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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _____)

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Soliciting Material Pursuant to § 240.14a-12

TEMPUR SEALY INTERNATIONAL, INC.
 
(Name of Registrant as Specified In Its Charter)
 
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Tempur Sealy International, Inc.
1000 Tempur Way
Lexington, KY 40511

TEMPUR SEALY INTERNATIONAL, INC.
Notice of Annual Meeting

Dear Stockholder:

On behalf of the Board of Directors, I am pleased to invite you to attend the 2018 Annual Meeting of Stockholders of Tempur Sealy International, Inc. The meeting will be held on Thursday, May 10, 2018 at 8:30 a.m., local time, at the Griffin Gate Marriott, 1800 Newtown Pike, Lexington, Kentucky 40511. At the meeting, stockholders will:

elect seven Directors to each serve for a one-year term and until the Director’s successor has been duly elected and qualified;
ratify the appointment of Ernst & Young LLP as the Company’s independent auditors for the year ending December 31, 2018;
hold an advisory vote to approve the compensation of our Named Executive Officers; and
transact such other business as may properly come before the meeting or any adjournment thereof.

If you were a stockholder of record at the close of business on March 14, 2018, you will be entitled to vote at the meeting. A list of stockholders entitled to vote at the meeting will be available for examination during normal business hours for ten days before the meeting at the office of the Corporate Secretary of Tempur Sealy International, Inc. at 1000 Tempur Way, Lexington, Kentucky 40511. The stockholder list will also be available at the meeting.

Whether or not you plan to attend the Annual Meeting, please read the Proxy Statement and vote your shares as soon as possible to ensure that your shares are represented at the Annual Meeting. Voting over the Internet, by telephone or by written proxy or voting instruction card will ensure your representation at the Annual Meeting regardless of whether you attend in person. Voting by the Internet or telephone is fast and convenient, and your vote is immediately confirmed and tabulated. More importantly, by using the Internet or telephone, you help us reduce postage and proxy tabulation costs. Or, if you prefer, you may vote by mail by returning the proxy card enclosed with the paper copy of your voting materials in the addressed, prepaid envelope provided.

Please note, however, that if you wish to vote at the Annual Meeting and your shares are held of record by a broker, bank or other nominee, you must obtain a "legal" proxy issued in your name from that record holder.

Thank you for your ongoing support of, and continued interest in, Tempur Sealy International, Inc.

 
 
Sincerely,
 
 
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12149197&doc=9
 
 
Lexington, Kentucky
SCOTT L. THOMPSON
March 26, 2018
 
Chairman, President and Chief Executive Officer



Important Notice Regarding Availability of Proxy Materials:
The 2018 Proxy Statement and 2017 Annual Report are available at http://www.proxyvote.com.

 
Because space at the Annual Meeting is limited, admission will be on a first-come, first-served basis. Picture identification will be required to enter the Annual Meeting. Cameras and recording equipment will not be permitted at the Annual Meeting.


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TABLE OF CONTENTS
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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TEMPUR SEALY INTERNATIONAL, INC.
1000 Tempur Way
Lexington, Kentucky 40511

PROXY STATEMENT 

 
Annual Meeting of Stockholders to be Held on Thursday, May 10, 2018

INFORMATION CONCERNING SOLICITATION AND VOTING

Our Board of Directors is soliciting proxies for the 2018 Annual Meeting of Stockholders of Tempur Sealy International, Inc. (“Annual Meeting”). The Annual Meeting will be held at 8:30 a.m., local time, on May 10, 2018, at the Griffin Gate Marriott, 1800 Newtown Pike, Lexington, Kentucky 40511. This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the Annual Meeting. Please read it carefully.

Our principal executive offices are located at 1000 Tempur Way, Lexington, Kentucky 40511. Our telephone number is (800) 878-8889. As used in this Proxy Statement, the terms "we," "our," "ours," "us," "Tempur Sealy," "Tempur Sealy International" and "Company" refer to Tempur Sealy International, Inc.

Important Notice Regarding Availability of Proxy Materials:

The 2018 Proxy Statement and 2017 Annual Report are available at http://www.proxyvote.com.

Under rules adopted by the Securities and Exchange Commission ("SEC"), we are furnishing proxy materials (including our 2017 Annual Report on Form 10-K) to our stockholders on the Internet, rather than mailing paper copies to each stockholder. If you received a Notice Regarding the Availability of Proxy Materials (the “Notice of Availability”) by U.S. or electronic mail, you will not receive a paper copy of these proxy materials unless you request one. Instead, the Notice of Availability tells you how to access and review the proxy materials and vote your shares on the Internet. If you would like to receive a paper copy of our proxy materials free of charge, follow the instructions in the Notice of Availability. The Proxy Statement, form of proxy and the Notice of Availability will be distributed to our stockholders beginning on or about March 26, 2018.

Whether or not you expect to attend in person, we urge you to vote your shares by phone, via the Internet or by signing, dating, and returning the proxy card enclosed with the paper copy of your voting materials at your earliest convenience. This will ensure the presence of a quorum at the Annual Meeting. Submitting your proxy now will not prevent you from voting your stock at the Annual Meeting if you want to do so, as your vote by proxy is revocable at your option.

Voting by the Internet or telephone is fast and convenient, and your vote is immediately confirmed and tabulated. More importantly, by using the Internet or telephone, you help us reduce postage and proxy tabulation costs. Or, if you prefer, you may vote by mail by returning the proxy card enclosed with the paper copy of your voting materials in the addressed, prepaid envelope provided.

VOTE BY INTERNET
 
VOTE BY TELEPHONE
 
VOTE BY MAIL
http://www.proxyvote.com
 
1-800-690-6903
 
 
24 hours a day/7 days a week until 11:59 p.m. on the day before the Annual Meeting
 
toll-free 24 hours a day/7 days a week until 11:59 p.m. on the day before the Annual Meeting
 
Sign and date the proxy card and return it in the enclosed postage-paid envelope.
 
 
 
 
 
Use the Internet to vote your proxy. Have your proxy card in hand when you access the website.
 
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand when you call.
 
 

If you vote your proxy by Internet or by telephone, please do NOT mail back the proxy card. You may access, view and download this year’s Proxy Statement and 2017 Annual Report on Form 10-K at http://www.proxyvote.com.




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Q: When is the Record Date and who may vote at the Annual Meeting?

A: Our Board of Directors (also referred to herein as the “Board” with the members of the Board referred to as "Directors") set March 14, 2018 as the record date for the Annual Meeting. All stockholders who owned Tempur Sealy International common stock of record at the close of business on March 14, 2018 may attend and vote at the Annual Meeting. Each stockholder is entitled to one vote for each share of common stock held on all matters to be voted on. On March 14, 2018, there were 54,335,304 shares of Tempur Sealy International common stock outstanding. The common stock is the only class of securities eligible to vote at the Annual Meeting. There are no cumulative voting rights.

Q: How many shares must be present at the Annual Meeting?

A: A majority of Tempur Sealy International’s outstanding shares of common stock as of the record date must be present at the Annual Meeting in order to hold the Annual Meeting and conduct business. This is called a quorum. Shares are counted as present at the Annual Meeting if you:

Are present and vote in person at the Annual Meeting; or
Have properly submitted a proxy card, via the Internet, telephone or by mail.

Abstentions and "broker non-votes" (as further described below) are counted as present and entitled to vote for purposes of determining a quorum.

Q: What proposals will be voted on at the Annual Meeting?

A: There are three proposals scheduled to be voted on at the Annual Meeting:

Election of seven (7) Directors to each serve for a one-year term and until the Director’s successor has been duly elected and qualified (Proposal One).
Ratification of the appointment of the firm of Ernst & Young LLP as Tempur Sealy International’s independent auditors for the year ending December 31, 2018 (Proposal Two).
Advisory vote to approve the compensation of our Named Executive Officers (Proposal Three).

Q: What is the voting requirement to approve the proposals?

A: At an annual meeting at which a quorum is present, the following votes will be necessary to approve the Proposals described in this Proxy Statement:

Each Director shall be elected by the affirmative vote of a majority of the votes cast at the Annual Meeting. The term “majority of the votes cast” means that the number of shares voted "for" a Director must exceed the number of shares voted "against" that Director, and for purposes of this calculation, abstentions, “broker non-votes” and “withheld votes” will not count as votes cast.
Ratification of the appointment of Ernst & Young LLP as independent auditors for the year ending December 31, 2018 requires the affirmative vote of the majority of shares present or represented by proxy and entitled to vote at the Annual Meeting.
Approval of the advisory vote on the compensation of our Named Executive Officers requires the affirmative vote of the majority of shares present or represented by proxy and entitled to vote at the Annual Meeting.
For proposals other than the election of Directors, abstentions are counted as votes present and entitled to vote and have the same effect as votes "against" the proposal.
Broker non-votes, if any, will be handled as described below.

Q: If I hold my shares in a brokerage account and do not provide voting instructions to my broker, will my shares be voted?

A: Under New York Stock Exchange (“NYSE”) rules, brokerage firms may vote in their discretion on certain matters on behalf of clients who do not provide voting instructions. Generally, brokerage firms may vote to ratify the appointment of independent auditors (Proposal Two) and on other "discretionary" or "routine" items in absence of instructions from the beneficial owner. In contrast, brokerage firms may not vote to elect Directors (Proposal One) or on stockholder or other proposals, including Proposal Three in this Proxy Statement, because those proposals are considered "non-discretionary" items. Accordingly, if you do not instruct your broker how to vote your shares on these "non-discretionary" matters, your broker will not be permitted to vote your shares on these matters. This is referred to as a "broker non-vote." Broker non-votes are

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counted for purposes of determining the number of shares present at the Annual Meeting, but will not be counted or deemed to be present, represented or voted for purposes of the number of shares entitled to vote.

Q: What is Tempur Sealy International’s voting recommendation?

A: Our Board of Directors recommends that you vote your shares "FOR" each of the nominees to the Board (Proposal One), "FOR" the ratification of the appointment of Ernst & Young LLP as Tempur Sealy International’s independent auditors for the year ending December 31, 2018 (Proposal Two); and "FOR" the advisory vote to approve the compensation of Named Executive Officers (Proposal Three).

Q: How would my shares be voted if I do not specify how they should be voted?

A: If you sign and return your proxy card without indicating how you want your shares to be voted, the persons designated by the Board of Directors to vote the proxies returned pursuant to this solicitation will vote your shares as follows:

Proposal One: "FOR" the election of seven (7) Directors to each serve for a one-year term and until the Director’s successor has been duly elected and qualified.
Proposal Two: "FOR" the ratification of the appointment of the firm of Ernst & Young LLP as Tempur Sealy International’s independent auditors for the year ending December 31, 2018.
Proposal Three: "FOR" the advisory vote to approve the compensation of our Named Executive Officers.

Q: Does Tempur Sealy International expect other business to be presented at the Annual Meeting?

A: Our Board of Directors is not aware of any business to be transacted at the Annual Meeting other than as described in this Proxy Statement. If any other item or proposal properly comes before the Annual Meeting (including, but not limited to, a proposal to adjourn the Annual Meeting in order to solicit votes in favor of any proposal contained in this Proxy Statement), the proxies will be voted as the Board of Directors recommends by the persons designated by the Board to vote the proxies.

Q: How may I vote my shares in person at the Annual Meeting?

A: Shares held directly in your name as the stockholder of record may be voted in person at the Annual Meeting. If you choose to attend the Annual Meeting, please bring the enclosed proxy card and proof of identification for entrance to the Annual Meeting. Please note, however, if you hold your shares in "street name," you must request a legal proxy from the stockholder of record (your broker or bank) in order to vote at the Annual Meeting.

Even if you plan to attend the Annual Meeting in person, please promptly sign, date and return the enclosed proxy card in the enclosed postage-paid envelope. If you own shares in "street name" through a bank, broker or other nominee, you may vote your shares by following the instructions from your bank, broker or other nominee.

Q: How may I vote my shares without attending the Annual Meeting?

A: You may vote in person at the Annual Meeting or by proxy. We recommend you vote by proxy even if you plan to attend the Annual Meeting. You may always change your vote at the Annual Meeting. Giving us your proxy means you authorize us to vote your shares at the Annual Meeting in the manner you direct.

If your shares are held in your name, you may vote by proxy in three convenient ways:

Via Internet: Go to http://www.proxyvote.com and follow the instructions. You will need to enter the control number printed on your proxy materials.

By Telephone: Call toll-free 1-800-690-6903 and follow the instructions. You will need to enter the control number printed on your proxy materials.

In Writing: Complete, sign, date and return your proxy card in the enclosed postage-paid envelope.

You may vote by Internet or telephone until 11:59 P.M., Eastern Time, the day before the Annual Meeting date. Proxy cards submitted by mail must be received by the time of the Annual Meeting for your shares to be voted as indicated on that proxy.

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If your shares are held in street name (with your broker or bank), you may vote by submitting voting instructions to your broker, bank or nominee. Please refer to the instructions provided to you by your broker, bank or nominee.

If you provide specific voting instructions, your shares will be voted as you have instructed.

Q: How may I change my vote after I return my proxy card?

A: You may revoke your proxy and change your vote at any time before the final vote at the Annual Meeting. You may do this by voting again at a later date via Internet or telephone or by signing and submitting a new proxy card with a later date by mail or by attending the Annual Meeting and voting in person. Attending the Annual Meeting will not revoke your proxy unless you specifically request it. If your shares are held for you by a broker, bank or nominee, you must contact the broker, bank or nominee to revoke a previously authorized proxy.

Q: Where can I find the voting results of the Annual Meeting?

A: The preliminary voting results will be announced at the Annual Meeting. The final results will be published on Form 8-K within four business days after the final results are known.


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BOARD OF DIRECTORS’ MEETINGS, COMMITTEES OF THE BOARD
AND RELATED MATTERS

Corporate Governance

The Company believes that sound corporate governance practices are essential to maintain the trust of our stockholders, customers, employees and other stakeholders. We believe we operate under governance practices that are transparent, up-to-date and appropriate for our industry.

The following materials related to corporate governance, including our Corporate Governance Guidelines and Code of Business Conduct and Ethics, are available on our website at: http://investor.tempursealy.com/overview under the caption "Corporate Governance":

Sixth Amended and Restated By-Laws (“By-Laws”)
Core Values
Corporate Governance Guidelines
Code of Business Conduct and Ethics for Employees, Executive Officers and Directors
Policy on Complaints on Accounting, Internal Accounting Controls and Auditing Matters
Amended and Restated Certificate of Incorporation, as amended ("Certificate of Incorporation")
Audit Committee Charter
Compensation Committee Charter
Nominating and Corporate Governance Committee Charter
Lead Director Charter
Related Party Transactions Policy
Governance Hotline Information
Conflict Minerals Policy
Clawback Policy
Contact the Lead Director

Copies of these materials may also be obtained, free of charge, by writing to: Tempur Sealy International, Inc., 1000 Tempur Way, Lexington, Kentucky 40511, Attention:  Investor Relations. Please specify which documents you would like to receive.

Certificate of Incorporation and By-Laws; Majority Voting for Directors

Tempur Sealy International’s By-Laws provide that a Director in an uncontested election will be elected by a majority of the votes cast at the Annual Meeting. In the event that the number of votes "against" a Director exceeds the number of votes "for" that Director, that Director must tender his or her resignation to the Board of Directors. The Nominating and Corporate Governance Committee will make a recommendation to the Board of Directors whether to accept the resignation. In an election for Directors where the number of nominees exceeds the number of Directors to be elected - a contested election - the Directors would be elected by the vote of a plurality of the shares represented at the meeting and entitled to vote on the matter. Neither Tempur Sealy International’s Certificate of Incorporation nor its By-Laws provide for a classified Board.

Board of Directors’ Meetings

The Board held thirteen meetings in 2017. The SEC requires disclosure of the name of any Director who, during the last full fiscal year (calendar year 2017), attended fewer than 75% of the aggregate of the total number of meetings of (i) the Board during the period for which he or she has been a Director and (ii) all committees of the Board on which the Director served during the periods that he or she served. Each Director attended more than 75% of the combined total number of meetings of the Board and its committees held in 2017 during the period in which they served as Directors or committee members.

Directors’ Independence

Our corporate governance guidelines provide that the Board shall consist of a majority of Directors who are independent within the meaning of the NYSE rules governing the composition of the Board and its committees (the “NYSE Independence Rules”). The Board has determined that none of Evelyn S. Dilsaver, John A. Heil, Jon L. Luther, Richard W. Neu, Arik W. Ruchim or Robert B. Trussell, Jr. have a material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) within the meaning of the NYSE Independence Rules and accordingly are "independent" for purposes of the NYSE Independence Rules.

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The Board has determined that Scott L. Thompson, who serves as Chairman, President and Chief Executive Officer of Tempur Sealy, does not qualify as an independent director under the NYSE Independence Rules.

Board Leadership Structure

As stated in its Corporate Governance Guidelines, the Board has no set policy with respect to the separation of the offices of Chairman and Chief Executive Officer ("CEO"). In connection with its search for a new CEO in 2015, both the Search Committee created for this purpose and the Board of Directors concluded that in order to attract a high quality CEO candidate with the experience and leadership skills desired, the Board would be willing to offer the candidate a position that included the Chairman role. Accordingly, in connection with hiring Mr. Thompson as Chairman and CEO, the Board created the Lead Director role as an integral part of a Board leadership structure that promotes strong, independent oversight of our management and affairs. The Lead Director must be independent as determined by the Board in accordance with the NYSE Independence Rules.

Following the 2016 Annual Meeting, Mr. Neu assumed the role of the Lead Director. The Lead Director:

presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent Directors;
has the authority to call meetings of the independent Directors;
serves as the principal liaison between the Chairman and the independent Directors;
consults with the Chairman regarding all information sent to the Board of Directors, including the quality, quantity, appropriateness and timeliness of such information;
consults with the Chairman regarding meeting agendas for the Board of Directors;
consults with the Chairman regarding the frequency of Board of Directors meetings and meeting schedules, assuring there is sufficient time for discussion of all agenda items;
recommends to the Nominating and Corporate Governance Committee and to the Chairman selections for the membership and chairman position for each Board committee;
interviews, along with the chair of the Nominating and Corporate Governance Committee, all Director candidates and makes recommendations to the Nominating and Corporate Governance Committee; and
will be invited to attend meetings of all other committees of the Board (other than meetings of committees on which he or she is already a member).

The Board believes that no single leadership model is universally or permanently appropriate, but that the current leadership structure is the most effective and best serves the Company at this juncture. The Board will continue to review and consider whether the roles of the Chairman and CEO should be combined or separated in the future as part of its regular review of the Company’s governance structure.

Board of Directors' Role in Risk Oversight

The Board is responsible for overseeing the management and operations of the Company, including overseeing its risk assessment and risk management functions. As discussed elsewhere in this Proxy Statement, the Board has delegated primary responsibility for reviewing the Company’s policies with respect to risk assessment and risk management to the Audit Committee. The Board has determined that this oversight responsibility can be most efficiently performed by the Audit Committee as part of its overall responsibility for providing independent, objective oversight with respect to Tempur Sealy International’s accounting and financial reporting functions, internal and external audit functions and systems of internal controls over financial reporting and legal, ethical and regulatory compliance. The Compensation Committee has primary responsibility for oversight of risk related to compensation matters, as more fully described elsewhere in this Proxy Statement. Each of these committees regularly reports to the Board with respect to its oversight of these important areas.

Committees of the Board

The standing committees of the Board are the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee.

The Audit Committee

The members of the Audit Committee are Evelyn S. Dilsaver (Chair), John A. Heil and Richard W. Neu.


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The Board has determined that each member of the Audit Committee is independent as defined in the NYSE Independence Rules and the rules of the SEC. The Board has also determined that all members of the Audit Committee are audit committee financial experts within the meaning of Item 407(d)(5)(ii) of Regulation S-K of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and have "accounting or related financial management expertise" within the meaning of the applicable NYSE Rules. See "Election of Directors-Nominees to Board of Directors" for disclosure regarding such audit committee financial experts’ relevant experience. The Audit Committee is an "audit committee" for purposes of Section 3(a)(58) of the Exchange Act.

The Audit Committee is responsible for providing independent, objective oversight with respect to Tempur Sealy International’s accounting and financial reporting functions, internal and external audit functions and systems of internal controls over financial reporting and legal, ethical and regulatory compliance. Some of the Audit Committee’s responsibilities include:

reviewing the scope of internal and independent audits;
reviewing the Company’s quarterly and annual financial statements and related SEC filings;
reviewing the adequacy of management’s implementation of internal controls;
reviewing the Company’s accounting policies and procedures and significant changes in accounting policies;
reviewing the Company’s business conduct, legal and regulatory requirements, and ethics policies and practices;
reviewing the Company’s policies with respect to risk assessment and risk management;
reviewing information to be disclosed and types of presentations to be made in connection with the Company’s earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies;
preparing an annual evaluation of the committee’s performance and reporting to the Board on the results of this self-evaluation;
reporting regularly to the Board on the committee’s activities; and
appointing the independent public accountants and reviewing their independence and performance and the reasonableness of their fees.

The Audit Committee has established whistleblower procedures, which provide for (a) the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls or auditing matters; and (b) the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. Tempur Sealy International also has a confidential, anonymous reporting system which is web-based and available to all employees. All reports are treated confidentially.

The Audit Committee met eight times in 2017. A copy of the Audit Committee charter as adopted by our Board of Directors is available on Tempur Sealy International’s website under the caption "Corporate Governance" at http://investor.tempursealy.com/overview.

The Compensation Committee

The members of the Compensation Committee are Jon L. Luther (Chair), Usman S. Nabi and Richard W. Neu.

The Board has determined that each member and prospective member of the Compensation Committee is independent as defined in the NYSE Independence Rules.

Some of the Compensation Committee’s responsibilities include:

reviewing and approving on an annual basis the corporate goals and objectives with respect to compensation for the Chief Executive Officer, evaluating at least once a year the Chief Executive Officer's performance in light of these established goals and objectives and, based upon these evaluations, determining and approving the Chief Executive Officer's annual compensation, including salary, bonus, incentive, equity compensation, perquisites and other personal benefits;
reviewing and approving on an annual basis, with the input of the Chief Executive Officer, the corporate goals and objectives with respect to the Company’s compensation structure for all other executive officers (other than the Chief Executive Officer), including perquisites and other personal benefits, and evaluating at least once a year the executive officers’ performance in light of these established goals and objectives and based upon these evaluations, determine and approve the annual compensation for these executive officers, including salary, bonus, incentive, equity compensation, perquisites and other personal benefits;
reviewing on an annual basis the Company’s compensation policies, including salaries and annual incentive bonus plans, with respect to the compensation of employees whose compensation is not otherwise set by the Compensation Committee;
reviewing the Company's incentive compensation and stock-based plans and approving changes in such plans as needed, subject to any approval of the Board required by applicable law or the terms of such plans, and having and exercising all the authority of the Board with respect to the administration of such plans;


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reviewing on an annual basis the Company’s compensation structure for its Directors and making recommendations to the Board regarding the compensation of Directors;
reviewing at least annually the Company’s compensation programs with respect to overall risk assessment and risk management, particularly with respect to whether such compensation programs encourage unnecessary or excessive risk taking by the Company;
reviewing and discussing with management the "Compensation Discussion and Analysis," and based on such review and discussions, making recommendations to the Board regarding inclusion of that section in the Company’s proxy statement for any annual meeting of stockholders;
preparing and publishing an annual executive compensation report in the Company's proxy statement;
reviewing and recommending to the Board for approval the frequency with which the Company will conduct Say on Pay Votes and reviewing and approving the proposals regarding Say on Pay Vote and the frequency of the Say on Pay Vote to be included in the Company’s proxy statement for any annual meeting of stockholders;
reviewing and approving employment agreements, severance arrangements and change in control agreements and provisions when, and if, appropriate, as well as any special supplemental benefits;
conducting an annual evaluation of the committee's performance and reporting to the Board on the results of this self-evaluation; and
reporting regularly to the Board on the committee's activities.

The Compensation Committee, in its role as administrator under the Company’s previous Amended and Restated 2003 Equity Incentive Plan, as amended (the “2003 Equity Incentive Plan”), and under the Company’s current Amended and Restated 2013 Equity Incentive Plan (the "2013 Equity Incentive Plan"), recommended, and the Board approved, the delegation of authority to the Company’s President and Chief Executive Officer to grant equity awards under those plans within certain specified parameters.

In determining the incentive compensation of our senior executives (other than for our Chief Executive Officer), our Chief Executive Officer recommends performance objectives to the Compensation Committee and assists the Compensation Committee to determine if the performance objectives have been achieved.

Since 2005, the Compensation Committee has periodically engaged Frederic W. Cook & Co., Inc. (“F.W. Cook”), an executive compensation consultant, to evaluate the Company’s overall compensation structure and equity compensation for the Company’s executive officers and Directors. In 2017, the Compensation Committee directly engaged F.W. Cook to continue to serve in this capacity and to provide other advice to the Compensation Committee. For a further description of the services F.W. Cook has provided, see "Executive Compensation and Related Information - Compensation Discussion and Analysis" in this Proxy Statement.

F.W. Cook does no work for the Company unless requested by and on behalf of the Compensation Committee Chair, receives no compensation from the Company other than for its work in advising the Compensation Committee and maintains no other economic relationships with the Company. A representative from F.W. Cook attends meetings of the Compensation Committee, when requested by the Compensation Committee Chair, and the Compensation Committee Chair frequently interacts with F.W. Cook between meetings to define the nature of work to be conducted, to review materials to be presented at committee meetings and to obtain the consultant’s opinion and perspective on proposals prepared by management. In accordance with the requirements of Item 407(e)(3)(iv) of Regulation S-K and the NYSE rules, the Compensation Committee has affirmatively determined that no conflicts of interest exist between the Company and F.W. Cook (or any individuals working on the Company’s account on F.W. Cook’s behalf). In reaching such determination, the Compensation Committee considered the following enumerated factors, all of which were attested to or affirmed by F.W. Cook:

during 2017, F.W. Cook provided no services to and received no fees from the Company other than in connection with the engagement;
the amount of fees paid or payable by the Company to F.W. Cook in respect of the engagement represented (or are reasonably certain to represent) less than 1% of F.W. Cook’s total revenue for the 12 month period ended December 31, 2017;
F.W. Cook has adopted and put in place adequate policies and procedures designed to prevent conflicts of interest, which policies and procedures were provided to the Company;
there are no business or personal relationships between F.W. Cook and any member of the Compensation Committee other than in respect of (i) the engagement, or (ii) work performed by F.W. Cook for any other company, board of directors or compensation committee for whom such Committee member also serves as an independent director;
F.W. Cook owns no stock of the Company; and
there are no business or personal relationships between F.W. Cook and any executive officer of the Company other than in respect of the engagement.


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The Compensation Committee met ten times in 2017. A copy of the Compensation Committee charter as adopted by our Board of Directors is available on Tempur Sealy International’s website under the caption "Corporate Governance" at http://investor.tempursealy.com/overview.

The Nominating and Corporate Governance Committee

The members of the Nominating and Corporate Governance Committee are John A. Heil (Chair), Evelyn S. Dilsaver, Jon L. Luther and Usman S. Nabi. The Board has determined that each member and prospective member of the Nominating and Corporate Governance Committee is independent as defined in the NYSE Independence Rules. Some of the Nominating and Corporate Governance Committee’s responsibilities include:

identifying individuals qualified to become members of the Board;
recommending to the Board Director nominees to be presented at the annual meeting of stockholders and to fill vacancies on the Board;
developing appropriate criteria for identifying properly qualified directorial candidates;
annually reviewing the composition of the Board and the skill sets and tenure of existing Directors and discussing longer-term transition issues;
annually reviewing and recommending to the Board members for each standing committee of the Board;
monitoring and participating in the Company's overall stockholder communications effort so that all of the communications elements are unified and consistent; members of the Committee, individually or collectively, may attend, with management, meetings with stockholders of the Company when requested by the Board or management;
establishing procedures to assist the Board in developing and evaluating potential candidates for executive positions, including the Chief Executive Officer;
reviewing various corporate governance-related policies, including the Code of Business Conduct and Ethics, the Related Party Transactions Policy, and the Policy on Insider Trading and Confidentiality, and recommending changes, if any, to the Board;
reviewing and evaluating related party transactions;
developing, annually reviewing and recommending to the Board corporate governance guidelines for the Company;
establishing procedures to exercise oversight of the Company's adherence to such guidelines and the evaluation of the Board and Company management;
reviewing at least annually the reports on the Company prepared by the major proxy advisory firms and provide a report to the Board;
developing and overseeing, when necessary, a Company orientation program for new Directors and a continuing education program for current Directors, and periodically reviewing these programs and updating them as necessary;
making recommendations to the Board in connection with any Director resignation tendered pursuant to the Company’s Amended and Restated By-Laws;
preparing an annual evaluation of the committee's performance and reporting to the Board on the results of this self-evaluation; and
reporting regularly to the Board on the committee's activities.

The Nominating and Corporate Governance Committee met seven times in 2017. A copy of the Nominating and Corporate Governance Committee charter as adopted by our Board of Directors is available on Tempur Sealy International’s website under the caption "Corporate Governance" at http://investor.tempursealy.com/overview.

Compensation Committee Interlocks and Insider Participation

The members of our Compensation Committee are Jon L. Luther (Chair), Usman S. Nabi and Richard W. Neu. None of these members is a current or former officer or employee of Tempur Sealy International or, to our knowledge, has any interlocking relationships as set forth in applicable SEC rules that require disclosure as a Compensation Committee interlock.

Policy Governing Related Party Transaction

Our Board has adopted a written Related Party Transactions Policy providing for the review and approval or ratification by the Nominating and Corporate Governance Committee of any transaction, arrangement or relationship, or series of such transactions, arrangements or relationships (including indebtedness or guarantees of indebtedness), in which the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year end and involving the Company and its Directors, executive officers, beneficial owners of more than 5% of the Company’s common stock or any such party's respective immediate family members or affiliates. In reviewing a transaction, an arrangement or relationship, the Nominating and Corporate Governance Committee will take into account, among other factors it deems appropriate, whether it is on terms no more favorable than to an unaff

12



iliated third party under similar circumstances, as well as the extent of the related party’s interest in the transaction, arrangement or relationship.

Policies Governing Director Nominations

Director Qualifications and Review of Director Nominees

The Nominating and Corporate Governance Committee evaluates and recommends candidates for membership on our Board consistent with the needs and goals of the Company's business. In performing this role, the Nominating and Corporate Governance Committee regularly assesses the size and composition of the Board. It conducts an annual review with the Board relating to the Board's composition and recommends, if necessary, measures to be taken so that the Board's membership reflects an appropriate balance of knowledge, experience, skills, expertise and diversity. The Nominating and Corporate Governance Committee also ensures that the Board contains at least the minimum number of independent directors required by applicable laws and regulations. The Nominating and Corporate Governance Committee is responsible for ensuring that the composition of the Board accurately reflects the needs of the Company’s business and, in furtherance of this goal, periodically proposes the addition or removal of members in order to obtain the appropriate balance of members and skills. Consistent with the Company's policies, Board members should possess certain attributes and experience that are conducive to representing the best interests of our stockholders, including independence, a reputation for integrity, honesty and adherence to high ethical standards, the ability to exercise sound business judgment, substantial business or professional experience and the ability to offer meaningful advice and guidance to the Company's management. Directors should be able to commit the requisite time for preparation and attendance at regularly scheduled Board and committee meetings, as well as be able to participate in other matters necessary to ensure that good corporate governance is practiced. No individual may stand for election to the Board if he or she would be age 75 or older at the time of the election unless the Board takes action to waive this requirement each year following the affected Director's 74th birthday. The Nominating and Corporate Governance Committee also considers numerous other qualities, skills and characteristics when evaluating Director nominees, including whether the nominee has specific strengths that would augment the existing skills and experience of the Board, such as an understanding of and experience in international business, accounting, governance, finance or marketing and whether the nominee has leadership experience with public companies or other sophisticated and complex organizations. Further, consideration is given to having a diversity of background, experience, skill and perspective among the Directors, including perspectives that may result from diversity in ethnicity, race, gender, national origin or nationality, and that the Directors represent a range of differing professional positions, industry sectors, expertise and geographic representation. In addition, the Nominating and Corporate Governance Committee is responsible for considering the tenure of existing Directors and longer-term Board composition transition issues. The Board does not have a specific policy with respect to the diversity of its Directors, and diversity is only one consideration when selecting and nominating Directors.

The Nominating and Corporate Governance Committee is responsible for reviewing with the Board from time to time the appropriate qualities, skills and characteristics desired of members of the Board in the context of the needs of the business and the composition of the Board. This assessment includes consideration of all the attributes set forth above.

In addition to fulfilling the above criteria, six of the seven nominees for re-election named above are considered independent under the NYSE Independence Rules. Mr. Thompson, the Company's Chairman, President and Chief Executive Officer, is not considered independent under the NYSE Independence Rules. The Nominating and Corporate Governance Committee believes that all seven nominees are independent of the influence of any particular stockholder or group of stockholders whose interests may diverge from the interests of our stockholders as a whole.

Each nominee also brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas, including corporate governance and board service, executive management, investing, finance, manufacturing, consumer product companies, sales, marketing and international business. Set forth below are the conclusions reached by the Board with regard to its nominees.

Ms. Dilsaver brings significant accounting, auditing and financial skills, based on her training as an accountant and her senior positions at a number of financial services companies, including in the role of chief financial officer.

Mr. Heil has served in positions of president, chief executive officer or chief operating officer of a number of food and consumer products companies, and has significant manufacturing, marketing and managerial experience.

Mr. Luther brings a strong track record of profitably growing large global consumer branded businesses, with a keen understanding of the consumer, and notable brand development expertise. He has significant relevant experience as a CEO and as a director of other high-performance public companies.


13



Mr. Neu has extensive knowledge and experience handling complex financial and operational issues through his service as both a director and executive officer of a variety of public companies.

Mr. Ruchim brings significant investment and financial expertise, as well a strong record of stockholder value creation and expertise in senior management recruitment and compensation.

Mr. Thompson serves as our Chairman, President and Chief Executive Officer and brings more than two decades of executive leadership experience, and a history of strategic focus, enhancing high-performance teams and stockholder value creation.

Mr. Trussell, as former Chief Executive Officer and a principal founder of the Company, brings management and mattress industry experience and an historical perspective to the Board.

Process for Identifying and Evaluating Director Nominees

As discussed above under "Director Qualifications and Review of Director Nominees," the Nominating and Corporate Governance Committee reviews annually the size and composition of the Board and makes recommendations to the Board regarding any measures to be taken. In addition, the Nominating and Corporate Governance Committee has established a process for identifying potential candidates when appropriate and evaluating nominees for Director. Although the Nominating and Corporate Governance Committee will consider nominees recommended by stockholders in accordance with the Company's By-Laws, the Nominating and Corporate Governance Committee believes that the process it uses to identify and evaluate nominees for Director is designed to produce nominees that possess the educational, professional, business and personal attributes that are best suited to further the Company's mission. If the Board has identified a need to either expand the Board with a new member possessing certain specific characteristics or to fill a vacancy on the Board, the Nominating and Corporate Governance Committee may identify nominees through the use of professional search firms that may utilize proprietary screening techniques to match candidates to the Nominating and Corporate Governance Committee's specified qualifications. The Nominating and Corporate Governance Committee may also receive recommendations from existing Directors, executive officers, stockholders, key business associates and trade or industry affiliations. The Nominating and Corporate Governance Committee will evaluate nominations at regular or special meetings, and in evaluating nominations, will seek to achieve a balance of knowledge, experience and capability on the Board and to address the membership criteria set forth above under "Director Qualifications and Review of Director Nominees." The Board itself is ultimately responsible for recommending candidates for election to the stockholders or for appointing individuals to fulfill a vacancy.

In 2017, the Company did not employ a search firm or pay fees to any third party to either search for or evaluate Board nominee candidates.

Procedures for Recommendation of Director Nominees by Stockholders

The Nominating and Corporate Governance Committee will consider Director candidates recommended by our stockholders, in accordance with the Company's By-Laws. In evaluating candidates recommended by our stockholders, the Nominating and Corporate Governance Committee applies the same criteria set forth above under "Director Qualifications and Review of Director Nominees" and follows the same process as set forth above under "Process for Identifying and Evaluating Director Nominees." Any stockholder recommendations of Director nominees proposed for consideration by the Nominating and Governance Committee should include the nominee's name and qualifications for Board membership and should be addressed in writing to the Committee, care of: Tempur Sealy International, Inc., 1000 Tempur Way, Lexington, Kentucky 40511, Attention: Corporate Secretary. The Company’s By-Laws permit stockholders to nominate Directors for consideration at our 2019 annual stockholder meeting in accordance with certain procedures described in this Proxy Statement under the heading "Stockholder Proposals for 2019 Proxy Statement."

Designation of, and Communication with, Tempur Sealy International’s Board of Directors through its Lead Director

The Board has designated Mr. Neu as the Lead Director. Stockholders or other interested parties wishing to communicate with our Board may contact the Lead Director by e‑mail at presidingdirector@tempursealy.com or by going to Tempur Sealy International’s website at http://investor.tempursealy.com/overview under the caption "Corporate Governance - click here to email the Lead Director." Regardless of the method you use, the Lead Director will be able to view your unedited message. The Lead Director will determine whether to relay your message to other members of the Board.


14



Executive Sessions

Executive sessions, or meetings of the outside (non-management) Directors without management present, are held regularly. In 2017, the independent Directors met several times in executive session without members of management present. Executive sessions are led by the Lead Director.


Charitable Contributions

Tempur Sealy International has not made charitable contributions to any charitable organization for which a Director serves as an executive officer that exceeded the greater of $1.0 million or 2% of such organization's consolidated gross revenues for any single year within the preceding three years.

Board Member Attendance at Annual Meetings

In accordance with our Corporate Governance Guidelines, all continuing Directors are generally expected to attend the annual meeting of stockholders. At our last annual meeting, which was held on May 11, 2017, all the members of the Board attended.

15



PROPOSAL ONE
 
ELECTION OF DIRECTORS

Board of Directors

Tempur Sealy International’s Board currently consists of seven members, each serving a one-year term. The current Directors are: Evelyn S. Dilsaver, John A. Heil, Jon L. Luther, Usman S. Nabi, Richard W. Neu, Scott L. Thompson and Robert B. Trussell, Jr. Each of the nominees for election to the Board, other than Mr. Ruchim, is currently a Director of Tempur Sealy International. As discussed in more detail below under "Agreements with H Partners," the Company has agreed with H Partners to nominate Mr. Ruchim for election to the Board in connection with the pending departure of Mr. Nabi from H Partners. The nominees, if elected, will each serve a one-year term until Tempur Sealy International’s Annual Meeting of Stockholders in 2019 or until his or her respective successor is elected and qualified. Each of the nominees has consented to serve a one-year term. There are no family relationships among our executive officers and Directors.

VOTE REQUIRED

Each Director will be elected by the affirmative vote of a majority of the shares of common stock present or represented by proxy at the Annual Meeting. In the event that the number of votes "against" a Director exceeds the number of votes "for" that Director, that Director must tender his or her resignation to the Board of Directors. The Nominating and Corporate Governance Committee will make a recommendation to the Board of Directors whether to accept the resignation. The Board of Directors will then consider the recommendation and publicly disclose its decision within 90 days after the certification of the election results.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION TO THE BOARD OF DIRECTORS OF EACH OF THE FOLLOWING NOMINEES:

Nominees to Board of Directors

Evelyn S. Dilsaver, 62, has served as a member of Tempur Sealy International’s Board of Directors since December 2009. Ms. Dilsaver was President and Chief Executive Officer of Charles Schwab Investment Management from July 2004 until September 2007. Prior to that, Ms. Dilsaver held various senior management positions with The Charles Schwab Corporation since December 1991, including Executive Vice President and Senior Vice President, Asset Management Products and Services, of Charles Schwab Investment Management and Chief Financial Officer for U.S. Trust Company. Ms. Dilsaver is also a member of the board of directors of TRO Liquidation, Inc., formerly Aeropostale, Inc., a clothing retailer, HealthEquity, Inc., a non-bank health savings trustee, Bailard Private Real Estate Fund, as well as Blue Shield of California and other non-profit boards. She also serves as a member of the advisory board of Protiviti Inc., a global consulting company. During the past five years, Ms. Dilsaver also served as a director of HighMark Funds, an asset management firm. Ms. Dilsaver is a certified public accountant and holds a B.S. degree in accounting from California State University-Hayward. Ms. Dilsaver brings to the Board a long professional career in finance, accounting and general management and considerable experience with consumer-oriented businesses as a senior executive of a large investment management firm and her many years of serving as a director of companies in a variety of businesses.

John A. Heil, 65, has served as a member of Tempur Sealy International’s Board of Directors since March 2008. From February 2005 until his retirement in April 2013, he served as President of United Pet Group, Inc., a global manufacturer and marketer of pet food and supplies and a subsidiary of Spectrum Brands, Inc. Spectrum Brands, Inc. filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in February 2009 and emerged from bankruptcy protection on August 28, 2009. From 2000 to February 2005, he served as United Pet Group’s President and Chief Executive Officer. Mr. Heil was a member of the board of directors and the audit committee of VCA Antech, Inc., an NYSE listed company, from February 2002 until October 2017, and previously served as a director of that company from 1995 to 2000. Prior to joining United Pet Group, Mr. Heil spent twenty-five years with the H.J. Heinz Company in various executive and general management positions including President of Heinz Pet Products. Mr. Heil holds a B.A. degree in economics from Lycoming College. Mr. Heil’s long career in management and the branded consumer products arena brings to the Board a remarkable depth of operational and strategic experience.

Jon L. Luther, 74, has served as a member of Tempur Sealy International’s Board of Directors since May 2015. He served as Chief Executive Officer of Dunkin’ Brands Group, Inc. from January 2003 to January 2009 and Chairman from March 2006 to January 2009. In January 2009, he assumed the role of Executive Chairman and became non-Executive Chairman from July 2010 until his retirement in May 2013. Prior to Dunkin’ Brands, Mr. Luther was President of Popeyes, a division of AFC Enterprises, Inc., from February 1997 to December 2002. Prior to Popeyes, Mr. Luther served as President of CA One Services, a subsidiary of Delaware North Companies, Inc., a global food service and hospitality company, and served as President and CEO o

16



f Benchmark Services, Inc., a food services company he founded. Earlier in his career, Mr. Luther held various leadership positions at Marriott Corporation and ARAMARK. Mr. Luther is a member of the board of directors of Six Flags Entertainment Corporation and Inspire Brands, Inc. and serves on the advisory board of Staple Street Capital Group, LLC. Mr. Luther holds a degree in hotel and restaurant management from Paul Smith’s College as well as Honorary Doctorate degrees from four colleges and universities. Mr. Luther brings to the Board a strong track record of profitably growing large global consumer-branded businesses, with a keen understanding of the consumer, and notable brand development expertise. He has significant relevant experience as a CEO and as a director of other high-performance public companies.

Richard W. Neu, 62, has served as a member of Tempur Sealy International’s Board of Directors since October 2015. Mr. Neu’s professional career has spanned over 35 years. For the last 12 years Mr. Neu has served in a variety of Board roles. Mr. Neu currently serves on the board of directors, as chair of the audit committee and as a member of the executive committee of Huntington Bancshares Incorporated, and as a member of the board of directors of Oxford Square Capital Corp. Until the sale of the company in 2012, he was the lead director and a member of the audit committee and governance committee of Dollar Thrifty Automotive Group, Inc., having served as the chairman of the Dollar Thrifty board of directors from 2010 through 2011. Mr. Neu also served as a director of MCG Capital Corporation, a business development corporation, from 2007 until its sale in 2015, and during this period served as chairman of the board from 2009 to 2015 and as Chief Executive Officer from November 2011 to November 2012. Mr. Neu served from 1985 to 2004 as Chief Financial Officer of Charter One Financial, Inc., a major regional bank holding company, and a predecessor firm, and as a director of Charter One Financial, Inc. from 1992 to August 2004. Mr. Neu previously worked for KPMG as a senior audit manager. Mr. Neu received a B.B.A. from Eastern Michigan University with a major in accounting. Mr. Neu has extensive knowledge and experience handling complex financial and operational issues through his service as both a director and executive officer of a variety of public companies.

Arik W. Ruchim, 37, is a Partner at H Partners, an investment management firm and Tempur Sealy International's largest shareholder. Prior to joining H Partners in 2008, Mr. Ruchim was at Creative Artists Agency and Cruise/Wagner Productions. Mr. Ruchim previously served as a director of Remy International, Inc., a global manufacturer of automotive parts, and as a director of Dick Clark Productions, a television production company. Mr. Ruchim serves as a member of the University of Michigan's Tri-State Leadership Council, a group dedicated to enhancing educational opportunities for undergraduate and graduate students. Mr. Ruchim has a Bachelor of Business Administration with Distinction from the University of Michigan. Mr. Ruchim brings to the Board a strong business and financial background and extensive investment experience.

Scott L. Thompson, 59, has served as Chairman of Tempur Sealy International’s Board of Directors and as its President and Chief Executive Officer since September 2015. He previously served as Chief Executive Officer and President of Dollar Thrifty Automotive Group, Inc. until it was purchased by Hertz Global Holdings, Inc. in 2012. Prior to serving as CEO and President, Mr. Thompson was a Senior Executive Vice President and Chief Financial Officer of Dollar Thrifty. Prior to joining Dollar Thrifty in 2008, Mr. Thompson was a consultant to private equity firms, and was a founder of Group 1 Automotive, Inc., an NYSE and Fortune 500 company, serving as its Senior Executive Vice President, Chief Financial Officer and Treasurer. Mr. Thompson served as Chairman of Dollar Thrifty from December 2011 to September 2015. He served as a member of the board of directors, and, for part of that time as the Non-Executive Chairman, of Houston Wire & Cable Company, a publicly-traded provider of industrial products, from November 2007 to September 2015. Mr. Thompson also served as a member of the board of directors of Conn's, Inc., a publicly-traded retailer of consumer furniture, from June 2004 to September 2015 and of Asbury Automotive Group, Inc., a publicly-traded automotive retailer, from January 2015 to February 2018. Mr. Thompson earned a Bachelor of Business Administration degree from Stephen F. Austin State University in Nacogdoches, Texas, and began his career with a national accounting firm. Mr. Thompson brings to the Board extensive financial, operational and entrepreneurial experience to the Board in his roles as an executive officer and director of publicly traded companies.

Robert B. Trussell, Jr., 66, has served as a member of Tempur Sealy International’s Board of Directors or its predecessors since 2002. Mr. Trussell served as Chief Executive Officer of Tempur Sealy International or its predecessors from November 2002 until his retirement in May 2006. From 1994 to December 2004, Mr. Trussell served as President of the Company and its predecessors. Prior to joining the Company's predecessor in 1994, Mr. Trussell was general partner of several racing limited partnerships that owned racehorses in England, France and the United States. He was also the owner of several start-up businesses in the equine lending and insurance business. Mr. Trussell received his B.S. degree from Marquette University. As former Chief Executive Officer and a principal founder of Tempur Sealy, Mr. Trussell brings to the Board significant management and mattress industry experience and an historical perspective.


17



Executive Officers
Name
 
Age
 
Position
Scott L. Thompson
 
59
 
Chairman of the Board, President and Chief Executive Officer
Bhaskar Rao
 
52
 
Executive Vice President and Chief Financial Officer
Richard W. Anderson
 
58
 
Executive Vice President and President, North America
David Montgomery
 
57
 
Executive Vice President and President, International Operations
Scott Vollet
 
54
 
Executive Vice President, Global Operations
H. Clifford Buster, III
 
48
 
Executive Vice President, Direct to Consumer, North America

Bhaskar Rao was appointed to serve as Executive Vice President and Chief Financial Officer of Tempur Sealy International in October 2017. Mr. Rao joined Tempur Sealy International as Director of Financial Planning and Analysis in January 2004 and, from April 2011 until his appointment as Executive Vice President and Chief Financial Officer, served as Senior Vice President and Chief Accounting Officer. From January 2004 to April 2011, he held various roles of increasing responsibility in the Company's finance and accounting organization. From 2002 until December 2003, Mr. Rao was employed by Ernst & Young as a Senior Manager in the assurance and business advisory group, and from 1994 until 2002, he was employed by Arthur Andersen. Mr. Rao earned B.A. degrees in Accounting and Economics from Bellarmine University. Mr. Rao is also a Certified Public Accountant.

Richard W. Anderson joined Tempur Sealy International in July 2006 and serves as Executive Vice President and President, North America. From 1983 to 2006, Mr. Anderson was employed by The Gillette Company, which became a part of The Procter & Gamble Company in 2005. Mr. Anderson most recently served as the Vice President of Marketing for Oral-B and Braun in North America. Previously, Mr. Anderson was the Vice President of Global Business Management for Duracell. Mr. Anderson has held several management positions in marketing and sales as well as overseeing branding, product development and strategic planning. Mr. Anderson earned a B.S. and an M.B.A. from Virginia Tech.

David Montgomery joined Tempur Sealy International in February 2003 and serves as Executive Vice President and President, International, with responsibilities including marketing and sales. From 2001 to November 2002, Mr. Montgomery was employed by Rubbermaid, Inc., where he served as President of Rubbermaid Europe. From 1988 to 2001, Mr. Montgomery held various management positions at Black & Decker Corporation, most recently as Vice President of Black & Decker Europe, Middle East and Africa. Mr. Montgomery received his B.A. degree, with honors, from L’ Ecole Superieure de Commerce de Reims, France and Middlesex Polytechnic, London.

Scott Vollet joined Tempur Sealy International in August 2009 and currently serves as Executive Vice President, Global Operations. From 1987 to 2009, Mr. Vollet was employed by Texas Instruments Incorporated, Gemini Management Consulting and Lexmark International, Inc. Mr. Vollet was previously Vice President of Tempur Sealy Global Supply Chain. He began leading the Global Operations team at Tempur Sealy International in 2013. Mr. Vollet earned a B.S. in Industrial Engineering from the University of Missouri and an M.B.A. from the University of Dallas.

H. Clifford Buster, III joined Tempur Sealy International as Executive Vice President, Direct to Consumer, North America in September 2017. From February 2015 to August 2017, Mr. Buster served as the Chief Financial Officer of Berkshire Hathaway Automotive, Inc. From November 2013 to January 2015, Mr. Buster served as an Executive Vice President at Exeter Financial Corp. Mr. Buster has also held leadership positions at Dollar Thrifty Automotive Group, Inc., Helix Energy Solutions Group, Inc. and Group 1 Automotive, Inc. Mr. Buster earned a Bachelor of Accountancy from the University of Mississippi.




18



PRINCIPAL SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS

The following table sets forth information as of March 14, 2018, regarding the beneficial ownership of our outstanding equity securities by:

each person known to beneficially own more than 5% of Tempur Sealy International’s outstanding common stock;
each of Tempur Sealy International’s Directors and Named Executive Officers (as defined below in "Executive Compensation and Related Information"); and
all of Tempur Sealy International’s Directors and executive officers as a group.

Beneficial ownership of shares is determined under Rule 13d-3(d)(1) of the Exchange Act and generally includes any shares over which a person exercises sole or shared voting or investment power and the number of shares that can be acquired within sixty (60) days upon exercise of any option or the conversion of other types of securities. Common stock subject to these options, warrants and rights is deemed to be outstanding for the purpose of computing the ownership percentage of the person holding such options, but is not deemed to be outstanding for the purpose of computing the ownership percentage of any other person. As of the close of trading on March 14, 2018, there were 54,335,304 shares of common stock outstanding, which is used to calculate the percentages in the table below.

Except as otherwise indicated, the persons named in the table below have sole voting and investment power with respect to all shares of common stock held by them.
 
Shares Beneficially Owned
 
Number of
Percentage
Name of Beneficial Owner:
Shares
of Class
5% Stockholders:
 
 
H Partners Management, LLC(1)
7,311,200

13.46
%
Manulife Financial Corporation(2)
6,831,076

12.61

The Vanguard Group(3)
3,829,409

7.06

Blackrock, Inc.(4)
3,722,871

6.90

Greenlight Capital, Inc.(5)
2,824,000

5.20

Echinus Advisors, LLC(6)
2,761,040

5.10

Dynamo Internacional Gestão de Recursos Ltda.(7)
2,758,966

5.10

 
 
 
Named Executive Officers and Directors:
 

 

Scott L. Thompson(8)(9)
562,151

1.03

Bhaskar Rao(9)
31,878

*

Richard W. Anderson(9)
117,775

*

David Montgomery(9)
455,814

*

Scott Vollet(9)
35,010

*

Jay G. Spenchian
39,878

*

Barry A. Hytinen
36,979

*

Evelyn S. Dilsaver(9)
35,804

*

John A. Heil(9)
35,938

*

Jon L. Luther(9)
15,337

*

Usman S. Nabi(1)
see Note(1)

see Note(1)

Richard W. Neu(9)
37,197

*

Arik W. Ruchim(1)
see Note(1)

see Note(1)

Robert B. Trussell, Jr.(9),(10)
24,213

*

All Executive Officers and Directors as a group (12 persons(9)):
1,446,774

2.63
%

* Represents ownership of less than 1% of class.


19



(1
)
Amounts shown reflect the aggregate number of shares of common stock held by H Partners Management, LLC and certain of its affiliates based on information set forth in an amendment to Schedule 13D filed with the SEC on March 12, 2018. H Partners Management, LLC reported shared voting power and shared dispositive power over all 7,311,200 shares. H Partners, LP reported shared voting power and shared dispositive power over 5,321,100 shares. H Partners Capital, LLC reported shared voting power and shared dispositive power over 5,321,100 shares. Rehan Jaffer, as the managing member of H Partners Management, LLC and H Partners Capital, LLC, respectively, reported shared voting power and shared dispositive power over all 7,311,200 shares. The address of H Partners Management, LLC is 888 Seventh Avenue, 29th Floor, New York, NY 10019. Mr. Nabi, a Senior Partner at H Partners, and Mr. Ruchim, a Partner at H Partners, may be deemed to have voting and dispositive power with respect to certain of these shares. Mr. Nabi and Mr. Ruchim each disclaim beneficial ownership of these shares, except to the extent of their respective pecuniary interests.
(2
)
Amounts shown reflect the aggregate number of shares of common stock held by Manulife Financial Corporation and its indirect, wholly-owned subsidiaries based on information set forth in a Schedule 13G filed with the SEC on February 13, 2018. Manulife Asset Management (US) LLC reported sole voting power and sole dispositive power over 6,831,076 shares. Manulife Asset Management (North America) Limited reported sole voting power and sole dispositive power over 41,871 shares. Manulife Asset Management Limited reported sole voting power and sole dispositive power over 34,681 of the shares. The address of Manulife Financial Corporation is 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5.
(3
)
Amounts shown reflect the aggregate number of shares of common stock held by The Vanguard Group based on information set forth in an amendment to Schedule 13G filed with the SEC on February 12, 2018. The Vanguard Group reported sole voting power over 25,016 shares, shared voting power over 6,799 shares, sole dispositive power over 3,801,282 shares and shared dispositive power over 28,127 shares. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, PA 19355.
(4
)
Amounts shown reflect the aggregate number of shares of common stock held by Blackrock, Inc. based on information set forth in an amendment to Schedule 13G filed with the SEC on January 23, 2018. Blackrock, Inc. reported sole voting power over 3,544,752 shares and sole dispositive power over all 3,872,871 shares. The address of Blackrock, Inc. is 55 East 52nd Street, New York, NY 10055.
(5
)
Amounts shown reflect the aggregate number of shares of common stock held by Greenlight Capital, Inc. ("Greenlight") and certain of its affiliates based on information set forth in a Schedule 13G filed with the SEC on February 14, 2018. Greenlight reported shared voting power and shared dispositive power over 1,516,100 shares. DME Advisors, LP reported shared voting and shared dispositive power over 512,700 shares. DME Capital Management, LP reported shared voting and shared dispositive power over 795,200 shares. DME Advisors GP, LLC reported shared voting and shared dispositive power over 1,307,900 shares. David Einhorn, as the principal of Greenlight, reported shared voting and shared dispositive power over 2,824,000 shares. The address of Greenlight is 140 East 45th Street, 24th Floor, New York, NY 10017.
(6
)
Amounts shown reflect the aggregate number of common stock held by Echinus Advisors, LLC and Philip Uhde based on information set forth in a Schedule 13G filed with the SEC on February 14, 2018. Echinus Advisors, LLC reported shared voting power and shared dispositive power over 2,761,040 shares. Philip Uhde reported shared voting power and shared dispositive power over 2,761,040 shares. The address of Echinus Advisors, LLC and Philip Uhde is 69 Mercer Street, 5th Floor, New York, NY 10012.
(7
)
Amounts shown reflect the aggregate number of shares of common stock held by Dynamo Internacional Gestão de Recursos Ltda. ("Dynamo") based on information set forth in a Schedule 13G filed with the SEC on February 14, 2018. Dynamo reported sole voting power over 2,758,966 shares, sole dispositive power over 220,209 shares and shared dispositive power over 2,538,757 shares. The address of Dynamo is Av. Ataulfo de Paiva, 1235-6 Andar, Rio de Janeiro D5 22440-034, Brazil.
(8
)
Includes 75,721 shares of common stock which are the result of the vesting of restricted stock units, however payout of the vested common shares is deferred until thirty days following termination of his employment.
(9
)
Includes the following number of shares of common stock which a Director or executive officer has the right to acquire upon the exercise of stock options that were exercisable as of March 14, 2018, or that will become exercisable within 60 days after that date, or other equity instruments which are scheduled to vest and convert into common shares within 60 days after that date:
 
Name
Number of Shares
Name
Number of Shares
 
Scott L. Thompson
301,810
Evelyn S. Dilsaver
19,789
 
Bhaskar Rao
20,266
John A. Heil
10,998
 
Richard W. Anderson
51,462
Jon L. Luther
1,669
 
David Montgomery
124,241
Usman S. Nabi
 
Clifford Buster
Richard W. Neu
675
 
Scott Vollet
19,718
Arik W. Ruchim
 
 
 
Robert B. Trussell, Jr.
12,598
 
All Executive Officers and Directors as a Group (12 persons):
 
563,226

20



(10
)
Includes 25,000 shares of common stock owned by RBT Investments, LLC, Robert B. Trussell, Jr. and Martha O. Trussell as tenants in common.

Agreements with H Partners
2017 Agreement. On June 26, 2017, the Company entered into a Non-Disclosure and Standstill Agreement (the “2017 Agreement”) with Usman Nabi, a Director of the Company (referred to in the 2017 Agreement as the “Director”), and H Partners Management, LLC (“H Partners”); H Partners, LP; H Partners Capital, LLC; P H Partners LTD; H Offshore Fund LTD.; and Rehan Jaffer (together with H Partners, the “H Partners Group”), which collectively beneficially owned 7,311,200 shares of the outstanding common stock of the Company, par value $0.01 per share (the “Common Stock”) as of March 14, 2018.
The 2017 Agreement provides for (i) certain confidentiality obligations for the Director, (ii) the ability of the Director to disclose Confidential Information (as defined in the 2017 Agreement) to his legal counsel and to other parties within the H Partners Group for the purpose of assisting him in the performance of his duties as a Director of the Company, (iii) requiring compliance with the Company’s Insider Trading Policy (as defined in the 2017 Agreement) and the Company’s “trading window” and preclearance requirements, and (iv) customary “standstill’ provisions that generally prohibit each H Partners Group Member (as defined in the 2017 Agreement) from taking specified action with respect to the Company and its securities, including, among others: (x) acquiring beneficial ownership of twenty percent (20%) or more of the Company’s then outstanding Common Stock in the aggregate (among all of the H Partners Group Members and their Affiliates and Associates (as defined in the 2017 Agreement)) or (y) seeking or in any way assisting or facilitating any other person in seeking, among other things, to acquire control of the Company or to engage in certain other extraordinary transactions with respect to the Company or any of its subsidiaries or any material portion of its or their businesses, all as more fully described in the Agreement. The 2017 Agreement contains no restrictions on the ability of the H Partners Group to vote its shares of Common Stock, including in any proxy contest, or to transfer its Common Stock. In addition, the standstill provisions under the 2017 Agreement do not purport to prevent the Director or any other Director from exercising his or her rights to comply with his or her fiduciary duties as a Director of the Company or from participating in board room discussions or private discussions with other members of the Board.
Either the Company or the Director may terminate the right described above to share information at any time by written notice. The date these rights terminate, either in accordance with the terms of the 2017 Agreement or otherwise, is referred to as the “Information Termination Date.” The standstill provisions described above terminate six months after the Information Termination Date.
The above summary of the terms of the 2017 Agreement does not purport to be complete and is qualified in its entirety by reference to the Agreement, a copy of which is filed as an exhibit to the Company’s Current Report on Form 8-K filed on June 28, 2017.
2018 Agreement. In connection with the pending departure of Mr. Nabi from H Partners, the Company and H Partners entered into a letter agreement pursuant to which (i) the Company agreed to nominate Mr. Ruchim to the Company’s Board at the Annual Meeting, (ii) the H Partners Group members agreed to vote at the Annual Meeting in favor of the Company’s nominees for the Board of Directors, and (iii) Mr. Ruchim will be permitted to share information with H Partners and certain related parties as the “Director” pursuant to the 2017 Agreement and will be required to comply with the obligations of the Director in the 2017 Agreement.




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EXECUTIVE COMPENSATION AND RELATED INFORMATION

COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis (“CD&A") is organized into eight sections:
 
 
Page


INTRODUCTION

This CD&A provides information about the material components of our executive compensation programs for our Named Executive Officers ("NEOs"), whose compensation is set forth in the 2017 Summary Compensation Table and other compensation tables contained in this Proxy Statement:
Scott L. Thompson, Chairman, President and Chief Executive Officer ("CEO");
Bhaskar Rao, Executive Vice President and Chief Financial Officer ("CFO");
Richard W. Anderson, Executive Vice President and President, North America;
David Montgomery, Executive Vice President and President, International;
Scott J. Vollet, Executive Vice President, Global Operations;
Barry A. Hytinen, former Executive Vice President and CFO; and
Jay G. Spenchian, former Executive Vice President and Chief Marketing Officer.

We had several changes in our senior leadership team in 2017 and early 2018. H. Clifford Buster, III joined the Company in September 2017 as Executive Vice President, Direct to Consumer, North America. Bhaskar Rao was promoted to Executive Vice President and CFO effective October 13, 2017. Prior to that he was serving as Senior Vice President, Finance and Chief Accounting Officer. During 2017, Scott J. Vollet served as Senior Vice President, Global Operations and effective January 1, 2018 was promoted to Executive Vice President, Global Operations. As discussed later in this CD&A, Jay G. Spenchian, our former Executive Vice President and Chief Marketing Officer, left the Company effective February 28, 2017, and Barry A. Hytinen, our former Executive Vice President and CFO, left the Company effective October 13, 2017. Although Mr. Spenchian and Mr. Hytinen are NEOs for 2017 for purposes of SEC rules, they are not subject to our current executive compensation program and did not participate in certain portions of the fiscal 2017 program. Accordingly, in order to preserve an accurate description of our executive compensation programs, references in this CD&A to “executives” or “NEOs” are intended to exclude Mr. Spenchian and Mr. Hytinen unless otherwise noted. For a discussion of the 2017 compensation for Mr. Spenchian and Mr. Hytinen, please refer to the subsection of this CD&A titled "2017 Compensation for Former Named Executive Officers."
In response to direct stockholder feedback during a proxy contest in connection with our 2015 Annual Meeting of Stockholders, our Board of Directors effected several management and compensation changes.  These changes included: (i) the recruitment of a highly experienced CEO with a strong record of shareholder value creation, (ii) a realignment of strategy to emphasize profit growth as opposed to sales growth and (iii) a more focused compensation structure that includes an aspirational long-term earnings target that would reward management for delivering exceptional outcomes for shareholders. In addition, in order to create a more focused, efficient management structure, since May 2015 we have streamlined our Board of Directors and refreshed the composition of our Board (with eight Directors leaving the Board and four new Directors joining the Board) and significantly reduced the size of our senior management team. Our executive compensation program resulting from these changes is designed to attract, motivate and retain the leaders of our business. By rewarding our executives for Company performance and execution of key business plans and strategies, our compensation program creates long-term value for our stockholders. This CD&A explains how the Compensation Committee of the Board of Directors made compensation decisions in 2017 and 2018 for our NEOs.

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BUSINESS SUMMARY

2017 Key Business Highlights
We develop, manufacture and market bedding products, which we sell globally. Our long-term strategy is to drive earnings growth. Our original key initiatives for 2017 included developing the best bedding products, investing in our brands, expanding our North America business segment margins while maintaining market share, growing our market share in our International business segment and optimizing our worldwide distribution.
During the week of January 23, 2017, we were unexpectedly notified by the senior management of Mattress Firm, Inc. ("Mattress Firm") and representatives of Steinhoff International Holdings Ltd., its parent company, of Mattress Firm's intent to terminate its business relationship with us if we did not agree to considerable changes to our agreements with Mattress Firm, including significant economic concessions. Mattress Firm was a customer within the North America segment and was our largest customer in 2016. Mattress Firm represented 21.4% of our sales for the year ended December 31, 2016. We engaged in discussions to facilitate a mutually agreeable supply arrangement with Mattress Firm. However, we were unable to reach an agreement, and on January 27, 2017, we issued formal termination notices for the sale of all of our products to Mattress Firm, and after a transition period the business relationship ended on April 3, 2017. Following the termination of the Mattress Firm relationship, our key initiatives for 2017 were expanded to include recapturing market share and net sales in the United States.
During 2017, we took steps to manage our cost structure as a result of the termination of the business relationship with Mattress Firm, but in 2017 we managed our business and costs with the primary goal of recapturing market share and net sales, and we expect this will continue in 2018. While the loss of the Mattress Firm relationship had a material impact on our operating results in 2017, we believe the termination of the business relationship is in the long-term interests of our stockholders. However, the Compensation Committee also recognized that the event was highly disruptive to outstanding incentive programs with stretch performance targets that were approved based on the assumption that the Mattress Firm relationship would continue through the performance period. Incentive programs negatively impacted by the termination event include our 2017 annual incentive program, as the performance goals were approved prior to the termination of the relationship, and our “aspirational” grants of performance restricted stock units (“PRSUs”) in 2015 with very challenging performance targets for 2017 and 2018. As a result, the Compensation Committee took action to ensure the executive team, including the NEOs, remained motivated and committed to the successful achievement of the Company’s key initiatives. The actions taken by the Compensation Committee are discussed in greater detail throughout this CD&A and the supporting rationale for the decisions is provided under “2017 Compensation Actions - Rationale for Key Compensation Decisions in 2017” below.
Our net sales decreased 12.0% in 2017 as compared to 2016, driven primarily by the termination of the Mattress Firm relationship. Excluding Mattress Firm, our North America net sales increased $176.6 million, or 9.3%, driven by growth across all of our brands as part of our sales recapture strategy. Our net sales to Mattress Firm decreased by $572.9 million in 2017 as compared to 2016, and this net sales decrease drove many of our other performance metrics for 2017. Net income decreased by 20.3% to $152.7 million, earnings before interest, taxes, depreciation and amortization (“EBITDA”), a non-GAAP financial measure, decreased 20.5% to $403.0 million, and adjusted EBITDA, a non-GAAP financial measure, decreased by 14.0% to $448.5 million.
We provide information regarding EBITDA and Adjusted EBITDA, which are not recognized terms under GAAP and do not purport to be alternatives to net income as a measure of operating performance. For more information about these non-GAAP financial measures, including reconciliations to GAAP information, please refer to Appendix A to this Proxy Statement.

2017 Say on Pay Vote Results and Stockholder Outreach
Our executive compensation program received stockholder support and was approved on an advisory basis by approximately 88% of the votes present or represented and entitled to vote at the 2017 Annual Meeting of Stockholders, which was an improvement from the approximately 77% approval received at the 2016 meeting. Members of our management and Board of Directors periodically conduct outreach, either in person or by telephone, with stockholders owning more than a majority of our outstanding stock, including discussions regarding compensation issues. The Compensation Committee will continue to consider future feedback from stockholders and other stakeholders while ensuring the executive compensation program continues to support our business and talent management objectives and strategic priorities.


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OUR COMPENSATION PROGRAM

Compensation Best Practices

Our compensation program features specific elements designed to align executive compensation with long-term stockholder interests. We also strive to reflect and implement compensation design and governance best practices in our program. These practices include:
What We Do
 
What We Don't Do
Emphasize incentive-based compensation to align pay with performance
 
Permit stock option repricing without stockholder approval
Place primary emphasis on equity-based compensation to align executive and stockholder interests
 
Provide uncapped incentive award opportunities
Tie performance-based incentives to metrics that drive the leadership team and other employees to accomplish our most important business goals
 
Permit stock hedging or stock pledging activities
Subject executives to stock ownership guidelines and holding requirements, which were amended in 2016 to increase the ownership requirement for the CEO and members of the Board of Directors
 
Provide for multi-year pay guarantees within employment agreements
Maintain a Clawback Policy allowing for the recovery of excess compensation resulting from a material financial restatement and fraud, willful misconduct or gross negligence
 
Maintain single trigger vesting provisions in the event of a change of control for cash severance or equity award vesting acceleration
Use tally sheets and other analytical tools to assess executive compensation
 
Provide excessive perquisites or benefits to our NEOs.
Engage an independent compensation consultant to advise the Compensation Committee
 
 
 

CEO Annualized Compensation Values and Pay-for-Performance Alignment
Our compensation program is designed to align the interests of our NEOs, including our CEO, with our stockholders. We set challenging performance goals and are committed to aligning pay with performance. Mr. Thompson’s compensation package, which was established as part of an extensive recruiting process in 2015, includes a number of special awards to attract, retain, and motivate a highly experienced CEO with an exceptional record of shareholder value creation. Because amounts reported for 2017 in the Summary Compensation Table or the footnotes do not reflect the entire value of certain multi-year awards made in 2015 and 2016, and includes the full value of a special stock option award made in 2017 that vests over four years, the amounts presented for 2017 are not indicative of annualized pay opportunities considered by the Compensation Committee. The table below summarizes Mr. Thompson’s annualized total compensation opportunity, recognizing that a number of awards made in 2015, 2016 and 2017 were special grants. It should also be noted that, as a result of the 2015 Matching PRSU Grant offered to Mr. Thompson in connection with his hire, and the 2016 Matching PRSU Grant offered to Mr. Thompson and the Company's other executive officers, he has invested approximately $8 million in cash in the Company's common stock, significantly aligning his interests with those of the Company's stockholders.
The fiscal year 2017 total direct compensation for Mr. Thompson as reported in the Summary Compensation Table was significantly larger than the annualized target total direct compensation, at approximately 122% of annualized total target direct compensation. However, total realizable compensation (that is, potential actual pay delivery) for 2017 was significantly less than both total direct compensation and annualized target total direct compensation, at approximately 79% of the annualized target total direct compensation and approximately 65% of total direct compensation, which aligns with the Company’s below target performance during the year.
Supplemental Table of Pro-Forma
Annualized Target Total Direct Compensation Value and Realizable Pay Comparisons for Mr. Thompson
Compensation Element
FY 2017($)
Annualized Target ($)
2017 Total Realizable Compensation ($)
Base Salary(1)
1,100,000
 
1,100,000
 
1,100,000
Annual Incentive(2)
1,375,000
 
1,375,000
 
1,375,000
2015 Sign-On Bonus
(One-Time Hiring Award)(3)
 
 
686,695
 
686,695
2015 Performance-Based Matching PRSU Grant (Special Hiring Award)(4)
 
 
1,717,063
 
1,456,207

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2015 Aspirational PRSU Grant
(Special Grant) (5)
 
 
(6) 
2016 Performance-Based PRSU Matching Grant (Special Grant)(7)
 
 
636,315
 
644,077
2017 Restricted Stock Grant(8)
7,000,000
 
7,000,000
 
6,314,074
2017 Stock Option Grant (Special Grant)(9)
8,423,616
 
2,105,904
 
2017 Performance-Based PRSU Grant
(Special Grant) (10)
(11) 
(11) 
Total Direct Compensation(2)
17,898,616
 
14,620,977
 
11,576,053
(1)
2017 base salary was $1,100,000. This reflected no increase from 2016.
(2)
Target award opportunity equal to 125% of salary. This reflected no increase from 2016. For 2017 Mr. Thompson received an annual bonus of $1,375,000, or 100% of his target bonus of $1,375,000.
(3)
Reflects a $1.6 million one-time signing bonus paid in 2015. If Mr. Thompson had voluntarily terminated his employment (other than for Good Reason) prior to December 31, 2017, he would have been required to repay a pro-rated portion of the signing bonus to the Company. Annualized over 2.33 years.
(4)
In September 2015, Mr. Thompson purchased $5 million of Company stock and received a matching grant of 69,686 PRSUs that vest in three annual installments subject to meeting a requirement for positive pre-tax income for 2016, which was met. For the annualized value, the value at the date of grant is annualized over the vesting period. For the 2017 total realizable compensation, the value is calculated by multiplying one-third of the grant, or 23,228.7 shares, by $62.69, the closing price of the common stock on December 29, 2017 (the last trading day of 2017).
(5)
This grant of 620,000 PRSUs runs through 2017 (or 2018 with a reduced award opportunity) and is tied to an aspirational performance goal of achieving more than $650 million in Adjusted EBITDA for 2017 or 2018. At the time of grant, the Compensation Committee believed these were challenging performance hurdles and, if achieved, would likely result in significant stockholder value creation. Because the performance requirement for vesting was so challenging, at the time of grant these shares were not expected to vest; therefore, no value attributable to these PRSUs is included in the Summary Compensation Table. The Company did not meet the performance target for 2017 and accordingly two-thirds of the PRSU award has expired without vesting. In addition, the Compensation Committee does not believe that the Company will achieve the performance target for 2018 and accordingly the remaining PRSUs are not expected to vest and no longer serve as a meaningful incentive tool.
(6)
Amount shown represents the grant date fair value, based on the probable outcome of the performance conditions as of the grant date computed in accordance with the stock-based compensation accounting rules (FASB ASC Topic 718). For a discussion of our accounting treatment for these aspirational PRSU grants, please refer to Note 11 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. For informational purposes, assuming that we had achieved more than $650 million in Adjusted EBITDA for 2017, the grant date fair value would have been $44,485,000, calculated by multiplying the maximum number of shares issuable under the PRSUs (620,000) by the price on the grant date ($71.75).
(7)
In February 2016, the Compensation Committee approved a special incentive program for senior management pursuant to which the Company would issue PRSUs to match open market stock purchases made by the executives, up to a cap. These PRSUs vest over a 5-year period subject to meeting a requirement for positive profits for 2016, which was met. Mr. Thompson received 51,370 PRSUs to match the purchase of 51,370 shares in the open market for a total purchase price of $2,999,995. For the annualized value, the grant date value is annualized over the vesting period. For the 2017 total realizable compensation, the value is calculated based on one-fifth of the total shares, or 10,274, multiplied by $62.69, the closing price of the common stock on December 29, 2017 (the last trading day of 2017).
(8)
In January 2017 the Company granted restricted stock units (“RSUs”) for 100,719 shares, vesting over 4 years, subject to meeting a requirement of positive profits for 2017 which was met. The annualized value is based on the fair market value on the date of grant. For the total realizable compensation, the value is calculated by multiplying 100,719 by $62.69, the closing price of the common stock on December 29, 2017 (the last trading day of 2017).
(9)
In January 2017, the Company granted stock options to acquire 339,476 shares, vesting over four years, at an exercise price of $69.50, and these stock options will only have value if our stock price appreciates between the grant date and time of exercise. For the annualized value, the value at the date of grant is annualized over the vesting period. For the 2017 total realizable compensation calculation, no value is shown because the exercise price of $69.50 exceeds the closing price of the common stock on December 29, 2017 (the last trading day of 2017).
(10)
This grant of 620,000 PRSUs is tied to an aspirational performance goal of achieving between $600 and $650 million in Adjusted EBITDA during any four consecutive quarter period ending between March 31, 2018 and December 31, 2019 (the “First Designated Period”) or ending between March 31, 2020 and December 31, 2020 (the “Second Designated Period”), with only half of the award available if the target is not met in the First Designated Period but is met in the Second Designated Period. At the time of grant, the Compensation Committee believed these were challenging performance hurdles and, if achieved, would likely result in significant stockholder value creation. Because the performance requirement for vesting is so challenging, at the time of grant these shares were not expected to vest; therefore, no value attributable to these PRSUs is included in the Summary Compensation Table.
(11)
Amount shown represents the grant date fair value, based on the probable outcome of the performance conditions as of the grant date computed in accordance with the stock-based compensation accounting rules (FASB ASC Topic 718). For a discussion of our accounting treatment for these aspirational PRSU grants, please refer to Note 11 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. For informational purposes, assuming that we achieve more than $650 million in Adjusted EBITDA during the First Designated Period, the grant date fair value would be $36,927,200, calculated by multiplying the maximum number of shares issuable under the PRSUs (620,000) by the price on the grant date ($59.56).
(12)
Does not include value of aspirational PRSU grants, as described in Note 6 and Note 11.


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Roles of the Committee, Compensation Consultant and Management
The Compensation Committee is comprised solely of independent directors and is responsible for determining the compensation of our CEO and other NEOs. The Compensation Committee's composition has changed significantly since 2015 in connection with the significant change in the composition of the Board in 2015 and 2016 and the Company's transition to a smaller Board in 2016. The Compensation Committee is currently comprised of Messrs. Luther (Chair), Nabi and Neu. Mr. Nabi joined the Compensation Committee in May 2015, Mr. Neu joined the Compensation Committee in February 2016, and Mr. Luther joined the Compensation Committee (as Chair) in May 2016.
The Compensation Committee receives assistance during its evaluation process from: (1) Frederic W. Cook & Co., Inc. ("F.W. Cook"), the Compensation Committee’s independent consultant; and (2) our CEO and internal compensation staff, led by our Senior Vice President, Human Resources. F.W. Cook has been retained by and reports directly to the Compensation Committee; it does not have any other consulting engagements with management. F.W. Cook, at the Compensation Committee’s request, regularly provides independent advice on current trends in compensation design, and provides executive compensation benchmark data and compensation program proposals to assist in evaluating and setting the overall structure of our executive compensation program and the compensation levels of our NEOs.
The Compensation Committee reviews and evaluates the CEO’s performance and determines and approves the CEO’s compensation. The Compensation Committee also reviews, with input from the CEO, the performance of the executive vice presidents (the "EVPs") and senior vice presidents ("SVPs") and determines and approves the compensation for the EVPs and SVPs. Our CEO reviews the compensation of the other executive officers annually and makes recommendations to the Compensation Committee regarding base salary, annual incentive and long-term incentive compensation plans.

Peer Group
Our Compensation Committee examines competitive peer group and survey information, compiled by F.W. Cook, as one of many factors to assist in determining base salary, annual incentive compensation and stock-based long-term equity awards. In addition to market data, the Compensation Committee considers factors such as individual performance, internal equity among executives, promotion potential and retention risk in determining total compensation for our NEOs. The Compensation Committee periodically benchmarks our executive compensation against the compensation paid to executives at a peer group of publicly-traded companies of similar size and in similar industries to the Company (the "Peer Group") to obtain a general understanding of current compensation practices. The 19 companies currently comprising the Peer Group provide a useful comparison to the Company based, among other things, on their similarity in size, revenues, market capitalization, EBITDA, scope of operations and branded consumer product focus. The Compensation Committee periodically evaluates the appropriateness of the size and composition of the Peer Group, and makes changes to its membership in response to mergers and acquisitions and changes in organizational comparability. In 2017 the Peer Group was changed: to remove Dorel Industries and Fossil Group, which were below the targeted market capitalization range used by the Compensation Committee, and Mohawk Industries which was above the market capitalization range; to delete Harman International and Lexmark International, which were acquired; and to add RH (f/k/a Restoration Hardware), which met the revenue, market capitalization and business comparability criteria used by the Compensation Committee.    
The Peer Group companies are listed below:

2017 Peer Group
Brunswick Corporation (BC)
Herman Miller, Inc. (MLHR)
Steelcase Inc. (SCS)
Carter's, Inc. (CRI)
La-Z-Boy Incorporated (LZB)
Tupperware Brands Corporation (TUP)
Columbia Sportswear Company (COLM)
Leggett & Platt, Incorporated (LEG)
Under Armour, Inc. (UA)
Deckers Outdoor Corporation (DECK)
lululemon athletica inc. (LULU)
Williams-Sonoma, Inc. (WSM)
Gildan Activewear Inc. (DII/A)
Polaris Industries Inc. (PII)
Wolverine World Wide, Inc. (WWW)
Hanesbrands Inc. (HBI)
RH (RH)
 
Hasbro, Inc. (HAS)
Sleep Number Corporation (SNBR)
 

Tally Sheets

In addition to considering compensation levels for the Peer Group, the Compensation Committee also considers information contained in total compensation tally sheets for each NEO. The Compensation Committee uses tally sheets to evaluate accumulated equity value and total compensation opportunities. The tally sheets summarize each component of compensation, including base salary, annual incentive plan payout, vested and unvested long-term incentive plan awards, 401(k) company

26



contributions, health and welfare benefits, perquisites and potential payments in the event of termination of employment under various scenarios.

Compensation Objectives
Each element of our compensation program is designed to attract, motivate and retain our management talent and to reward management for strong Company performance and successful execution of key business plans and strategies. We believe that our compensation philosophy aligns management incentives with the long-term interests of our stockholders.

27



Compensation Components
The principal components of compensation for our NEOs include the following:
Pay Element
Purpose
Description
Link to Performance
Annual Base Salary
To attract and retain leadership talent and to provide a competitive base of compensation that recognizes the executive’s skills, experience and responsibilities in the position.
Fixed, non-variable cash compensation.
Base salary levels are based on a number of factors including each individual’s time and sustained performance in a role, internal equity considerations, and succession planning considerations among other factors.
Annual Incentive Plan (AIP) Awards
To provide executives with a clear financial incentive to achieve critical short-term financial and operating targets or strategic initiatives.
Variable annual cash incentive with payout based on Company and individual performance over the fiscal year.
Annual incentive opportunity is targeted at a competitive level, generally near the market median for each executive. The actual incentive award payout is based on the achievement of the performance criteria and can range from 0% to 200% of target payout. 100% of the FY 2017 AIP payout opportunity was based on the Company's Adjusted EBITDA for 2017. Using a Company-wide performance goal based on Adjusted EBITDA promotes collaboration and focuses the entire Company on a goal that strongly correlates with stockholder value creation.
Annual Long-Term Incentive Awards
To align a significant portion of executive compensation to the Company's long-term operational performance as well as share price appreciation and total stockholder return. This component serves to motivate and retain executive talent.
Annual grants of stock options, PRSUs, and/or restricted stock.
The Company has granted annual Long-Term Incentive Plan ("LTIP") awards in the form of stock options, PRSUs and restricted stock units ("RSUs"). Stock options have value only if and to the extent our share price increases from the date of grant to the time of exercise.
 
PRSUs are granted to reward participants for the successful achievement of annual or multi-year performance objectives, using a currency (common stock) that is strongly aligned with stockholder interests.

RSUs are granted primarily to enhance retention and reinforce an ownership mentality through enhanced equity stakes.

Special Long-Term Incentive Awards
To provide executives with an above market incentive only if significant shareholder value is created or to motivate executives to make significant personal investments in the Company to further executive alignment with other shareholders.
Aspirational performance equity awards and matching awards.
Aspirational awards are earned only if there is significant, above-market improvement in performance over a defined period of time.

Matching awards are granted primarily to enhance retention and encourage significant ownership of the Company's common stock by the executive officers. Since inception of the matching awards, the Company's current executive officers have invested approximately $11 million in the Company's common stock.


Overall, the Compensation Committee seeks to strike a balance among the three ongoing components of salary, annual cash bonus and annual equity awards, and also provide special equity grants from time to time that create additional significant incentives for exceptional performance, require management to make significant long-term cash investment in our common stock or address specific retention or incentive issues, with an emphasis on ensuring that a majority of the total potential compensation for the Company’s executive officers is significantly at risk and tied to overall Company performance.
2017 Target Compensation Mix
The charts below show that most of our NEOs’ target pay mix (excluding special grants and sign-on bonuses) is variable and at risk. For the CEO, 88% of the 2017 target annualized compensation was provided in the form of annual and long-term incentives (see “Our Compensation Program - CEO Annualized Compensation Values and Pay-for-Performance Alignment - Supplemental Table of Pro-Forma Annualized Target Total Direct Compensation Value and Realizable Pay Comparison for Mr. Thompson” for a description of the elements included in Mr. Thompson’s compensation). For the other NEOs, annual and long-term incentives made up 75% of the total target pay mix. The proportions of each pay component shown below may change in the future based on market or performance considerations.

28




Inclusion of special long-term incentive awards would attribute a greater portion of the mix towards variable and at risk pay, which is not reflective of the regular annual target compensation program. Therefore, special long-term incentive awards are excluded from the charts below:
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12149197&doc=3http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12149197&doc=2

2017 COMPENSATION ACTIONS
This section summarizes the actions taken by the Compensation Committee for 2017.
Rationale for Key Compensation Decisions in 2017
Our compensation program is designed to align the interests of our NEOs, including our CEO, with our stockholders. We set challenging performance goals and are committed to aligning pay with performance. Mr. Thompson’s compensation package, which was established as part of an extensive recruiting process in 2015, includes a number of special awards to attract, retain, and motivate a highly experienced CEO candidate with an exceptional record of stockholder value creation. Our overall approach to compensation over the last few years has been to target salary and annual cash bonus opportunity at the market median for our Peer Group, with higher levels for our CEO based on the terms set when he joined us in 2015. We have set our annual equity incentive compensation at a level higher than the median for our Peer Group, because we believe tying more of the overall compensation to equity incentives enhances alignment with the interests of our stockholders. Our equity incentive grants have included both annual regular grants and special grants, including “aspirational” PRSU grants that provide for extraordinary compensation to be paid only if extraordinary performance goals are achieved. In addition, as a result of the unexpected termination of our relationship with our largest customer, Mattress Firm, we made certain changes to our compensation packages to reflect the new business environment and to retain and motivate our senior management team for the remainder of 2017 and beyond. We recognize that some aspects of our approach to compensation and our decisions on 2017 compensation may not be consistent with the standards advocated by certain influential proxy advisory firms, but we believe our approach and the decisions we have made were necessary and appropriate for our business and in the best interests of our stockholders. Based on feedback we received from many stockholders on our compensation program during 2017, and the approval of our compensation program at our 2017 Annual Meeting by holders of 88% of the shares present or entitled to vote, we believe our stockholders understand and strongly support our overall compensation strategy. Specific elements of our compensation package and decisions made during 2017 are discussed below.
Salary. Mr. Thompson’s annual salary was set by his employment agreement when he joined us in 2015, and has not increased since then. For other NEOs, we generally target the market median. Our NEOs did not receive any increase in base salary for 2016 or 2017, other than in connection with promotions. We intentionally keep year-over-year changes in salary modest because base salary is not a key driver of our pay-for-performance strategy.
Annual Incentive Plan. In December 2016, we adopted a challenging Company-wide Adjusted EBITDA target for the 2017 AIP, which assumed the continuation of the Mattress Firm relationship. The 2017 AIP required growth of 8.3% in Adjusted EBITDA, compared to the Company’s Adjusted EBITDA for 2016, to pay out at 100% of the target bonus, and 17.9% growth to

29



pay out at 200% of the target bonus. However, the termination of the Mattress Firm relationship suddenly and unexpectedly eliminated the likelihood of earning any bonus under the approved 2017 target performance goal. The Compensation Committee discussed the potential impact of the terminated relationship on near-term results, and whether the current incentive programs served to effectively retain and motivate executives and other employees given the uncertainty created by the loss of the Mattress Firm relationship. As a result of this discussion, the Compensation Committee fully recognized that the recently-approved 2017 AIP no longer served as a meaningful performance incentive for the remainder of the year based on the original Adjusted EBITDA goal. As part of this discussion, the Compensation Committee took into account the feedback from certain stockholders who expressed support for revising certain programs as necessary to reflect the updated business plan. The Compensation Committee considered resetting the performance goals for the year, however, in light of the difficulty in forecasting with any precision the level of sales recapture the Company would achieve by the end of the year, the Compensation Committee did not believe it was possible in the first quarter of 2017 to create a new Adjusted EBITDA goal that would serve as an effective incentive tool.
As a result, in March 2017, the Compensation Committee exercised its authority under the terms of the 2017 AIP to make adjustments for extraordinary events and provided assurances to all participants other than the CEO that bonuses would be paid at 100% of the target bonus opportunity in order to sustain employee morale and a create a near-term retention incentive during a period of uncertainty. In coming to this decision, the Compensation Committee concluded that because of the loss of Mattress Firm as a customer and the resulting changes in the short-term outlook for the business, it was very important for the Company and its stockholders that the senior executives and other employees have in place both significant retention incentives and significant incentives to address the issues created by the termination of the contracts with Mattress Firm. In addition, it was also very important to incent the management team to improve the Company's long-term financial performance, including taking steps that may adversely affect financial results for 2017, but would be in the long-term best interests of the Company and its stockholders. As part of this decision-making process, the Compensation Committee also reaffirmed its support of management’s decision not to agree to the significant economic concessions requested by Mattress Firm, and acknowledged that the decision was in the long-term best interests of our stockholders.
In March 2018, the Compensation Committee approved a bonus payment for the CEO at 100% of his target amount based on the authority reserved for the Compensation Committee under the 2017 AIP to make adjustments for extraordinary events, such as the Mattress Firm termination. The Compensation Committee’s action was based on their view that Mr. Thompson had delivered extraordinary performance in 2017, including his effective leadership in repositioning the Company in response to the Mattress Firm termination, leading the Company’s efforts to recapture sales in 2017 with wholesale sales in North America, excluding Mattress Firm, increasing 9.3% over 2016 and direct sales in North America increasing 107.5% over 2016. In addition, the Compensation Committee considered Mr. Thompson’s strong organizational changes and continued improvement in the Company’s manufacturing operations during 2017.
Equity Incentive Grants. We have granted annual LTIP awards in the form of stock options, PRSUs and RSUs and the form and mix of these awards has varied from year to year depending on the particular issues and concerns at the time. In early January 2017, the Compensation Committee chose to grant RSUs under the regular annual LTIP to balance the outstanding performance-based 2015 Aspirational PRSUs (as discussed below under "2015 Aspirational Grants") and to enhance retention and an ownership mentality by enhancing equity stakes.
At the same time, which was prior to the notice from the Mattress Firm representatives of their intent to terminate the relationship, the Compensation Committee granted special stock option grants to certain members of our management team, including the NEOs, to recognize significant improvements in the Company’s operations and profitability since September 2015, including the cost savings resulting from the smaller management team created as part of senior management’s efforts to develop a more streamlined management structure. The Compensation Committee chose to make these awards in the form of stock options such that these special grants will only have value if and to the extent our stock price increases over time. These stock options have an exercise price at fair market value at the time of grant, and following the termination of the Mattress Firm relationship, the special grant stock options fell underwater (that is, stock price fell below the option exercise price) and remained underwater through the remainder of 2017 and through the date of this Proxy Statement.
In August 2017, in light of the revised business outlook for 2017 as a result of the Mattress Firm termination, and the conclusion by the Compensation Committee that the prior 2015 Aspirational PRSUs had served as an effective incentive tool even though none of these PRSUs are likely to vest, and taking into account feedback from certain stockholders that the Company needed to implement new incentives in light of the Company’s changed environment, the Company adopted a new 2017 Aspirational PRSU program. Similar to the prior 2015 Aspirational PRSUs, the Compensation Committee designed the award to require an extraordinary level of performance from the management team in order to be earned. If the extraordinary performance is not achieved, the award will forfeit similar to the expected outcome for the prior 2015 Aspirational PRSUs. It is expected that the achievement of the targeted level of performance would create significant value for our stockholders. As such, the Compensation Committee believes that these aspirational PRSUs serve as an important part of our pay-for-performance model and the overall compensation strategy.

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Our equity incentive practices are described in greater detail below.

Base Salary

Each of our NEOs' base salary is established pursuant to his employment agreement. On average, 2017 base salaries for our NEOs were targeted at the market median. The table below summarizes the annualized salary changes during the year:
Named Executive Officer
2016 Annual Salary
2017 Annual Salary
Increase (%)
Scott L. Thompson
$1,100,000
$1,100,000
Bhaskar Rao(1)
Not in Role in 2016
$ 430,000
New Role
Richard W. Anderson
$ 441,000
$ 441,000
David Montgomery
£ 298,576
£ 298,576
Scott J. Vollet(2)
$ 324,450
$ 324,450
(1)
Mr. Rao was promoted to CFO during 2017. Amount shown for 2017 represents his annualized salary at the end of 2017. His annualized salary for his previous role was $324,500.
(2)
Mr. Vollet served as Senior Vice President, Global Operations during 2017 prior to being promoted to Executive Vice President, Global Operations in 2018. Amount shown represents his salary for his prior role.


Mr. Rao received an increase in base salary during 2017 in connection with his promotion to CFO during 2017. No other NEO received an increase in salary for 2017.

2017 Annual Incentive Program

Our annual incentive program ("AIP") ensures that a significant portion of each NEO’s annual compensation is at risk and dependent on overall Company performance. The program provides NEOs a clear financial incentive to achieve critical short-term financial and operating targets or strategic initiatives. The Compensation Committee is responsible for administering the AIP pursuant to the terms of our Second Amended and Restated Annual Incentive Bonus Plan for Senior Executives (the "2015 Annual Incentive Plan") which was approved by our stockholders in May 2015. The 2015 Annual Incentive Plan provides for cash-based performance awards, including awards intended to qualify as performance compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended ("Code").
The design and purpose of the AIP are to focus the NEOs on behaviors that support our overall performance and success. The goals are set with a reasonable level of difficulty that requires the Company and NEOs to perform at a high level in order to meet the goals and objectives. The attainment of these goals and objectives is not assured. Payouts in any year above 100% (target level) indicate significant accomplishment with performance above expectation.
On average, target bonus opportunities for our NEOs were targeted at the market median. The following table sets forth the targeted annual incentive levels for each NEO in 2017, shown as a percentage of his annual base salary at year-end, along with the maximum potential incentive opportunity:

Named Executive Officer
Target Award as a % of
Salary
Target Award ($)
Maximum Award as a %
of Salary
Scott L. Thompson
125%
$1,375,000
250%
Bhaskar Rao
50% / 70%(1)
$ 126,688 / 65,973
100% / 140%
Richard W. Anderson
70%
$ 308,700
140%
David Montgomery
70%
£ 209,003
140%
Scott J. Vollet
50%
$ 162,225
100%
(1)
In light of Mr. Rao’s promotion to CFO effective October 13, 2017, (i) the amount of Mr. Rao’s target bonus for 2017 with respect to the period up to October 13, 2017 was based on 50% of his base salary paid with respect to the period from January 1, 2017 to October 13, 2017 and (ii) the amount of Mr. Rao’s target bonus for 2017 with respect to the period from October 13, 2017 through December 31, 2017 was based on 70% of his base salary paid with respect to such period.

Messrs. Thompson, Anderson, Montgomery and Vollet received the same target bonus for 2017 as in 2016. Mr. Rao’s target bonus for 2017 was increased as described above to reflect his promotion to CFO during 2017.

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Company-wide Adjusted EBITDA was selected as the sole performance metric for the 2017 AIP, consistent with the change made by the Compensation Committee in 2016 to simplify the program design by eliminating multiple goals and different goals for different groups, and to eliminate subjective goals, and promote collaboration. The Compensation Committee believes that Adjusted EBITDA strongly correlates with long-term stockholder value creation. Performance was required to be measured with no adjustment for currency fluctuations, consistent with the Company’s financial statements, to further align executive and stockholder interests. In order to ensure that our AIP complies with Section 162(m) of the Code, the Company must meet a threshold goal of positive profits in order for any annual incentive to be earned for 2017 by our NEOs. If this threshold goal is achieved, then each NEO's potential annual incentive bonus will become earned at the maximum bonus payable, subject to the exercise by the Compensation Committee of its authority to reduce (but not increase) the actual amount of the incentive bonus payable. In addition, the Compensation Committee is authorized to make adjustments to reflect extraordinary events not contemplated by the budget approved by the Board in December 2016 (but no adjustment may be made with respect to the threshold goal adopted for Section 162(m) purposes).
The 2017 AIP required growth of 8.3% in Adjusted EBITDA, compared to the Company’s Adjusted EBITDA for 2016, to pay out at 100% of the target bonus, and 17.9% growth to pay out at 200% of the target bonus. However, the termination of the Mattress Firm relationship suddenly and unexpectedly eliminated the likelihood of earning any bonus under the approved 2017 target performance goal. The Compensation Committee discussed the potential impact of the terminated relationship on near-term results, and whether the current incentive programs served to effectively retain and motivate executives and other employees given the uncertainty created by the loss of the Mattress Firm relationship. As a result of this discussion, the Compensation Committee fully recognized that the recently-approved 2017 AIP no longer served as a meaningful performance incentive for the remainder of the year based on the original Adjusted EBITDA goal. As part of this discussion the Compensation Committee took into account the feedback from certain stockholders who expressed support for revising certain programs as necessary to reflect the updated business plan. The Compensation Committee considered resetting the performance goals for that year, however, in light of the difficulty in forecasting with any precision the level of sales recapture the Company would achieve by the end of the year, the Compensation Committee did not believe it was possible in the first quarter of 2017 to create a new Adjusted EBITDA goal that would serve as an effective incentive tool. The Compensation Committee concluded that because of the loss of Mattress Firm as a customer and the resulting changes in the short-term outlook for the business, it was very important for the Company and its stockholders that the senior executives and other employees have in place both significant retention incentives and significant incentives to address the issues created by the termination of the contracts with Mattress Firm. In addition, it was also very important to incent the management team to improve the Company's long-term financial performance, including taking steps that may adversely affect financial results for 2017, but would be in the long-term best interests of the Company and its stockholders. Accordingly, and at the request of the CEO that the Compensation Committee provide assurances to participants in the 2017 AIP other than the CEO, and pursuant to the discretion reserved under the 2017 AIP to make adjustments for extraordinary events, the Compensation Committee committed that the bonuses paid under the 2017 AIP would be paid at least at 100% of target (other than for the CEO) to retain and focus the executive team and key employees during this transitional period. The commitment for a payout at target did not affect the requirement for NEOs to meet the Section 162(m) threshold test described above and did not apply to the CEO, who remained subject to the 2017 AIP as originally adopted, including the exercise by the Compensation Committee of its discretion as described above.
In March 2018, the Compensation Committee determined that the Company had met the Section 162(m) threshold test of positive profits for 2017, without any adjustments for the Mattress Firm termination. Accordingly, based on the commitment made in March 2017 as described above, the Compensation Committee approved payouts under the 2017 AIP at 100% of target value for all participants other than the CEO. With respect to the CEO, in March 2018 the Compensation Committee reviewed the CEO’s performance for 2017, including the significant progress made in responding to the termination of the Mattress Firm relationship, and concluded it was appropriate to exercise the discretion reserved under the 2017 AIP for extraordinary events and make adjustments for the Mattress Firm termination. However, the Compensation Committee also determined that it was not possible to determine what Adjusted EBITDA would have been in the absence of the termination of Mattress Firm. In light of the inability to calculate specific adjustments, the Compensation Committee considered Mr. Thompson’s overall performance for 2017. The Compensation Committee determined that Mr. Thompson had delivered extraordinary performance in 2017, including his effective leadership in repositioning the Company in response to the Mattress Firm termination, leading the Company’s efforts to recapture sales in 2017 with wholesale sales in North America increasing 9.3% over 2016 and direct sales in North America increasing 107.5% over 2016. In addition, the Compensation Committee considered Mr. Thompson’s strong organizational changes and continued improvement in the Company’s manufacturing operations during 2017. Based on its evaluation, the Compensation Committee determined that the appropriate adjustment was to approve a payout for the CEO under the 2017 AIP at 100% of target value.
Based on this performance, each of our NEOs received a bonus payment as set forth below:

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Named Executive Officer
2017 Target
Percentage of Overall Incentive Target
2017 Actual Payout
Scott L. Thompson
$1,375,000
100%
$1,375,000
Bhaskar Rao(1)
$ 192,661
100%
$ 192,661
Richard W. Anderson
$ 308,700
100%
$ 308,700
David Montgomery
£ 209,003
100%
£ 209,003
Scott J. Vollet
$ 162,225
100%
$ 162,225
(1) In light of Mr. Rao’s promotion to CFO effective October 13, 2017, (i) the amount of Mr. Rao’s target bonus for 2017 with respect to the period up to October 13, 2017 was based on 50% of his base salary paid with respect to the period from January 1, 2017 to October 13, 2017 and (ii) the amount of Mr. Rao’s target bonus for 2017 with respect to the period from October 13, 2017 through December 31, 2017 was based on 70% of his base salary paid with respect to such period.
2017 Annual Long-Term Incentive Grants (Regular Annual Grants)
Members of senior management, including our NEOs, are eligible to receive equity compensation awards under our equity incentive plans. As previously discussed, we believe that providing equity awards as a component of compensation for senior managers aligns the interests of management with the interests of our stockholders and provides an additional method of compensation where the return is directly tied to stockholders’ return on their investment. Our practice in recent years prior to 2016 had been to grant multiple forms of long-term incentive awards, each intended to accomplish different objectives. Similar to 2016, the annual LTIP grants for 2017 were in the form of RSUs vesting over four years. The Compensation Committee chose to use RSUs as a balance to the outstanding performance-based special awards and to enhance retention and an ownership mentality by enhancing equity stakes. The RSUs awarded to our NEOs were also subject to satisfaction of a performance test for Section 162(m) purposes of “positive profits” for 2017, which was met. The Compensation Committee reserves the right to adjust the target award mix from year to year, as deemed appropriate.
The Compensation Committee approved targeted equity values for each of our NEOs in early 2017. Mr. Thompson did not receive an annual equity grant in 2016 because his original equity grants made in September 2015 when he became CEO were intended to cover both 2015 and 2016. For 2017, the Compensation Committee determined that the target equity value for Mr. Thompson’s annual grant should be set at $7,000,000, which is in the top quartile of the market in light of his strong performance and the need to retain and motivate a highly experienced CEO with an exceptional record of shareholder value creation. For Messrs. Anderson, Montgomery and Vollet, the target value of the 2017 annual equity grants remained at the same level as the 2016 annual equity grants. For Mr. Rao, his target annual equity grant was increased for 2017 to $975,000 to reflect his promotion to CFO during 2017.
The following table summarizes the 2017 annual grants to the NEOs:
Named Executive Officer
2017 LTIP Grant Date Fair Value ($)(1)

# of RSUs
Scott L. Thompson
7,000,000

100,719

Bhaskar Rao(2)
975,000

14,847

Richard W. Anderson
975,000

14,029

David Montgomery
1,100,000

15,827

Scott J. Vollet
500,000

7,194

(1)
The grant date fair value is based on $69.50, the closing price of the Company’s common stock on January 5, 2017, the grant date.
(2)
Prior to his promotion to CFO, Mr. Rao received RSUs for 2,878 shares, having a value of $200,000 as of the date of grant. In connection with Mr. Rao’s promotion to CFO effective October 13, 2017, the Company made an additional annual grant to Mr. Rao in October 2017 of RSUs for 11,969 shares, having a value of $775,000 as of the date of grant, and vesting over 4 years.
2017 Special Long-Term Incentive Grants
In early 2017, prior to the notice from the Mattress Firm representatives of their intent to terminate the relationship, our Compensation Committee also approved a special grant for members of management. These special grants were awarded both to create additional incentives for the senior management team and to recognize significant improvements in the Company’s operations and profitability since September 2015 and the cost savings resulting from a 33% reduction in the size of the management team as part of senior management’s efforts to develop a more streamlined management structure. The regular annual grant was made in the form of RSUs to balance the outstanding performance-based 2015 Aspirational PRSUs and to enhance retention and an ownership mentality by enhancing executive ownership of the Company’s common stock. The special grant to the NEOs was in the form of stock options vesting over four years. The Compensation Committee chose to make these awards in the form of stock options because these special grants will only have value if and to the extent our stock price increases over time, and also to

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distinguish the grants from the regular annual grants made in the form of RSUs. In addition, in order to maximize the retentive effect of these grants, if the employee leaves for any reason before the end of four years, all of the unvested equity awards will terminate. Although these stock options had an exercise price at fair market value at the time of grant, following the termination of the Mattress Firm relationship, the special grant stock options fell underwater (that is, stock price fell below the option exercise price) and remained underwater through the remainder of 2017 and through the date of this Proxy Statement, which has significantly diminished the current incentive impact of these special grants.
The following table summarizes the 2017 special grants to the NEOs:
Named Executive Officer
2017 LTIP Grant Date
Fair Value ($)(1)
# of Stock Options
Exercise Price($)
Scott L. Thompson
8,423,616

339,476

69.50

Bhaskar Rao
601,680

24,248

69.50

Richard W. Anderson
1,173,285

47,284

69.50

David Montgomery
1,323,705

53,346

69.50

Scott J. Vollet
601,680

24,248

69.50

(1
)
The grant date fair value is based on the Black-Scholes value determined as of January 5, 2017, the grant date.

The long-term incentive grant values determined by the Compensation Committee and the Board are consistent with our compensation philosophy as discussed above.
2015 Aspirational Grants
To further encourage significant increases in profitable growth and stockholder value creation, in 2015 the Board of Directors established an aspirational objective for the Company to achieve more than $650 million in Adjusted EBITDA for 2017. To achieve this aspirational objective, the Company would need to increase its Adjusted EBITDA by nearly $200 million, or more than 40%, above the Company’s Adjusted EBITDA of $455 million for 2015. To further align executive and stockholder interests, Adjusted EBITDA is measured with no adjustment for currency fluctuations, consistent with the Company’s financial statements. To reinforce this objective and encourage “aspirational pay for aspirational performance,” the Compensation Committee approved special aspirational PRSU grants for a group of senior executives, including our NEOs, as described below.
In September 2015, the Compensation Committee established an initial compensation package for Mr. Thompson that places primary emphasis on a grant of aspirational PRSUs (the "2015 Aspirational PRSUs"). Other senior executives received 2015 Aspirational PRSUs in October and December 2015. Grant date values for this special award were set well above regular target long-term incentive award levels, given the plan’s aspirational goals, which the Compensation Committee believed were extremely challenging performance hurdles that, if achieved, would likely have resulted in significant stockholder value creation. Because the performance requirement for vesting was so challenging, at the time of grant these shares were not expected to vest; therefore, no value attributable to these PRSUs is included in the Summary Compensation Table. To earn the full grant, the Company’s Adjusted EBITDA was required to exceed $650 million in 2017. If this hurdle was not met in 2017 but is achieved in 2018, participants will earn one-third of the grant, with the remaining portion forfeited. No PRSUs will be earned if the hurdle is not met for 2017 or 2018. Participants must also remain employed with the Company through the entire performance period to earn the award. The aspirational PRSU grants to the NEOs are shown in the following table:
Named Executive Officer
# of Aspirational PRSUs
# of Aspirational PRSUs Forfeited for Missing Hurdle in 2017
# of Aspirational PRSUs Earned if Hurdle Met in 2018
Scott L. Thompson
620,000

(413,333
)
206,667

Bhaskar Rao
20,000

(13,333
)
6,667

Richard W. Anderson
80,000

(53,333
)
26,667

David Montgomery
125,000

(83,333
)
41,667

Scott J. Vollet
20,000

(13,333)

6,667


The Company did not meet the Adjusted EBITDA target for 2017 and accordingly two-thirds of these 2015 Aspirational PRSUs have been forfeited. In addition, in light of the impact from the termination of the Mattress Firm relationship as described above, the Compensation Committee does not believe that the Adjusted EBITDA target will be met in 2018, and accordingly the remaining 2015 Aspirational PRSUs will not vest and no longer serve as a meaningful incentive tool. However, even though none

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of these 2015 Aspirational PRSUs are likely to vest, the Compensation Committee believes that, prior to the termination of the Mattress Firm relationship, the 2015 Aspirational PRSUs served as a powerful incentive tool across the whole management team.
2017 Aspirational Grants
In August 2017, in light of the revised business outlook for 2017 as a result of the Mattress Firm termination and taking into account feedback from certain stockholders that the Company needed to implement new incentives in light of the Company's changed environment, the Company granted executive officers and certain members of management approximately 1.5 million new PRSUs that vest if the Company achieves a certain level of Adjusted EBITDA during four consecutive fiscal quarters as described below (the "2017 Aspirational PRSUs").
Purpose and Benefits of the 2017 Aspirational PRSUs. The Compensation Committee granted the 2017 Aspirational PRSUs based upon challenging performance hurdles that, if achieved, would likely result in significant stockholder value creation. The purposes and benefits of the 2017 Aspirational PRSUs include the following:
To further encourage significant increases in profitable growth and stockholder value creation;
To encourage “aspirational pay for aspirational performance;” and
To further align management and stockholder interests.
Summary of Vesting and Performance Targets. The 2017 Aspirational PRSUs will vest in accordance with a formula related to the Company’s Adjusted EBITDA, as measured over any four consecutive fiscal quarters (each a “Four Quarter Period”) during two separate measurement periods. The first measurement period consists of the fiscal quarters ending March 31, 2018 through December 31, 2019 (the "First Designated Period"). The second measurement period consists of the fiscal quarters ending March 31, 2020 through December 31, 2020 (the "Second Designated Period"). In order to earn the full amount of these PRSUs, we will be required to grow our Adjusted EBITDA by the end of the First Designated Period by more than $200 million as compared to the $448.5 million in Adjusted EBITDA for 2017.
Adjusted EBITDA is defined as the Company’s "Consolidated EBITDA" as such term is defined in the Company’s current senior secured credit facility.
The formula for the First Designated Period is illustrated in the chart below:
Adjusted EBITDA
Percentage of 2017 Aspirational PRSUs That Will Vest
≥ $650 million
100%
> $600 million and < $650 million
Prorated between 66% and 100%
   $600 million
66%
< $600 million
0%
If any 2017 Aspirational PRSUs vest during the First Designated Period, then the right to earn any additional 2017 Aspirational PRSUs through future performance will terminate. However, if the Company does not achieve Adjusted EBITDA equal to or exceeding $600 million for any Four Quarter Period during the First Designated Period, then 50% of the 2017 Aspirational PRSUs will remain available for vesting during any Four Quarter Period within the Second Designated Period, and the right to earn the remaining 50% of the 2017 Aspirational PRSUs will terminate. However, 2017 Aspirational PRSUs that may no longer be earned through performance pursuant to this paragraph may in the future be converted into time-based vesting RSUs upon a change of control as described below.
If no 2017 Aspirational PRSUs vest as a result of performance for the First Designated Period, and accordingly, up to 50% of the 2017 Aspirational PRSUs are available to be earned based on performance in the Second Designated Period as described above, the formula for the Second Designated Period is illustrated in the chart below:
Adjusted EBITDA
Percentage of 2017 Aspirational PRSUs That Will Vest
≥ $650 million
50%
> $600 million and < $650 million
Prorated between 33% and 50%
   $600 million
33%
< $600 million
0%

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Forfeiture of Aspirational Awards. If the Company does not achieve Adjusted EBITDA equal to or exceeding $600 million for any Four Quarter Period during either the First Designated Period or the Second Designated Period, then none of the 2017 Aspirational PRSUs will vest, but they may still be issuable as RSUs in the event of a change of control as described below.
Generally, if the employment of an employee receiving 2017 Aspirational PRSUs terminates for any reason on or before December 31, 2019 with respect to any 2017 Aspirational PRSUs available to be earned during the First Designated Period or Second Designated Period, or after December 31, 2019 and on or before December 31, 2020 with respect to any 2017 Aspirational PRSUs available to be earned during the Second Designated Period, all of the 2017 Aspirational PRSUs awarded to that employee will be forfeited, subject to certain exceptions set forth in the award agreements for death, disability, termination by the Company other than "for cause" or termination by the employee for “good reason,” in each case after the Company has met the minimum performance metrics for any Four Quarter Period within the First Designated Period or Second Designated Period, as applicable.
Change of Control. Immediately upon a change of control, all outstanding 2017 Aspirational PRSUs that have not been previously vested and paid or are not then vested and payable, including any 2017 Aspirational PRSUs that were no longer available to be earned based on performance as described above, if any, will convert to time-based vesting RSUs that will vest on December 31, 2020, subject to the applicable employee’s continued employment with the Company and its affiliates. The amount of RSUs issuable to any employee upon a change in control occurring before December 31, 2018 will be reduced by any RSUs issuable to such employee under the 2015 Aspiration PRSUs. The effect of these provisions is that on a change of control occurring on or before December 31, 2020, any employee satisfying the eligibility requirements will receive RSUs equal to the total size of the original 2017 Aspirational PRSU less any PRSUs previously vested and paid based on performance.
Grant date values for this special award were set well above regular target long-term incentive award levels, given the plan’s aspirational goals, which the Compensation Committee believes are challenging performance hurdles that, if achieved, would likely result in significant stockholder value creation. In order to earn the full amount of the 2017 Aspirational PRSUs, the Company will need to increase its Adjusted EBITDA during the First Designated Period by more than $200 million above its Adjusted EBITDA of $448.5 million for 2017. Because the performance requirement for vesting is so challenging, at the time of grant these shares were not expected to vest; therefore, no value attributable to these PRSUs is included in the Summary Compensation Table. The 2017 Aspirational PRSU grants to the NEOs are shown in the following table:
Named Executive Officer
Maximum Number of Aspirational PRSUs Earned for Meeting Hurdle in First Designated Period
Maximum Number of Aspirational PRSUs Earned for Meeting Hurdle in Second Designated Period(3)
Scott L. Thompson
620,000

310,000

Bhaskar Rao(1)
100,000

50,000

Richard W. Anderson
135,000

67,500

David Montgomery
135,000

67,500

Scott J. Vollet(2)
50,000

25,000

(1)
Includes 50,000 2017 Aspirational PRSUs granted in August 2017 and an additional 50,000 2017 Aspirational PRSUs granted in October 2017 in connection with Mr. Rao’s promotion to CFO.
(2)
Mr. Vollet was granted an additional 50,000 2017 Aspirational PRSUs in February 2018 in connection with his promotion to EVP, Global Operations.
(3)
If no 2017 Aspirational PRSUs vest as a result of performance for the First Designated Period, up to 50% of the 2017 Aspirational PRSUs are available to be earned based on performance in the Second Designated Period.
The Compensation Committee believes that the 2017 Aspirational PRSUs, by providing extraordinary compensation for extraordinary performance, will serve as a significant incentive tool over the next 3 years. The Compensation Committee does not expect that it will adopt a new aspirational PRSU program covering any period prior to December 31, 2020, and during that period, the 2017 Aspirational PRSUs will serve as a significant component of the NEOs’ at-risk performance-based compensation.

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Amendment to Thompson Agreements
In November 2017, the Company entered into a First Amendment to Employment and Non-Competition Agreement (the “Thompson Amendment”) with Mr. Thompson that amended his Employment and Non-Competition Agreement dated September 4, 2015 (the “Thompson Employment Agreement”). The Company entered into the Thompson Amendment to ensure that the Company would retain Mr. Thompson past December 31, 2018, and to provide Mr. Thompson additional flexibility regarding his primary place of work. The Company's significant operations are now located in over 25 locations across North America and in over 100 countries across the world, and we derive over 30% of our EBITDA from our international operations, requiring significant flexibility and travel by Mr. Thompson. The Company entered into the amendments to the Thompson Award Agreements (as defined below) both to provide a more objective and ascertainable definition of “Retirement” and to provide the Compensation Committee with additional flexibility to determine whether and how much of any unvested award should continue to vest (which could be more or less than the amount originally provided in the Thompson Award Agreements prior to these amendments). None of these amendments for Mr. Thompson applied to the outstanding special awards including the 2015 Aspirational PRSUs and 2017 Aspirational PRSUs, in which the Approved Retirement provisions only apply in limited circumstances after a change of control, or the special grant of stock options made in January 2017, which contain no “Approved Retirement” provisions because of the more stringent vesting requirements in these special grants.

Specifically, the Thompson Amendment (i) provides for an extension of the initial term of the Thompson Employment Agreement from December 31, 2018 to December 31, 2021, (ii) provides that Mr. Thompson may make his primary place of employment in any metropolitan area in the United States where the Company has an office, including Lexington, Kentucky, Trinity, North Carolina or Dallas, Texas and (iii) requires the amendment of six outstanding equity award agreements relating to his September 2015 grants of 310,000 stock options, 118,000 RSUs, and 69,686 matching PRSUs, his grants in March 2016 and May 2016 of a total of 51,370 matching PRSUs, and his January 2017 grant of 100,719 RSUs (collectively, the "Thompson Award Agreements"). The amendments to the Thompson Award Agreements (i) added an objective definition of “Retirement” based on being at least 55 years old and meeting a requirement that the sum of age plus years of service be at least 60 and (ii) provided the Compensation Committee with additional discretion to determine whether all, part or none of the outstanding unvested equity awards should remain outstanding and continue to vest upon “Retirement” (as defined in the amended Thompson Award Agreements) approved by the Compensation Committee as an “Approved Retirement”. Prior to these amendments the Thompson Award Agreements defined “Retirement” by reference to the Company’s retirement policies, which did not provide a readily ascertainable standard for this term. In addition, the Thompson Award Agreements provided that upon an Approved Retirement a fixed amount (or fixed formula) of unvested awards would remain outstanding and continue to vest. The Thompson Amendment also confirmed that the Company intended to enter into similar amendments with other members of management holding equity awards with similar terms.
Amendments to Equity Award Agreements For Other NEOs
In December 2017, the Compensation Committee approved amendments to equity award agreements ("EVP Award Agreements") with members of its senior management, including the following NEOs: Rick Anderson, David Montgomery, Bhaskar Rao and Scott Vollet. The amendments to the EVP Award Agreements provide the Compensation Committee with additional discretion to determine whether all, part or none of the outstanding unvested equity awards should remain outstanding and continue to vest upon any "Retirement" (as defined in the amended EVP Award Agreements) approved by the Compensation Committee as an "Approved Retirement. " These amendments to the EVP Award Agreements are similar to the amendments to the Thompson Award Agreements described above.
The award agreements amended are listed below (the "EVP Award Agreements"):
Type of EVP Award Agreement
Applicable EVPs
RSU Award Agreement, dated October 13, 2017
Rao
RSU Award Agreement, dated January 5, 2017
Anderson, Montgomery, Rao, Vollet
Matching Performance Restricted Stock Unit Award Agreement, dated between March 18, 2016 and June 10, 2016
Anderson, Rao, Vollet
Stock Option Agreement, dated February 27, 2015
Anderson, Montgomery, Rao, Vollet
RSU Award Agreement, dated February 11, 2016
Anderson, Montgomery, Rao, Vollet



37



2018 COMPENSATION ACTIONS

Set forth below is a brief summary of the compensation decisions made by the Compensation Committee in late December 2017 and early 2018 relating to compensation for 2018.

2018 Base Salary
The CEO did not receive an increase in base pay for 2018. For other members of senior management, the Compensation Committee determined that an approximate 3% increase in base pay was appropriate. This decision was based in part on the guidance from F.W. Cook that on average, due to recent turnover, the base salaries for the senior management team other than the CEO were below the 25th percentile for the Peer Group but the base salary for Mr. Thompson was between the 50th and 75th percentile for the Peer Group. The table set forth below list the base salaries for the NEOs for 2017 and 2018:
Named Executive Officer
2017 Annual Salary
2018 Annual Salary
% Increase
Scott L. Thompson
$1,100,000
$1,100,000

Bhaskar Rao(1)
$ 430,000
$   443,000
3
%
Richard W. Anderson
$ 441,000
$   454,000
3
%
David Montgomery
£ 298,577
£ 307,534
3
%
Scott J. Vollet(2)
$ 324,450
$   438,000
New Role

(1
)
Mr. Rao was promoted to CFO during 2017. Amount shown for 2017 represents his annualized salary at the end of 2017.
(2
)
Increase for 2018 reflects promotion from Senior Vice President, Global Operations to Executive Vice President, Global Operations effective January 1, 2018.


2018 Annual Incentive Program (2018 AIP)
Company-wide Adjusted EBITDA was selected as the sole performance metric for the 2018 AIP, consistent with the change made by the Compensation Committee in 2016 to simplify the program design by eliminating multiple goals and different goals for different groups, and to eliminate subjective goals, and promote collaboration. The Compensation Committee believes that Adjusted EBITDA strongly correlates with long-term stockholder value creation. Performance will be measured with no adjustment for currency fluctuations, consistent with the Company’s financial statements, to further align executive and stockholder interests. In determining whether or not the Adjusted EBITDA goal has been met, the Compensation Committee is authorized to make adjustments to reflect extraordinary events not contemplated by the budget approved by the Board in December 2017. In light of the elimination by the 2017 tax reform legislation of the exemption under Section 162(m) of the Code for “qualified performance based compensation,” the 2018 AIP does not contain a Section 162(m) threshold performance goal as it is no longer relevant.
No adjustments were made to target annual incentive award opportunities for the NEOs for 2018, except that Mr. Vollet’s target bonus was increased from 50% to 70% of his annual base salary in connection with his promotion to Executive Vice President, Global Operations in January 2018.
2018 Annual Long-Term Incentive Grants (Regular Annual Grants)
The Compensation Committee approved annual long-term incentive awards for each of our NEOs for 2018. The Compensation Committee determined that the majority of the 2018 LTIP grant would continue to be in the form of RSUs. In addition, the Compensation Committee determined to include stock options as part of the long-term incentive mix for 2018 for senior management, including the NEOs.
In choosing to provide a portion of the 2018 grants in the form of RSUs, the Compensation Committee noted that NEOs have a significant amount of their overall equity awards in the form of the 2017 Aspirational PRSUs. The Compensation Committee also noted that RSUs are less dilutive, in terms of overall share usage, than stock options, and may help manage potential stockholder dilution from equity plans. In deciding to award stock options, the Compensation Committee noted that these stock options will only have value if and to the extent our share price increases from the grant date to the time of exercise. The 2018 RSUs and stock vest in four equal annual installments on each of the first four anniversaries of the grant date.
The Compensation Committee approved targeted equity values for each of our NEOs in early 2018. For 2018, the Compensation Committee determined that the grant value for Mr. Thompson’s annual grant of RSUs would be at the same level as his RSU grant in 2017 and the overall LTIP target grant value would remain in the top quartile of the Peer Group in light of his

38



strong performance and the need to retain and motivate a highly experienced CEO with an exceptional record of shareholder value creation. For Messrs. Anderson, Montgomery, Rao and Vollet, the Compensation Committee determined that the grant value for the 2018 RSU grants would also be set at the same level as the RSU grants for the EVPs in 2017 and generally bring the overall LTIP target grant value for the EVPs to the 75th percentile of the Peer Group in connection with moving away from the use of special long-term incentives going forward, other than the 2017 Aspirational PRSUs and similar subsequent programs.

2017 COMPENSATION FOR FORMER NAMED EXECUTIVE OFFICERS
Departure of Mr. Spenchian

The Company announced on February 16, 2017 that Mr. Spenchian would be leaving the Company effective February 28, 2017. Accordingly, this section contains a discussion of the 2017 compensation paid to Mr. Spenchian, as well as other information relevant to an understanding of how and why the Company paid this compensation.
In setting 2017 compensation for Mr. Spenchian, the Company adopted the same overall design, purposes, objective and other aspects of its pay for performance philosophy as it did in setting 2017 executive compensation for the other NEOs. A brief summary of each component of pay is outlined below.
•    Base Salary: Mr. Spenchian, like the other NEOs other than Mr. Rao, did not receive a salary increase as part of the normal review process in 2017. At the time of his departure, Mr. Spenchian’s annual salary was $440,000.
Annual Incentive: Mr. Spenchian’s 2017 target annual incentive opportunity of 70% of salary was identical to his 2016 target opportunity. Per the terms of his employment agreement, Mr. Spenchian received a pro rata portion of his annual incentive target bonus for 2017, equal to a prorated portion of his base salary based on the number of days of the calendar year prior to the effective date of termination, following his termination by the Company without Cause on February 28, 2017.
•     Long-term Incentives: Under the regular annual grant process, on January 5, 2017, Mr. Spenchian received 14,029 RSUs with the same terms as grants to other NEOs as described above under the heading “2017 Compensation Actions - 2017 Annual Long-Term Incentive Grants (Regular Annual Grants)” and a special grant of 47,284 stock options with the same terms as grants to other NEOs under the heading “2017 Compensation Actions - 2017 Special Long-Term Incentive Grants”. Pursuant to the terms of the award agreements, following Mr. Spenchian’s termination by the Company without Cause, the number of RSUs was reduced to 1,169 shares to reflect his partial year of service in 2017, with the remaining RSUs subject to the original performance conditions and vesting schedule, and all of the special grant stock options were forfeited.

Severance Compensation:
Name
Benefits and Payments
Termination By Company
    Without Cause($)    
Jay G. Spenchian
Cash Severance(1)
665,012

 
Annual Incentive Payment
48,942

 
Acceleration of Equity Awards(2)
660,126

 
Health and Welfare Continuation(3)
18,465

 
Reimbursement of Legal Fees and Outplacement Services
 
(1)
For Mr. Spenchian, the amount presented under Cash Severance for Termination by Company without Cause includes cash severance of $36,667.67 per month for 12 months, consulting fees of $37,500 per month for six months, and payment of accrued but unused vacation.
(2)
The remaining unvested portion (10,530 RSUs) of Mr. Spenchian’s 10,530 RSUs granted December 14, 2014 became immediately vested as a result of the termination. The number of shares of stock covered by one of the outstanding awards was prorated downward as a result of the termination event, and this award will continue to vest, subject to the original performance conditions where applicable and vesting schedule as described above under “2017 Compensation Actions - 2017 Annual Long-Term Incentive Grants (Regular Annual Grants).” Certain other equity awards of Mr. Spenchian were forfeited as a result of the termination.
(3)
Mr. Spenchian was eligible to continue to participate in welfare benefit plans offered by the Company for a period of one year following termination without Cause.


39



Departure of Mr. Hytinen
The Company announced on September 25, 2017 that Mr. Hytinen would be leaving the Company effective October 13, 2017 to pursue an opportunity outside the bedding industry. Accordingly, this section contains a discussion of the 2017 compensation paid to Mr. Hytinen, as well as other information relevant to an understanding of how and why the Company paid this compensation.
In setting 2017 compensation for Mr. Hytinen, the Company adopted the same overall design, purposes, objective and other aspects of its pay for performance philosophy as it did in setting 2017 executive compensation for the other NEOs. A brief summary of each component of pay is outlined below.
Base Salary: Mr. Hytinen, like the other NEOs, did not receive a salary increase as part of the normal review process in 2017. At the time of his departure, Mr. Hytinen’s annual salary was $460,000.
Annual Incentive: Mr. Hytinen’s 2017 target annual incentive opportunity of 70% of salary was identical to his 2016 target opportunity. Per the terms of his employment agreement, Mr. Hytinen did not receive any annual incentive pay for 2017.
Long-term Incentives: Under the regular annual grant process, on January 5, 2017, Mr. Hytinen received 14,029 RSUs and 47,284 stock options with the same terms as grants to other NEOs as described above under the headings “2017 Compensation Actions - 2017 Annual Long-Term Incentive Grants (Regular Annual Grants)” and “2017 Compensation Actions - 2017 Special Long-Term Incentive Grants”. Pursuant to the terms of the award agreements, following Mr. Hytinen’s termination all of these RSUs and stock options were forfeited.
Aspirational PRSUs: In August 2017 Mr. Hytinen received a grant of 135,000 2017 Aspirational PRSUs, having the same terms as the grants made to other NEOs as discussed above under “2017 Compensation Actions - 2017 Aspirational PRSUs”. Pursuant to the terms of the award agreements, all of these aspirational PRSUs as well as the 2015 Aspirational PRSUs granted to Mr. Hytinen in 2015 were forfeited.


OTHER COMPENSATION-RELATED POLICIES
Executive Stock Ownership Guidelines
Our Board of Directors has adopted minimum stock ownership guidelines for our executive officers and Directors. The principal objective of the guidelines is to enhance the linkage between the interests of stockholders and our executive officers and Directors by requiring a meaningful, minimum level of stock ownership. The current guidelines provide that, within five years of becoming subject to the stock ownership guidelines, our CEO should own shares valued at an amount equal to six times his base salary, and that all other executive officers should own shares valued at an amount equal to three times the executive’s base salary. Our Directors also are required to own, within five years of becoming subject to the stock ownership guidelines, shares valued at an amount equal to five times the Director’s annual cash retainer (excluding any cash retainers paid for any committee or as Chair or Lead Director). Compliance will be determined based on the value of holdings of shares of stock and all vested restricted shares, restricted stock units, deferred stock units, performance units and other vested equity awards (“vested awards”), but do not include any unvested equity awards or vested stock options. The value of holdings of stock and vested awards is based on the average closing price of the Company’s common stock on the NYSE for the most recent period from February 15 through May 14. The number of shares underlying vested awards that may be included in the value of the holdings is calculated net of the number of shares necessary to cover estimated taxes with respect to such vested awards that have not yet become payable. Until the guidelines are met, executive officers and Directors are required to retain at least 50% of the “Net Profit Shares,” as defined below, and will be deemed to be in compliance with the guidelines while they comply with this retention obligation. “Net Profit Shares” means all shares of common stock received on vesting or earn-out of vested awards and shares received on exercise of stock options, in each case net of shares of common stock sold or withheld for payment of the exercise price or to pay any taxes related to the equity awards.
If an executive officer or Director achieves compliance with these guidelines and then falls out of compliance as of the end of the next measuring period due to changes in the market price of the common stock or an increase in base salary or cash retainer, that person will not be required to purchase shares in order to regain compliance, but will be deemed to be in compliance if going forward he or she retains at least 50% of his or her Net Profit Shares. In addition, if the person falls out of compliance for any other reason that person will be deemed to have remained in compliance if he or she retained at least 50% of his or her Net Profit Shares. The compliance of any Director who is an employee of an institutional stockholder of the Company, and has waived any right to receive compensation as a Director, will be calculated based on the stock ownership of that institutional stockholder and the average annual cash retainer paid to other Directors as of the end of the measurement period. For 2017, all of our executives and Directors were on track to maintain compliance with the minimum stock ownership guidelines.

40



Anti-Hedging and Anti-Pledging Policy
The Company’s Insider Trading and Confidentiality Policy prohibits employees, executive officers and members of the Board of Directors from hedging or pledging Company securities.
Clawback Policy
In early 2015, we adopted a Clawback Policy that provides that certain performance-based compensation is recoverable from an officer if we determine that an officer has engaged in fraud, willful misconduct or gross negligence that directly caused or otherwise directly contributed to the need for a material restatement of our financial results. Performance-based compensation includes all annual incentives and long-term incentives with performance features based on our financial performance, whether paid in cash or in equity, where the award or size of the award was contingent on such performance. If our Compensation Committee determines, in its reasonable discretion, that any such performance-based compensation would not have been paid or would have been at a lower amount had it been based on the restated financial results, it will report its conclusions to the Board. If the Board determines action is necessary or appropriate, the Board may within 12 months of such a restatement, to the extent permitted by applicable law, seek recoupment from such officer of the portion of such performance-based compensation that is greater than that which would have been awarded or earned had such compensation been calculated on the basis of the restated financial results.
Other Benefits / Perquisites
We offer a 401(k) plan to all of our eligible U.S. employees, including our senior management and our NEOs other than Mr. Montgomery, who is a citizen of the United Kingdom. The 401(k) plan is designed to allow employees to save for retirement as well as defer current earnings and recognize them later in accordance with statutory regulations when their individual income tax rates may be more beneficial. In 2017, in accordance with the terms of the plan, we matched 100% of the first three percent of each match-eligible participating employee’s salary that is deferred and 50% of the fourth and fifth percent of salary deferred. We made the matching contribution in 2017 for all match-eligible participating employees, including the match-eligible participating NEOs. In addition, the 401(k) plan permits us to provide a discretionary contribution of up to 3% of eligible compensation to eligible participants. We did not provide a discretionary contribution to plan participants for the year ending December 31, 2017 and do not expect to for the year ending December 31, 2018. However, the decision to make the discretionary contribution is at our sole discretion.
We do not offer any other U.S. defined contribution or defined benefit pension plans in which executive officers, including the NEOs, are eligible to participate. There are no alternate plans in place for senior management except for Mr. Montgomery. For more information regarding Mr. Montgomery’s pension benefits see “Potential Payments upon Termination or Change in Control” elsewhere in this Proxy Statement.
We provide reimbursement for financial planning expenses for NEOs of up to $10,000 per year. The program is intended to cover some, if not most, of the expense associated with having a financial advisor and to allow executives more time to focus on business and personal matters. We also provide a car allowance for Mr. Montgomery in the amount of £15,000 pursuant to the terms of his original employment agreement entered into when he joined us in 2003.
We provide the use of corporate aircraft to certain executives in limited circumstances, as discussed in Note 4 to the Summary Compensation Table included elsewhere in this Proxy Statement.
In the aggregate we believe the perquisites we provide are comparable in scope to those who compete with us for executive talent.
We also offer various broad-based employee benefit plans. NEOs participate in these plans on the same terms as eligible, non-executive employees, subject to any legal limits on the amounts that may apply. Our NEOs also receive certain other benefits that are discussed in Note 4 to the Summary Compensation Table.
Employment Agreements
Each of our NEOs is a party to an employment agreement with the Company. These employment agreements provide for severance arrangements in the event of termination of employment in certain circumstances and also provide for non-competition, non-solicitation and confidentiality agreements. These severance arrangements are discussed in more detail below under “Potential Payments upon Termination or Change in Control.” The employment agreements for our NEOs were put in place at the time they either joined the Company at the level of EVP or above or were promoted to EVP of the Company. We believe that these agreements, including the severance provisions, are necessary to allow us to be competitive in recruiting and retaining top talent for executive officer positions. The Compensation Committee believes that the employment agreements in place for its executive officers are appropriate for our needs. However, as part of its analysis of the reasonableness of each individual element of compensation and each NEO’s compensation package as a whole, the Compensation Committee periodically analyzes these arrangements for reasonableness and market competitiveness.

41



Tax and Accounting Implications
Deductibility of Compensation under Section 162(m) of the Code
Section 162(m) of the Code limits the Company’s annual deduction for certain compensation paid to certain of our executive officers named in the Summary Compensation Table, to $1 million each year unless certain requirements are met. As a result of the U.S. Tax Cuts and Jobs Act of 2017, the exemption from Section 162(m) for certain “qualified performance based compensation” will not apply beginning in 2018, unless it qualifies for transition relief applicable for compensation paid pursuant to a written binding contract that was in effect on November 2, 2017. Many of the annual bonus programs and long term incentive programs created by the Compensation Committee for 2017 and prior years were designed to be exempt from Section 162(m) as “qualified performance based compensation” but, because of the ambiguities and uncertainties as to the interpretation and scope of the transition relief under the legislation repealing Section 162(m) of the Code’s exemption from the deduction limit, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) of the Code will, in fact, be deductible. In addition, the loss of this exemption going forward will likely mean that more of the expense related to our compensation programs for senior management will no longer be deductible for U.S. federal tax purposes. Although the Compensation Committee plans to evaluate and limit the impact of Section 162(m) where possible, it believes that the tax deduction is only one of several relevant considerations in setting compensation. Accordingly, where it is deemed necessary and in our best interests to attract and retain executive talent to compete successfully and to motivate such executives to achieve the goals inherent in our business strategy, the Compensation Committee may approve compensation to executive officers which exceeds the limits of deductibility. In this regard, certain portions of the compensation paid to our NEOs for 2017 and subsequent years may not be deductible for federal income tax purposes under Section 162(m) of the Code.

Accounting for Stock-Based Compensation
We account for stock-based payments, including under the 2003 Equity Incentive Plan and the Amended and Restated 2013 Equity Incentive Plan, in accordance with FASB ASC 718, “Stock Compensation.”

OVERALL COMPENSATION APPROACH AND RISK INCENTIVES
The Compensation Committee considers, in establishing and reviewing compensation programs, whether the programs encourage unnecessary or excessive risk taking and has concluded that they do not. Base salaries are fixed in amount and thus do not encourage risk taking. In 2017, employees were also eligible to receive a portion of their total compensation in the form of “at risk” compensation opportunities, including the annual incentive and, for senior managers, the long-term incentive awards. The portion of “at risk” compensation increases as an employee’s level of responsibility within the Company increases. While the annual incentive awards focus on achievement of annual goals, and annual goals may encourage the taking of short-term risks at the expense of long-term results, the Company’s annual incentive program represents only a portion of eligible employees’ total compensation opportunities. In addition, the AIP currently uses a single metric based on Adjusted EBITDA, which is calculated based on the Company’s audited financial results and a set of pre-established objective adjustments, and for senior executives an objective target created solely for Section 162(m) purposes (for incentive programs adopted prior to 2018). The calculations are reviewed by the Company’s independent public accountants. The Compensation Committee believes that the AIP appropriately balances risk and the desire to focus eligible employees on specific short-term goals important to the Company’s success, and that it does not encourage unnecessary or excessive risk taking.
The majority of “at risk” compensation provided to senior managers is in the form of long-term equity awards that help further align senior managers’ interests with those of the Company’s stockholders. The granting of these awards is generally on an annual and therefore overlapping basis, and these grants are subject to multi-year vesting schedules. As described above, a significant portion of long-term equity awards are provided in the form of stock options, RSUs and PRSUs. In addition, the Company also made special grants of aspirational PRSU awards pursuant to an aspirational program implemented in 2015 and a follow-on program implemented in 2017. The ultimate value of the stock option and RSU awards is tied to the Company’s long-term stock price performance, while the value of the PRSU awards is dependent both on the Company’s operating results over a multi-year period and the price performance of our stock. As additional risk mitigating factors, the performance targets for the 2015 Aspirational PRSUs and 2017 Aspirational PRSUs are based on pre-established goals that are based on the Company’s audited (or, in the case of the 2017 Aspirational PRSUs, quarterly) financial results and a set of objective adjustments. The Compensation Committee’s practice is to have the calculations for these awards reviewed by the Company’s independent public accountants. In addition, the 2017 Aspirational PRSUs are based on aspirational performance targets based on rolling four quarter periods ending between March 31, 2018 and December 31, 2020, and the new program has a performance target range ($600-$650 million) rather than a single target threshold ($650 million). Both of these changes may create less of an incentive to take short-term risks at the expense of long-term results. Based on this long-range focus and these other factors, the Compensation Committee believes that these awards do not encourage unnecessary or excessive risk-taking.

42



As more fully described above, the Company maintains stock ownership guidelines applicable to executive officers and members of the Board of Directors intended to encourage long-term ownership of a significant amount of Tempur Sealy International stock in order to promote a long-term “owner’s” view of our business. The Compensation Committee believes the Company’s compensation programs encourage employees to strive to achieve both the short and long-term goals that are important to the Company’s success without promoting unnecessary or excessive risk taking.


COMPENSATION COMMITTEE REPORT

The information contained in this report shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that Tempur Sealy International specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended ("Securities Act"), or the Exchange Act.
The Compensation Committee is comprised entirely of independent directors. The Compensation Committee has reviewed the Compensation Discussion and Analysis section required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis section be included in this Proxy Statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.
 
Submitted by,
 
 
 
COMPENSATION COMMITTEE
 
Jon L. Luther (Chair)
 
Usman S. Nabi
 
Richard W. Neu


43



COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth information concerning the annual and long-term compensation for services in all capacities to Tempur Sealy International for the year ended December 31, 2017, of those persons who served as (i) our principal executive officer during the year ended December 31, 2017; (ii) our principal financial officer during the year ended December 31, 2017; and (iii) our other four most highly compensated Executive Officers for the year ended December 31, 2017. In this section of the Proxy Statement we refer to these persons collectively as our "NEOs."


44



Summary Compensation Table
Name and Principal Position
Year
Salary ($)
Bonus ($)(1)
Stock Awards
($)
(2)
Option Awards ($)(2)
Non-Equity
Incentive Plan
Compensation
($)
(3)
Change in
Pension Value
and Non-
Qualified
Deferred
Compensation
Earnings ($)
All Other
Compensation
($)
(4)
Total ($)
Scott L. Thompson
Chairman, President and Chief Executive Officer
2017
1,100,000


7,000,000

8,423,616

1,375,000


122,780

18,021,396

 
2016
1,100,000


3,181,573


1,934,625


20,976

6,237,174

 
2015
342,692

2,058,000

13,617,689

7,212,825



57,413

23,288,619

 
 
 
 
 
 
 
 
 
 
Bhaskar Rao
EVP and Chief Financial Officer
2017
430,000


975,000

601,680

192,281


23,735

2,222,696

 
 
 
 
 
 
 
 
 
 
Richard W. Anderson
EVP and President, North America
2017
441,000


975,000

1,173,285

308,700


20,504

2,918,489

 
2016
441,000

500,000

2,076,402


434,341


23,960

3,475,703

 
2015
436,962


653,250

321,750

322,437


23,365

1,757,764

 
 
 
 
 
 
 
 
 
 
David Montgomery(5)
EVP and President, International Operations
2017
367,248


1,100,000

1,323,705

257,074


76,705

3,124,732

 
2016
365,756

500,000

1,100,000


360,233


76,705

2,402,694

 
2015
439,927


737,000

363,000

273,323


90,097

1,903,347

 
 
 
 
 
 
 
 
 
 
Scott J. Vollet
EVP, Global Operations
2017
324,500


500,000

601,680

162,225


19,598

1,608,003

 
 
 
 
 
 
 
 
 
 
Jay G. Spenchian(6)
Former EVP and Chief Marketing Officer
2017
84,615


975,000

1,173,285

49,773


821,679

3,104,352

 
2016
440,000

500,000

1,894,342


433,356


23,746

3,291,444

 
2015
440,000

636,765

653,250

321,750

306,864


59,953

2,418,582

 
 
 
 
 
 
 
 
 
 
Barry A. Hytinen(7)
Former EVP and Chief Financial Officer
2017
371,539


975,000

1,173,285



47,725

2,567,549

 
2016
460,000

450,000

1,962,283


453,054


16,605

3,341,942

 
2015
387,281


402,000

198,000

273,126


14,555

1,274,962

 

45



(1)
In 2016, the Company paid retention bonuses in connection with the termination of our previous CEO and the commencement of the search for a new CEO. The retention bonuses were approved by the Board of Directors in May 2015 for NEOs and other senior executives, and the retention bonuses were contingent upon certain performance criteria, which were met. In 2015, Mr. Thompson joined the Company and, pursuant to his employment agreement, received a sign-on bonus of $1,600,000 and a guaranteed bonus of $458,000 for 2015 calculated as 125% of his base salary for 2015 prorated to reflect the portion of the year in which he was employed. Mr. Spenchian earned a sign-on bonus in 2015, once he successfully completed 90 days of employment.

(2)
No option awards were granted in 2016. For stock awards granted, the value set forth is the grant date fair value, in accordance with FASB ASC 718. See Note 11 "Stock-based Compensation" to the Company’s Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 for a complete description of the valuation. Stock awards include RSUs, which are subject to a performance threshold for Section 162(m) purposes, and matching PRSU grants, both of which are described in the Compensation Discussion and Analysis section and in the Grants of Plan-Based Awards table elsewhere in this Proxy Statement. The grant date fair values of these grants represent the value at the grant date based upon the probable outcome of the performance conditions set forth in the awards. With respect to the RSUs granted on January 5, 2017 and February 11, 2016, with performance periods that ended December 31, 2017 and December 31, 2016, respectively, the maximum potential value of the awards is 100% of target, based on achievement of a target based on positive profit as defined in the respective award agreements, and these performance tests were met. With respect to the matching PRSUs granted between October 2015 and June 2016, with a performance period that ended December 31, 2016, the maximum potential value of the matching PRSU is 100% of target, based on achievement of a target based on positive profit as defined in the applicable award agreements, and this performance test was met.

For the 2015 PRSUs with a performance period that ended on December 31, 2017, the Company did not achieve the Adjusted EBITDA financial metric threshold, as defined in the award agreement, and therefore none of the target number of PRSUs were determined to have been earned on March 1, 2018. For the 2014 PRSUs with a performance period that ended on December 31, 2016, the Company achieved the Net Sales financial metric, as defined in the award agreement, of between threshold and target performance levels, and therefore 71.2% of the target number of PRSUs were determined to have been earned on February 24, 2017.

With respect to the 2015 Aspirational PRSUs described in more detail under "Compensation Discussion and Analysis - 2017 Compensation Actions - 2015 Aspirational Grants," the value included in the "Stock Awards" column for each NEO is $0, because the likelihood of achieving the performance goal on the date of the grant was not probable. The grants of 2015 Aspirational PRSUs run through 2017 (or 2018 with a reduced award opportunity) and are tied to an aspirational performance goal of achieving more than $650 million in Adjusted EBITDA for 2017 or 2018. The Compensation Committee believes these are challenging performance hurdles and, if achieved, would likely result in significant stockholder value creation. The maximum potential value of these aspirational PRSUs is 100% of the target shares. Assuming that the achievement of the performance goal as of December 31, 2017 had been probable on the grant date, the grant date fair value of the aspirational PRSUs would have been as set forth in the table below. The Company did not meet the Adjusted EBITDA target for 2017 and accordingly two-thirds of the 2015 Aspirational PRSUs were forfeited.

2015 Aspirational Grant
Named Executive Officer
Number of Shares at Target
Value based on Closing Price of Stock at Grant Date ($)
Scott L. Thompson
620,000
$44,485,000
Bhaskar Rao
20,000
1,465,000
Richard W. Anderson
80,000
5,860,000
David Montgomery
125,000
9,156,250
Scott J. Vollet
20,000
1,465,000
Jay G. Spenchian
80,000
5,860,000
Barry A. Hytinen
125,000
9,156,250


46



With respect to the 2017 Aspirational PRSUs described in more detail under "Compensation Discussion and Analysis - 2017 Compensation Actions - 2017 Aspirational Grants," the value included in the "Stock Awards" column for each NEO is $0, because at the time of grant these shares were not expected to vest. As more fully described under "Compensation Discussion and Analysis - 2017 Compensation Actions - 2017 Aspirational Grants," the PRSUs will vest in accordance with the Company's Adjusted EBITDA (as defined in the award agreements) as measured over any four consecutive fiscal quarters during two separate measurement periods. The first measurement period consists of the fiscal quarters ending March 31, 2018 through December 31, 2019.

2017 Aspirational Grant
Named Executive Officer
Number of Shares at Target
Value based on Closing Price of Stock at Grant Date ($)
Scott L. Thompson
620,000
$36,927,200
Bhaskar Rao
100,000
3,107,750
Richard W. Anderson
135,000
8,040,060
David Montgomery
135,000
8,040,060
Scott J. Vollet
50,000
2,978,000
Barry A. Hytinen
135,000
8,040,060

(3)
Non-Equity Incentive Plan Compensation payouts are reported in the year they are earned although paid in the following year. The Non-Equity Incentive Plan Compensation Payout reported in 2017 was paid in 2018 pursuant to the Company's annual incentive bonus program for 2017.

It was discovered at the time of Mr. Hytinen’s termination of employment that his 2015 Non-Equity Incentive Plan was calculated incorrectly and was owed an additional $40,000. This has been updated on his 2015 summary line.

As described in the Compensation Discussion and Analysis section, above, for 2017 all amounts earned were subject to a threshold objective performance metric. Once that metric was met, the maximum amount was earned, subject to the discretion of the Compensation Committee to reduce (but not increase) the amounts payable.

The 2017 AIP was adopted by the Compensation Committee in December 2016 and the performance metrics were based on the budget for 2017 adopted by the Board in December 2016. As a result of the termination of the Mattress Firm relationship discussed above and the Company’s revised expectations for 2017, in March 2017 the Compensation Committee determined that the recently-approved 2017 AIP no longer served as a meaningful performance incentive for the remainder of the year based on the original Adjusted EBITDA goals. In response, and at the request of the CEO that the Compensation Committee provide assurances to participants in the 2017 AIP other than the CEO, pursuant to the discretion reserved under the 2017 AIP to make adjustments for extraordinary events the Compensation Committee committed that the bonuses under the 2017 AIP would be paid at least at 100% of target (other than for the CEO) to retain and focus the executive team and key employees during this transitional period. This commitment for a payout at target did not affect the requirement for NEOs to meet the Section 162(m) threshold test described above and did not apply to the CEO, who remained subject to the 2017 AIP as originally adopted, including the exercise by the Compensation Committee of its discretion as described above.

In March 2018, the Compensation Committee determined that the Company had met the Section 162(m) threshold test of positive profits for 2017, without any adjustments for the Mattress Firm termination. Accordingly, based on the commitment made in March 2017 as described above, the Compensation Committee approved payouts under the 2017 AIP at 100% of target value for all participants other than the CEO. With respect to the CEO, in March 2018 the Compensation Committee reviewed the CEO’s performance for 2017, including the significant progress made in responding to the termination of the Mattress Firm relationship, and concluded it was appropriate to exercise the discretion reserved under the 2017 AIP for extraordinary events and make adjustments for the Mattress Firm termination. However, the Compensation Committee also determined that it was not possible to determine what Adjusted EBITDA would have been in the absence of the termination of Mattress Firm. In light of the inability to calculate specific adjustments, the Compensation Committee considered Mr. Thompson’s overall performance for 2017. Based on its evaluation, the Compensation Committee determined that
the appropriate adjustment was to approve a payout for the CEO under the 2017 AIP at 100% of target value.

In light of Mr. Rao’s promotion to CFO effective October 13, 2017, (i) the amount of Mr. Rao’s target bonus for 2017 with respect to the period up to October 13, 2017 was based on 50% of his base salary paid with respect to the period from January 1, 2017 to October 13, 2017 and (ii) the amount of Mr. Rao’s target bonus for 2017 with respect to the period from October 13, 2017 through December 31, 2017 was based on 70% of his base salary paid with respect to such period.

47





(4)Represents amounts paid in 2017 on behalf of each of our NEOs for the following:     
Named Executive Officer
 
Life and Disabilities
Insurance Premiums ($)
 
Contributions to
Qualified Defined Contribution Plans ($)
 
Car Allowance($)
 
Tax Preparation, Legal and Financial Planning Fees($)
 
Relocation($)
 
Severance Payments($)(a)
 
Use of Corporate Aircraft
($)(b)
 
Income Tax Gross-Up ($)(c)
Scott L. Thompson
 
3,005

 
10,800

 

 
10,000

 

 

 
85,140

 
13,835

Bhaskar Rao
 
2,935

 
10,800

 

 
10,000

 

 

 

 

Richard W. Anderson
 
3,004

 
10,800

 

 
6,700

 

 

 

 

David Montgomery
 
21,078

 
36,576

 
18,375

 
676

 

 

 

 

Scott J. Vollet
 
2,798

 
10,800

 

 
6,000

 

 

 

 

Jay G. Spenchian
 
0

 
0

 

 
10,000

 

 
811,679

 

 

Barry A. Hytinen
 
3,005

 
10,800

 

 
305

 

 
33,615

 

 


(a)
Mr. Spenchian received $440,012 in cash severance for termination by the Company without Cause, $225,000 in consulting fees, and $146,667 in accrued but unused vacation. Mr. Hytinen received $33,615 in accrued but unused vacation.

(b)
Corporate aircraft use is governed by a Corporate Aircraft Policy adopted by the Compensation Committee in connection with the Company's decision to allow members of the Board and executive team to use company-owned, chartered or leased aircraft. Pursuant to SEC rules, certain uses of corporate aircraft, including commuting from an executive's personal residence to its headquarters in a different city, is considered "personal" and thus must be disclosed as a perquisite. For 2017, $72,519 of Mr. Thompson's use of Company aircraft was comprised of commuting flights.

(c)
The Company does not provide for United States Federal, State or local income tax gross-ups relating to imputed income to employees except in limited circumstances. The Company does provide for such gross-ups in certain circumstances under its Corporate Aircraft Policy. The total amount of such gross-ups during 2017 was $13,835.

(5)
Mr. Montgomery’s salary and Non-Equity Incentive Plan Compensation are paid in British Pounds (£) and are converted to United States Dollars ($) using the spot rate on December 29, 2017, the last business day of the year. The variation in Mr. Montgomery's salary year-to-year is due to variation in the conversion rate.

(6)
Mr. Spenchian left the Company effective February 28, 2017. For a discussion relating to the terms of Mr. Spenchian's departure please refer to "Compensation Discussion and Analysis - 2017 Compensation For Former Named Executive Officers."

(7)
Mr. Hytinen, left the Company effective October 13, 2017. For a discussion of the terms relating to Mr. Hytinen’s departure please refer to “Compensation Discussion and Analysis - 2017 Compensation for Former Named Executive Officers.”


48



Grants of Plan-Based Awards

The following table provides information about annual and long term incentive award opportunities granted to our NEOs during 2017. These incentive award opportunities are described in the Compensation Discussion and Analysis section of this Proxy Statement under "2017 Compensation Actions - 2017 Annual Incentive Program," "2017 Compensation Actions - 2017 Annual Long-Term Incentive Grants (Regular Annual Grants)", "2017 Compensation Actions - 2017 Special Long-Term Incentive Grants" and "2017 Compensation Actions - 2017 Aspirational Grants."
 
  
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)
 
Estimated Future Payouts Under Equity Incentive Plan Awards (2)
All Other Stock Awards:
Number of
Shares of
Stock or
Units (#)
All Other Stock Awards: Number of Shares of Stock of Units (#)
All Other Option Awards:
Number of
Securities
Underlying
Options
(#)
Exercise or
Base Price of
Option
Awards
($/Sh)
Grant Date
Fair Value of
Stock and
Option Awards
($)
(3)
Name/Type of Award
Grant Date
Threshold ($)
Target ($)
Maximum ($)
 
Threshold (#)
Target (#)
Maximum (#)
Scott L. Thompson
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Incentive Bonus(1)
2/1/2017
$
0

$
1,375,000

$
2,750,000

 
 
 
 
 
 
 
 

Stock Award (RSU)(4)
1/5/2017
 
 
 
 

100,719

100,719

 
 
 
 
7,000,000

Stock Award (Stock Option)(4)
1/5/2017
 

 

 

 

339,476

339,476

 
 
 
 
8,423,616

Aspirational Award (PRSU)(5)
8/7/2017
 

 

 

 

620,000

620,000

 
 
 
 
36,927,200

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bhaskar Rao(6)
 
 

 

 

 
 

 

 

 
 
 
 
 

Annual Incentive Bonus(1)(6)
2/1/2017
0

192,661

385,322

 
 

 

 

 
 
 
 
 

Stock Award (RSU)(4)
1/5/2017
 

 

 

 

2,878

2,878

 
 
 
 
200,000

Stock Award (Stock Option)(4)
1/5/2017
 

 

 

 

24,248

24,248

 
 
 
 
601,680

Aspirational Award (PRSU)(5)
8/7/2017
 
 
 
 

50,000

50,000

 
 
 
 
2,978,000

Stock Award (RSU)(6)
10/13/2017
 
 
 
 
 
11,969

11,969

 
 
 
 
775,000

Aspirational Award (PRSU)(6)
10/13/2017
 
 
 
 
 
50,000

50,000

 
 
 
 
3,237,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Richard W. Anderson
 
 

 

 

 
 

 

 

 
 
 
 
 

Annual Incentive Bonus(1)
2/1/2017
0

308,700

617,400

 
 

 

 

 
 
 
 
 

Stock Award (RSU)(4)
1/5/2017
 

 

 

 

14,029

14,029

 
 
 
 
975,000

Stock Award (Stock Option)(4)
1/5/2017
 

 

 

 
 
47,284

47,284

 
 
 
 
1,173,285

Aspirational Award (PRSU)(5)
8/7/2017
 
 
 
 

135,000

135,000

 
 
 
 
8,040,600

 
 
 
 
 
 
 
 
 
 
 
 
 
 
David Montgomery(7)
 
 

 

 

 
 

 

 

 
 
 
 
 

Annual Incentive Bonus(1)
2/1/2017
0

280,003

560,006

 
 

 

 

 
 
 
 
 

Stock Award (RSU)(4)
1/5/2017
 

 

 

 

15,827

15,827

 
 
 
 
1,100,000

Stock Award (Stock Option)(4)
1/5/2017
 
 
 
 
 
53,346

53,346

 
 
 
 
1,323,705

Aspirational Award (PRSU)(5)
8/7/2017
 
 
 
 
 
135,000

135,000

 
 
 
 
8,040,600

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Scott J. Vollet
 
 

 

 

 
 

 

 

 
 
 
 
 

Annual Incentive Bonus(1)
2/1/2017
0

162,225

324,450

 
 

 

 

 
 
 
 
 


49



Stock Award (RSU)(4)
1/5/2017
 

 

 

 

7,194

7,194

 
 
 
 
500,000

Stock Award (Stock Option)(4)
1/5/2017
 

 

 

 

24,248

24,248

 
 
 
 
601,680

Aspirational Award (PRSU)(5)
8/7/2017
 

 

 

 

50,000

50,000

 
 
 
 
2,978,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Barry J. Hytinen(8)
 
 

 

 

 
 

 

 

 
 
 
 
 

Annual Incentive Bonus(1)
2/1/2017
0



 
 

 

 

 
 
 
 
 

Stock Award (RSU)(4)
1/5/2017
 

 

 

 

14,029

14,029

 
 
 
 
975,000

Stock Award (Stock Option)(4)
1/5/2017
 
 
 
 

47,284

47,284

 
 
 
 
1,173,285

Aspirational Award (PRSU)(5)
8/7/2017
 
 
 
 
 
135,000

135,000

 
 
 
 
8,040,600

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jay G. Spenchian(9)
 
 
 
 
 
 
 
 
 
 
 
 
 
Annual Incentive Bonus(1)(9)
2/1/2017
0

48,942

48,942

 
 
 
 
 
 
 
 
 
Stock Award (RSU)(4)
1/5/2017
 
 
 
 

14,029

14,029

 
 
 
 
975,000

Stock Award (Stock Option)(4)
1/5/2017
 
 
 
 

47,284

47,284

 
 
 
 
1,173,285

(1)
These columns show the 2017 annual award opportunities under the Company's annual incentive bonus program for 2017. They reflect the actual amounts paid out under the program, and are also included in the Summary Compensation Table and discussed in the Compensation Discussion and Analysis section under "2017 Compensation Actions - 2017 Annual Incentive Program."
(2)
These columns show the 2017 equity incentive awards, which include awards of RSUs and PRSUs subject to a performance threshold and Non-Qualified Stock Options. The terms of these awards are described more fully in Notes (4) and (5), below.
(3)
This column shows the grant date fair value of the RSU and PRSU subject to a performance threshold and Non-Qualified Stock Options, computed in accordance with FASB ASC 718. See Note 11 "Stock-based Compensation" to the Company's Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 for a complete description of the valuations.

For all awards, the grant date fair value displayed represents the value of the shares based on the closing price of the Company’s common stock, par value $0.01 per share (the “Stock”) on the NYSE on the grant date.

The award amounts do not reflect the risk that the awards may be forfeited in certain circumstances, or in the case of the RSU and PRSU awards, that there is no payout if the required performance measures are not met.
(4)
On January 5, 2017, the Board approved the grant of RSUs, subject to a performance threshold that the Company have "positive profits" for calendar year 2017, as defined in the applicable award agreements. If the performance threshold is achieved, which it was, the RSUs will vest over the first four anniversaries of the grant dates.

On January 5, 2017, the Board also approved the grant of Non-Qualified Stock Options to purchase from the Company all or any part of the total option shares (the "Option Award") of the Stock, at a price of $69.50 per share (the “Exercise Price”). The Option is not treated as an “incentive stock option” within the meaning of Section 422 of the Code.
(5)
On August 7, 2017, the Board approved the grant of the 2017 Aspirational PRSUs, subject to the Company's achievement of the performance metrics for the award. The determination that target shares have been earned is associated with two designated performance periods. All or part of the target shares will vest based on the highest Adjusted EBITDA performance metric during any four quarter period of the designated periods as described in the award agreements.
(6)
Mr. Rao was promoted to CFO effective October 13, 2017. As a result, the Annual Incentive Bonus reported in this chart represents the total annual incentive target, pro-rated for time in each position held during 2017. The additional RSUs and 2017 Aspirational PRSUs were issued on October 13, 2017 in conjunction with Mr. Rao's promotion to CFO, and are defined as the RSUs awarded on 1/5/2017 and PRSUs awarded on 8/7/2017 as described in (4) and (5) above.
(7)
Mr. Montgomery's salary is paid in British Pounds (£). The Annual Incentive Bonus threshold, target and maximum opportunities were converted into United States Dollars ($) based on the exchange spot rate of 1.2000.
(8)
Mr. Hytinen left the Company effective October 13, 2017. For a discussion relating to the terms of Mr. Hytinen's departure please refer to "Compensation Discussion and Analysis - 2017 Compensation Actions - 2017 Compensation For Former Named Executive Officers."

50



(9)
Mr. Spenchian left the Company effective February 28, 2017. For a discussion relating to the terms of Mr. Spenchian's departure please refer to "Compensation Discussion and Analysis - 2017 Compensation Actions - 2017 Compensation For Former Named Executive Officers."


51



Outstanding Equity Awards at Fiscal Year-End

The table below sets forth the outstanding stock option awards classified as exercisable and unexercisable as of December 31, 2017, for each of our NEOs. The table also sets forth unvested stock awards assuming a market value of $62.69 per share, the closing market price of our common stock on December 29, 2017 (the last trading day of 2017).
 
Option Awards
 
Stock Awards (1)
Name
Number of Securities Underlying Options
  
Option Exercise Price
Option
Expiration Date
 
Number of Shares or Units of Stock that Have Not Yet Vested
 
Market Value of Shares or Units of Stock that Have Not Yet Vested
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Rights That Have Not Vested
  
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
 
(#) Exercisable
(#) Unexercisable
 
($)
 
 
(#)
 
($)
(#)
 
($)
Scott L. Thompson
 
  
 
 
 
 
 
 
 

  
 
 
206,667

103,333

(2) 
71.75

9/3/2025
 
 
 
 
 

  
 
 
339,476

(3) 
69.50

1/4/2027
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39,333

(4) 
2,465,786

 
 
 
 
 
 
 
 
 
 
 
 
 
23,228

(5) 
1,456,163

 
 
 
 
 
 
 
 
 
 
28,000

(6) 
1,755,320

 
 
 
 
 
 
 
 
 
 
13,096

(6) 
820,988

 
 
 
 
 
 
 
 
 
 
100,719

(7) 
6,314,074

 
 
 
 
 
 
 
 
 
 
 
 
 
Bhaskar Rao
 
 
 
 
 
 
 
 
 
 
 
 
1,456


(8) 
28.39

2/22/2020
 
 
 
 
 
 
 
 
1,865


(9) 
46.68

2/21/2021
 
 
 
 
 
 
 
 
1,089


(10) 
71.50

2/8/2022
 
 
 
 
 
 
 
 
5,142


(11) 
37.05

2/21/2023
 
 
 
 
 
 
 
 
1,766


(12) 
51.87

2/27/2024
 
 
 
 
 
 
 
 
1,924

962

(13) 
57.51

2/26/2025
 
 
 
 
 
 
 
 

24,248

(3) 
69.50

1/4/2027
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,655

(14) 
$
166,442