Louisiana-Pacific DEF 14A 2017
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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March 20, 2017
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 5, 2017, at 7:30 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 two directors, (2) the ratification of the selection of LPs independent auditor for 2017, (3) an advisory vote to approve named executive officer compensation, and (4) an advisory vote on the frequency of advisory votes on named executive officer compensation. Your Board of Directors unanimously recommends a vote for each of the directors, for Items 2 and 3, and for one year on Item 4. Action may also be taken on any other matters that are properly presented at the meeting.
Regardless of the number of shares you own, your vote is important. Whether or not you expect to attend the meeting, we urge you to vote promptly 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 5, 2017
The 2017 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 5, 2017, at 7:30 a.m. local time, to consider and vote upon the following matters:
Only stockholders of record at the close of business on March 6, 2017, 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, 2017
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 Annual Report on Form 10-K for 2016 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 6, 2017, the record date for the 2017 Annual Meeting, or to any person who subsequently becomes such a record holder or beneficial owner. The report will be available for mailing in late March 2017. 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 2017 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, 2017.
YEAR IN REVIEW
LP had a strong year in 2016 as we continued to implement strategies across all business segments to further our drive toward accelerating growth and embedding innovation into our product offerings. Our success and performance in 2016 was especially encouraging in light of the continuing tepid housing recovery with starts increasing by less than 5 percent.
In November, the LP Board of Directors appointed Executive Vice President Brad Southern to the newly created position of chief operating officer for the purpose of implementing an orderly management succession plan. We are pleased to have Brad in this position as his experience in leading both the siding and OSB businesses will be invaluable as we continue to take advantage of an improving housing market. In January, Brad named Jason Ringblom to the position of EVP & GM of OSB and Neil Sherman to EVP & GM Siding while Mike Sims, SVP of Sales, Marketing and Strategy, assumed responsibility for our EWP business.
During 2016, we also added two new directors to our board: Tracey Embree, President of the Cummins Component Group and Ozey Horton Jr., a former Managing Director at McKinsey & Co. Tracey and Ozey bring a breadth of experience in operations, mergers, acquisitions and strategy development and implementation to our board. We are looking forward to their contributions.
We also make note of the upcoming retirement of Colin Watson, Dan Frierson and John Weaver from our Board of Directors. Their many years of service to LP has been invaluable and greatly appreciated.
The soundness of our strategy and its disciplined execution led to many highlights and achievementsall in the context of transitioning our company from a traditional forest products company to a building products company. Our compensation philosophy and the application of our incentive based compensation programs are directed at continuing this transition and at the same time maximizing the market we operate in today. This proxy statement provides greater detail around our use of compensation to benefit the long-term interests of shareholders.
PROXY EXECUTIVE SUMMARY
The 2017 Annual Meeting of Stockholders of LP will be held at LPs Corporate Headquarters, 414 Union Street, Suite 2000, Nashville, Tennessee, on Friday, May 5, 2017, at 7:30 a.m. local time. At the time this proxy statement was printed, management knew of only the following four items of business to be presented at the annual meeting, as listed in the Notice of Annual Meeting of Stockholders.
Item 1Election of Directors Cook and Landgraf
The LP Board recommends a vote FOR the election of each of the two nominees, Mr. Cook and Mr. Landgraf, both of whom are current members of the Board. Mr. Cook is an independent director and serves as a Chairman of the Board and Chairman of the Executive Committee, and serves as a member of the Finance and Audit Committee, and the Compensation Committee. Mr. Landgraf is an independent director and serves as the Chairman of the Finance and Audit Committee and serves as a member of the Executive Committee and the Compensation Committee.
Item 2Ratification of the selection of Independent Auditor Deloitte & Touche LLP for 2017
The LP Board recommends a vote FOR the selection of Deloitte & Touche LLP as LPs outside independent auditor to audit its consolidated financial statements for 2017. The Board has determined it to be sound corporate governance practice to submit the appointment for ratification by LPs stockholders even though it is not required.
Item 3Advisory vote to approve named executive officer compensation
The LP Board recommends a vote FOR the approval of 2016 named executive officer compensation. We provide our stockholders an opportunity to cast an advisory vote on the compensation of our named executive officers, although that vote is non-binding. We believe that our executive compensation programs must attract, retain and motivate our management team to lead our company to sustainable financial performance that furthers the long-term interests of LP and its stockholders. Stockholders approved the 2015 named executive officer compensation at the 2016 Annual Stockholders meeting by a favorable vote of 99 percent of the votes cast. The Compensation Committee took substantial actions to continue to further align executive compensation with stockholder interests. In making the executive compensation decisions, the Compensation Committee considered the constructive feedback from stockholders and the well-reasoned and detailed analysis of an independent consultant, as well as our longstanding pay-for-performance philosophy. The following highlights on the actions taken to further align pay for performance are more fully described in the Compensation Discussion and Analysis section:
Item 4Advisory vote on the frequency of advisory vote on executive compensation.
The LP Board recommends a vote for one year for the advisory vote on executive compensation. Stockholders may indicate whether they recommend an advisory vote on named executive officer compensation once every one, two, or three years or abstain from voting. Our Board believes an advisory vote on named executive officer compensation that occurs every year is the most appropriate alternative because it provides us with immediate and direct input on our compensation philosophy, policies and practices. We value the opinions of our stockholders and will consider the outcome of the advisory vote in deciding how often to hold the advisory vote on named executive officer compensation in future years.
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 the directors nominated in Item 1, for Item 2 and Item 3 and for one year on Item 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 6, 2017, are entitled to receive notice of the annual meeting and to vote at the meeting. At the record date, there were 144,644,220 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 two nominees listed below for the Class II director positions to be voted on at the annual 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 2020. Mr. Weaver is the third director in Class II, but he has chosen not to stand for re-election and will retire at the annual meeting. Mr. Weavers biographical information follows in the Retiring Directors section. The Board of Directors has determined that Mr. Cook and Mr. Landgraf have no material relationships with LP (either directly or as a partner, stockholder, officer or director of an organization that has a relationship with LP) other than their service as directors of LP, and are not disqualified from being independent under the listing standards adopted by the New York Stock Exchange (the NYSE) and under the companys Bylaws. The other members the Board of Directors unanimously recommend a vote for each nominee.
E. Gary Cook, age 72, became a director of LP in 2000 and was appointed Chairman of the Board of Directors on November 1, 2004. 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. Prior to the spinoff of Albemarle from Ethyl Corporation, he served as President of the Chemicals Group, Senior Vice President and director of Ethyl. Mr. Cook was a long-time employee and officer of the DuPont Company. 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 the Executive Committee, and as a member of the Finance and Audit Committee and Compensation Committee.
Kurt M. Landgraf, age 70, became a director of LP in 2005. Mr. Landgraf was President and Chief Executive Officer of Educational Testing Service, a non-profit organization that provides testing for education institutions, businesses and governments, from August 2000 until his retirement on December 31, 2013. Prior to that, he was Executive Vice President and Chief Operating Officer of E.I. DuPont de Nemours and Company, where he had 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 the 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 DuPont. 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 Executive Committee and Compensation Committee.
Your shares represented by a properly completed and returned proxy card will be voted FOR the election of the two nominees named above unless you specify otherwise (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. Each nominee who receives the affirmative vote of a majority of the total votes cast on his or her election will be elected meaning that the number of shares voted for a directors election exceeds the number of votes cast against that directors election. Shares not voted on the election of a nominee, 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 cast on his or her election.
The current members of the Board of Directors whose terms of office will continue beyond the annual meeting are listed below. With the exception of Mr. Stevens, the companys Chief Executive Officer, the Board of Directors has determined that each continuing director 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, and is not disqualified from being independent under the NYSEs listing standards and LPs Bylaws.
Ozey K. Horton, age 66, became a director of LP in September 2016. Mr. Horton has been a Director Emeritus of McKinsey & Co., a business consulting organization, since 2011 when he retired after nearly 30 years with the firm. At McKinsey, Mr. Horton had worked in various practice areas around the globe, including Pulp, Paper and Packaging, Industrial, Change Management, Global Operations in Energy and Materials, and Basic Materials. Mr. Horton is a faculty member for McKinseys leadership development program and also serves as an independent business advisor. Mr. Horton also serves as a director of Worthington Industries and Metso Corporation. The Board selected Mr. Horton to serve as a director because of his extensive experience in global operations, strategic planning, merger and acquisition integration and change management. The Board believes that Mr. Hortons broad understanding of the operational and strategic issues facing large global companies, his experience in change management and merger and acquisition integration make him particularly well-suited to serve as a director of LP. Mr. Horton serves as a member of the Environmental and Compliance Committee and the Finance and Audit Committee.
Curtis M. Stevens, age 64, became a director of LP in 2012. Mr. Stevens has been Chief Executive Officer of LP since May 4, 2012. Mr. Stevens served as the Chief Operating Officer of LP from December 5, 2011 to May 4, 2012, and prior to that position served as Executive Vice President Administration and Chief Financial Officer of LP since 2002 and Chief Financial Officer of LP since 1997. 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 Finance 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 CEO of LP, his prior performance as an executive at LP, and his long history and deep familiarity with LPs financial and operational matters. The Board of Directors also considered Mr. 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.
Tracy A. Embree, age 43, became a director of LP in 2016. Ms. Embree has worked at Cummins, Inc., a leader in the design, manufacture, distribution and service of diesel and alternative fuel engines and related technologies, since 2000 and is currently President of Cummins Components Group. Prior to her current role, Ms. Embree was President of Cummins Turbo Technologies. Since she joined Cummins she has served in a variety of roles with increasing responsibility, including marketing and sales, manufacturing, and leadership, and
she has been a corporate Vice President of Cummins since 2011. Ms. Embree graduated from Massachusetts Institute of Technology with a Bachelor of Science in Chemical Engineering and holds an MBA from Harvard Business School. She is a board member of the Columbus, Indiana Foundation for Youth. The Board selected Ms. Embree to serve as a director based upon a number of considerations, including her experience in formulating corporate strategy, implementing new market strategies, sales, and operations for a global business. The Board believes that her leadership experience in these areas make her particularly well-suited to serve as a director of LP. Ms. Embree serves on the Finance and Audit Committee and the Environmental Compliance Committee.
Lizanne C. Gottung, age 60, became a director of LP in 2006. Since January 1, 2017, Ms. Gottung has served as EVP-Senior Advisor to the CEO/Chairman of Kimberly-Clark Corporation, an international consumer paper products company, and will retire from Kimberly-Clark on April 1, 2017. Prior to that appointment, Ms. Gottung served as Senior Vice President and Chief Human Resources Officer of Kimberly-Clark Corporation from 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 serve as a director of LP. Ms. Gottung serves on the Nominating and Corporate Governance Committee and the Compensation Committee.
Dustan E. McCoy, age 67, became a director of LP in 2002. Mr. McCoy was Chairman and Chief Executive Officer and director of Brunswick Corporation, a market leader in the marine, fitness and billards industries, until his retirement on February 29, 2016. He held those positions since December 2005. He joined Brunswick Corporation in September 1999 and has also served as Vice President, General Counsel and Corporate Secretary until October 2000, and served as President of the Brunswick Boat Group from October 2000 to December 2005. 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, and 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 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 75, will be retiring as a director of LP in May 2017 pursuant to the mandatory age retirement requirement in our Bylaws. Mr. Watson became a director of LP in 2000. Mr. Watson was President and Chief Executive Officer of Vector Aerospace Corporation from November 2003 to December 2004. Previously, he was a Director and Chief Executive Officer 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 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 serve as a director of LP. Mr. Watson serves on the Finance and Audit Committee and is the Chair of the Compensation Committee.
Daniel K. Frierson, age 75, will be retiring as a director of LP in May 2017 pursuant to the mandatory age retirement requirement in our Bylaws. Mr. Frierson 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 Environmental and Compliance Committee and as the Chair on the Nominating and Corporate Governance Committee.
John W. Weaver, age 71, will be retiring as a director of LP in May 2017 as he has chosen not to stand for re-election. Mr. Weaver 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 Abitibi-Bowater. Mr. Weaver resigned as Executive Chairman of Abitibi-Bowater as of February 1, 2009 and from the Board of Abitibi-Bowater, Inc. as of October 31, 2009. Abitibi-Bowater filed for protection and reorganization under the bankruptcy laws of Canada and the United States in April 2009 and emerged from bankruptcy proceedings 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 and has over 30 years of experience in the forest products industry. Mr. Weaver was a member of the Abitibi-Consolidated 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 Environmental and Compliance Committee and the Finance and Audit 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 Us, 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 members of the Board have a diverse set of skills and experiences and all of the members, except our CEO, are independent. The Board currently has ten members. 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, E. Gary Cook, was elected by the Board to be the non-executive 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, Internal Audit, Legal and Compliance, Information Technology, Environmental, and Product Quality, 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 identification and handling of risks. The Board or its committees have direct access to financial and compliance leaders on a quarterly basis or more frequently if requested. 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 risks, cyber-security risks, 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 overseeing annual evaluations to assess Board and committee effectiveness. The Environmental and Compliance Committee reviews quarterly compliance reports from Quality, Internal Audit, Legal Compliance and Environmental, and considers the various allegations made through the anonymous hotline, reviews 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 2016, 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 meetings in 2016. While LP does not have a policy regarding attendance by directors at the annual meeting of stockholders, in 2016, all directors attended the annual meeting.
The Boards committees and membership on each committee in 2016, are set forth in the table below. 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.
2016 Committee Assignments
X = Committee member; * = Chairman
Finance and Audit Committee
The Finance and Audit Committee (the Audit Committee) held seven meetings during 2016. Two of these meetings included education and training sessions on cyber security and 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 independent 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 independent auditor in connection with LPs audited financial statements, and its audit of internal control over financial reporting. The Audit Committee meets with the independent auditor to discuss any audit problems or difficulties and managements responses. The Audit Committee is responsible for reviewing and discussing with the independent auditor all matters that are required to be reviewed and discussed with the independent 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 control 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 LPs Treasurer and Risk Manager, and General Counsel to review various credit, operational and legal/compliance risks and methods of risk mitigation, including insurance coverage and limits.
Because of the importance of the integrity of our IT systems to our financial reporting, the Audit Committee also reviews the Companys information technology platform and processes as well as strategies to prevent, detect and mitigate any cyber security threat.
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 except for Ms. Embree and Mr. Horton, all members are an audit committee financial experts, 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 met four times in 2016. The Compensation Committee exercises the authority of the Board of Directors the Board 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 two stock award plans as they relate to officers and employees: LPs 1997 Incentive Stock Award Plan, under which no new awards will be made, and LPs 2013 Omnibus Stock Award Plan (the Stock Award Plan), which was approved by stockholders at the 2013 Annual Meeting of Stockholders and replaced the 1997 Incentive Stock Award Plan. It also administers the 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, administers any ERISA or other pension plans.
The Compensation Committee, which is comprised of independent directors, is also responsible for developing and implementing compensation plans for the executive officers. 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 FW Cook & Co., Inc. (FW 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.
Prior to selecting FW Cook as its independent compensation consultant, and as required by its charter, the Compensation Committee annually considers various factors relevant to FW Cooks independence from LPs management. Based upon the 2016 assessment, the Committee is not aware of any conflict of interest that would prevent FW Cook from providing independent advice concerning executive compensation matters. The consultant has unrestricted access to the Committee Chair, attends executive sessions with the Committee and reports directly to the Committee. Further, any services requested of the consultant by management are subject to prior approval by the Committee Chair, and the Committee Chair will receive a copy of all invoices sent to LP by the consultant. No management services were requested in 2016.
A managing director of FW Cook participated in all of the Compensation Committees meetings in 2016, including the executive sessions. FW 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 CEO, 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 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 FW Cook, regular 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 CEO, and Vice President Human Resources, made recommendations to the Compensation Committee concerning various elements of LPs compensation program during 2016, 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, stock-settled stock appreciation rights (SSARs), and performance shares under the Stock Award Plan. LPs CEO 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 Officers-Compensation Discussion and Analysis -Total Direct Compensation-Individual Performance Goals.
Environmental and Compliance Committee
The Environmental and Compliance Committee, which met four times during 2016, 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 LPs Vice President of Environmental Health & Safety, the Director of Internal Audit, 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 2016, 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 is made up of independent Directors. 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 FW 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 CEO 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.
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 whom 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 using 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 Nominating Committee, 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 2018 annual meeting, this notice must be received by LP no later than February 2, 2018.
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, among other services, audit its consolidated financial statements for 2017. 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, 2015 and 2016. The Audit Committee also pre-approved all audit-related and permissible non-audit services provided by Deloitte & Touche LLP during 2015 and 2016 and concluded that the provision of those services 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, 2015 and 2016 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 2016 primarily included fees for audits of employee benefit plans, review of reports issued in connection with lender and regulatory requirements and due diligence procedures related to debt offering. Audit-related fees for 2015 primarily include fees for audits of employee benefit plans, review of reports issued in connection with lender and regulatory requirements and agreed upon procedures.
Tax Fees. Includes any fees for tax services, including tax compliance and planning services. Tax fees for 2016 primarily include fees for consultation on the impact of the Foreign Account Tax Compliance Act (FATCA) and consultation on value added tax, and other tax returns in various non-US tax jurisdictions. Tax fees for 2015 primarily include fees for consultation on value added tax, and other tax returns in various non-U.S. tax jurisdictions.
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 appointment of Deloitte & Touche LLP as LPs independent auditor for 2017 (Item 2 on the proxy card).
ITEM 3ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION
The Board of Directors recognizes the interest of stockholders in executive compensation matters. As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Securities Exchange Act of 1934 (the Exchange Act), we are providing our stockholders an opportunity to approve, on an advisory basis, the compensation of our named executive officers, as described in this proxy statement. Although the vote is non-binding, we value continued and constructive feedback from our stockholders on compensation and other important matters. In 2016, stockholders approved the compensation policies by a favorable vote of 99% of the votes cast. LP management continued its discussions on the compensation policies and practices with a number of stockholders, whose opinions are taken into consideration when setting actual pay practices.
As described in the Compensation Discussion and Analysis CD&A 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 CD&A which discusses our executive compensation programs, including specific information about the compensation of our named executive officers for 2016.
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 Compensation Committees review in 2016, the Compensation Committee took several important actions and maintained existing practices that represent strong corporate governance:
The above-referenced disclosures appear under the heading Compensation of Executive Officers in this proxy statement.
We believe that proper administration of our executive compensation programs will result in attracting and retaining a management team that is motivated to lead our Company to improved fundamental financial performance furthering the long-term interests of LP and its stockholders. For these reasons, we recommend that stockholders vote FOR the following resolution and approve, on an advisory basis, the named executive officer compensation:
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 resolution will be deemed to be approved if it receives the affirmative vote of a majority of the total votes cast on this 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 with respect to future executive compensation decisions, including those relating to our named executive officers. Our Compensation Committee and Board of Directors will, however, take the outcome of the vote into account in making future executive compensation decisions, as they have done in prior years. We are currently conducting this advisory vote, commonly known as a say-on-pay vote, every year, and expect to hold the next say-on-pay vote in connection with our 2018 Annual Meeting of Stockholders, subject to the outcome of the stockholder vote on Item 4 at the annual meeting.
ITEM 4ADVISORY VOTE ON THE FREQUENCY OF ADVISORY VOTES ON NAMED EXECUTIVE OFFICER COMPENSATION
Our stockholders also have the opportunity to recommend how frequently we should seek an advisory vote on the compensation of our named executive officers. By voting on this Item 4, stockholders may indicate whether they would prefer an advisory vote on named executive officers compensation once every one year, two years, or three years. You will have the opportunity to vote on this issue at least once every six years in accordance with Schedule 14A of the Exchange Act.
After careful consideration of this issue, our Board of Directors has determined that an advisory vote on named executive compensation that occurs every year is the most appropriate alternative for our company. Accordingly, our Board of Directors recommends that you vote for a one-year interval for the advisory vote on named executive officer compensation.
In formulating its recommendation, our Board considered that an annual advisory vote on named executive officer compensation will allow our stockholders to provide us with their direct input on our compensation philosophy, policies and practices. We understand that our stockholders may have different views as to what is the best approach, and we look forward to hearing from you.
Although the Board recommends a vote for one year in the advisory vote on the frequency of the advisory vote on named executive officer compensation, you are not voting to approve or disapprove of the Boards recommendation. You may cast your vote on your preferred voting frequency by choosing the option of one year, two years or three years. You may also abstain from voting. The option that receives the highest number of advisory votes cast by stockholders will be the frequency for the advisory vote on named executive officer compensation deemed to have been recommended by stockholders. Abstentions and broker non-votes will have no effect on the outcome of the vote.
As the vote is advisory and not binding, the Board of Directors may decide that it is in the best interest of LP and its stockholders to hold an advisory vote on executive compensation more or less frequently than the option selected by our stockholders (but not less often than once every three years). However, we value the opinions of our stockholders and will consider the outcome of the advisory vote in deciding how often to hold the advisory vote on named executive officer compensation in future years.
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, 2016. 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 Auditing Standards 1301, as amended, regarding communications with audit committees. Deloitte & Touche LLP 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 communications with the Audit Committee concerning independence. The Audit Committee discussed with Deloitte & Touche LLP 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, 2016, be included in LPs Annual Report on Form 10-K filed with the SEC.
Kurt M. Landgraf, Chairman
E. Gary Cook
Colin D. Watson
John W. Weaver
Tracy A. Embree
Ozey K. Horton, Jr.
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 December 31, 2016.
Directors and Named Executive Officers
The following table summarizes the beneficial ownership of Common Stock of LPs directors, nominees for director, and named executive officers (NEOs) included in the Summary Compensation Table below as of March 1, 2017:
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, with the following exception. One of our directors, Lizanne Gottung, failed to report one open market purchase of 5,000 shares of our Common Stock in March 2009. Promptly upon recognition of this situation, this transaction was reported on a Form 4 filed on February 15, 2017.
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, FW Cook, to advise the Committee regarding market and general compensation trends.
The Committee has affirmed the independence of its consultant through a review of the firms independence policy and other relevant matters, 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 the management of the company without approval from the Committee chair. The consultant is not the beneficial owner of any shares of LP Common Stock, and fees payable by Louisiana-Pacific to FW Cook during 2016 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, 2016.
Colin D. Watson, Chairman
E. Gary Cook
Lizanne C. Gottung
Kurt M. Landgraf
Compensation Discussion and Analysis
This Compensation Discussion and Analysis is intended to provide investors with an understanding of our policies and decisions regarding the compensation of our CEO and the other NEOs for 2016, and certain actions taken concerning their compensation in 2016. Our NEOs in 2016 were:
Though we continue to see steady improvement in U.S. housing starts, the market is far from normalized based on historic levels. Changes to our executive compensation addressed these short-term economic conditions and at the same time furthered our key strategic goals and objectives to support long-term value creation.
2016 Compensation and Performance Highlights
Committee Assessment of 2016 Performance
In evaluating the compensation of the CEO and the other NEOs, the Committee noted operational achievements including:
Key Executive Compensation Decisions for 2016
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 strong corporate governance in 2016. These included:
Additional details regarding the Committees actions are described throughout the Compensation Discussion and Analysis section.
Compensation Philosophy and Objectives
We believe that effective executive compensation programs are critical to LPs long-term success to attract and retain high caliber executives. LPs executive compensation philosophy is to provide a competitive total compensation package that aligns the interests of management with those of stockholders.
In accordance with its charter, the Committee has adopted executive compensation policies that are designed to achieve the following objectives:
Elements of Executive Compensation Program
For 2016, there were no new elements of compensation provided to the CEO or other NEOs. The following table outlines the objectives and purposes of each element of the Companys executive compensation program:
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 both to companies from the Forest Products and Building Products industry classifications, as well as to a broader group of general industrial companies. We believe that our current peer group companies reflect similarities in channels, business cycles, and manufacturing expertise, thus providing appropriate benchmark data. The peer group contains the following companies:
The peer group was developed in consultation with the Committees independent compensation consultant, FW 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 consultant, will continue to periodically review the peer group, and revise as appropriate to ensure that it continues to represent similar U.S. organizations with which we compete for executive talent. In the Committees review of the 2016 peer group, it was found that Nortek was acquired by Melrose Industries PLC in August 2016 and although it was included in the peer group for certain 2016 decisions, it therefore will no longer be included in our peer group.
FW Cook also reviews two confidential, third-party surveys in order to benchmark LPs executive compensation. Both surveys were general industry surveys, from which aggregate results were compiled using the appropriate revenue bands. Data was then interpolated to LPs revenue of approximately $1.9 billion. A similar methodology was used for LPs business unit executives using size-appropriate revenue bands and 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:
In 2016, the Committee based their decisions on an equal weighting of the peer group and survey data. The Committee compared each executives base salary, total cash compensation opportunities (salary and target cash incentive award), and total direct compensation opportunities (salary, target cash incentive award, and annualized grant-date present value of equity-based awards) for 2016 against comparable information from the peer group and survey data. 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 data reflects the broader industries with which LP competes for management talent.
Total Direct Compensation
In setting 2016 compensation for our executive officers, including our Chief Executive Officer, the Committee focused on total direct compensation. 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 this approach, the Committee established 2016 total direct compensation targets for the CEO and the other NEOs. The Committee evaluates both market data provided by FW Cook and information on the performance of each executive officer for the prior year. To remain competitive in the marketplace for executive talent, incentive target levels for each executive officer, including our CEO, are compared to the median of the benchmark data described above. The total direct compensation targets for 2016 for our CEO and NEOs are listed below.
As shown in the Summary Compensation Table, performance-based compensation (annual cash incentive, SSARs and performance shares) constituted a significant portion of the CEOs and the other NEOs total direct compensation targets. Similarly, a large percentage of the total direct compensation targets was in the form of equity based compensation.
Annual Cash Compensation
In order to attract and retain high caliber executives, we provide an annual cash opportunity that the Committee considers to be competitive in the marketplace. The cash compensation is comprised of base salary and an annual cash incentive opportunity.
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 typically considers the benchmark data provided by its independent compensation consultant and the CEOs and the other NEOs performance and experience in the position.
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. The CEO and the other NEOs may be paid above or below the median depending on their experience, performance, and other relevant considerations. The base salaries paid to our CEO and the other NEOs in 2016 can be found in the Summary Compensation Table.
At its February 4, 2016 meeting, based on the Committees compensation philosophy and FW Cooks competitive compensation analysis, the Committee approved base salary increases for the named executive officers. Mr. Stevens salary was increased by 4.5% and Ms. Baileys salary was increased by 3%. Mr. Southerns salary was increased by 5%, Mr. Luomas salary was increased by 5%, and Mr. Sims salary was increased by 5%, bringing them closer to the total direct compensation median for their roles. Further, in conjunction with Mr. Southerns promotion to Chief Operating Officer on November 1, 2016, his base salary was increased to $600,000 and his Annual Cash Incentive Award target was increased to 80 percent of his base salary. Mr. Southerns Annual Cash Incentive award for all of 2016 was prorated based on the months he worked in each position.
Annual Cash Incentives. Consistent with our performance-based compensation philosophy, our executive compensation program includes an annual cash incentive program based on a 60/40 split between corporate and individual performance goals, respectively. This program is structured to motivate and reward executives for their efforts in achieving annual corporate financial metrics and individual performance goals, which align with stockholder interests.
Target Payout Levels. The target level for these annual incentive payments is a percentage of the executives base salary, corresponding with the respective target median. The CEO and each other NEO is eligible for a payout of between 0%-200% of their short-term incentive target listed below:
Achievement of Performance Goals for 2016
Corporate key financial goal. In 2016, LPs annual cash incentive plan metric was adjusted EBITDA, as defined as LPs adjusted EBITDA for continuing operations for the year ending December 31, 2016, as reported on LPs Form 10-K.
The 2016 Annual Cash Incentive Plan payment metrics included an adjusted EBITDA threshold of $128 million, a target of $230 million, and a maximum payment achieved at $307 million. No amounts would be payable under the plan unless the minimum threshold was achieved. Our adjusted EBITDA of $346 million in 2016 exceeded the maximum goal level.
Individual performance goals. The Committee establishes individual performance goals under the cash incentive plan for the business unit or staff functions for which each executive has responsibility. Following the end of the year, performance is assessed against those goals to determine the CEOs and each other NEOs level of achievement. Each goal is assigned a value based on a variety of factors which can result in an individual performance component ranging from 0-200% based on the attainment of their defined goals. Our CEO makes a recommendation (for NEOs other than himself), which the Committee considers to determine an individual payout percentage for the executive. 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 the threshold level, if it finds that paying the awards is not in the best interests of the Company.
The individual performance goals established for our Chief Executive Officer for 2016 were as follows:
Based on the Chief Executive Officers performance on these goals, the Committee awarded a total of 146% of his individual performance target (40% of the annual incentive target in the table below) which equates to $543,120 of his total actual annual incentive payout.
The individual performance goals established for our Chief Financial Officer for 2016 were as follows:
1. Meet or Exceed the Company Safety, Compliance and LSS Targets
2. Improve Cash Conversion Cycle
3. Drive Growth & Innovation Effort
4. Execute SAP Enhancement Strategy
5. Accelerate Value Added Product Revenue Growth
Based on the Chief Financial Officers performance on these goals, the Committee awarded a total of 141% of her individual performance target (40% of the annual incentive target in the table below) which equates to $187,530 of her total actual annual incentive payout.
Performance goals for the other NEOs include achievement of financial metrics, safety, quality and compliance targets, as well as other business-specific objectives.
Payouts for 2016. The following table summarizes the payout opportunities for our CEO and the other NEOs and the actual incentive payouts, paid in 2017, reflecting performance in 2016:
Long-Term Equity Incentive Compensation
The Committee awards long-term equity incentive grants to the CEO and the other NEOs 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 long-term success, supporting pay-for-performance, 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) determined that awards to the CEO and the other NEOs under the Stock Award Plan and would be thirty percent restricted stock, fifty percent stock appreciation rights, and twenty percent performance shares, based on the relative grant date fair values of the awards. Additionally in 2016, with the exception of the CEO, NEOs received a special retention equity grant to maintain executive leadership continuity during this critical time in the evolution of our Growth & Innovation strategy and succession planning. This special retention equity grant was in the form of restricted stock which has a three year cliff-vesting requirement.
Our largest business segment is OSB. OSB products are typically subject to commodity pricing pressures, which have a major influence on our stock price. As a result, SSARs may have little or no economic value for substantial periods of time when stock prices drop below the exercise price of the awards, while restricted stock will retain some of its value thereby serving as a significant executive retention tool through the business cycle. Performance shares in the equity mix provide enhanced alignment with stockholder interests.
The 2016 performance share plan design contained the following elements:
The company had strong financial performance in 2016 with LP revenue growth of 18.4% and SmartSide revenue growth of 14.9%. Based on this performance, management earned close to 200% of the performance share award. The final award may be modified in February 2019, based on the 3-year TSR modifier. The TSR modifier cannot cause the award to exceed the maximum payout of 200%.
For grant purposes, the Committees primary consideration is the market median for competitive positions, but other factors may impact awards such as: the Black-Scholes pricing model, the total number of shares available for grant, and the burn rate (defined as number of shares granted on an annual basis). The Committee periodically reviews the valuation method used to calculate the value of equity-based awards. For several years, including 2016, the Committee has relied on the Black-Scholes valuation method for SSARs.
Retirement & Other Benefits
LPs qualified retirement plans are designed to provide retirement benefits at a competitive level compared to the benchmark data and the general manufacturing industry. All full-time salaried and hourly U.S. employees participate in LPs 401(k) and Profit Sharing Plan. The Companys Retirement Account Plan, a defined benefit plan, was frozen effective January 1, 2010. U.S. employees hired prior to this date remain participants in the plan, but the plan is frozen and no further credits will be earned by the participants.
Employees 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, and receive 5 percent of their contributions matched. 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.
LP maintains a SERP that provides retirement pension benefits to select, grandfathered NEOs. SERP benefits have not been provided to newly appointed NEOs, consistent with our benchmarking evaluation. 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 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, and will continue to review them periodically to ensure competitiveness.
We provide our CEO and NEOs with limited perquisites, consisting of retirement and life insurance benefits, and personal estate and financial planning services provided by independent providers. These benefits are discussed in more detail in note 5 to the Summary Compensation Table.
Executive Change of Control Employment Agreements
Change of Control Employment Agreements with our executive officers 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:
In 2010, the Committee agreed with managements recommendation to remove the excise tax gross-up provision from any new change of control employment agreements. In 2015, based on stockholder input and benchmark data, the Committee eliminated any further gross-ups in change in control agreements. As a result, the Committee provided the CEO with the required two year notice of termination of his Change of Control Employment Agreement, at which time the new change in control agreement would be in place. As of February 5, 2017, no tax gross-up provisions would be applied to payments.
The Committee believes these agreements are important to encourage our CEO and other NEOs 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.
Executive Compensation Summary for 2017
2017 Annual Salaries
On February 2, 2017 the Committee approved the following salaries for NEOs.
Annual Cash Incentive Award Plan.
The Committee approved the 2017 Annual Cash Incentive Plan which, consistent with the 2016 plan design, will continue to be based 60% on the corporate performance metric and 40% on individual performance metrics. In February 2017, the Committee approved the corporate performance metrics and the CEO and the other NEO performance objectives for the 2017 annual cash incentives, payable in 2018.
Long-Term Incentive Plan.
The Committee awards long-term equity incentive grants to CEO and the other NEOs as part of their overall compensation package. These awards are consistent with the Committees objectives of aligning the financial interests of our executives with the financial interests of our stockholders, focusing on our long-term success,
supporting our performance-oriented environment, and offering competitive compensation packages. The long-term incentive plan equity mix will change in 2017 as shown below:
Our performance share metric will be based on a 3-year increase in targeted growth product revenue, with threshold, target and maximum metrics as approved by the Committee. If the performance metric is met at the end of the performance period, the award will be adjusted to reflect 3 year TSR results. This TSR modifier can increase or decrease the award by 20% . The TSR modifier cannot cause the award to exceed the maximum of 200%.
Additional Policies and Guidelines Affecting Executive Compensation
Use of Independent Compensation Consultant. The Committee engaged FW Cook as its independent consultant to assist it in determining the appropriate executive officer compensation in 2016 pursuant to our compensation policies described above. FW 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 Governance-Compensation Committee for additional information about our use of compensation consultants.
Timing of Long-Term Equity Grants. Our policies and the 2013 Omnibus Stock Award Plan (the 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. Additionally, restricted stock awards and performance awards are required to be granted with a price equal to the closing price of our stock on the grant day of the award. 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 the Stock Award Plan, approved by the stockholders on May 3, 2013. Special stock grants and recruiting and retention grants have been made under the Stock Award Plan. 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 LP 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 shares of our Common Stock in an amount equivalent to a multiple of their annual base salary. The target amount is a number of shares, which includes granted but not yet vested restricted stock or restricted stock units, equal in value to the following multiples of each officers new annual base salary: for the Chief Executive Officer, five times; for the Chief Financial Officer and the other Executive Vice Presidents, three times; and for Senior Vice Presidents, two times. These are measured annually at the first regularly scheduled Compensation Committee meeting of the calendar year.
Restricted stock and restricted stock units granted under the Stock Award Plan that have not yet vested count toward the ownership guidelines, but performance shares where the initial metric has yet to be met and shares subject to outstanding stock options and SSARs do not. NEOs who have not met their ownership guidelines, and wish to exercise SSARs, are required to hold shares equal to 40 percent of the after tax proceeds of any exercised SSARs in restricted stock until they reach their target as of the last compliance date. For 2016, the CEO and all other NEOs met their ownership guidelines with the exception of Mr. Sims.
Insider Trading. Our Insider Trading policy mandates that insiders, including 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 Committees view, 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 2016 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 compensation 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 encourage the achievement of both our short-term and long-term operational and financial goals.
Compensation of Named 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 listed in the table for the three years ended December 31, 2016. Cash incentive awards paid under LPs Annual Cash Incentive Award 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.
Grants of Plan-Based Awards for 2016
The table below provides information regarding annual cash incentive awards under the Cash Incentive Plan and grants of restricted stock, performance shares, and SSARs under the Stock Award Plan to NEOs during 2016.
Outstanding Equity Awards at December 31, 2016
The table below provides information regarding stock options, SSARs, restricted stock and incentive shares held by the NEOs at December 31, 2016.
Option Exercises and Stock Vested During 2016
The following table provides information regarding exercise of stock options, SSARS and vesting of incentive shares with respect to LPs NEOs during 2016.
Pension Benefits for 2016
The following table shows the present value of accumulated benefits for each of the NEOs under LPs 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, 2016 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 2016 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 NEOs above that participate in the SERP, Mr. Stevens is vested in his benefits and Ms. Bailey is not. Messrs. Southern, Luoma and Sims do not participate in the SERP. As of December 31, 2016, Mr. Stevens was age 64, Ms. Bailey 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.
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, all of which have vested, will continue to accrue interest as described below. Key features of the Retirement Account Plan include:
Nonqualified Deferred Compensation for 2016
The following table summarizes information regarding participation by the NEOs in LPs 2004 Executive Deferred Compensation Plan (the Deferred Compensation Plan or the EDCP).
All employees who are in LPs top two levels of management and participate in its Retirement Account Plan and the profit sharing component of the 401(k) plan are automatically participants in the Deferred Compensation Plan. Key features of the Deferred Compensation Plan include:
Potential Payments Upon Termination or Change of Control
LP has not entered into employment agreements with its NEOs, except for the Change of Control Employment Agreements described below. Therefore, its executive officers are not generally entitled to severance benefits upon termination of employment in the absence of a change of control. A description of payments and benefits to be provided to LPs NEOs under various circumstances involving termination of employment and/or a change of control follows.
Payments and Benefits upon Termination Prior to Change of Control
Upon termination of an NEOs employment for any reason prior to a change of control of LP, he or she is entitled to receive amounts earned while employed, as follows:
The amounts listed above are referred to as accrued obligations.
If an NEO retires with the approval of the Chief Executive Officer at age 60 or older, prior to year end, a pro rata share of his or her target award under the Cash Incentive Plan will be paid based on the date of termination. If an executive dies or if his or her employment is terminated due to disability, he or she will be paid his or her target award under the Cash Incentive Plan. Upon termination of employment due to death or disability, all equity-based awards will become fully vested under the Stock Award plan. Vesting of equity-based awards is not
accelerated upon termination for any other reason in the absence of a change of control. Vesting of certain benefits under the SERP and the Deferred Compensation Plan is accelerated upon death or disability, as described under Pension Benefits for 2016 and under Nonqualified Deferred Compensation for 2016.
The aggregate payments and benefits, in addition to accrued obligations due to the employee, that LPs NEOs would have received, assuming termination upon death or disability on December 31, 2016, prior to the occurrence of a change of control, were as follows: Mr. Stevens $ 5,035,236, Ms. Bailey $1,620,100, Mr. Southern, $1,222,479, Mr. Luoma $1,122,414, and Mr. Sims $840,885, representing the sum of the value on that date of restricted stock, incentive shares, performance shares, and SSARs subject to accelerated vesting and the executives target award for 2016 under the Cash Incentive Plan.
Change of Control Employment Agreements
In February 2015, the Compensation Committee provided Mr. Stevens with a notice of termination of his Change of Control Employment Agreement, with the intent to replace it with an updated Change of Control Employment Agreement without an excise tax gross-up provision. This is consistent with the agreements between the Company and each of Ms. Bailey, Mr. Southern and Mr. Luoma. In March 2016 the Company and Mr. Sims entered into an agreement consistent with the terms of other NEOs. The Change of Control Employment Agreements provide for compensation and benefits following a change of control of LP, including severance payments and benefits in the event the executive officers employment is terminated.
Term. The agreements will terminate two years after LP gives the executive written notice. If a change of control of LP occurs prior to that date, the term will be extended automatically for three additional calendar years beyond the date on which the change of control occurs. This three-year period is referred to as the change of control period.
Definition of Certain Terms. Brief summaries of the definitions of certain terms used in the agreements are set forth below.
Change of Control means:
Cause means one of the following actions, as determined by the vote of at least 75% of the directors:
Good Reason for purposes of an executives termination of his or her employment with LP means:
Payments and Benefits While Employed Following Change of Control
During the change of control period and for so long as a covered executive remains employed by LP (or its successor), he or she is entitled to:
In addition, all outstanding equity-based awards held by LPs NEOs, including stock options, SSARs, restricted stock, and restricted stock units, will become vested or exercisable in full upon a change of control of LP. Also, under the SERP, the NEO will be fully vested in all benefits whether or not he or she otherwise has five years of participation (see Pension Benefits for 2016). All agreements for equity awards granted prior to November 1, 2007, provide for reimbursement, on an after-tax basis, for any excise tax imposed under Section 280G of the Internal Revenue Code on excess parachute payments that is directly attributable to acceleration of vesting or exercisability, plus any related federal, state and local income taxes.
The annual base salary levels and target bonuses for LPs NEOs during 2016 are disclosed under Executive CompensationCompensation Discussion and Analysis. Information regarding benefits provided to LPs NEOs in addition to salary and cash incentive payments during 2016 appears in the Summary Compensation Table. If a change of control of LP had occurred on December 31, 2016, these salary and bonus levels and benefits would represent the minimum amounts that would have been payable to LPs NEOs in each of 2016, 2017 and 2018, unless their employment was terminated during that three-year change of control period.
The aggregate benefits and payments, in addition to accrued obligations, that LPs NEOs would have received assuming a change of control occurred on December 31, 2016, without termination of employment, were as follows: Mr. Stevens $15,813,179, Ms. Bailey $5,015,557, Mr. Southern $4,660,761, Mr. Luoma $2,961,144, and Mr. Sims $2,632,764, each representing the sum of the value on that date of restricted stock, incentive shares and SSARs subject to accelerated vesting and the executives target award for 2016 under the Cash Incentive Plan.
Payments and Benefits Upon Termination Following Change of Control
The severance compensation and benefits payable under the Change of Control Employment Agreements upon the termination of an NEOs employment vary depending on the reason for termination, as described below.
Termination Without Good Reason or by LP for Cause. If an NEO voluntarily terminates his or her employment other than for good reason, or LP terminates his or her employment for cause, during a change of control period, he or she will be entitled to payment or satisfaction by LP of all accrued obligations, but will not be entitled to any other severance or benefits.
Death or Disability. If an NEO dies or his or her employment is terminated due to disability during a change of control period, the executive or his or her legal representative will be entitled to payment of all accrued obligations and a pro rata amount of the executives target bonus for the year in which the change of control occurs, based on the number of days in the year prior to death or termination. The aggregate payments and benefits, in addition to accrued obligations, that LPs named executive officers would have received, assuming death or termination due to disability on December 31, 2016, during a change of control period, were as follows: Mr. Stevens $15,813,179, Ms. Bailey $5,015,557, Mr. Southern $4,660,761, Mr. Luoma $2,961,144,
and Mr. Sims $2,632,764, representing the sum of the value on that date of restricted stock, performance shares, incentive shares and SSARs subject to accelerated vesting and the executives target award for 2016 under the Cash Incentive Plan. Assuming that the change of control and the termination due to death or disability occurred in the same year, these are the same amounts that an executive would receive upon a change of control without any termination, as described further under Payments and Benefits While Employed Following Change of Control above.
Termination for Good Reason or Other than for Cause, Death or Disability. If, during a change of control period, an NEOs employment with LP is terminated by LP (other than for cause, death or disability) or by the executive for good reason, he or she will be entitled to receive the following amounts in a lump-sum payment six months after termination:
The Change of Control Employment Agreements also provide for reimbursement of fees for outplacement services, financial counseling, estate planning and for the continuation of health, disability and life insurance benefits for three years.
Acceleration of or increases to certain benefits under the terms of the SERP and the Deferred Compensation Plan that are triggered if an NEO is terminated following a change of control are described under Pension Benefits for 2016-Supplemental Executive Retirement Plan and Nonqualified Deferred Compensation for 2016.
Potential Pay-Outs to Current Named Executive Officers
The following table shows potential pay-outs under the Change of Control Employment Agreements and other LP benefit plans assuming that the employment of a current NEO was terminated following a change of control of LP, either by LP for reasons other than cause, death or disability, or by the executive for good reason, and that termination occurred on the last business day of 2016. Its important to note that as of February 5, 2017, the CEOs new change in control agreement became effective which eliminated the excise tax and gross up payment in this calculation.