Louisiana-Pacific DEF 14A 2013
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Exchange Act of 1934 (Amendment No. )
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March 20, 2013
On behalf of the Board of Directors, I cordially invite you to attend the Annual Meeting of Stockholders of Louisiana-Pacific Corporation. The meeting will be held on Friday, May 3, 2013, at 9:30 a.m., local time, at LPs Corporate Headquarters, 414 Union Street, Suite 2000, Nashville, Tennessee. We look forward to personally greeting those stockholders able to be present.
At this years meeting, you will be asked to vote on (1) the election of three directors, (2) the ratification of the selection of LPs outside independent auditor, (3) an advisory vote relating to executive compensation, and (4) the approval of our 2013 Omnibus Stock Plan. Your Board of Directors unanimously recommends a vote for each of the four proposals. Action may also be taken on any other matters that are properly presented at the meeting.
Regardless of the number of shares you own, it is important that they be represented and voted at the meeting whether or not you plan to attend. Accordingly, you are encouraged to vote as soon as possible according to the instructions in the notice you received by mail or in the proxy statement.
The accompanying proxy statement contains important information about the annual meeting and your corporation. On behalf of the Board of Directors, thank you for your continued interest and support.
Curtis M. Stevens
Director & Chief Executive Officer
LP is a trademark of Louisiana-Pacific Corporation.
414 Union Street, Suite 2000
Nashville, Tennessee 37219
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 3, 2013
The 2013 Annual Meeting of Stockholders of Louisiana-Pacific Corporation (LP) will be held at LPs Corporate Headquarters, 414 Union Street, Suite 2000, Nashville, Tennessee, on Friday, May 3, 2013, at 9:30 a.m. local time, to consider and vote upon the following matters:
Only stockholders of record at the close of business on March 4, 2013, are entitled to notice of and to vote at the meeting.
In accordance with the General Corporation Law of the State of Delaware, a complete list of the holders of record of LPs Common Stock entitled to vote at the meeting will be open to examination, during ordinary business hours, at LPs headquarters located at 414 Union Street, Suite 2000, Nashville, Tennessee 37219, for the ten days preceding the meeting, by any LP stockholder for any purpose germane to the meeting.
Admission to the meeting will be by ticket. The notice you received in the mail regarding the meeting will serve as your admission ticket. If you are a stockholder whose shares are held through an intermediary such as a bank or broker and you wish to attend the meeting, you may also obtain an admission ticket by presenting proof of share ownership, such as a bank or brokerage account statement, at the meeting entrance.
March 20, 2013
Whether or not you expect to attend the meeting, please vote as soon as possible according to the instructions in the notice you received by mail or, if you requested a paper copy of the proxy statement, on your enclosed proxy card. If you attend the meeting, you may withdraw your proxy and vote in person.
TABLE OF CONTENTS
On written request, LP will provide, without charge, a copy of its Form 10-K Annual Report for 2012 filed with the Securities and Exchange Commission (including the financial statements and a list briefly describing the exhibits thereto) to any record holder or beneficial owner of LPs Common Stock on March 4, 2013, the record date for the 2013 Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. The reports will be available for mailing in late March 2013. Requests should be mailed via first class U.S. postage to: Corporate Affairs, Louisiana-Pacific Corporation, 414 Union Street, Suite 2000, Nashville, Tennessee 37219.
Louisiana-Pacific Corporation, a Delaware corporation (LP), is soliciting proxies on behalf of its Board of Directors to be voted at the 2013 Annual Meeting of Stockholders (including any postponement or adjournment of the meeting). This proxy statement and the accompanying proxy card are being distributed to stockholders beginning on approximately March 20, 2013.
As allowed by rules and regulations of the Securities and Exchange Commission (the SEC), we are providing access to this proxy statement by Internet. You will not receive a paper copy of this proxy statement by mail unless you request it. Instead, you were sent a notice (the Notice) providing instructions on how to view this proxy statement and vote your proxy by Internet.
If you requested a paper copy of this proxy statement, a proxy card is enclosed for your use. To vote by mail, please sign, date, and return the proxy card promptly. For your convenience, a return envelope is enclosed, which requires no postage if mailed in the United States. You may indicate your voting instructions on the proxy card in the spaces provided. Properly completed proxies will be voted as instructed. If you return a proxy without indicating voting instructions, your shares will be voted in accordance with the recommendations of the Board of Directors for Items 1, 2, 3 and 4 listed in the Notice of Annual Meeting of Stockholders.
If you vote your proxy prior to the meeting, you may revoke it (1) by filing either a written notice of revocation or a properly signed proxy bearing a later date with the Secretary of LP at any time before the meeting, (2) by voting in person at the annual meeting, or (3) by following the instructions in the Notice.
If shares are held for your account in the Automatic Dividend Reinvestment Plan administered by Computershare Trust Company, N.A., all your shares held in the plan will be voted in the same manner as shares you vote by proxy. If you do not vote by proxy, the shares held for your account in the plan will not be voted.
Only stockholders of record at the close of business on March 4, 2013, are entitled to receive notice of the annual meeting and to vote at the meeting. At the record date, there were 139,293,137 shares of common stock, $1 par value (Common Stock) outstanding. Each share of Common Stock is entitled to one vote on each matter to be acted upon. A majority of the outstanding shares of Common Stock represented at the meeting will constitute a quorum. Additional information concerning holders of outstanding Common Stock may be found under the heading Holders of Common Stock below.
The Board of Directors has adopted a confidential voting policy which provides that the voting instructions of stockholders are not to be disclosed to LP except (a) in the case of communications intended for management, (b) in the event of certain contested matters, or (c) as required by law. Votes will be tabulated by independent tabulators and summaries of the tabulation will be provided to management.
Banks and brokers acting as nominees for beneficial owners are not permitted to vote proxies with regard to Items 1, 3 and 4 on behalf of beneficial owners who have not provided voting instructions to the nominee (a broker non-vote), making it especially important that, if you hold your shares in street name, you send your broker your voting instructions.
ITEM 1ELECTION OF DIRECTORS
The three nominees listed below for the Class I director positions to be voted on at the meeting are currently members of the Board of Directors. The term of office for the positions to be voted on will expire at the Annual Meeting of Stockholders in 2016.
The Board of Directors has determined that each of the nominees named below has no material relationship with LP (either directly or as a partner, stockholder, officer or director of an organization that has a relationship with LP) other than his or her service as a director of LP, and is not disqualified from being independent under the listing standards adopted by the New York Stock Exchange (the NYSE). The continuing members of the Board of Directors unanimously recommend a vote for each nominee.
Lizanne C. Gottung, age 56, became a director of LP in 2006. Ms. Gottung has been Senior Vice President and Chief Human Resources Officer of Kimberly-Clark Corporation since 2002. She has held a variety of human resources, manufacturing and operational roles of increasing responsibility with Kimberly-Clark Corporation over the past 25 years. The Board selected Ms. Gottung to serve as a director based upon a number of considerations, including her experience in labor relations and human resources in a large publicly held corporation. The Board believes that her extensive experience in leading, designing and implementing human capital strategies including compensation and benefits, both domestically and globally, talent management, diversity and inclusion, organizational effectiveness and corporate health services make her particularly well-suited to continue to serve as a director of LP. Ms. Gottung is a member of the Environmental and Compliance Committee and the Compensation Committee.
Dustan E. McCoy, age 63, became a director of LP in 2002. Mr. McCoy has been Chairman and Chief Executive Officer and a director of Brunswick Corporation since December 2005. He joined Brunswick Corporation in September 1999 and has also served as Vice President, General Counsel and Corporate Secretary and President. In 1999 he was Executive Vice President of Witco Corporation, and prior to that served as Witcos Senior Vice President, General Counsel and Corporate Secretary. Mr. McCoy is also a director of Freeport-McMoran Copper & Gold Inc. The Board selected Mr. McCoy to serve as a director because of his extensive experience in legal and compliance matters generally, and more specifically his experience in corporate governance and disclosure matters for publicly traded companies. The Board believes that Mr. McCoys broad understanding of the operational, financial and strategic issues facing large global companies, his leadership and oversight in LPs compliance matters, his leadership roles for companies producing both commodity and specialty products, and his valuable strategic advice to the Board and management in advancing LPs interests make him particularly well-suited to continue to serve as a director of LP. Mr. McCoy serves as Chair of the Environmental and Compliance Committee and as a member of the Nominating and Corporate Governance Committee.
Colin D. Watson, age 71, became a director of LP in 2000. Mr. Watson was President and Chief Executive Officer of Vector Aerospace Corporation from November 2003 until he retired in December 2004. Previously, he was a Director and CEO of Spar Aerospace Limited from December 1999 until his retirement from the Spar Aerospace board in January 2002. He also served as Chief Executive Officer and President and Chief Executive Officer of Spar Aerospace. From 1979 to 1996, Mr. Watson was President and Chief Executive Officer of Rogers Cable TV, Ltd. Mr. Watson was also a director of Rogers Communications Inc., until April 2012. The Board selected Mr. Watson to serve as a director because of his extensive financial and investment experience as well as his experience in operations in Canada. Mr. Watson is a citizen of Canada and he assists the Board in
assessing the political and economic systems in Canada. The Board believes that his significant financial and leadership capabilities obtained from his senior leadership roles in a publicly traded company, along with his various roles in a number of private companies, make him particularly well-suited to continue to serve as a director of LP. Mr. Watson is a member of the Finance and Audit Committee and is the Chair of the Compensation Committee.
Your shares represented by a properly completed and returned proxy card will be voted FOR the election of the three nominees named above unless authority to vote is withheld (Item 1 on the proxy card). If any nominee becomes unavailable to serve (which is not anticipated), your proxy will be voted for a substitute nominee designated by the Board of Directors. The three nominees receiving the highest total number of votes will be elected. Shares not voted for the election of directors, whether because authority to vote is withheld, the record holder fails to return a proxy, or a broker non-vote occurs, will not count in determining the total number of votes for each nominee.
The current members of the Board of Directors whose terms of office will continue beyond the 2013 Annual Meeting of Stockholders are listed below. The Board of Directors has determined that each continuing director named below, except for Mr. Stevens, our Chief Executive Officer, has no material relationship with LP, either directly, or as a partner, stockholder, officer or director of an organization that has a relationship with LP, and is not disqualified from being independent under the NYSEs listing standards.
E. Gary Cook, age 68, became a director of LP in 2000 and was appointed Chairman of the Board of Directors on November 1, 2004. Mr. Cook has been Chief Executive Officer and Chairman of InEnTec Chemical, LLC, since 2006. Mr. Cook was Chairman, President and Chief Executive Officer of Witco Corporation from 1996 until his retirement in 1999. Until 1996, he was President, Chief Operating Officer, and a director of Albemarle Corporation, he also served as Senior Vice President and director. Mr. Cook was previously a director of Trimeris Corporation. Mr. Cook was selected to serve as a director because of his leadership abilities and broad experience in specialty and commodity products. The Board also believes that Mr. Cooks significant expertise in finance, capital markets and mergers and acquisitions, as well as his significant leadership capabilities in developing and maintaining a strong, diverse and independent Board with committees that work effectively to protect the integrity of the corporation as well as stockholder interests, make him particularly well-suited to serve as a director of LP. Mr. Cook serves as the non-Executive Chairman, the Chair of both the Nominating and Corporate Governance Committee and the Executive Committee, and as a member of the Finance and Audit Committee.
Kurt M. Landgraf, age 66, became a director of LP in 2005. Mr. Landgraf has been President and Chief Executive Officer of Educational Testing Service since August 2000. Prior to that, he was Executive Vice President and Chief Operating Officer of E.I. Du Pont de Nemours and Company (du Pont) where he previously held a number of senior leadership positions, including Chief Financial Officer. Mr. Landgraf is also a director of Corning, Inc. Mr. Landgraf was previously a director of IKON Office Solutions, Inc. until it merged with Ricoh Company Ltd. on October 31, 2008. He has chaired the National Pharmaceutical Council, United Way of Delaware, the Delaware Association for Rights of Citizens with Mental Retardation, and Delaware CarePlan. He recently completed a term as President of the National Consortium for Graduate Degrees for Minorities in Engineering and Sciences, Inc. Mr. Landgraf was selected to serve as a director because he possesses valuable financial expertise and operations skills and experience, represented by his positions as the Chief Financial Officer and Chief Operating Officer of E.I. Du Pont de Nemours & Company. His knowledge and skills also provide the Company significant experience with capital markets transactions and investment in both public and private companies. The Board also considered his prior experience with global industrial and
technology-dependent businesses, which provides the Company with informed judgment and a unique history for risk assessment, that makes him particularly well-suited to serve as a director of LP. Mr. Landgraf serves as the Chair of the Finance and Audit Committee and as a member of the Compensation Committee.
John W. Weaver, age 67, became a director of LP in February 2010. Mr. Weaver served as President and Chief Executive Officer of Abitibi-Consolidated, Inc., from 1999 until it merged with Bowater, Inc. in October 2007, at which time he became the Executive Chairman of AbitibiBowater, Inc. Mr. Weaver resigned as Executive Chairman of AbitibiBowater, Inc. as of February 1, 2009 and from the Board of AbitibiBowater, Inc. as of October 31, 2009. AbitibiBowater, Inc. filed for protection and reorganization under the Bankruptcy laws of Canada and the United States in April 2009 and emerged in December 2010. Mr. Weaver held a number of senior executive positions in operations and sales prior to being appointed President and Chief Executive Officer of Abitibi-Consolidated, Inc. and has over 30 years of experience in the forest products industry. Mr. Weaver was a member of the Abitibi-Consolidated, Inc. board of directors, and has been the chair of both the Forest Products Association of Canada and FP Innovations and a director of the U.S. Endowment for Forestry and Communities. Mr. Weaver was selected to serve as a director based on a number of considerations, including his operational expertise in the forest products industry and the political, regulatory, and economic perspective his Canadian forest products experience provides. Mr. Weaver serves on the Nominating and Corporate Governance Committee and the Environmental and Compliance Committee.
Archie W. Dunham, age 74, became a director of LP in 1996. Until September 30, 2004, he was Chairman of the Board and a director of ConocoPhillips, an international, integrated energy company. He served in various senior executive positions with Conoco Inc., including most recently as Chairman, President and Chief Executive Officer, for more than five years prior to its merger with Phillips Petroleum Company in 2002. Mr. Dunham was appointed non-Executive Chairman at Chesapeake Energy Corporation on June 21, 2012, and is currently a director of Union Pacific Corporation. Mr. Dunham previously served as a director of Pride International, Inc. until it merged with Ensco PLC on May 31, 2011, and Phelps Dodge Corporation until it merged with Freeport-McMoran Copper & Gold Inc. Mr. Dunham was selected to serve as a director based upon a number of considerations, including his leadership abilities and significant financial, investment and acquisition experience, including his experience in leading international operations and his ability to provide global political and economic perspectives and assist in assessing risk and global growth opportunities. Mr. Dunham serves as a member of the Finance and Audit Committee and Compensation Committee and Executive Committee.
Daniel K. Frierson, age 71, became a director of LP in 2003. Mr. Frierson has been Chairman and Chief Executive Officer of The Dixie Group, Inc., a manufacturer and distributor of high-end carpet and rugs headquartered in Chattanooga, Tennessee, for more than 15 years. He is also a director of Astec Industries, Inc. Mr. Frierson was selected to serve as a director based upon a number of considerations, including his operational experience in a specialty products based industry that sells into LPs residential construction and repair/remodel customer base, his experience dealing with corporate governance, disclosure, investor relations and regulatory compliance matters, and his ability to assist in assessing risk and market influences. Mr. Frierson serves on the Nominating and Corporate Governance Committee and the Environmental and Compliance Committee.
Curtis M. Stevens, age 60, became a Director of LP in 2012. Mr. Stevens has been CEO of LP since May 4, 2012. Mr. Stevens served as the Chief Operating Officer of LP since December 5, 2011, and prior to that date served as Executive Vice President Administration and Chief Financial Officer of LP since 2002 and Chief Financial Officer of LP since 1997. Prior to joining LP, Mr. Stevens served for 14 years in various financial and operational positions at Planar Systems, Inc. Mr. Stevens is also a director of Quanex Building Products, a
publicly traded OEM for residential and commercial construction markets. Mr. Stevens holds a B.A. in Economics and an M.B.A in Management from the University of California at Los Angeles. The Board of Directors selected Mr. Stevens to serve as a director based upon a number of considerations, including his appointment as Chief Executive Officer of LP, his prior performance as an executive at LP, his long history and deep familiarity with LPs financial and operational matters, and his satisfaction of relevant criteria included in LPs corporate governance principles. The Board of Directors also considered, in particular, Stevens expansive knowledge of the forest products industry in North America and South America, together with his knowledge and experience in finance, accounting, capital markets, information technology and international business operations. The Board also believes he is an effective liaison between the Board and management. Mr. Stevens serves on the Executive Committee and the Environmental and Compliance Committee.
Principles of Corporate Governance
Strong corporate leadership of the highest ethics and integrity has long been a major focus of LPs Board of Directors and management. The key tenets of LPs corporate governance principles include the following:
Current copies of LPs corporate governance principles, Code of Business Conduct and Ethics, and Code of Ethics for Senior Financial Officers are available on LPs website at www.lpcorp.com by clicking on About LP, then Investor Relations, then Corporate Governance. Any amendments to either code will also be posted at www.lpcorp.com. Copies of any of these documents may also be obtained free of charge by writing to Corporate Affairs, Louisiana-Pacific Corporation, 414 Union Street, Suite 2000, Nashville, Tennessee 37219.
Leadership Structure and Oversight of Risk
Board Leadership Structure
The Board has nine members with a diverse set of skills and experiences. All of the members, except the Chief Executive Officer, are independent. In 2004, the Board determined, for the purpose of enhancing the Boards independence and effectiveness, that it was in the best interests of LP and its stockholders to separate the Chairman position from the CEO. An independent director, Gary Cook, was elected by the Board to be the nonexecutive Chairman. The Board continues to have full access to the experience and insight of the CEO, as he is a member of the Board. If in the future, the Board determines that it is then in the best interests of LP and its stockholders to combine the Chairman and CEO positions, it will disclose its reasoning for modifying this structure.
The Chairmans duties include: preparing agendas for Board meetings in consultation with other directors and management; chairing meetings of the Board and executive sessions of the independent directors; chairing meetings of the Executive Committee; leading the independent directors in periodic reviews of the performance of the CEO; keeping directors informed by timely distribution of information; serving as liaison between independent directors and the CEO; and recommending independent outside advisors who report directly to the Board on material issues.
Oversight of Risk
The directors are elected representatives of the stockholders and act as fiduciaries on their behalf. In performing its general oversight function, the Board reviews and assesses LPs strategic and business planning as
well as managements approach to addressing significant risks. While the full Board meets at least quarterly, it has delegated much of its risk oversight activities to various Board committees (discussed below). All committees report directly to the Board regularly and all committee minutes are distributed for review by the entire Board. Additionally, the Board and committees are authorized to retain independent advisors, including attorneys or other consultants, to assist in their oversight activities.
As set out in LPs Corporate Governance Principles, it is the responsibility of the CEO, and of senior management under the CEOs direction, to operate the business of LP on a day-to-day basis in a competent and ethical manner to produce value for the stockholders, and to regularly inform the Board of the status of LPs business operations. Managements responsibilities include strategic planning, preparation of annual operating plans and budgets, risk management and financial reporting. The Board fulfills its oversight responsibilities as set out in the Corporate Governance Principles on behalf of the stockholders and in furtherance of LPs long-term health. The Boards role does not involve managing the daily complexities of business transactions. The current leadership structure provides directors with significant information related to risks faced by LP, as well as an opportunity to synthesize, discuss and consider these risks independent of management and to provide guidance to management.
As part of its oversight responsibilities, the Board and its committees are involved in the oversight of risk management of LP. It does so in part through its review of findings and recommendations by LPs Risk Management Council, the participants of which are executives and/or functional department leaders in the areas of Risk Management, Finance, Audit, Legal, Environmental, Product Quality, and Compliance, all of whom supervise day-to-day risk management throughout LP. The purpose of the Risk Management Council is to help the CEO assess the effectiveness of LPs handling of financial and business risks. The Board or its committees have direct access to financial and compliance leaders on a quarterly basis or as needed. Further, LPs Treasurer and Risk Manager periodically presents to the Finance and Audit Committee, or the Board, a comprehensive report as to the Councils risk mapping efforts, as well as managements efforts to mitigate and transfer risk.
The Board committees consider the risks within their areas of responsibilities under each of their charters. The Finance and Audit Committee considers operational and financial risk on a quarterly basis and reviews various guidelines for cash, credit and liquidity measures. It also reviews risks related to financial disclosures and reporting and reviews the audit risk assessment identifying internal controls and risks that affect the audit plan for the coming year. The Nominating and Corporate Governance Committee reviews the various regulatory changes and trends related to corporate governance, including Board member selection and maintaining appropriate corporate governance principles and guidelines, as well as conducting annual evaluations to assess Board and committee effectiveness. The Environmental and Compliance Committee reviews quarterly each compliance function and considers the various allegations, disciplinary actions and training statistics, and annually reviews the entire ethics program and any waivers of the program. The Compensation Committee reviews LPs overall compensation programs and their effectiveness at linking executive pay to long-term performance, as well as aligning the interests of management with stockholders. Each director is informed of the oversight activities of each committee through regular reports by the Committee Chairs to the entire Board as well as reviewing the minutes of each committee meeting.
Board and Committee Meetings
During 2012, each director attended at least 75% of the aggregate of the total number of meetings of the Board and meetings held by all committees of the Board on which he or she served during his or her tenure on the Board or such committees. The Board of Directors held four regular quarterly meetings in 2012. LP does not have a policy regarding attendance by directors at the annual meeting of stockholders. In 2012, six of nine directors attended the annual meeting.
The Boards committees and membership on each committee as of March 4, 2013, are set forth in the table below. Except as otherwise noted, each committee member also served as shown in the table throughout 2012. Each committee shown below other than the Executive Committee has a written charter delineating its membership, duties and functions. Copies of the charters are available on LPs website as described above under Principles of Corporate Governance and may also be obtained by writing to the address listed above.
X = Committee member; * = Chairman [Mr. Landgraf replaced Mr. Dunham as Chair of the Finance and Audit Committee as of November 1, 2012.]
Finance and Audit Committee
The Finance and Audit Committee (the Audit Committee) held seven meetings during 2012. Two of these meetings included education and training sessions on financial, accounting and disclosure issues currently applicable to LP. In order to effectively perform its oversight responsibilities and duties, the Audit Committee holds, in addition to executive sessions, separate sessions from time to time with LPs management, internal auditors, and the independent auditor.
The Audit Committee has sole authority and responsibility to select, retain, oversee, and replace LPs independent auditor and to approve its compensation. The Audit Committee is responsible for pre-approving all audit services and legally-permitted non-audit services. The Audit Committee reviews the annual audit plan of the independent auditor and performs an annual evaluation of the auditors qualifications, performance and independence. The Audit Committee also reviews reports by the auditor regarding discussions with management relating to critical accounting policies, alternative treatments of financial information under generally accepted accounting principles, and other significant accounting issues, the results of the audits and the quarterly and annual financial statements, the opinion to be rendered by the auditor in connection with LPs audited financial statements, and its audit of internal control over financial reporting. The Audit Committee meets with the auditor to discuss any audit problems or difficulties and managements responses. The Audit Committee is responsible for reviewing and discussing with the auditor all matters that are required to be reviewed and discussed with the auditor under applicable legal, regulatory and corporate governance rules.
The Audit Committee also oversees LPs internal audit function and internal control systems, including reviewing LPs internal audit plans, the scope, coverage and objectivity of the internal audits performed, and the adequacy and the effectiveness of certain internal legal compliance programs. The Audit Committee also oversees LPs disclosure controls and procedures and internal controls over financial reporting, and its guidelines, policies and programs with respect to financial risk assessment and risk management. The Director of Internal Audit attends meetings of and reports to the Audit Committee quarterly, as well as on an as-needed-basis, and also meets with the Audit Committee separate from management.
With respect to financial and financial reporting matters, the Audit Committee makes recommendations as appropriate to the Board of Directors regarding capital structure issues, dividend policy, treasury stock purchases, acquisitions and divestitures, external financing, complex financial transactions, and investment and debt policies. The Audit Committee also reviews and discusses with management the status and potential financial implications of significant legal and tax matters, major issues regarding accounting principles, significant financial reporting issues, the effect of regulatory and accounting initiatives on LPs financial statements, the financial results to be included in LPs reports filed with the SEC, and LPs earnings press releases and other financial information provided to the public. Additionally, the Audit Committee regularly meets with the Corporate Treasurer, Risk Manager and General Counsel to review various credit, operational and legal/compliance risks and methods of risk mitigation, including insurance coverage and limits.
The Audit Committee is also responsible for reviewing transactions between LP and certain related persons as described under the heading Related Person Transactions. The Audit Committee conducts an annual self-evaluation of responsibilities under its charter and various regulatory requirements and reports its findings to the Board.
Audit Committee Financial Experts
The Board of Directors has determined that each member of the Audit Committee is financially literate, as that term is used in the NYSEs listing standards, and an audit committee financial expert, as defined in the SECs rules and regulations. The Board of Directors has also determined that each member of the Audit Committee meets the independence requirements for audit committee membership mandated by the Sarbanes-Oxley Act of 2002 and incorporated into the NYSEs listing standards.
The Compensation Committee, which met five times in 2012, exercises the authority of the Board of Directors with respect to the compensation of LPs executive officers, including salaries, cash incentive compensation, equity-based compensation, deferred compensation, retirement benefits, and severance pay and benefits. It is responsible for administering LPs 1997 Incentive Stock Award Plan (the Stock Award Plan), as well as its Amended and Restated Annual Cash Incentive Award Plan (the Cash Incentive Plan) with respect to awards to management. In addition, the Compensation Committee administers LPs other compensation and benefit plans covering officers and employees to the extent authorized under the terms of the plan or by action of the Board of Directors, including the participation in each plan by LPs executive officers. Neither the Compensation Committee nor the Board, however, administers any ERISA or other pension plans.
The Compensation Committee is also responsible for making recommendations to the Board of Directors as to existing and proposed compensation and benefit plans. The Compensation Committee conducts an annual self-evaluation of its performance and satisfaction of its responsibilities under its charter and various regulatory requirements and reports its findings to the Board.
In order to facilitate compliance with special rules affecting the deductibility of executive compensation under the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and the short-swing profit liability provisions of the federal securities laws, certain compensation decisions with respect to LPs executive officers are made by a special subcommittee of the Compensation Committee. Presently, each member of the Compensation Committee is also a member of the subcommittee. The subcommittee is responsible for decisions relating to (1) performance goals associated with performance-based compensation, including under the Cash Incentive Plan, and (2) criteria for equity-based awards under the Stock Award Plan.
Under its charter, the Compensation Committee has the authority in its sole discretion to retain the services of outside consultants to assist it in making decisions regarding executive compensation and other compensation matters for which it is responsible. The Compensation Committee also has sole authority to terminate its consultants and to approve the fees and other terms of their engagement. The Compensation Committee has retained the firm of Frederic W. Cook & Co., Inc. (Frederic Cook) as the committees independent compensation consultant to assist the committee in the discharge of its responsibilities, and to provide such services to the committee in relation thereto as the committee may from time to time request.
The Compensation Committee approved a list of measures intended to ensure Frederic Cooks status as an independent consultant to the committee, including that the consultant will report to the committee and have unrestricted access to the Chairman, the consultant will attend executive sessions with the committee, any services requested of the consultant by management are subject to prior approval by the Chairman, and the Chairman will receive a copy of all invoices sent to LP by the consultant.
A managing director of Frederic Cook generally participates in the Compensation Committees meetings, including the executive sessions. Frederic Cook provides advice to the committee regarding individual performance objectives for target awards to certain executive officers under the Cash Incentive Plan, the composition of the peer group and benchmarks for purposes of analyzing LPs competitive position with respect to executive compensation, market survey data supporting compensation packages for new and existing executive officer positions, and the effect of SEC rules on LPs disclosures regarding the committee and executive compensation in LPs proxy statements.
Members of LPs management, including its Chief Financial Officer, Vice President, Human Resources, and Vice President, General Counsel and Corporate Secretary, generally attend each Compensation Committee meeting. However, no LP officers or employees attend the executive sessions held by the committee in conjunction with each of its regular quarterly meetings, and LP executives are excused during committee discussions and determinations regarding their individual compensation.
In connection with its review and approval of various elements of LPs executive compensation program, the Compensation Committee reviews and analyzes appropriate information prepared by the committees outside consultant and LPs management, including compensation benchmark data compiled by Frederic Cook, quarterly reports provided by management regarding stock transactions and ownership levels of LPs executive officers, descriptions of perquisites provided to executive officers, and profiles for each executive officer showing a breakdown of key components of executive compensation and total amounts paid or accrued by LP.
Members of LPs management, including its Chief Executive Officer, Chief Financial Officer, and Vice President, Human Resources, made recommendations to the Compensation Committee concerning various elements of LPs compensation program during 2012, including elements of the program that apply to executive officers. Such recommendations related to base salary levels for LPs executive officers and target bonus amounts under the Cash Incentive Plan, the allocation between corporate performance goals and individual performance goals for the target bonuses, identification and calculation of the corporate performance goal, and establishment of individual performance goals for each executive officer. Those members of management also made recommendations regarding the terms, size, and value of proposed grants of restricted stock and stock-settled stock appreciation rights (SSARs) under the Stock Award Plan. LPs Chief Executive Officer provides the committee with an evaluation to assist the committee in assessing the performance of executive officers other than himself, as described under the heading Compensation of Executive OfficersCompensation Discussion and AnalysisAchievement of Performance Goals for 2012.
Environmental and Compliance Committee
The Environmental and Compliance Committee, which met four times during 2012, is responsible for reviewing the effectiveness of LPs environmental management systems and ethics and compliance programs, product quality management systems, other legal compliance programs, and non-financial compliance audit work performed by LPs internal audit group. The Environmental and Compliance Committee receives quarterly written reports directly from functional leaders responsible for compliance, including the Vice President of Environmental Health & Safety, the Director of Internal Audit Department, the Director of Quality, and the Director of Compliance. Additionally, these leaders report in person annually to the committee on a rotating basis and are generally available for other committee meetings as needed. The Director of Compliance is a regular participant in committee meetings. The Environmental and Compliance Committee conducts an annual self-evaluation of its performance and satisfaction of its responsibilities under its charter and reports its findings to the Board.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee (the Nominating Committee), which met four times in 2012, is authorized to establish procedures for selecting and evaluating potential nominees for director and to recommend to the Board of Directors qualifications for membership on the Board, including standards of independence for outside directors. The Nominating Committee also considers and makes recommendations to the Board regarding the size and diversity of the Board of Directors and Board committees, the selection of candidates for director, and the compensation of directors, including annual retainers, meeting fees, deferred compensation, stock and option grants, and pension or retirement plans. It develops and recommends for consideration by the Board principles, guidelines, and procedures for other matters of corporate governance that may arise. The Nominating Committee periodically reviews LPs Code of Business Conduct and Ethics, which covers directors, officers and employees and addresses conflicts of interest, reporting of illegal or unethical behavior and related issues, and makes any recommendations to the Board for changes as it deems appropriate. It also oversees annual evaluations of the effectiveness of the Board of Directors, the operations of Board committees (including itself), and the contributions of individual directors.
Compensation for outside directors, including annual cash retainers, meeting fees, and annual equity-based grants, are described below under Directors Compensation. The Nominating Committee may request advice from Frederic Cook, its independent compensation consultant, regarding the types and amount of compensation provided to LPs outside directors.
Consideration of Director Nominees
LPs corporate governance principles approved by the Nominating Committee and adopted by the Board provide that directors must be persons of integrity, with significant accomplishments and recognized business stature, who will bring a diversity of perspectives to the Board. Although the Board has not adopted a specific policy with regard to considering diversity in identifying director nominees, it believes that appropriate expertise, gender, cultural and geographical diversity should be reflected on the Board. Directors must also be able to commit the necessary time to prepare for and attend all regularly scheduled meetings of the Board and committees on which they serve, except when there are unavoidable business or personal conflicts. At least one outside director should have significant experience in the types of industries and business in which LP operates. The Nominating Committee uses the results of annual evaluations of the Board and Board committees in evaluating the skills and attributes desired in new director candidates. The Nominating Committee believes it to be desirable for all new outside directors (as is true of all current outside directors) to qualify as independent under the NYSEs listing standards. Experience in some capacity with publicly traded companies is also a desirable attribute. Additionally, the corporate governance principles recognize that LPs Chief Executive Officer will normally be a director and that other senior officers may be elected to the Board in appropriate circumstances as long as a majority of directors are independent as determined by the Board of Directors in accordance with the NYSEs listing standards.
The Nominating Committee is authorized by its charter to retain a third-party search firm to assist in identifying director candidates. Ideally, each individual proposed as a director candidate will be known by at least one existing director who can assist in evaluating the candidates reputation for integrity and ethical conduct in business dealings.
As part of its annual self-assessment process, the Board and its committees determine the specific skill sets and necessary characteristics for an effective committee and the Board as a whole. If the Board, generally through the Nominating Committee, determines that a necessary skill set or perspective is absent, the Board will authorize an increase in the number of Board members. In the event of a vacancy resulting from retirement or this annual self assessment process, the Nominating Committee determines which skills should be sought in filling the vacancy and then each current director is asked to suggest names of potential director candidates based on the applicable criteria. As part of the process, the Nominating Committee considers a potential candidates ability to contribute to the diversity of personal and professional experiences, opinions, perspectives and backgrounds on the Board. Once the potential candidates are identified, the Nominating Committee designates one or more directors to screen each potential candidate for further consideration based on the relevant criteria.
Following that screening process, the Nominating Committee (or a subcommittee) conducts in-person or telephone interviews with candidates warranting further consideration. Following those interviews, the Nominating Committee recommends a candidate to the full Board for election, as well as alternative candidates that the Board may wish to consider.
The Nominating Committee will consider stockholders recommendations concerning nominees for director. Any such recommendation, including the name and qualifications of a nominee, may be submitted to LP at its corporate offices: Louisiana-Pacific Corporation, 414 Union Street, Suite 2000, Nashville, Tennessee 37219, to the attention of the Chairman of the Nominating Committee. Stockholder-recommended candidates will be evaluated by the same criteria described above.
Stockholder Nominations for Election as Director
LPs bylaws provide that nominations for election to the Board of Directors may be made by the Board or by any stockholder of record entitled to vote for the election of directors. Notice of a stockholders intent to make such a nomination must be given in writing, by personal delivery or certified mail, postage prepaid, to the Chairman of the Board and must include the following:
The notice must be delivered at least 45 days prior to the first anniversary of the initial mailing date of LPs proxy materials for the preceding years annual meeting. For the 2014 annual meeting, this notice must be received by LP no later than February 4, 2014.
Communications Between the Board and Stockholders, Employees, or Other Interested Parties
LP will promptly forward to the Chairman of the Board any letter or other written communication sent to the Board or any individual director or group of directors, as long as the communication is delivered by certified mail or courier service addressed to LPs Corporate Secretary at its corporate offices: Louisiana-Pacific Corporation, 414 Union Street, Suite 2000, Nashville, Tennessee 37219, and contains the name and address of the sender. If the communication is addressed to an individual director, it will first be sent to that individual for a determination as to whether it relates to a personal matter rather than an LP or an LP Board matter. The Chairman of the Board, in his or her sole discretion, will determine how to handle each communication, including forwarding it for consideration by the full Board, the non-management directors or independent directors only, a Board committee, or an individual director.
ITEM 2RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
The Audit Committee has appointed Deloitte & Touche LLP as LPs outside independent auditor to audit its consolidated financial statements for 2013. Although LP is not required to seek stockholder approval of this appointment, the Board has determined it to be sound corporate governance practice to submit the appointment for ratification by LPs stockholders. If the appointment is not ratified by stockholders, the Audit Committee will investigate the possible basis for the negative vote and will reconsider the appointment in light of the results of its investigation.
Representatives of Deloitte & Touche LLP are expected to attend the annual meeting where they will be available to respond to questions and, if they desire, may make a statement.
Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
The Audit Committee has pre-approved all audit services provided by LPs independent auditor, Deloitte & Touche LLP, for the years ended December 31, 2011 and 2012. The Audit Committee also pre-approved all audit-related and permissible non-audit services provided by LPs independent auditor during 2011 and 2012 and concluded that the provision of those services by Deloitte & Touche LLP was compatible with the maintenance of that firms independence in the conduct of its auditing functions.
The Audit Committee has adopted a policy for the pre-approval of services provided by the independent auditor. Under the policy, pre-approval is generally provided for up to one year. Each pre-approval is detailed as to the particular service or category of services and is subject to a specific budget. In addition, the Audit Committee may pre-approve particular services on a case-by-case basis. For each proposed service, the independent auditor must provide a statement that such service is consistent with the SECs rules on auditor independence. The Audit Committee may delegate pre-approval authority to one or more of its members. Such a member must report any decisions to the Audit Committee at its next scheduled meeting. Unless specified otherwise by the Audit Committee, the Chairman of the Audit Committee has been delegated pre-approval authority under the pre-approval policy.
The aggregate fees, including expenses, billed to LP for the years ended December 31, 2011 and 2012 by LPs principal accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates, were as follows:
Audit Fees. Includes fees for audit services involving the audit of LPs consolidated financial statements, review of interim quarterly statements, the audit of LPs internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, any other procedures required to be performed by LPs independent auditor in order to render its opinion on LPs consolidated financial statements, and services in connection with statutory audits and financial audits for certain of LPs subsidiaries.
Audit-Related Fees. Includes any fees for assurance and related services that are traditionally performed by the independent auditor and are not reported as audit fees. These audit-related services may include due diligence services pertaining to potential business acquisitions or dispositions, due diligence procedures related to debt or equity offerings, accounting consultations related to accounting, financial reporting, or disclosure matters not classified as audit services, assistance with understanding and implementing new accounting and financial
reporting guidance from rulemaking authorities not classified as audit services, financial audits of employee benefit plans, and assistance with internal control reporting requirements. Audit-related fees for 2011 primarily include fees for audits of employee benefit plans and review of reports issued in connection with lender and regulatory requirements. Audit-related fees for 2012 primarily include fees for audits of employee benefit plans, review of reports issued in connection with lender and regulatory requirements and due diligence procedures.
Tax Fees. Includes any fees for tax services, including tax compliance and planning services. Tax fees for 2012 and 2011 primarily include fees for assistance related to international and state tax services and preparation of tax form 990 related to certain of LPs Health and Welfare Plans.
All Other Fees. Amounts represent fees for a license to use a financial accounting technical research database.
The Board recommends a vote FOR the ratification of the Audit Committees appointment of Deloitte & Touche LLP as LPs principal independent auditor (Item 2 on the proxy card).
ITEM 3ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Board of Directors recognizes the interest of stockholders in executive compensation matters. We are providing our stockholders an opportunity to cast an advisory vote on the compensation of our named executive officers, as described in this proxy statement. Although the vote is non-binding, we value continuing and constructive feedback from our stockholders on compensation and other important matters. In the past two years, stockholders votes in favor of our compensation policies and programs have exceeded 90%.
As described in the Compensation Discussion and Analysis section of this proxy statement, we believe that our compensation packages provide competitive compensation that enables us to attract, retain and motivate a high-performance executive management team, link individual performance to corporate financial performance, and align the interests of management and stockholders by promoting ownership of LP common stock. For more details on our compensation philosophy, please read the Compensation Discussion and Analysis relating to our executive compensation programs, including specific information about compensation of our named executive officers for 2012.
On behalf of the stockholders, the Compensation Committee continually reviews current market practices and data, and our compensation programs and ancillary policies, in addition to actual executive compensation. The Compensation Committee seeks to achieve the desired goals of aligning our executive compensation structure with our stockholders interests. As a result of the committees review in 2012, the Committee took several important actions and maintained existing practices that represent strong corporate governance:
We believe that proper administration of our executive compensation programs should result in the development of a management team motivated to lead our company to improved fundamental financial performance in furtherance of the long-term interests of LP and its stockholders. For these reasons, we recommend that stockholders vote, on an advisory basis, FOR the following resolution:
Resolved, that the compensation paid to our named executive officers, as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K adopted by the SEC, including the Compensation Discussion and Analysis, executive compensation tables and accompanying footnotes and narrative discussion, is hereby approved.
The above-referenced disclosures appear under the heading Compensation of Executive Officers in this proxy statement.
The above resolution will be deemed to be approved if it receives the affirmative vote of a majority of the total votes cast on Item 3 at the annual meeting. Abstentions and broker non-votes are not considered to be votes cast and, accordingly, will have no effect on the outcome of the vote. As this vote is an advisory vote, the outcome is not binding on us with respect to future executive compensation decisions, including those relating to our named executive officers. Our Compensation Committee and Board of Directors do, however, intend to take the outcome of the vote into account in making future executive compensation decisions.
At LPs 2010 annual meeting of stockholders, a majority of the votes cast on an advisory basis as to the frequency with which LP should conduct an advisory stockholder vote on the compensation of LPs executive officers (a say-on-pay vote) were cast in favor of conducting a say-on-pay vote annually. Accordingly, LP presently intends to conduct a say-on-pay vote annually until the next required advisory vote on the frequency of say-on-pay votes.
ITEM 4To approve the Louisiana-Pacific Corporation 2013 Omnibus Stock Award Plan.
This section provides a summary of the terms of the 2013 Omnibus Stock Award Plan (the Plan or 2013 Plan) and presents the proposal to approve the Plan which increases the number of shares that may be subject to and issued pursuant to the Plan as awards, and replaces all current equity based incentive plans.
The Board of Directors approved the 2013 Plan on March 18, 2013, subject to approval from our stockholders at the 2013 Annual Meeting of Stockholders. We are asking our stockholders to approve the Plan as we believe that approval of the Plan is essential to our continued success. The purpose of the Plan is to attract and retain highly qualified officers, directors, key employees, and to motivate these individuals to serve the Company and to expend maximum effort to improve the business results and earnings of the Company by providing these individuals an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. In the judgment of the Board, grants under the Plan are valuable incentives and will serve to the ultimate benefit of stockholders by aligning more closely the interests of the Plan participants with those of our stockholders.
If our stockholders approve the Plan, the number of shares of Common Stock, par value $1.00 per share, reserved for issuance under the Plan will be two million (2,000,000) increased by the number of shares of Common Stock remaining available for issuance under our 1997 Incentive Stock Award Plan (ISAP), as of the date of stockholder approval of the 2013 Plan. Any remaining available shares in the 2000 Non-Employee Director Restricted Stock Plan and the 1992 Non-Employee Director Stock Option Plan will be forfeited. If our stockholders approve the Plan, no further awards will be made pursuant to the ISAP, the 2000 Non-Employee Director Restricted Stock Plan, the 1992 Non-Employee Director Stock Option Plan, or the 2011 Non-Employee Director Phantom Share Plan (collectively referred to as the Prior Plans).
Rationale for Supporting the 2013 Plan
If approved by our stockholders, the 2013 Plan will allow us to make grants of equity-based awards to our directors, officers and other key employees. The Company believes the 2013 Plan is essential to our success and will help us to attract, retain and motivate highly qualified directors, officers and other key employees, align their interests with those of our stockholders and incentivize them to expend maximum effort to achieve our long-term strategic objectives.
We believe that we would be at a severe competitive disadvantage if we could not use equity-based awards to recruit and compensate our directors, officers and other key employees. In addition, if our stockholders do not approve the 2013 Plan, we may need to increase significantly the cash component of compensation for our directors, officers and other key employees, instead of returning that cash to stockholders or reinvesting it in the Company. Replacing equity awards with cash may also weaken the alignment of the participants interests with the investment interests of the Companys stockholders.
We further believe that we have demonstrated a commitment to sound equity compensation practices. We have carefully managed the Prior Plans and the equity incentive compensation awards we have granted under those Prior Plans. In connection with the goals described above, we have targeted our equity compensation practices to incentivize participants while remaining generally consistent with market practices, and our historical share usage has been responsible when viewed in the light of stockholder interests.
As of March 15, 2013, approximately 3,883,000 shares remained available for issuance under the Prior Plans. During the five-year period ending February 2013, we granted awards under the Prior Plans covering an average of 1,700,000 shares per calendar year. While we do not expect to exhaust our share reserves under the Prior Plans for grants of equity-based awards to officers and key employees in the near term, we have nearly exhausted our share reserves under the Prior Plans for grants of equity-based awards to our directors and therefore are unable to make equity-based awards to them without an increase in our overall equity plan share reserves. While we could instead seek more shares for the directors plans or adopt an equity plan solely covering directors, we have determined that it is in the best interests of the Company and our stockholders to consolidate the Prior Plans into a single plan that will simplify our equity plan structure, ensure uniformity of treatment and ease administrative convenience.
If the 2013 Plan is approved, 2,000,000 shares would be available to grant under the 2013 Plan, plus the shares remaining available for issuance under the ISAP (approximately 3,883,000 as of March 15, 2013) on the effective date of the 2013 Plan, and no further awards will be granted under the Prior Plans. Based on the closing price for the Companys common stock on the New York Stock Exchange on March 15, 2013 of $21.69, the aggregate market value of the additional 2,000,000 shares proposed to be issued under the 2013 Plan was $43,380,000.
In determining the number of shares to request for issuance under the 2013 Plan, the Companys legal, finance and human resources departments and the Board collaborated to evaluate the Companys recent share usage, the availability of common stock under the Prior Plans, the Companys historical burn rate (less than 2.0%) under the Prior Plans, the potential cost to stockholders of the new share request under the 2013 Plan, and the overhang associated with outstanding equity awards granted under the Prior Plans.
If the 2013 Plan is approved, our full dilution level on May 3, 2013 will be approximately 10% (assuming no additional equity activity between March 20, 2013 and May 3, 2013). The level of full dilution assumes that the 2,000,000 shares and remaining shares under the ISAP will actually be issued and become outstanding pursuant to awards granted under the 2013 Plan (and assuming that outstanding performance-vested awards achieve maximum performance). The Company, the Board, and the Compensation Committee are all mindful of dilution levels, and attempt to maintain dilution at an appropriate level. The Company expects to use the shares authorized under the 2013 Plan to continue its recent practice of incentivizing key employees and directors through annual equity grants.
In evaluating this proposal, stockholders should consider the factors set forth under Description of the Plan below.
Description of the Plan
A description of the significant provisions of the 2013 Plan is set forth below. This summary is qualified in its entirety by the detailed provisions of the Plan, a copy of which is attached as Annex A to this proxy statement.
Establishment and Purpose
The purpose of the Plan is to promote the long-term interests of the Corporation and its stockholders by aiding the Corporation in attracting, retaining, and motivating employees, officers, and directors, and to further enhance the mutuality of interests between such employees, officers and directors and Louisiana-Pacific Corporations stockholders. The 2013 Plan will become effective on the date on which the Plan is approved by the Louisiana-Pacific Corporation stockholders. If the stockholders approve the Plan, then the ISAP, the Louisiana-Pacific Corporation 1992 Non-Employee Director Stock Option Plan, the Louisiana-Pacific Corporation 2000 Non-Employee Director Restricted Stock Plan, and the 2011 Non-Employee Director Phantom Share Plan (Prior Plans) will terminate and no new awards will be granted under such Prior Plans. The Prior Plans shall continue to govern outstanding awards and such awards shall continue in force and effect until terminated pursuant to their respective terms.
The Plan will be administered by the Board which may delegate its powers and duties to one or more committees of the Board. Any and all exercise of authority with respect to the administration of awards to executive officers shall be by Non-Employee Directors (the Compensation Committee) and will be subject to the requirements of Rule 16b-3 promulgated under the Exchange Act, the rules of the principal stock exchange on which the Common Stock is traded, and other applicable laws and regulations.
Subject to the terms of the Plan, the Board or its delegatee will select the Participants, determine the types of awards to be granted to Participants, determine the Shares or Share units subject to awards, and determine the terms and conditions of individual award agreements.
Non-employee Directors (currently eight persons) and officers and other employees of the Corporation who, in the judgment of the administrator, are or will be contributors to the long-term success of the Corporation (currently estimated to be 155 other persons) will be eligible to receive awards under the Plan. The mere status of an individual as an employee, Director or otherwise, shall not entitle such individual to an award.
The Plan will remain in effect until the earliest to occur of (a) ten years after the effective date, (b) the date on which awards have been granted covering all available Shares and all outstanding awards have been exercised, settled, or terminated in accordance with the terms of the applicable award agreement(s), and (c) the date as of which the Plan is otherwise terminated by the Board. Termination of the Plan will not affect outstanding awards.
The Board may amend, modify, suspend, add to, or terminate the Plan or any portion of the Plan at any time, provided no amendment may be made without stockholder approval if such approval is required by applicable law or the requirements of an applicable stock exchange. No amendment to the Plan will be deemed to be an amendment to any outstanding award. Any such amendment which the Administrator determines, in its sole discretion, to be necessary or appropriate to conform the award to, or otherwise satisfy, any legal requirement (including, without limitation, the provisions of Code Section 162(m) and Code Section 490A or the regulations or rulings promulgated thereunder), may be made retroactively or prospectively and without the approval or consent of the Participant. Additionally, the Administrator may, without the approval or consent of the
Participant, make adjustments in the terms and conditions of an award in recognition of unusual or nonrecurring events affecting the Corporation or the financial statements of the Corporation in order to prevent the dilution or enlargement of the benefits intended to be made available pursuant to the award.
Prohibition on Repricing
Except for adjustments upon certain changes in capitalization, at no time shall the exercise price of a stock option or the grant price of a stock appreciation right granted hereunder be subsequently repriced during the period of its exercisability.
Types of Awards
Awards for officers and other employees under the Plan may consist of: stock options (either incentive stock options, within the meaning of Section 422 of the Code, or non-statutory stock options), stock appreciation rights, performance shares, restricted stock grants and other stock-based awards. Awards of performance shares and restricted stock may provide the Participant with dividends or dividend equivalents and voting rights prior to vesting, subject to the terms of the 2013 Plan. Awards for Directors can be the same as for officers and other employees except for incentive stock options and other stock-based awards.
Limits on Awards
Subject to adjustments pursuant to the Plan, the maximum number of Shares for which Awards may be granted under the Plan may not exceed a total of 2,000,000 Shares, plus the Shares remaining available for issuance under the ISAP on the effective date. Further, subject to adjustment under the Plan, awards under the Plan are subject to the following additional limits:
Stock Subject to Plan
Shares delivered under the Plan may be authorized but unissued shares or treasury shares that the Corporation acquires in the open market, in private transactions or otherwise. In calculating the number of Shares that remain available for delivery pursuant to awards at any time, the following rules shall apply:
Federal Income Tax Consequences
The following is a brief summary of some of the federal income tax consequences of certain transactions under the Plan based on federal income tax laws in effect. This summary is not intended to be complete and does not describe state or local tax consequences.
Tax Consequences to Participants
Non-Qualified Stock Options. In general, (1) no income will be recognized by an optionee at the time a non-qualified stock option is granted; (2) at the time of exercise of a non-qualified stock option, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and (3) at the time of sale of shares acquired pursuant to the exercise of a non-qualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an optionee upon the grant or exercise of an ISO. The exercise of an ISO, however, may result in alternative minimum tax liability. If common shares are issued to the optionee pursuant to the exercise of an ISO, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.
If common shares acquired upon the exercise of an ISO are disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the option price paid for such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.
Stock Appreciation Rights (SARs). No income will be recognized by a participant in connection with the grant of a tandem SAR or a free-standing SAR. When the SAR is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted common shares received on the exercise.
Restricted Stock. The recipient of restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the restricted stock (reduced by any amount paid by the participant for such restricted stock) at such time as the shares are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Internal Revenue Code (Restrictions). However, a recipient who so elects under Section 83(b) of the Internal Revenue Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted stock. If a Section 83(b) election has not been made, any dividends received with respect to restricted stock that is subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the participant.
Restricted Stock Units (RSUs). No income generally will be recognized upon the award of RSUs. The recipient of a RSU award generally will be subject to tax at ordinary income rates on the fair market value of
unrestricted common shares on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.
Performance Shares and Performance Units. No income generally will be recognized upon the grant of performance shares or performance units. Upon payment in respect of the earn-out of performance shares or performance units, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted common shares received.
Tax Consequences to Corporation
To the extent that a participant recognizes ordinary income in the circumstances described above, we or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an excess parachute payment within the meaning of Section 280G of the Internal Revenue Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Internal Revenue Code.
Registration with the SEC
We intend to file a Registration Statement on Form S-8 relating to the issuance of shares of Common Stock under the 2013 Plan with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the 2013 Plan by our stockholders.
New 2013 Plan Benefits
It is not possible to determine the specific amounts and types of awards that may be awarded in the future under the 2013 Plan because the grant and actual pay-out of awards under the 2013 Plan are subject to the discretion of the plan administrator.
Board Voting Recommendation
The Board recommends that the stockholders vote FOR the approval of the Louisiana-Pacific Corporation 2013 Omnibus Stock Award Plan.
The affirmative vote of the holders of a majority of the voting power of the shares of our common stock present, in person or by proxy, and entitled to vote (excluding broker non-votes), is required to approve the Plan, as described above, provided that under the NYSE rules, the total votes cast on this proposal must represent greater than 50% of our common stock outstanding as of the record date.
IT IS INTENDED THAT, UNLESS OTHERWISE INSTRUCTED, THE SHARES REPRESENTED BY THE PROXY (OTHER THAN BROKER NON-VOTES) WILL BE VOTED FOR APPROVAL OF THE LOUISIANA-PACIFIC CORPORATION 2013 OMNIBUS STOCK AWARD PLAN AND INCREASE THE NUMBERS OF SHARES THAT MAY BE SUBJECT TO AND ISSUED PURSUANT TO THE PLAN AND PURSUANT TO CERTAIN TYPES OF AWARDS UNDER THE PLAN.
The Board recommends a vote FOR the 2013 Omnibus Stock Award Plan (Item 4 on the proxy card).
At the time this proxy statement was printed, management knew of no matters to be presented at the annual meeting other than the items of business listed in the Notice of Annual Meeting of Stockholders. If any matters other than the listed items properly come before the meeting, the proxies named in the accompanying form of proxy will vote or refrain from voting on such matters in accordance with their judgment.
FINANCE AND AUDIT COMMITTEE REPORT
In discharging its responsibilities, the Audit Committee and its individual members have met with management and LPs independent auditor, Deloitte & Touche LLP, to review LPs accounting functions and the audit process and to review and discuss LPs audited consolidated financial statements for the year ended December 31, 2012. The Audit Committee discussed and reviewed with its outside auditing firm all matters that the firm was required to communicate and discuss with the Audit Committee under applicable auditing standards and all other legal, regulatory and corporate governance standards, including those described in Statement on Auditing Standards No. 61, as amended, regarding communications with audit committees. Deloitte & Touche has also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding communication with the Audit Committee concerning independence. The Audit Committee discussed with Deloitte & Touche the firms independence.
Based on its review and discussions with management and LPs outside auditor, the Audit Committee recommended to the Board of Directors that LPs audited consolidated financial statements for the year ended December 31, 2012, be included in LPs Annual Report on Form 10-K filed with the SEC.
Kurt M. Landgraf, Chairman
E. Gary Cook
Archie W. Dunham
Colin D. Watson
Five Percent Beneficial Owners
The following table provides information concerning the beneficial ownership of Common Stock by the persons known to LP to beneficially own 5% or more of the outstanding Common Stock as of March 4, 2013:
Directors and Executive Officers
The following table summarizes the beneficial ownership of Common Stock of LPs directors, nominees for director, and executive officers included in the Summary Compensation Table below:
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 (Section 16) requires that reports of beneficial ownership of Common Stock and changes in such ownership be filed with the SEC and the NYSE by LPs officers, directors, and certain other reporting persons. Based solely upon a review of copies of Forms 3, 4, and 5 (and amendments thereto) filed by LPs reporting persons and written representations by such persons, to LPs knowledge, all Section 16 reporting requirements applicable to such persons were complied with for the period specified in the SECs rules governing proxy statement disclosures.
Compensation Committee Report
In accordance with its written charter adopted by the Board of Directors, the Compensation Committee (the Committee) has oversight of compensation policies designed to align compensation with our overall business strategy, values and management initiatives. In discharging its oversight responsibility, the Committee has retained an independent compensation consultant, Frederic W. Cook & Company, to advise the Committee regarding market and general compensation trends.
The Committee has affirmed the independence of its consultant through review of the firms independence policy and is not aware of any conflict of interest that would prevent the consultant from providing independent advice to the Committee regarding executive compensation matters. The consultant is responsible solely to the Committee and undertook no work with or for the management of the company. The consultant is not the beneficial owner of any shares of Louisiana-Pacific Corporation common stock, and fees payable by Louisiana-Pacific to Frederic W. Cook & Company during the previous 12 months were less than 1% of the firms gross revenues.
The Committee has reviewed and discussed the Compensation Discussion and Analysis with our management, which has the responsibility for preparing the Compensation Discussion and Analysis. Based upon this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2012.
Colin D. Watson, Chairman
Archie W. Dunham
Lizanne C. Gottung
Kurt M. Landgraf
Compensation Committee Interlocks and Insider Participation
During 2012, each member of the Committee was an independent director, and none of them were employees or officers or former employees or officers of LP. During 2012, none of LPs executive officers served on the Board of Directors or Compensation Committee (or its equivalent) of any other entity, one of whose executive officers served on the Board of Directors or the Committee.
Compensation Discussion and Analysis
This Compensation Discussion and Analysis is intended to provide investors with an understanding of our policies and decisions regarding compensation of our named executive officers for 2012. Our named executive officers are our former Chief Executive Officer (retired May 2012), our current Chief Executive Officer, our Chief Financial Officer, and three other executive officers.
Like many other companies, LP continued to face challenges in 2012 because of the weakened economy. As the year progressed, we began to see strengthening in the housing market. We implemented changes to our executive compensation that, while addressing short-term economic conditions, were supportive of our key strategic goals and objectives to support long-term value creation.
When determining policies and making decisions in relation to the compensation of the companys executive officers, the Committee considers the results of stockholder advisory votes. In the past two years, shareholders have shown their support of the Committees approach on executive compensation with approximately 92 % of the votes cast in 2012, and approximately 95% of the votes cast in 2011. The Committee views these approvals as an endorsement of the Committees philosophy, objectives and methodologies in regards to executive compensation.
As part of our ongoing succession planning efforts we successfully transitioned to a new Chief Executive Officer in 2012. Mr. Richard W. Frost, our retiring Chief Executive Officer, and Mr. Curtis M. Stevens, who was named Chief Executive Officer in May 2012, worked with the Board to ensure that a smooth transition occurred.
Committee Assessment of 2012 Performance
The Committee believes that management, in 2012, not only performed well, but continued to build a foundation for further improved long-term performance. In establishing goals for 2012, we considered the key performance measures for the business given current market conditions. We approved a budget for the company that, while not projecting a profit, would be EBITDA positive, preserve cash and provide business flexibility. We believe the company is positioning itself for the long- term benefit of our stockholders. The Committee noted significant areas of financial achievement in available cash, adjusted EBIDTA and total shareholder return.
The Committee did not increase base salaries of the executive officers in 2012, except in connection with Mr. Stevens promotion to Chief Executive Officer.
Establishment of 2012 Total Direct Compensation
Under LPs executive compensation program, total direct compensation consists of annual cash compensation and long-term equity incentive compensation.
Key Executive Compensation Decisions in 2012
As part of its ongoing review of our executive compensation program in comparison to developing trends, the Committee took several important actions and maintained existing practices that represent strong corporate governance in 2012, including:
The Committee believed these measures were appropriate in light of the economic environment and uncertainty regarding the future outlook. Additional details regarding the Committees actions are described throughout the Compensation Discussion and Analysis.
Compensation Philosophy and Objectives
LPs executive compensation philosophy is to provide a competitive total compensation package that aligns the interests of management with those of stockholders. We believe that effective executive compensation programs are critical to LPs long-term success.
In accordance with its charter, the Committee has adopted executive compensation policies that are designed to achieve the following objectives:
Chief Executive Officer Transition
On March 12, 2012, Mr. Richard W. Frost, our former Chief Executive Officer, informed the Board of Directors that he would retire from the Company on May 31, 2012. In connection with Mr. Frosts retirement in order to provide an incentive for him to assist through the transition, and in compliance with the Companys Cash Incentive Plan, the Board of Directors approved the continued participation by Mr. Frost in the Companys 2012 Cash Incentive Plan on a prorated basis for 2012. Such cash payment was to be made only if the Company met the performance thresholds of the Cash Incentive Plan.
The Board of Directors, on March 13, 2012, appointed Mr. Curtis M. Stevens as the Chief Executive Officer of the Company, effective May 4, 2012. At that time, Mr. Stevens was the Executive Vice President and Chief Operating Officer, a transition position that he held since December 5, 2011. In connection with his promotion to CEO, the Board approved the following changes to Mr. Stevens compensation effective May 4, 2012: (i) annual base salary was increased from $500,000 to $650,000; (ii) annual target bonus under the Companys cash incentive plan was increased to 100% from 65%; (iii) an additional 2012 equity grant of $667,000 (one-third restricted stock and two-thirds SSARs), which is a weighted average of his compensation as COO and CEO at market median levels; and (iv) an equity award of 300,000 performance shares. The vesting of these performance shares requires two parts: (a) 48 months service period, and (b) meeting corporate performance measures which are measured by stock price growth within certain time frames. The corporate performance measures are three equal tranches paid at the end of the service requirement conditioned on the following: the first tranche is earned if the stock trades for 20 consecutive days at or above $12 in the first 18 months; the second tranche is earned if the stock trades for 20 consecutive days at or above $18 in the first 36 months; the third tranche is earned if the stock trades for 20 consecutive days at or above $24 in the first 48 months.
The Compensation Committee of the Board of Directors believes that these compensation elements are commensurate with Mr. Stevens new role. They also believe that increasing Mr. Stevens compensation at risk, subject to performance levels, will benefit the Companys stockholders. In light of Mr. Stevens experience with the Company, the Board views his retention as CEO as critical to the Companys success and smooth leadership transition. The Committee believes this will allow the Company to move forward in executing the Companys key strategic goals and objectives to support long-term value creation.
Elements of Executive Compensation Program
For 2012, there were no new elements of compensation provided to the named executive officers, other than to recognize promotions. The following table provides information regarding the objectives and purposes of each element of the companys executive compensation program:
When setting compensation for our executive officers, the Committee considers total direct compensation, which consists of the base salary, annual target cash incentive, and long-term equity incentive compensation elements described above. While the Committee reviews each of these compensation elements, the Committees decisions regarding a particular element are not necessarily impacted by other elements, other than to the extent that they affect total direct compensation. See Total Direct Compensation below.
Review of Peer Group and Survey Data for Comparison Purposes
To ensure that our compensation programs are reasonable and competitive in the marketplace, the Committee compares our programs to those at other similar companies who were selected from Forest Products and Building Products industry classifications (peer group), as well as in relation to benchmark data from a broader group of general industry companies. We believe that our peer group companies reflect similarities in channels, business cycles, and manufacturing expertise, thus providing appropriate benchmark data. The peer group classification includes the following companies:
The peer group was developed in consultation with Frederic Cook without consideration of individual company compensation practices, and no company has been included or excluded from our peer group because they are known to pay above-average or below-average compensation. The Committee, in conjunction with its independent compensation consultant, will continue to periodically review the peer group, and the peer group will be revised as appropriate to ensure that it continues to represent similar North American organizations with which we compete for executive talent in the marketplace.
The compensation data provided to the Committee also includes size-appropriate compensation data extracted by the Committees independent compensation consultant from several independent survey sources. The survey data presents compensation figures based on information from companies across a broad range of industries without reference to individual companies.
Frederic Cook reviewed three confidential, third-party surveys in order to benchmark LPs executive compensation. All three surveys were general industry surveys, from which aggregate results were compiled using the appropriate revenue bands. Data was then interpolated to LPs 3-year average revenue of approximately $1.3 billion (3-year average revenues were considered to account for significant volatility in revenues experienced in the industry over the last few years). A similar methodology was used for LPs business unit executives using size-appropriate revenue bands and 3-year average LP business unit revenues. The survey participants were not considered on an individual basis and the names were not disclosed to the Committee. Additional information on each survey is below:
The results from the three surveys were then averaged and blended with peer group compensation data to develop a market consensus, with the exception of the Chief Operating Officer which was benchmarked against other survey data due to lack of available proxy data.
The compensation comparative data reviewed by the Committee for its deliberations in early 2012 for the coming year was based 50% on information from the then current peer group and 50% on survey data (benchmark data). The benchmark data compared each executives base salary, total cash compensation opportunities (salary and target cash incentive award opportunities), and total direct compensation opportunities (salary, target cash incentive award opportunities, and equity-based awards) for 2012 against projections for 2012 of equivalent items for similar categories of officers from the peer group and survey data. The benchmark data was summarized at the 50th percentile (the target median) for each category of compensation. The Committee believes that use of blended benchmark data improves the quality of comparison because it may be difficult to identify an appropriate match for some officer positions within the peer group alone. In addition, the blended benchmark data reflects the broader industries with which LP competes for management talent.
Total Direct Compensation
In setting 2012 compensation for our executive officers, including our Chief Executive Officer, the Committee focused on total direct compensation, which consists of annual cash compensation (base salary and annual target cash incentive) and long-term equity incentive compensation (restricted stock, RSUs and SSARs). The Committee considers annual cash and long-term equity incentive compensation both separately and as a package to help ensure that our executive compensation objectives are met.
Consistent with its approach to total direct compensation, the Committee established 2012 targets for the named executive officers. The Committee evaluates both market data provided by Frederic Cook and information on the performance of each executive officer for prior years. In order to remain competitive in the marketplace for executive talent, the target levels for the executive officers compensation elements, including our Chief Executive Officer, are compared to the median of the benchmark data described above. In order to reinforce a pay-for-performance culture, targets for individual executive officers may be set above or below this median depending on the individuals performance in prior years and experience in the position, as well as any applicable retention concerns. The Committee believes that comparing target levels to the median and providing incentive compensation opportunities that will enable executives to earn above or below target compensation depending on whether they deliver above-target or below-target performance on their established goals, are consistent with the objectives of our compensation policies. In particular, the Committee believes that this approach enables us to attract and retain skilled and talented executives to guide and lead our businesses and supports a pay-for-performance culture. While the total direct compensation targets established were appropriate in comparison to the benchmark data reviewed, the economic environment led to the Committees decision to not increase salaries for our executive officers for 2012, except for promotion related increases.
The total direct compensation targets for 2012 for our named executive officers are listed below.
The 2012 total direct compensation target amounts differ from the amounts set forth in the Summary Compensation Table due to adjustments to base salaries, which generally occur as of March 1 of each year, while the Summary Compensation Table includes salaries for the calendar year. There were no base salary increases for 2012 (other than in connection with Mr. Stevens promotion to Chief Executive Officer effective May 4, 2012). In addition, annual cash incentive compensation is reflected at the target level, while the Summary Compensation Table reflects actual payouts for 2011. There were no cash incentive payouts for 2011.
As shown in the Summary of Compensation tables, performance-based compensation (annual cash incentive, restricted stock units, restricted stock, performance shares and SSARs) constituted a significant portion of our named executive officers total direct compensation targets. Similarly, a large percentage of the total direct compensation targets were in the form of equity (restricted stock, restricted stock units, performance shares and SSARs).
Annual Cash Compensation
In order to attract and retain high caliber executives, we pay our executives an annual cash amount that is considered by the Committee to be competitive in the marketplace. The cash compensation is comprised of base salary and an annual cash incentive payment.
Base Salary. Individual salaries for executive officers are reviewed annually, and salary adjustments are generally effective on March 1 of each year. In determining individual salaries, the Committee considers the market levels of similar positions at our benchmark companies and survey data, the individual executives performance and experience in the position, and our salary increase guidelines. These guidelines permit annual salary increases depending on the executives individual performance during the prior year against results-based objectives established at the beginning of each year, and the executives leadership performance as measured against the following nine leadership competencies:
In addition, executives and other employees may receive an additional increase if warranted because of promotion, retention concerns, or market conditions. In general, an experienced executive who is performing at a satisfactory level will receive a base salary at or around the competitive median of our benchmark companies and survey data. Executives may be paid above or below the median depending on their experience and performance.
The base salaries paid to our named executive officers in 2012 can be found in the Summary Compensation Table below.
Annual Cash Incentives. Consistent with our compensation objective to support a performance-oriented environment, our executive compensation program includes an annual cash incentive program to motivate and reward executives for their efforts in achieving our annual financial performance objectives and individual performance goals.
Target Payout Levels. The target level for these annual payments is a percentage of the executives base salary, which is compared to the target median of the benchmark data described above and is set as described under Total Direct Compensation. The range of possible payouts is expressed as a percentage of the target level and is determined based on competitive factors and the goal of encouraging a performance-oriented environment. The range of possible payouts for 2012 was 0 -124% of the target payment amounts as follows:
Establishment of performance goals. Under the program, the annual cash incentive is dependent on performance measured against corporate goals and individual goals established by the Committee and communicated to participants at the beginning of each year. These performance goals are derived from the financial and strategic goals of the company.
Each year, the Committee determines the appropriate split between corporate and individual performance goals. For 2012, the Committee established a 60/40 split between corporate and individual goals. The Committee established this allocation to strike an appropriate balance between aligning the executives with our overall corporate objectives and with individual accountability for each executives area of responsibility.
For the five years, 2008-2012, our performance exceeded the target level four times (2008, 2009, 2010 and 2012) and was below the target level one time (2011). We achieved the maximum performance level in two years (2009 and 2012). Due to market conditions, the Committee, on managements recommendation, paid no annual incentive for 2008, despite exceeding the target level. From 2008 through 2012, total payout percentages (including individual performance goals) for the current named executive officers ranged from 0% to 133% of the participants target award opportunity, with an average payout percentage over the past five years of 78%.
Achievement of Performance Goals for 2012
Corporate key financial goal. In 2012, to continue to drive participant behavior to meet key strategic goals, LPs annual cash incentive plan focused on available cash, defined as LPs available cash on December 31, 2012, reported on LPs consolidated balance sheets as (1) cash and cash equivalents, (2) restricted cash, (3) short-term investments, and (4) long-term investments. No amounts would be payable under the corporate components of target award unless the minimum threshold was achieved.
For the year ended December 31, 2012, LPs available cash significantly exceeded its available cash budgeted target by 71%. Information regarding available cash for the year ended December 31 2012 is set forth in LPs Form 10-K for the year ended December 31, 2012.
Individual performance goals. The Compensation Committee establishes individual performance goals under the Cash Incentive Plan that are intended to challenge the executives to meet or exceed the objectives for the business unit or staff functions for which they have responsibility. Following the end of the year, the executives performance is analyzed to determine whether performance toward the goals was above target, on target or below target. Following a recommendation from our Chief Executive Officer (other than for himself), the Committee then determines a payout percentage for the executive based on this performance assessment. The Committee has the authority, in its sole discretion, to reduce or eliminate the payout of annual cash incentives, despite its determination that performance was at or above target levels, if it finds that paying the awards would result in undue hardship to the company or is not in the best interests of the company.
The individual performance goals established for our Chief Executive Officer for 2012 were as follows:
The individual performance goals established for our Chief Financial Officer for 2012 were as follows:
The performance goals described above were based on financial targets, budgets, and operational goals for LP that the Committee believed could be achieved at the 100% level through strong performance by the executive or the company, as applicable, consistent with managements expectations for 2012.
Our Chief Executive Officer provides the Committee with an assessment of each individuals performance against established goals, other than for himself. At its meeting on February 8, 2013, the Committee determined that Mr. Stevens and other named executives had exceeded LPs available cash target and other individual goals.
Payouts for 2012. The following table summarizes the payout opportunities for our named executive officers and the actual incentive payout:
Discretionary Bonus. Due to the outstanding financial improvement in 2012, including an increase to available cash as well as adjusted EBITDA of over $200 million, the Committee awarded a discretionary bonus to executive officers in the amounts listed below:
Long-Term Equity Incentive Compensation
The Committee awards long-term equity incentive grants to executive officers as part of their overall compensation package. These awards are consistent with the Committees objectives of aligning our senior leaders with the financial interests of our stockholders, focusing on our long-term success, supporting our performance-oriented environment, and offering competitive compensation packages.
The Committee (in its capacity as the subcommittee for purposes of complying with Section 162(m) of the Internal Revenue Code and short-swing profit liability laws) has determined that awards to executive officers under the Stock Award Plan will be one-third in the form of restricted stock or restricted stock units and two-thirds in the form of stock appreciation rights, based on the relative grant date fair values of the two types of awards. Additionally, performance shares will be used in certain situations.
Our primary product is OSB, which is subject to commodity pricing pressures that also have a major influence on our stock price. As a result, stock appreciation rights may have little or no economic value for substantial periods of time when market prices drop below the exercise or base price of the awards, while restricted stock will normally retain a substantial amount of its value, thereby serving as a significant executive retention tool. On the other hand, stock appreciation rights have a greater sensitivity to changes in our stock value, thereby aligning the interests of executives more closely with those of our stockholders.
When determining the amount of long-term equity incentive plan awards to be granted to executives, the Committee takes into account the competitive range of the market median data provided by Frederic Cook, individual responsibilities and market factors, as well as total direct compensation, compensation mix, and market practices. For grant purposes, the Committee used discretion in determining the grants, taking into account the Black-Scholes pricing model, the number of shares available for grant and the burn rate (defined as number of shares granted on an annual basis), the value of the grant compared to previous grants, and the market median for competitive positions.
The Committee periodically reviews the valuation method used to calculate the value of equity-based awards. For several years including 2012, the Committee has relied on the Black-Scholes valuation method for SSARs. For 2012, the Committee relied on a valuation based upon weighted probability of the attainment of certain performance goals for Mr. Stevens performance shares. In future years, it may consider alternative valuation methods. Information regarding performance shares, restricted stock, RSUs, and SSARs granted to our named executive officers can be found under Summary Compensation Table and Grants of Plan-Based Awards for 2012.
LPs retirement plans are designed to provide retirement benefits at a competitive level compared to the benchmark data and the general manufacturing industry and to serve as a significant retention tool in light of the cyclical nature of LPs commodity business. All full-time salaried U.S. employees participate in LPs 401(k) Plan and, if hired prior to January 1, 2010, LPs Retirement Account Plan. Employees who are in the top two levels of LPs management, including executive officers, participate in LPs Executive Deferred Compensation Plan. Under the plan, participants may defer the receipt of up to 90% of base salary and annual bonuses for income tax purposes. In addition, the plan enables executives and other highly-compensated employees to obtain benefits comparable to those available under the 401(k) plan without being subject to the limits imposed by the Internal Revenue Code on tax-qualified plans.
In February 2009, LP suspended matching contributions under the Executive Deferred Compensation Plan, due to economic conditions and LPs desire to conserve cash. These matching contributions were reinstated January 1, 2013. In addition, annual contribution credits to the Retirement Account Plan were discontinued effective January 1, 2010.
LP maintains a Supplemental Executive Retirement Plan (SERP) that provides supplemental retirement pension benefits to selected senior executives. The SERP benefits generally do not vest until an officer has been a participant for five years, and are reduced by the value of employer contributions under LPs other retirement plans and the Executive Deferred Compensation Plan, as well as a portion of a participants Social Security benefits.
Additional information about LPs retirement plans is provided in connection with the Summary Compensation Table, the Pension Benefits table, and the Nonqualified Deferred Compensation table. The Committee believes that the retirement benefit plans described above are important parts of our compensation program. These plans are consistent with those maintained by the benchmark companies and are therefore necessary in order to remain competitive with them for recruiting and retaining executive talent. Additionally, these plans help encourage retention of our senior executives because their retirement benefits under these plans generally increase for each year they remain employed by us.
We provide our executive officers with limited perquisites, consisting of health and life insurance benefits, personal estate and financial planning services provided by independent providers, and an executive health screening program where the Chief Executive Officer receives a comprehensive physical examination from an independent health care provider. The Committee believes that the good health of the CEO is important to the organization and helps minimize risk to the Company. The personal estate and financial planning program is designed to provide executives with access to knowledgeable resources that understand our compensation and benefit plans and can assist our executives in efficiently and effectively managing their estate, financial and tax planning issues, thus facilitating a more productive use of the executives time, allowing for greater focus on company activities. The Committee eliminated the tax gross-up provision for the personal estate and financial planning beginning in 2012. An allowance was established, which has a capped amount, and is only available to those executives who are eligible for and use the financial planning services. Personal benefits provided to LPs executive officers are discussed in more detail in note 5 to the Summary Compensation Table.
Executive Change of Control Agreements
Change of Control Employment Agreements with our executive officers (other than Ms. Bailey and Mr. Southern) entered into in 2008 provide for the payment of severance compensation and other benefits if the officers employment is terminated for specified reasons within three years following the occurrence of a change of control of LP. Such reasons include (a) termination by LP other than for cause and (b) termination by the officer because, among other things, his/her assigned duties, position, or authority are diminished in a material way, his/her compensation is substantially reduced, he/she is required to move his/her workplace more than 50 miles, or he/she has substantially increased travel requirements. Key severance benefits under the agreements include:
The Change of Control agreements include a modified excise tax gross-up, under which severance benefits can be reduced up to 10% to avoid any excise tax under Section 280G of the Internal Revenue Code (280G). If a larger reduction would be required to come within the 280G safe harbor, the agreements provide for LP to reimburse the employee in full for all 280G excise taxes and related income taxes imposed on the severance payments.
LP does not have any agreements or plans in place that would provide the named executive officers with severance benefits for termination unrelated to a change of control.
The Committee believes these agreements are important to motivate our named executive officers to continue to work in the best interests of LP and its stockholders in a potential change of control situation, and to evaluate any possible transactions with the maximum degree of independence and objectivity.
The terms of the agreements are described in more detail under the heading Potential Payments Upon Termination or Change of Control.
In 2010, the Committee determined that any future Change of Control agreements shall not include excise tax gross-up provisions. Therefore, the Change of Control agreements for Ms. Bailey, which was entered into in 2011, and Mr. Southern, which was entered into in 2013, do not contain such a provision. The other terms of Ms. Baileys and Mr. Southerns agreements are consistent with those of the aforementioned three executive officers.
Executive Compensation for 2013
In 2012, W. Bradley Southern was named Senior Vice President and appointed to the Companys executive team. In February 2013, in recognition of this promotion and after review of peer group data provided by its consultant, the Committee approved the following changes to Mr. Southerns compensation, effective March 3, 2013: Mr. Southerns salary was increased from $280,000 to $300,000, and his target bonus was raised from 45% to 50%. The company also entered into a change in control agreement with Mr. Southern, consistent with other executive officers, with the exception of the tax gross up provision. Additionally, a one time award of restricted stock valued at $150,000 was granted on February 7, 2013, with a vesting period of three years.
In determining policies and making decisions in relation to the compensation of the companys executive officers subsequent to May 3, 2012, the Committee has considered the results of the stockholder advisory vote on executive compensation that was taken on that date, in which approximately 92% of the votes cast were votes to approve the compensation paid to the companys named executive officers in 2012. The Committee views the results of the stockholder advisory vote as an endorsement of the Committees philosophy, objectives and methodology in relation to the compensation of the companys executive officers. Accordingly, the Committees consideration of these voting results has not significantly affected the Committees approach, policies or decision in relation to the compensation of the companys executive officers, although the committee continuously seeks
to improve the Companys compensation program. The Committee authorized an executive compensation program for 2013 that is designed to achieve our executive compensation objectives. Consistent with our pay-for-performance philosophy, a significant portion of the 2013 total direct compensation targets for the named executive officers consists of performance-based compensation in the form of annual cash incentives and long-term equity incentive compensation.
Base Salary: In light of the company performance for 2012 which included exceeding cash targets by 71%, and considering that executive officers had not received increases to their base salaries for the preceding 4 years (other than Mr.Stevens for his promotions to COO in 2011 and CEO in 2012), the Committee approved an increase in base salaries for 2013.
Annual Cash Incentives. In February 2013, the Committee also established objectives for 2013 annual cash incentives payable in 2014 to our executive officers. Depending on actual performance in 2013 against the financial and non-financial goals, 2013 incentive payments could range from zero to 200 % of the corporate portion and zero to 120% of the individual portion of the named executive officers target payments.
As discussed in Annual Cash CompensationAnnual Cash Incentives above, the Committee sets the appropriate split between corporate key financial goals (Available Cash in 2012) and individual performance goals each year. In 2013 incentive payments will be based 60% on corporate performance and 40% on attainment of individual goals. In addition, individual goals have been established for each named executive officer relating to his or her specific staff function or business unit. Payouts for 2013 for the individual performance are dependent upon the achievement of the corporate goal.
The Committee awards long-term equity incentive grants to executive officers as part of their overall compensation package. These awards are consistent with the Committees objectives of aligning our senior leaders with the financial interests of our stockholders, focusing on our long-term success, supporting our performance-oriented environment, and offering competitive compensation packages.
The Committee (in its capacity as the subcommittee for purposes of complying with Section 162(m) of the Internal Revenue Code and short-swing profit liability laws) has determined that awards to executive officers under the Stock Award Plan will be one-third in the form of restricted stock and two-thirds in the form of stock appreciation rights, based on the relative grant date fair values of the two types of awards.
When determining the amount of long-term equity incentive plan awards to be granted to executives, the Committee takes into account the competitive range of the market median data provided by Frederic Cook, individual responsibilities and market factors, as well as total direct compensation, compensation mix, and market practices. Individual values are subject to a performance adjustment factor based upon the performance of the executive against identified performance goals and our business performance that increases or decreases the value based on these subjective assessments of the executives performance. The 2013 long-term equity values were established in February 2013. For grant purposes, the Committee used discretion in determining the grants, taking into account the Black-Scholes pricing model, the number of shares available for grant and the burn rate (defined as number of shares granted on an annual basis), the value of the grant compared to previous grants, and the market median for competitive positions.
2013 long-term incentive equity plan award values are listed below.
Additional Policies and Guidelines Affecting Executive Compensation
Use of Independent Compensation Consultant. The Committee engaged Frederic Cook as its independent consultant to assist it in determining the appropriate executive officer compensation in 2012 pursuant to our compensation policies described above. Frederic Cook had no other business relationship with LP and received no payments from us other than fees for services to the Committee and the Nominating Committee. See Corporate GovernanceCompensation Committee for additional information about the use of compensation consultants.
Timing of Long-Term Equity Grants. Our policies and Stock Award Plan require options and SSARs to be granted with an exercise price equal to the closing price of our Common Stock on the date of grant. The Committees practice is to make equity awards at its first Committee meeting in a given year (generally in the last week of January or the first week of February). Committee meeting dates are set by the Committee at least one year in advance.
The Committee administers our Stock Award Plan, an amendment and restatement of which was approved by our stockholders in 2009. Three categories of stock grants have been made under the plan: annual grants, special grants and recruiting or retention grants. Annual grants are made each year at a meeting of the Committee, as described above.
Policy on Incentive Compensation Claw-back. As described above, a significant percentage of our executive officer compensation is incentive-based. The determination of the extent to which the incentive objectives are achieved is based in part on the Committees discretion and in part on our financial results. The Committee has the right to reassess its determination of the performance awards if the financial statements on which it relied are restated. The Committee has the authority to direct LP to seek to recover from any executive officer any amounts determined to have been inappropriately received by the individual executive officer. In addition, the Sarbanes-Oxley Act of 2002 mandates that the chief executive officer and the chief financial officer reimburse us for any bonus or other incentive-based or equity-based compensation paid to them in a year following the issuance of financial statements that are later required to be restated as a result of misconduct. The Committee intends to update its policies following the issuance of rules by the SEC to implement applicable provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Stock Ownership Guidelines. We strongly believe that the financial interests of our executives should be aligned with those of our stockholders. Accordingly, the Committee has established stock ownership guidelines for our executive officers.
Executive officers are expected to own our Common Stock in an amount equivalent to a multiple of their annual base salary. The target amount is a number of shares equal in value to the following multiples of each officers annual base salary: for the Chief Executive Officer, five times; for Ms. Bailey, Mr. Olszewski and Mr. Wagner three times, and for Mr. Southern two times.
The Committee amended the guidelines to include a provision whereby no shares of Common Stock may be sold by the executive officer until guidelines are achieved, except for shares withheld to cover taxes upon a vesting event and until an executive officer meets the threshold ownership requirement, at least 40% of the after-tax proceeds received upon the exercise of stock options and SSARs must be held in the form of Common Stock and may not be sold. Restricted shares and restricted stock units granted under the Stock Award Plan that have not yet vested count toward the ownership guidelines, but shares subject to outstanding stock options and SSARs do not, with the exception of Ms. Bailey, who just completed her first year with the company, all executives are in compliance.
Our Insider Trading policy mandates that executive officers review transactions involving our securities with our Chief Financial Officer or legal department prior to entering into the transactions and prohibits a covered officer from pledging or engaging in transactions for the purpose of hedging the economic risk of his or her current or future ownership of shares.
Tax Deduction for Executive Compensation. The federal income tax laws generally limit the deductibility of compensation paid to the chief executive officer and each of the three highest-paid executives (other than the chief financial officer) to $1,000,000 per year. An exception to this general rule exists for performance-based compensation that meets certain regulatory requirements. Several types of executive compensation, including option and SSAR awards to executive officers, are designed to meet the requirements for deductibility. Other classes of executive compensation, including the restricted stock grants described above, may be subject to the $1,000,000 deductibility limit.
Although tax deductibility of compensation is preferred, deductibility is not a primary objective of our compensation programs. In the view of the Committee, meeting the compensation objectives set forth above is more important than the benefit of being able to deduct the compensation for tax purposes.
Risk Assessment of Executive Pay Policies and Practices
The Committee conducted a review of LPs pay practices in 2012 to determine if there were any policies and practices that would be reasonably likely to have a material adverse effect on the company. The review included non-executive and executive pay policies and practices. The non-executive pay practices were reviewed by LPs Risk Council and reviewed by the Committee. In addition, the Committee reviewed executive pay policies and practices. The Committees independent consultant participated in that review and discussion. The Committee found no policies or practices that were reasonably likely to have a material adverse effect on LP and that the design of our programs encourages the achievement of both our short-term and long-term operational and financial goals.
Compensation of Executive Officers
Summary Compensation Table
The table below summarizes the various elements of compensation paid to or earned by each of the named executive officers named in the table for the three years ended December 31, 2012. Cash incentive awards paid under LPs Amended and Restated Annual Cash Incentive Award Plan (the Cash Incentive Plan) are included in the Non-Equity Incentive Plan Compensation column, which covers non-equity awards that require the satisfaction of pre-established performance goals. No discretionary cash bonuses, which would have been shown in the Bonus column, were paid to the named executive officers in the years shown.
Grants of Plan-Based Awards for 2012
The table below provides information regarding annual cash incentive awards under the Cash Incentive Plan and grants of restricted stock and SSARs under the Stock Award Plan to LPs executive officers during 2012.
Outstanding Equity Awards at December 31, 2012
The table below provides information regarding stock options, SSARs, restricted stock and incentive shares held by the named executive officers at December 31, 2012.
Option Exercises and Stock Vested During 2012
The following table provides information regarding exercise of stock options and vesting of incentive shares with respect to LPs executive officers during 2012.
Pension Benefits for 2012
The following table shows the present value of accumulated benefits for each of the named executive officers under LPs Supplemental Executive Retirement Plan (the SERP) and LPs Retirement Account Plan, in each case assuming retirement by the executive at age 62. Amounts shown in the table were calculated as of a December 31, 2012 measurement date consistent with LPs financial statements and using the same long-term rate of return, discount rate, rate of compensation increase, and mortality rate assumptions used in the financial statements. See Note 13 to LPs audited financial statements included in its 2012 Form 10-K.
Supplemental Executive Retirement Plan
The SERP is a defined benefit plan intended to provide supplemental retirement benefits to key executives designated by LPs Chief Executive Officer and the Committee. Key features of the SERP include:
50% of the executives final average compensation
a fraction equal to: years of credited service (up to a maximum of 15)/15
For example, if a participant had final average compensation of $500,000 with ten years of credited service, his or her annual benefit (subject to reductions for other retirement benefits as described below) would be $166,667 calculated as: $500,000 x .50 x (10/15).
Of the executive officers included in the pension benefits table above, all are vested in their benefits under the SERP, except Ms. Bailey, and Mr. Southern who does not participate in the SERP. As of December 31, 2012, Mr. Stevens was age 60, Ms. Bailey was age 53, Mr. Olszewski was age 56 and Mr. Wagner was age 57. Accordingly, if they had retired as of that date, their benefits would have been subject to reduction as described under Early Retirement Provisions above. During 2012, Mr. Frost received a distribution from this plan in the amount of $10,376,136.
Retirement Account Plan
Executive officers and other salaried employees of LP are eligible to participate in LPs Retirement Account Plan if hired before January 1, 2010. The Retirement Account Plan was frozen to future contribution credits effective January 1, 2010. Plan balances will continue to accrue interest as described below. Key features of the Retirement Account Plan include:
Nonqualified Deferred Compensation for 2012
The following table summarizes information regarding participation by the named executive officers in LPs 2004 Executive Deferred Compensation Plan (the Deferred Compensation Plan).