separate Award Formulas under the Plan for Corporate Participants and Profit Center Participants.
Under both formulas, a Participant’s Award is calculated by reference to the Target Percentage of the Participant’s annual salary at the end of the Year. The Award Formulas and each Participant’s Target Percentage are determined by the Committee no later than 90 days after the beginning of each Year or before 25% of the Performance Period has elapsed.
Participants in the Plan are the executive officers of the Company. The Company has a separate Key Management Incentive Compensation Plan for other employees. Awards under the Key Management Incentive Compensation Plan are calculated in substantially the same manner as awards under the Plan.
For 2017, Awards under the Plan will be determined by achievement of the following Performance Objectives. Additional awards will be made based on the achievement of Individual Performance Goals, which will be established separately from this Plan and will be wholly independent of Awards under this Plan.
| Participant Type | Performance Objectives | Relative Weight | ||||
| Corporate Participants | Return on Capital Employed (ROCE) | 60 | % | |||
| Cash Flow | 20 | % | ||||
| Individual Performance Goals* | 20 | % | ||||
| Profit Center Participants | Return on Capital Employed (ROCE) | 60 | % | |||
| Free Cash Flow (FCF) | 20 | % | ||||
| Individual Performance Goals* | 20 | % | ||||
| * | These awards are established outside the Plan. |
Award Formula for Corporate Participants
Awards for Corporate Participants are determined by the Company’s aggregate 2017 financial results. Financial results from acquisitions are excluded from calculations in the year of acquisition. Financial results from businesses divested during the year will be included in the calculations; however, the Performance Objective targets relating to the divested businesses will be prorated to reflect only that portion of the year prior to the divestiture. Financial results from businesses classified as discontinued operations will be included in the calculations.
The Performance Objectives for Corporate Participants are calculated as follows:
| ROCE = | EBIT | |||
| Net PP&E and Working Capital1, 2 |
| 1 | Quarterly averaging of Net PP&E and Working Capital |
| 2 | Working Capital, excluding cash and current maturities of long-term debt, as presented on the Company’s December 31, 2017 Consolidated Balance Sheet |
Cash Flow = EBITDA ± Change in Working Capital1 + Non-Cash Impairments – Capital Expenditures
| 1 | Change in Working Capital, excluding cash and current maturities of long-term debt, from December 31, 2016 to December 31, 2017, as reflected on the Company’s Consolidated Balance Sheets |
Performance Objectives shall be adjusted for all items of gain, loss or expense for the fiscal year, as determined in accordance with standards established under Generally Accepted Accounting Principles, (i) from non-cash impairments; (ii) related to loss contingencies identified in Note S to the financial statements in the Company’s 2016 10-K; (iii) that are unusual in nature or infrequent in occurrence; (iv) related to the disposal of a segment of a business; or (v) related to a change in accounting principle.
Achievement targets and payout percentages for Corporate Participants’ Performance Objectives are set forth below. No Awards are paid for ROCE achievement below 43% and Cash Flow below $375 million. The ROCE and Cash Flow payouts are each capped at 150%. Payouts will be interpolated for achievement levels falling between those set out in the schedule.
| 2017 Corporate Targets and Payout Schedule | ||||||||||
| ROCE | Cash Flow | |||||||||
| Achievement | Payout | Achievement | Payout | |||||||
| < 43.0% | 0% | <$ | 375M | 0% | ||||||
| 43.0% | 50% | Threshold | $ | 375M | 50% | |||||
| 46.5% | 75% | $ | 412.5M | 75% | ||||||
| 50.0% | 100% | Target | $ | 450M | 100% | |||||
| 53.5% | 125% | $ | 487.5M | 125% | ||||||
| 57.0% | 150% | Maximum | $ | 525M | 150% | |||||
Award Formula for Profit Center Participants
Profit Center Participants manage numerous Profit Centers. The Company sets a ROCE target and a FCF target for each Profit Center every Year which aggregate up to the segment level. Financial results for each Profit Center may include a critical compliance adjustment, ranging from a potential 5% increase for exceptional safety performance to a 20% deduction for critical compliance failures.
Financial results from acquisitions are excluded from calculations in the year of acquisition. Financial results from businesses divested during the year will be included in the calculations; however, the Performance Objective targets relating to the divested businesses will be prorated to reflect only that portion of the year prior to the divestiture. Financial results from businesses classified as discontinued operations will be included in the calculations.
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The Performance Objectives for Profit Center Participants are calculated as follows:
| ROCE = | EBIT | |||
| Net PP&E + Working Capital1, 2 |
| 1 | Monthly averaging of Net PP&E and Working Capital, adjusted for currency effects. |
| 2 | Working Capital excludes cash and current maturities of long-term debt and balance sheet items not directly related to on-going Profit Center activity, such as interest receivable and payable, income taxes receivable and payable, current deferred tax assets and liabilities, and dividends payable. |
| FCF = | EBITDA (adjusted for currency effects) ± Change in Working Capital1 + Non-Cash Impairments – Capital Expenditures |
| 1 | Change in Working Capital from December 31, 2016 to December 31, 2017 excludes cash and current maturities of long-term debt and balance sheet items not directly related to on-going Profit Center activity, such as interest receivable and payable, income tax receivable and payable, current deferred taxes assets and liabilities, and dividends payable. |
Performance Objectives shall be adjusted for all items of gain, loss or expense for the fiscal year, as determined in accordance with standards established under Generally Accepted Accounting Principles, (i) from non-cash impairments; (ii) related to loss contingencies identified in Note S to the financial statements in the Company’s 2016 10-K; (iii) that are unusual in nature or infrequent in occurrence; (iv) related to the disposal of a segment of a business; or (v) related to a change in accounting principle.
Achievement targets and payout percentages for Profit Center Participants are set forth below. No Awards are paid for achievement below 80% of the ROCE and FCF targets. The ROCE and FCF payouts are each capped at 150%. The payout will be interpolated for achievement levels falling between those set out in the schedule.
2017
Profit Center Targets by Segment
| Segment | ROCE Target | FCF Target | ||||||
| Residential Products | 34.2 | % | $ | 143.6M | ||||
| Industrial Products | 37.2 | % | $ | 46.0M | ||||
| Specialized Products | 52.5 | % | $ | 98.8M | ||||
| Furniture Products | 43.3 | % | $ | 55.7M | ||||
2017
Profit Center Payout Schedule
| Achievement | Payout | |||||
| <80% | 0 | % | ||||
| 80% | Threshold | 60 | % | |||
| 90% | 80 | % | ||||
| 100% | Target | 100 | % | |||
| 110% | 120 | % | ||||
| 120% | 140 | % | ||||
| 125% | Maximum | 150 | % | |||
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The President—Residential Products & Industrial Products will have 79.8% of his Award based upon the Performance Objectives for Residential Products and 20.2% based upon the Performance Objectives for Industrial Products. The President—Specialized Products & Furniture Products will have 56.1% of his Award based upon the Performance Objectives for Specialized Products and 43.9% based upon the Performance Objectives for Furniture Products.
Sample Calculation
For Corporate and Profit Center Participants, the Award is calculated by multiplying the Participant’s salary, Target Percentage, the relative weight of the Performance Objective, and the payout percentage for each Performance Objective. The sample calculation below assumes a Participant with a base salary of $500,000, a Target Percentage of 50%, a ROCE payout of 100%, and Cash Flow/FCF payout of 80%:
| Performance Objective | Participant’s Base Salary | Participant’s Target% | Relative Weight | Payout Percentage | Award | |||||||||||||||
| ROCE | $ | 500,000 | 50 | % | 60 | % | 100 | % | $ | 150,000 | ||||||||||
| Cash Flow/FCF | $ | 500,000 | 50 | % | 20 | % | 80 | % | $ | 40,000 | ||||||||||
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| Total Award | $ | 190,000 | ||||||||||||||||||
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