Definitive Proxy Statement
Table of Contents

 

 

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.    )

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

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¨   Preliminary Proxy Statement
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x   Definitive Proxy Statement
¨   Definitive Additional Materials
¨   Soliciting Material Pursuant to §240.14a-12

Fortune Brands Home & Security, 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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Table of Contents

 

 

LOGO

520 Lake Cook Road, Deerfield, Illinois 60015

NOTICE OF ANNUAL MEETING

AND PROXY STATEMENT

March 5, 2013

Dear Fellow Stockholders:

We are pleased to invite you to the Annual Meeting of Stockholders of Fortune Brands Home & Security, Inc. on Monday, April 29, 2013 at 3:30 p.m. (CDT) at The Westin Chicago North Shore, 601 N. Milwaukee Avenue, Wheeling, Illinois. The following matters will be considered at the Annual Meeting:

 

Item 1:

   The election of the two director nominees identified in this Proxy Statement for a three-year term expiring at the 2016 Annual Meeting (see pages 4 to 7 of the Proxy Statement);

Item 2:

   The ratification of the appointment by the Company’s Audit Committee of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2013 (see page 47 of the Proxy Statement);

Item 3:

   An advisory vote on the compensation paid to the Company’s named executive officers (see page 48);

Item 4:

   The approval of the Fortune Brands Home & Security, Inc. 2013 Long-Term Incentive Plan (see pages 49 to 54);

Item 5:

   The approval of the Fortune Brands Home & Security, Inc. Annual Executive Incentive Compensation Plan (see pages 55 to 57); and

such other business as may properly come before the meeting.

Stockholders of record at the close of business on February 28, 2013, the record date for the meeting, are entitled to vote at the Annual Meeting.

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE. You may submit your proxy (1) by mail using a traditional proxy card, (2) by telephone at 1-800-690-6903, or (3) through the Internet at www.proxyvote.com.

PLEASE CONFIRM YOUR PREFERENCE FOR ELECTRONIC DELIVERY OF FUTURE ANNUAL MEETING MATERIALS. You can expedite delivery of future annual meeting materials and avoid costly mailings by electing electronic delivery of your materials. For further information on how to take advantage of this cost-saving service, please refer to the accompanying proxy card.

This Proxy Statement and accompanying proxy are first being distributed on or about March 12, 2013.

 

LOGO
Lauren S. Tashma
Senior Vice President, General Counsel and Secretary

Important Notice Regarding the Availability of Proxy Materials

for the Annual Meeting of Stockholders to be Held On Monday, April 29, 2013.

The Notice of Annual Meeting and Proxy Statement and the Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (“Form 10-K”) are available at www.proxyvote.com.


Table of Contents

 

TABLE OF CONTENTS

 

 

 

FREQUENTLY ASKED QUESTIONS

     1   

ITEM 1 – ELECTION OF DIRECTORS

     4   

CORPORATE GOVERNANCE

     8   
Corporate Governance Principles      8   
Director Independence      8   
Policies with Respect to Transactions with Related Persons      8   
Certain Relationships and Related Transactions      9   
Director Nomination Process      9   
Communication with the Board      10   
Board Leadership Structure      10   
Executive Sessions      10   
Meeting Attendance      10   
Risk Management      10   
Compensation Risks      11   
Board Committees      12   

Audit Committee

     12   

Compensation Committee

     12   

Compensation Committee Procedures

     13   

Compensation Committee Consultant

     13   

Executive Committee

     14   

Nominating and Corporate Governance Committee

     14   
Other Corporate Governance Resources      14   
DIRECTOR COMPENSATION      15   
Stock Ownership of Board Members      16   
2012 Director Compensation Table      16   
COMPENSATION DISCUSSION AND ANALYSIS      17   
Compensation Committee Report      31   
EXECUTIVE COMPENSATION   
2012 Summary Compensation Table      32   
2012 Grants of Plan-Based Awards      34   
Outstanding Equity Awards at 2012 Fiscal Year-End      36   
2012 Option Exercises and Stock Vested      38   
Retirement and Post-Retirement Benefits      39   
2012 Nonqualified Deferred Compensation      41   
Potential Payments Upon Termination or Change in Control      42   
AUDIT COMMITTEE MATTERS   
Report of the Audit Committee      46   
Fees of Independent Registered Public Accounting Firm      47   
Approval of Audit and Non-Audit Services      47   
ITEM 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      47   
ITEM 3 – ADVISORY VOTE ON THE COMPENSATION PAID TO THE COMPANY’S NAMED EXECUTIVE OFFICERS      48   
ITEM 4 – APPROVAL OF FORTUNE BRANDS HOME & SECURITY, INC. 2013 LONG-TERM INCENTIVE PLAN      49   
Equity Compensation Plan Information      54   
ITEM 5 – APPROVAL OF FORTUNE BRANDS HOME & SECURITY, INC. ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN      55   
CERTAIN INFORMATION REGARDING SECURITY HOLDINGS   
Section 16(a) Beneficial Ownership Reporting Compliance      58   
SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS      59   
MISCELLANEOUS MATTERS      59   


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FREQUENTLY ASKED QUESTIONS

 

 

Why did I receive these materials?

These materials were provided to you in connection with the solicitation by the Board of Directors (the “Board”) of Fortune Brands Home & Security, Inc. (“Fortune Brands Home & Security,” “Home & Security” or the “Company”), of proxies to be voted at our 2013 Annual Meeting of Stockholders and at any adjournment or postponement of the Annual Meeting. The Annual Meeting will take place on April 29, 2013 at 3:30 p.m. (CDT), at the Westin Chicago North Shore, 601 N. Milwaukee Avenue, Wheeling, Illinois. This Proxy Statement describes the matters on which you, as a stockholder, are entitled to vote. It also gives you information on these matters so that you can make an informed decision.

Why did I receive a “Notice of Internet Availability of Proxy Materials” instead of printed proxy materials?

The Securities and Exchange Commission (the “SEC”) permits companies to distribute proxy materials to stockholders by providing access to these documents over the Internet instead of mailing a printed copy. Accordingly, we mailed a Notice of Internet Availability of Proxy Materials (the “Notice”) to most stockholders. This approach reduces the environmental impact and our costs of printing and distributing the proxy materials, while providing a convenient method of accessing the materials and voting. The Notice contains instructions on how to access the proxy materials on the Internet, how to request a printed set of proxy materials and how to vote.

Can I get electronic access to the proxy materials if I received printed materials?

The Company’s proxy materials are available on our website at http://ir.fbhs.com. Stockholders may elect to receive future proxy materials by e-mail instead of paper. This approach reduces the environmental impact and reduces our costs of printing and distributing the proxy materials. If you opt to receive our future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to view those proxy materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it or for so long as the e-mail address provided by you is valid.

Stockholders of record who wish to participate can enroll at http://enroll.icsdelivery.com/fbhs. Beneficial owners should check the information provided by their bank or broker regarding the availability of this service.

Who is entitled to vote?

Only stockholders who owned the Company’s common stock of record at the close of business on February 28, 2013 are entitled to vote. Each holder of common stock is entitled to one vote per share. There were 164,329,824 shares of common stock outstanding on February 28, 2013.

What is the difference between being a stockholder of record and a beneficial owner?

If your shares are registered directly in your name with Wells Fargo Shareowner Services, the Company’s transfer agent, you are the “stockholder of record” of those shares. If your shares are held in a brokerage account or by a bank, you are the “beneficial owner” of those shares. The majority of stockholders are beneficial owners. For such shares, the bank or broker is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account by using the voting instructions provided to you by your bank or broker.

How do I vote?

If you received a Notice in the mail, you can either vote by Internet (www.proxyvote.com) or in person at the Annual Meeting. You may also vote by mail if you request a paper copy of the materials. Voting instructions are provided on the Notice.

Stockholders that received a copy of this Proxy Statement and accompanying proxy card in the mail can vote by filling out the proxy card and returning it in the postage paid return envelope, by telephone (800-690-6903), by Internet (www.proxyvote.com), or in person at the Annual Meeting of Stockholders. Voting instructions are provided on the proxy card.

 

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FREQUENTLY ASKED QUESTIONS (CONTINUED)

 

 

If you are a beneficial owner of our shares, you must vote by giving instructions to your bank or broker. You should follow the voting instructions on the form that you receive from your bank or broker. The availability of telephone or Internet voting will depend on your bank’s or broker’s voting process. As a beneficial owner, you must obtain a legal proxy from your bank or broker and present it to the Inspector of Election with your completed ballot to be able to vote in person at the Annual Meeting.

How will my proxy be voted?

Your proxy card, when properly signed and returned to us, or processed by telephone or via the Internet, and not revoked, will be voted in accordance with your instructions. We are not aware of any other matter that may be properly presented other than those described above. If any other matter is properly presented, the Proxy Committee (the persons named in the enclosed proxy card or, if applicable, their substitutes), will have discretion to vote in their best judgment.

What if I don’t mark the boxes on my proxy or voting instruction card?

Unless you give other instructions on your proxy card, or unless you give other instructions when you cast your vote by telephone or the Internet, the Proxy Committee will vote your shares in accordance with the recommendations of the Board of Directors, which are:

 

   

FOR the election of two Class II directors;

 

   

FOR the ratification of the appointment of our independent registered public accounting firm;

 

   

FOR the advisory approval of the compensation paid to the Company’s named executive officers;

 

   

FOR the approval of the Fortune Brands Home & Security, Inc. 2013 Long-Term Incentive Plan; and

 

   

FOR the approval of the Fortune Brands Home & Security, Inc. Annual Executive Compensation Incentive Plan.

If you hold shares beneficially and you have not provided voting instructions, your bank or broker is only permitted to use its discretion and vote your shares on certain routine matters (such as Item 2). Your bank or broker is not permitted to use discretion and vote your shares on non-routine matters (such as Items 1, 3, 4 and 5) if it has not received voting instructions from you. Therefore, we urge you to give voting instructions to your broker on all five voting items. Shares that are not permitted to be voted by your broker with respect to any matter are called “broker non-votes.” Broker non-votes are not considered votes for or against, or entitled to vote with respect to, a proposal and will have no direct impact on any proposal.

How many votes are needed to approve an item?

The nominees for director, in non-contested elections, must receive a majority of the votes cast at the meeting, in person or by proxy, to be elected. A proxy card marked to abstain authority for the election of one or more directors will not be voted with respect to the director or directors indicated.

Under the Company’s majority vote bylaw provision relating to the election of directors, if the number of votes cast “for” a director nominee does not exceed the number of votes cast “against” the director nominee, then the director must tender his or her resignation from the Board promptly after the certification of the stockholder vote. The Board will decide within 90 days of that certification, through a process managed by the Nominating and Corporate Governance Committee and excluding the nominee in question, whether to accept the resignation. The Board’s explanation of its decision will be promptly disclosed in a filing with the SEC.

The affirmative vote of shares representing a majority in voting power of the common stock, present in person or represented by proxy at the meeting, and entitled to vote is necessary for the approval of Items 2, 3, 4 and 5. Proxy cards marked as abstentions on Items 2, 3, 4 and 5 will not be voted and will have the effect of a negative vote.

 

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FREQUENTLY ASKED QUESTIONS (CONTINUED)

 

 

Can I go to the Annual Meeting if I vote by proxy?

Yes. Attending the Annual Meeting does not revoke your proxy.

How can I revoke my proxy?

You may revoke your proxy by giving written notice to the Secretary of the Company or by delivering a later dated proxy at any time before it is actually voted.

Will my vote be public?

As a matter of policy, stockholder proxies, ballots and tabulations that identify individual stockholders are not publicly disclosed, but are available to the independent Inspector of Election, the proxy solicitation firm and certain employees of the Company.

What constitutes a quorum?

The presence at the meeting, in person or by proxy, of the holders of a majority in voting power of the outstanding shares of common stock entitled to vote will constitute a quorum. Proxies received but marked as abstentions or broker non-votes will be included in the calculation of the number of shares considered to be present at the meeting.

What if I am a participant in the Fortune Brands Home & Security Retirement Savings Plan or the Fortune Brands Home & Security Hourly Employee Retirement Savings Plan?

We are mailing this Proxy Statement and a proxy card to participants in the Fortune Brands Home & Security Retirement Savings Plan and the Fortune Brands Home & Security Hourly Employee Retirement Savings Plan (collectively, the “Savings Plans”) who invest in the Home & Security Stock Fund under the Savings Plans. The Trustee, as record holder of Home & Security common stock held in the Savings Plans, will vote whole shares attributable to your interest in the Home & Security Stock Fund in accordance with your directions given on the proxy card, by telephone or the Internet. If you invest in the Home & Security Stock Fund under the Savings Plans and you sign and return the enclosed proxy card, we will forward it to the Trustee of the Savings Plans. The proxy card will serve as instruction to the Trustee to vote the whole shares attributable to your interest in the manner you indicate on the card. If the Trustee does not receive timely direction with respect to the voting of your shares held in the Home & Security Stock Fund, the Trustee will vote such shares in the same manner and in the same proportion as the shares for which the Trustee received voting instruction.

 

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ITEM 1 – ELECTION OF DIRECTORS

 

 

The Board consists of eight members and is divided into three classes, each having three-year terms that expire in successive years. The term of the Class II directors expires at the 2013 Annual Meeting of Stockholders. The Board proposes that the two nominees described below, each of whom is currently serving as a Class II director, be re-elected to Class II for a new term of three years expiring at the 2016 Annual Meeting of Stockholders and until their successors are duly elected and qualified. Each of the nominees has consented to be named as a nominee and to serve as a director, if elected. If any of them should become unavailable to serve as a director (which is not now expected), the Board may designate a substitute nominee. In that case, the Proxy Committee will vote for the substitute nominee designated by the Board.

Each of our current directors, other than Mr. Morikis, joined the Board prior to the date that Fortune Brands Home & Security became an independent, publicly-traded company following the distribution of all of the Company’s issued and outstanding shares to stockholders of Fortune Brands, Inc. (“Fortune Brands,” “Beam” or “former parent”) (the transaction is referred to throughout this Proxy Statement as the “Spin-off”). Messrs. Goldstein and Klein were elected to the Company’s Board based on the recommendation of the Fortune Brands’ Nominating and Corporate Governance Committee and Board of Directors. None of the nominees nor any current Class III directors have been elected by the Company’s public stockholders. Each of the Class I directors, Ms. Hackett and Messrs. Morikis and Waters were elected by the Company’s stockholders at the 2012 Annual Meeting of Stockholders. Proxies cannot be voted for more than the number of nominees proposed for re-election.

The names of the nominees and the current Class I and Class III directors, along with their present positions, their principal occupations and directorships held with other public corporations during the past five years, their ages and the year first elected as a director of the Company, are set forth below.

Summary of Qualification of Directors

The Board believes that it is necessary for each of the Company’s directors to possess many qualities and skills. The Board also believes that all directors must possess a considerable amount of business management experience (such as experience as a chief executive, chief operating, or chief financial officer) and educational experience. The process used by the Nominating and Corporate Governance Committee in recommending qualified director candidates is described below under Corporate Governance – Director Nomination Process (see page 9 of this Proxy Statement).

The Board believes that there are certain general requirements which are mandatory for service on the Company’s Board of Directors, while there are other skills and experiences that should be represented on the Board as a whole but not necessarily by each individual director.

General requirements for all directors:

 

   

Extensive executive leadership experience

   

Excellent business judgment

   

High level of integrity and ethics

   

Original thinking

   

Strong commitment to the Company’s goal of maximizing stockholder value

Experiences, qualifications, and backgrounds to be represented on the Board as a whole:

 

   

Financial and/or accounting expertise

   

Consumer products expertise

   

Knowledge of international markets

   

Chief executive officer/chief operating officer/chief financial officer experience

   

Extensive board experience

   

Diversity of background

Certain individual qualifications and experiences of our directors that contribute to the Board’s effectiveness as a whole are described in the following paragraphs.

 

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ITEM 1 – ELECTION OF DIRECTORS (CONTINUED)

 

 

Name

 

Present positions and offices

with the Company, principal

occupations during the past five years

and other directorships

      Age         Year
first
elected
        director        
 
NOMINEES FOR DIRECTOR – CLASS II DIRECTORS – TERM EXPIRING 2016   

LOGO

 

Richard A. Goldstein

  Retired since May 2006; Chairman and Chief Executive Officer of International Flavors & Fragrances Inc., a manufacturer of flavor and fragrance products, from June 2000 until May 2006. Currently also a director of Beam Inc., The Interpublic Group of Companies, Inc. and Fiduciary Trust Company International. Formerly a director of International Flavors & Fragrances Inc.     71        2011     
Mr. Goldstein’s background as a lawyer and his 30 year background in the consumer packaged goods industry, including as Chief Executive Officer, provides a unique perspective to the Board.    

LOGO

 

Christopher J. Klein

  Chief Executive Officer of Fortune Brands Home & Security since January 2010; President and Chief Operating Officer of Fortune Brands Home & Security from April 2009 to December 2009; Senior Vice President of Fortune Brands, Inc. from February 2009 until April 2009; Senior Vice President – Strategy and Corporate Development of Fortune Brands, Inc. from April 2003 to February 2009.     49        2010     
Mr. Klein’s leadership as Chief Executive Officer of the Company provides him with intimate knowledge of our operations and the challenges faced by the Company.    

 

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ITEM 1 – ELECTION OF DIRECTORS (CONTINUED)

 

 

Name

 

Present positions and offices

with the Company, principal

occupations during the past five years

and other directorships

      Age         Year
first
elected
        director        
 
CLASS III DIRECTORS – TERM EXPIRING 2014   

LOGO

 

A.D. David Mackay

  Retired since January 2011; President and Chief Executive Officer of Kellogg Company, a packaged foods manufacturer, from December 2006 until December 2010; President and Chief Operating Officer of Kellogg Company from September 2003 to December 2006. Currently also a director of Beam Inc., Green Mountain Coffee Roasters, Inc. and Woolworths Limited. Formerly a director of Kellogg Company.     57        2011     
Mr. Mackay served as Chief Executive Officer of one of the world’s premier packaged goods companies, bringing to our Board the perspective of a leader who faced a similar set of external economic, social and governance issues, to those that face our Company.     

LOGO

 

David M. Thomas

  Retired since March 2006; Executive Chairman of the Board of IMS Health Incorporated, a provider of information services to the pharmaceutical and healthcare industries, from January 2005 through March 2006; Chairman of the Board and Chief Executive Officer of IMS Health Incorporated prior thereto. Currently also a director of The Interpublic Group of Companies, Inc. and a member of the Fidelity Investments Board of Trustees. Formerly a director of IMS Health Incorporated and Fortune Brands, Inc.     63        2011     
Mr. Thomas’ experience as a Chief Executive Officer and management experience at premier global technology companies helps the Board address the challenges the Company faces due to rapid changes in IT capabilities and communications and global distribution strategies.     

LOGO

 

Norman H. Wesley

  Retired since October 2008; Chairman of the Board of Fortune Brands, Inc. from January 2008 through September 2008; Chairman of the Board and Chief Executive Officer of Fortune Brands, Inc. from December 1999 through January 2008. Currently also a director of ACCO Brands Corporation, Acuity Brands, Inc. and Green Mountain Coffee Roasters, Inc. Formerly a director of R.R. Donnelley & Sons Company, Pactiv Corporation and Fortune Brands, Inc.     63        2011     
Mr. Wesley’s experience as Chief Executive Officer of a consumer products conglomerate gives him unique insights into the Company’s challenges, opportunities and operations.    

 

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ITEM 1 – ELECTION OF DIRECTORS (CONTINUED)

 

 

Name

 

Present positions and offices

with the Company, principal

occupations during the past five years

and other directorships

      Age         Year
first
elected
        director        
 
CLASS I DIRECTORS – TERM EXPIRING 2015   

LOGO

 

Ann F. Hackett

  Founder and President of Horizon Consulting Group, LLC, a strategic and human resource consulting firm, since 1996. Currently also a director of Beam Inc. and Capital One Financial Corporation. Formerly a director of Woodhead Industries, Inc.     59        2011     
Ms. Hackett founded a company that provides strategic, organizational and human resource consulting services to boards of directors and senior management teams. She brings to the Board entrepreneurial experience and expertise in strategy and human resources.     

LOGO

 

John G. Morikis

  President and Chief Operating Officer of The Sherwin-Williams Co., a manufacturer of paint and coating products, since 2006.     49        2011     
Mr. Morikis’ experience as a Chief Operating Officer of a global leader in the paint and coatings industry and his 25 years of experience in that industry brings to our Board the perspective of a leader who, while facing a similar set of external economic issues that face our Company, increased operating performance and productivity at Sherwin-Williams.      

LOGO

 

Ronald V. Waters, III

  Retired since May 2010; President and Chief Executive Officer of LoJack Corporation, a provider of tracking and recovery systems, from January 2009 through May 2010; President and Chief Operating Officer from February 2007 until December 2008; Chief Operating Officer of Wm. Wrigley Jr. Company prior thereto. Currently also a director of HNI Corporation and Chiquita Brands International, Inc. Formerly a director of Sabre Holdings Corporation, LoJack Corporation and Fortune Brands, Inc.     60        2011     
Mr. Waters combines experience in two key areas of interest to the Company. First, he has experience in the consumer products and security businesses, and second, he has experience as a former Chief Executive Officer at a premier technology company.     

The Board of Directors recommends that you vote FOR the election of each nominee.

 

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CORPORATE GOVERNANCE

 

 

Fortune Brands Home & Security is committed to maintaining strong corporate governance practices that are good for our stockholders and our business. We are dedicated to maintaining these practices and upholding high standards of conduct.

Corporate Governance Principles

The Board adopted a set of Corporate Governance Principles which describe our corporate governance practices and address corporate governance issues such as Board composition and responsibilities, compensation of directors and executive succession planning. The Principles are available at http://ir.fbhs.com/governance.cfm.

Director Independence

The Company’s Corporate Governance Principles provide that a majority of the members of the Board shall be independent directors. New York Stock Exchange requirements, as well as the Company’s committee charters, require each member of the Audit, Compensation and Nominating and Corporate Governance Committees to be independent. The Board applies the definition of independence found in the New York Stock Exchange Listed Company Manual in determining which directors are independent. When determining each director’s independence, the Board also considered charitable contributions made by the Company to organizations with which each director is affiliated.

Applying that definition, Messrs. Goldstein, Mackay, Morikis, Thomas, Wesley and Waters and Ms. Hackett were affirmatively determined by the Board to be independent and all such charitable relationships were deemed immaterial. Due to Mr. Klein’s employment with the Company, he is not considered independent.

None of the non-employee directors has any relationship with the Company other than being a director and stockholder. Also, none of the non-employee directors has had any transaction or arrangement that interferes with such director’s independence.

Policies with Respect to Transactions with Related Persons

The Nominating and Corporate Governance Committee and the Board adopted a Code of Business Conduct and Ethics which sets forth various policies and procedures intended to promote the ethical behavior of all of the Company’s employees, officers and directors. The Code of Business Conduct and Ethics describes the Company’s policy on conflicts of interest. The Board has also established a Compliance Committee (comprised of senior management) which is responsible for monitoring compliance with the Code of Conduct. The Compliance Committee periodically reports on the Company’s compliance efforts to the Audit Committee and to the Board.

The Board established a Conflicts of Interest Committee (comprised of senior management) which distributes a Conflicts of Interest Policy to all of the Company’s employees, officers and directors. The Conflicts of Interest Committee reviews potential conflicts of interest and reports findings involving any director, executive officer or operating company president to the Audit Committee. The Conflicts of Interest Policy describes the types of relationships that may constitute a conflict of interest with the Company. The Conflicts of Interest Committee will present any potential related person transaction to the Audit Committee and the Audit Committee will evaluate each related person transaction and determine whether the interest of the related person in the transaction is material. The Audit Committee may ratify any related person transaction that was not submitted in advance of the transaction. All employees and directors are required to periodically complete a questionnaire about potential conflicts of interest and certify compliance with the Company’s policy.

All directors and executive officers are responsible for reporting any potential related person transaction to the Conflicts of Interest Committee in advance of commencing a potential transaction. Related person transactions are transactions in excess of $120,000 between the Company and a related person, which may include (i) persons or entities that beneficially own 5% or more of the Company’s common stock; (ii) the Company’s directors and executive officers; (iii) immediate family members of the Company’s directors and executive officers; and (iv) businesses controlled by the Company’s directors, officers or their immediate family members.

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

The executive officers and the directors are also required to complete a questionnaire on an annual basis which requires them to disclose any related person transactions and potential conflicts of interest. The General Counsel reviews the responses to the questionnaires and, if a transaction is reported by a director or executive officer, the questionnaire is submitted to the Chairperson of the Audit Committee for review. If necessary, the Audit Committee will determine whether the relationship is material and whether the transaction should be ratified.

Certain Relationships and Related Transactions

During 2012, the Company did not participate in any transactions in which any of its directors, executive officers, any immediate family member of a director or executive officer or any beneficial owner of more than 5% of the Company’s common stock had a direct or indirect material interest.

Director Nomination Process

The Nominating and Corporate Governance Committee (the “Nominating Committee”) is responsible for, among other things, screening potential director candidates and recommending qualified candidates to the Board for nomination.

When identifying director candidates, the Nominating Committee determines whether there are any evolving needs of the Board that require an expert in a particular field. When evaluating director candidates, the Nominating Committee first considers a candidate’s management experience and then considers issues of judgment, background, stature, conflicts of interest, integrity, ethics and commitment to the goal of maximizing stockholder value. The Nominating Committee also focuses on issues of diversity, such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. The Nominating Committee does not have a formal policy with respect to diversity; however, the Board and the Nominating Committee believe that it is essential that the Board members represent diverse viewpoints. In considering candidates for the Board, the Nominating Committee considers the entirety of each candidate’s credentials in the context of these standards. With respect to the nomination of continuing directors for re-election, the individual’s contributions to the Board are also considered. For the purpose of this annual meeting of stockholders, the Nominating Committee recommended the nomination of each of the Company’s current Class II directors.

In connection with future director elections, or at any time there is a vacancy on the Board, the Nominating Committee may retain a third-party search firm to assist the Committee in locating qualified candidates that meet the needs of the Board at that time.

It is the Nominating Committee’s policy to consider director candidates recommended by stockholders, if such recommendations are properly submitted to the Company. Stockholders wishing to recommend persons for consideration by the Nominating Committee as nominees for election to the Board can do so by writing to the Secretary of Fortune Brands Home & Security, Inc. at 520 Lake Cook Road, Deerfield, Illinois 60015. Recommendations must include the proposed nominee’s name, biographical data and qualifications, the class or series and number of shares that are owned by such nominee, as well as other information required for nomination of directors by stockholders as provided in our Restated Certificate of Incorporation and Bylaws. The Nominating Committee will consider the candidate and the candidate’s qualifications in the same manner in which it evaluates nominees identified by the Nominating Committee. The Nominating Committee may contact the stockholder making the nomination to discuss the qualifications of the candidate and the stockholder’s reasons for making the nomination. Members of the Nominating Committee may then interview the candidate if it deems the candidate to be appropriate. The Nominating Committee may use the services of a third-party search firm to provide additional information about the candidate prior to making a recommendation to the Board.

The Nominating Committee’s nomination process is designed to ensure that the Nominating Committee fulfills its responsibility to recommend candidates that are properly qualified to serve the Company for the benefit of all of its stockholders, consistent with the standards established by the Nominating Committee under the Company’s Corporate Governance Principles.

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

Communication with the Board

The Board and management encourage communication from the Company’s stockholders. Stockholders who wish to communicate with the Company’s management should direct their communication to the Chief Executive Officer or the Secretary, 520 Lake Cook Road, Deerfield, Illinois 60015. Stockholders, or other interested parties, who wish to communicate with the non-management directors or any individual director should direct their communication c/o the Secretary at the address above. The Secretary will forward communications intended for the Board to the Chairman of the Board, or, if intended for an individual director, to that director. If multiple communications are received on a similar topic, the Secretary may, in his or her discretion, forward only representative correspondence. Any communications that are abusive, in bad taste or present safety or security concerns may be handled differently.

Board Leadership Structure

Mr. Thomas serves as the Company’s non-executive, independent Chairman. The Board determined that having an independent director serve as Chairman of the Board is in the best interests of our stockholders. This leadership structure aids the Board’s oversight of management and allows our Chief Executive Officer to focus primarily on his management responsibilities. The non-executive Chairman has the responsibility of presiding at all meetings of the Board, consulting with the Chief Executive Officer on Board and committee meeting agendas, acting as a liaison between management and the non-management directors, including maintaining frequent contact with the Chief Executive and advising him or her on the efficiency of the board meetings, facilitating teamwork and communication between the non-management directors and management, as well as additional responsibilities that are more fully described in the Company’s Corporate Governance Principles. In addition, the Company’s non-executive Chairman facilitates the Board’s annual performance assessment of the Chief Executive Officer.

The Board does not believe that a single leadership structure is right for all companies and at all times, so the Board periodically reviews its leadership structure to determine, based on the circumstances at the time, whether other leadership structures might be appropriate for the Company. The Board has been and remains committed to maintaining strong corporate governance and appropriate independent oversight of management. Given that each of the members of the Board, other than Mr. Klein, is independent we believe that the leadership structure currently utilized by the Board provides effective independent board leadership and oversight.

Executive Sessions

Pursuant to the Company’s Corporate Governance Principles, non-management directors of the Board are required to meet on a regularly scheduled basis without the presence of management. The non-executive Chairman of the Board leads these sessions.

Meeting Attendance

Each director attended at least 75% of the total meetings of the Board and committees of the Board of which the director was a member during 2012. In addition to participation at Board and committee meetings, our directors regularly engage in other communications throughout the year, including considerable telephone and electronic mail contact with the Chairman of the Board, the Chief Executive Officer and others regarding matters of interest and concern to the Company.

The Company does not have a formal policy requiring members of the Board to attend the Annual Meeting. In 2012, all of the directors attended the Company’s first annual meeting of stockholders.

Risk Management

The responsibility for the day-to-day management of risks lies with the Company’s management team; however, the Board of Directors has an active role, as a whole and also at the committee level, in overseeing the strategy and process for managing the Company’s risks. The Board regularly reviews information regarding the Company’s business strategy, leadership development, resource allocation, succession planning, credit, liquidity and operations, as well as the risks associated with each. The Company’s overall risk management program consists of periodic management discussions analyzing and mitigating risks, an annual review of risks associated with each of the Company’s operating businesses and an annual review of risks related to the Company’s compensation programs and practices.

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

Annually, management identifies external, strategic, operational, financial and compliance risks, assesses the impact of these risks and determines how to mitigate such risks. The Audit Committee manages the Company’s risk management program and reviews the results of the annual assessment. Management also provides the Audit Committee with quarterly updates on the Company’s risks and changes and/or emerging risks. In addition, the Audit Committee oversees management of the Company’s financial risks.

The Company’s Compensation Committee is responsible for overseeing the management of risks relating to the compensation paid to the Company’s executives and the Company’s executive compensation plans and programs. During 2012, the Compensation Committee’s independent compensation consultant conducted an assessment of the risks associated with the Company’s compensation practices and programs. For more information about that assessment see “Compensation Risks” below.

The Nominating Committee manages risks associated with the independence of the Board of Directors, potential conflicts of interest and the Company’s corporate governance structure, as well as management of risks associated with environmental, health and safety, diversity, philanthropy, global citizenship and sustainability.

While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is regularly informed through committee reports about such risks. The Board’s assignment of responsibility for the oversight of specific risks to its committees enables the entire Board, under the leadership of the non-executive Chairman and the Chief Executive Officer, to better monitor the risks of the Company and more effectively develop strategic direction, taking into account the various risks facing the Company, including the magnitude of such risks.

Compensation Risks

We believe that risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company. The Compensation Committee, with assistance from its independent compensation consultant, extensively reviewed the elements of executive compensation to determine whether any portion of executive compensation encouraged excessive risk taking and concluded that they do not. In general, the compensation arrangements throughout the organization are consistent with the general structure and design of other companies of similar size and industry sector, and the following risk-mitigating design features have been incorporated into the Company’s programs:

 

   

The Company utilizes multiple long-term incentive vehicles with overlapping three-year performance cycles;

 

   

The Company uses multiple and diverse performance metrics in plans;

 

   

The Company often uses individual objectives and other discretionary metrics in determining certain payouts;

 

   

Upside on payout potential is capped for both short-term and long-term incentives;

 

   

The majority of an individual’s total compensation mix is not derived from a single incentive plan; and

 

   

The Company maintains stock ownership guidelines (which include an anti-hedging provision) and a formal claw back policy.

As a home and security consumer products business, the Company does not face the same level of risks associated with compensation for employees at financial services firms (traders and transactions involving instruments with a high degree of risk) or technology companies (rapidly changing markets). As described in our Compensation Discussion and Analysis, compensation decisions include subjective considerations, which restrain the influence of formulas or objective factors on excessive risk taking.

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

Board Committees

The Board established an Audit Committee, a Compensation Committee, an Executive Committee and a Nominating and Corporate Governance Committee. The Audit, Compensation, and Nominating and Corporate Governance Committees are composed entirely of independent directors, as defined under the New York Stock Exchange Listed Company Manual and the Company’s Corporate Governance Principles. The charters of these committees are available on the Company’s website at http://ir.fbhs.com/governance.cfm.

A list of current Committee memberships may be found on the Company’s website at http://ir.fbhs.com/committees.cfm. The Committee memberships as of the date of this Proxy Statement are set forth below:

 

                                                                                                                                   
   Name   Audit   Compensation   Executive   Nominating and
Corporate Governance

Richard A. Goldstein

      X       X

Ann F. Hackett

      C   X   X

Christopher J. Klein

          X    

A. D. David Mackay

  X   X        

John G. Morikis

  X   X        

David M. Thomas

  X       C   C

Ronald V. Waters, III

  C       X   X

Norman H. Wesley

  X   X        

An “X” indicates membership on the committee.

A “C” indicates that the director serves as the chair of the committee.

Audit Committee

The Audit Committee’s primary function is to assist the Board of Directors in overseeing the (i) integrity of the financial statements and the financial reporting process of the Company; (ii) Company’s compliance with legal and regulatory requirements; (iii) independence and qualifications of the Company’s external auditors; and (iv) performance of the Company’s external and internal auditors.

Each member of the Audit Committee (Messrs. Mackay, Morikis, Thomas, Wesley and Waters), is financially literate. Each of Messrs. Mackay, Thomas, Wesley and Waters has accounting or financial management expertise and is an audit committee financial expert as defined in Item 407(d)(5)(ii) and (iii) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As required by its charter, each Audit Committee member has also been determined by our Board to be independent as such term is defined in Rule 10A-3 under the Exchange Act and the New York Stock Exchange Listed Company Manual. The Audit Committee met nine times in 2012.

Compensation Committee

The Compensation Committee’s primary functions are to (i) develop and critically review the Company’s executive pay philosophy and practices so that they are aligned with the Company’s business strategy; and (ii) set the compensation of the Company’s named executive officers and other officers of the Company who hold the office of vice president or a more senior office and the presidents of the Company’s principal operating companies in a manner that is consistent with competitive practices, individual and Company performance and the requirements of appropriate regulatory bodies.

As required by its charter, each member of the Compensation Committee (Messrs. Goldstein, Mackay, Morikis, Wesley and Ms. Hackett) has been determined by our Board to be independent as such term is defined in the New York Stock Exchange Listed Company Manual and pursuant to SEC and Internal Revenue Service regulations. The Committee has created a special Subcommittee comprised of Ms. Hackett and Messrs. Goldstein, Mackay and Morikis that is responsible for approving all performance standards and payments for officers for any pay program intended to qualify as “performance based compensation” under Section 162(m) of the Internal Revenue Code (the “Code”). The Compensation Committee met five times in 2012.

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

Compensation Committee Procedures

The Compensation Committee directs management to prepare financial data used by the Compensation Committee in determining executive compensation. In addition, members of the Company’s human resources department assist in the preparation of executive compensation tally sheets and historical information on compensation paid to executives. The Compensation Committee is presented with recommendations from management and from the Committee’s independent compensation consultant as to the level and type of compensation to provide to the Company’s named executive officers, other officers who hold the office of Vice President or a more senior office and the presidents of our operating companies. Members of the Company’s legal department provide the Compensation Committee with general advice on laws applicable to executive compensation and the directors’ fiduciary duties in setting compensation.

The Chief Executive Officer attends meetings of the Compensation Committee. The Chief Executive Officer’s feedback about each officer’s performance is essential in the Compensation Committee’s determination of the officer’s salary and target incentive compensation determinations. See pages 17 through 31 of this Proxy Statement for more information about how the Compensation Committee determined the executive officers’ compensation in 2012.

Compensation Committee Consultant

The Compensation Committee engages an outside compensation consultant. Meridian Compensation Partners, LLC (“Meridian”) was retained directly by and reported directly to the Compensation Committee during 2012. In 2012, Meridian provided the following services and information to the Compensation Committee:

 

   

Made recommendations as to best practices for structuring executive pay arrangements and executive compensation (including the amount and form of compensation) consistent with the Company’s business needs, pay philosophy, market trends and latest legal and regulatory considerations;

 

   

Provided market data (including compiling the Survey Group and related performance data) as background for decisions regarding Chief Executive Officer and senior management compensation;

 

   

Performed an assessment of risks associated with the Company’s executive compensation structure and design;

 

   

Assisted in the design of the Company’s 2013 Long-Term Incentive Plan, which is being presented to stockholders for approval at the Annual Meeting; and

 

   

Attended all five 2012 Compensation Committee meetings (including executive sessions without the presence of management) and summarized alternatives for compensation arrangements that may have been considered in formulating final recommendations, as well as the consultant’s rationale for supporting or opposing management’s proposals.

The Compensation Committee has authorized Meridian to interact with management on behalf of the Compensation Committee, as needed in connection with advising the Compensation Committee, and Meridian is included in discussions with management and, when applicable, the Compensation Committee’s outside legal counsel on matters being brought to the Compensation Committee for consideration. Meridian is prohibited from performing any services for management outside of services needed in connection with advising the Compensation Committee. The Compensation Committee has assessed Meridian’s independence and concluded that Meridian’s work for the Compensation Committee does not raise any conflict of interest.

 

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CORPORATE GOVERNANCE (CONTINUED)

 

 

Executive Committee

The Executive Committee did not meet in 2012. The Executive Committee has all the authority of the full Board, except for specific powers that are required by law to be exercised by the full Board. The Executive Committee may not amend the Company’s charter, adopt an agreement of merger, recommend actions for stockholder approval, amend or repeal the bylaws, elect or appoint any director or remove an officer or director, amend or repeal any resolutions of the Board, fix the Board’s compensation, and unless expressly authorized by the Board, declare a dividend, authorize the issuance of stock or adopt a certificate of ownership and merger.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee’s (the “Nominating Committee”) primary functions are to (i) provide recommendations to the Board of Directors with respect to the organization and function of the Board and its committees; (ii) recruit, identify and recommend potential director candidates and nominees; (iii) develop a set of corporate governance principles; (iv) oversee the process of the evaluation of the Board and management; and (v) review and advise management on matters relating to the Company’s responsibilities to its employees and the community. The Nominating Committee also makes recommendations to the Board regarding the level and composition of compensation for non-employee directors.

As required by its charter, each member of the Nominating Committee (Messrs. Goldstein, Thomas and Waters and Ms. Hackett) has been determined by our Board to be independent as such term is defined in the New York Stock Exchange Listed Company Manual. The Nominating Committee met four times in 2012.

Other Corporate Governance Resources

The charters of each committee, the Company’s Corporate Governance Principles, the Company’s Code of Business Conduct and Ethics and the Company’s Code of Ethics for the CEO and Senior Financial Officers are available on the Company’s website (http://ir.fbhs.com/governance.cfm).

 

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DIRECTOR COMPENSATION

 

 

Cash Fees

The annual cash fee for services as a non-employee director of the Company is $80,000. The members of the Audit Committee (Messrs. Mackay, Morikis, Thomas, Wesley and Waters) and the Compensation Committee (Messrs. Goldstein, Mackay, Morikis, Wesley and Ms. Hackett) receive an additional annual cash fee of $7,500 for their service on these committees. In addition, the chairperson of each of the Audit, Compensation and Nominating and Corporate Governance Committees receives an additional annual cash fee of $15,000 for such service (Messrs. Thomas and Waters and Ms. Hackett). Mr. Thomas receives an additional annual fee of $200,000 for his service as non-executive Chairman of the Board.

Directors have the ability to elect to receive payment of their cash fees in Company common stock rather than cash. In 2012, Mr. Morikis participated in this program and received payment of his cash fees in Company stock. Directors also have the ability to defer receipt of their cash fees until the January following the year in which the individual ceases acting as a director of the Company. In 2012, none of the directors participated in this program.

Stock Awards

Each non-employee director receives an annual stock grant that is based on a set dollar value of $115,000. In 2012, the number of shares granted was determined by dividing the closing price of the Company’s common stock on the grant date into the annual dollar value ($115,000), rounded to the nearest share. At the time of the Company’s Spin-off in 2011, none of the Board members received a stock award for their partial year of service. As a result, each non-employee director received a pro-rated stock grant based on his or her months of service from October 1, 2011 through December 31, 2011 in 2012.

Directors have the ability to defer receipt of their annual stock awards until the January following the year in which the individual ceases acting as a director of the Company. In 2012, Ms. Hackett was the only director that elected to defer receipt of her annual stock award.

Stock Options

The Company does not currently grant non-employee directors stock options. Any vested stock options held by directors of our former parent company prior to the Spin-off of our Company, were replaced with a combination of Home & Security stock options and adjusted Beam Inc. stock options. As a result, Messrs. Thomas and Wesley have outstanding Home & Security stock options. For the number of outstanding Home & Security stock options held by each non-employee director, see “Certain Information Regarding Security Holdings” on pages 58 and 59 of this Proxy Statement.

 

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DIRECTOR COMPENSATION (CONTINUED)

 

 

Stock Ownership of Board Members

To align the Board’s interests with those of stockholders, the Board of Directors established Stock Ownership Guidelines for non-employee directors. Directors are encouraged to own Company stock with a fair market value currently equal to $240,000 (or three times their annual cash fee). The guidelines allow directors five years from the date of the director’s election to the Board to meet the guidelines. All of our directors currently meet the stock ownership guidelines. For information on the beneficial ownership of securities of the Company by directors and executive officers see “Certain Information Regarding Security Holdings” on pages 58 and 59.

 

2012 Director Compensation*

 

 
   Name    Fees
Earned
or  Paid
in
Cash
($)(1)
     Stock
Awards
($)(2)
    

Option
Awards

($)(3)

    

Non-Equity
Incentive

Plan
Compensation

($)

     Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)
    

All Other
Compensation

($)(4)

    

Total

($)

 

Richard A. Goldstein

     87,500         143,750         n/a         n/a         n/a         7,235         238,485   

Ann F. Hackett

     102,500         143,750         n/a         n/a         n/a         5,695         251,945   

A.D. David Mackay

     95,000         143,750         n/a         n/a         n/a         695         239,445   

John G. Morikis

     92,646         115,000         n/a         n/a         n/a         263         207,909   

David M. Thomas

     302,500         143,750         n/a         n/a         n/a         6,202         452,452   

Ronald V. Waters, III

     102,500         143,750         n/a         n/a         n/a         5,695         251,945   

Norman H. Wesley

     95,000         143,750         n/a         n/a         n/a         1,202         239,952   

 * Although Mr. Klein currently serves as a member of the Board, he does not receive any additional compensation for such service.

 

  1 In 2012, Mr. Morikis elected to receive payment of his cash fees in Company common stock pursuant to the Non-Employee Director Stock Election Program. As a result, he received a total of 4,268 shares in lieu of cash and $68.03 in cash for the value of fractional shares.

 

  2 The amounts in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“FASB ASC Topic 718”). The grant date fair value was $20.39 per share. Ms. Hackett elected to defer receipt of her stock award until the January following the year in which she ceases being a director. See “Certain Information Regarding Security Holdings” on pages 58 and 59 of this Proxy Statement for the number of shares of stock held, including stock deferred, by each current director as of March 1, 2013.

 

  3 Mr. Thomas had 4,980 stock options and Mr. Wesley had 189,284 stock options outstanding under the Company’s 2011 Long-Term Incentive Plan as of December 31, 2012. See “Certain Information Regarding Security Holdings” on pages 58 and 59 of this Proxy Statement for the number of stock options held by each current director as of March 1, 2013.

 

  4 Included in this column are premiums paid for group life insurance coverage, as well as the Company’s match on gifts paid by the director to charitable organizations, both of which are generally available to all Company employees and directors. Under the Company’s matching gift program, the Company makes a 100% match of gifts totaling up to $5,000 annually by the director to an eligible charitable institution.

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

This Compensation Discussion and Analysis, or “CD&A,” describes the Company’s executive compensation program for 2012. We use our executive compensation program to attract, motivate and retain the colleagues who lead our business. In particular, this CD&A explains how the Compensation Committee of the Board of Directors made 2012 compensation decisions for our executives, including the following Named Executive Officers (the “NEOs”):

 

Christopher J. Klein

   Chief Executive Officer, Fortune Brands Home & Security, Inc.

E. Lee Wyatt, Jr.

   Senior Vice President and Chief Financial Officer, Fortune Brands Home & Security, Inc.

John N. Heppner

   President and Chief Executive Officer, Fortune Brands Storage & Security LLC

David B. Lingafelter

   President, Moen Incorporated

David M. Randich

   President, MasterBrand Cabinets, Inc.

Gregory J. Stoner*

   Former President, MasterBrand Cabinets, Inc.

 

* Mr. Stoner resigned as President of MasterBrand Cabinets, Inc. and Mr. Randich replaced him as President of MasterBrand Cabinets, Inc. on October 8, 2012. Mr. Randich served as President of Therma-Tru Corp. prior thereto.

Use of the term “Operating Company Presidents” throughout the CD&A specifically refers to Messrs. Heppner, Lingafelter, Randich and Stoner.

This CD&A is divided into three main sections.

 

   

The first section provides an Executive Summary.

 

   

The next section discusses the Compensation Committee’s process for awarding compensation to the NEOs.

 

   

The third section provides a detailed description of the types and amounts of compensation awarded to the NEOs for 2012.

In addition, the CD&A includes a description of incentive awards that were previously awarded but paid in 2012.

EXECUTIVE SUMMARY

Fortune Brands Home & Security has a solid business model built on attractive product categories, consumer driven innovation, and operational excellence. When combined with organic growth from market and share gains as well as potential cash generation, we believe Home & Security has the potential for long-term value creation. As a new independent public company after the Spin-off, the Compensation Committee evaluated the Company’s compensation programs and took key actions to achieve the following:

 

   

Align annual cash incentive compensation with increasing profit and returns. In 2012, annual cash incentive compensation for Messrs. Klein and Wyatt was weighted 75% Earnings Per Share (“EPS”) and 25% Return on Invested Capital (“ROIC”), while the weighting for Operating Company Presidents was 75% Operating Income (“OI”) and 25% Return on Net Tangible Assets (“RONTA”) for each of their respective companies. The Compensation Committee believes focusing on these key metrics will result in stronger growth in EPS and increased ROIC, which supports improving stockholder returns.

 

   

Discontinue future use of long-term cash incentive programs in favor of using performance share awards. In 2012, the Compensation Committee stopped making long-term cash incentive grants and replaced them with performance share awards (“PSAs”) which are based on challenging three-year EPS and ROIC targets. The Compensation Committee believes this change reinforces our pay-for-performance culture.

 

   

Emphasis on equity based compensation. Total equity based compensation represents, on average, 57.1% of 2012 NEO compensation (excluding Mr. Stoner) and strongly aligns management’s interests with stockholders. PSAs awarded to all NEOs are now based on consolidated corporate performance, weighted 75% EPS and 25% ROIC. In addition, this emphasis on equity based compensation builds on the Compensation Committee’s one-time grant of equity at the time of the Spin-off that vests over a four-year period. The Compensation Committee believes equity grants further align executive interests with stockholders and facilitate executive retention.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

This compensation structure, along with the market leadership and operating advantages that were built during the housing downturn, allowed Home & Security not only to benefit from the beginning of the housing market recovery in 2012 but also outperform the market.

The following are highlights of the Company’s 2012 results which show how Home & Security outperformed the market, generated strong operating leverage and maintained a flexible capital structure with a strong balance sheet. We believe these results were driven, in part, by our alignment on key compensation metrics and reflect both our culture of performance and focus on creating long-term stockholder value.

 

2012 FINANCIAL PERFORMANCE

(in millions except EPS)

          2012      2011      % CHANGE
                         

SALES

 

Kitchen & Bath Cabinetry

 

     $1,326.6         $1,256.3       6%
   

Plumbing & Accessories

 

     $1,100.7         $962.8       14%
   

Advanced Material Windows & Door Systems

 

     $587.2         $552.9       6%
   

Security & Storage

 

     $576.6         $556.6       4%
   

TOTAL

     $3,591.1         $3,328.6       8%

OPERATING INCOME*

(before charges/gains)

         $227.7         $163.0       40%
         

EPS*

(before charges/gains)

 

        

 

$.89

 

  

 

    

 

$.60

 

  

 

   48%

 

 

ROIC*

(before charges/gains)

         6.3%         4.1%        

 

CAPITAL PERFORMANCE

(in millions)

      December 31,    December 31,   

October 3, 2011

Spin-off

      2012    2011   

CASH

   $336    $121    $77

DEBT

   $326    $411    $520

DEBT-TO-CAPITAL

   12%    16%    20%(1)

MARKET CAPITALIZATION

(in billions)

   $4.8    $2.7    $1.9

 

  (1) Equity as of September 30, 2011.

Certain financial results included in the above chart are presented on a non-GAAP basis. Reconciliations of these non-GAAP measures, which are identified by an asterisk (*), to the most closely comparable GAAP measures are presented in Appendix C to this Proxy Statement.

In addition, the Company uses non-GAAP figures in this CD&A; EPS, ROIC, OI and RONTA as used hereafter are all on a before charges/gains basis and include other adjustments including for the impact of foreign exchange. The 2012 EPS results were calculated on a before charges/gains basis and adjusted for the impact of foreign exchange. The 2012 ROIC results were calculated on a before charges/gains basis and represents net income plus after-tax interest expense derived in accordance with GAAP, excluding any restructuring and other charges and other select items, divided by a two point average of GAAP Invested Capital (net debt plus stockholders’ equity), excluding any restructuring and other charges and other select items. The 2012 OI results were calculated on a before charges/gains basis and adjusted for the impact of foreign exchange. The 2012 RONTA results were calculated on a before charges/gains basis and represents operating income derived in accordance with GAAP, excluding any restructuring and other charges and other select items, divided by the thirteen month average of GAAP assets less intangibles, accounts payable and other non-interest bearing liabilities (i.e., Net Tangible Assets). These figures may be different from those used by management when providing guidance or discussing Company results.

Many of the financial measures reported above drive the value of performance-based compensation paid to the NEOs. Compensation paid to the NEOs reflected the Company’s winning financial performance.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

2012 STOCK PRICE PERFORMANCE

 

LOGO

The following chart summarizes NEO compensation awarded in 2012:

 

Summary of 2012 NEO Compensation  
 

Named Executive

Officer(1)

 

2012 Annual

Base Salary

   

2012 Annual

Incentive
Target Value

    2012 Long-
Term Incentive
Award Value(2)
    2012 Total Target
Compensation
 

Christopher J. Klein

 

   

 

$920,000

 

  

 

   

 

$1,012,000

 

  

 

   

 

$3,300,000

 

  

 

   

 

$5,232,000

 

  

 

E. Lee Wyatt, Jr.

 

   

 

$663,000

 

  

 

   

 

$563,550

 

  

 

   

 

$1,500,000

 

  

 

   

 

$2,726,550

 

  

 

John N. Heppner

 

   

 

$469,000

 

  

 

   

 

$281,400

 

  

 

   

 

$915,000

 

  

 

   

 

$1,665,400

 

  

 

David B. Lingafelter

 

   

 

$464,000

 

  

 

   

 

$278,400

 

  

 

   

 

$800,000

 

  

 

   

 

$1,542,400

 

  

 

David M. Randich(3)

 

   

 

$460,000

 

  

 

   

 

$276,000

 

  

 

   

 

$650,000

 

  

 

   

 

$1,386,000

 

  

 

 

  (1) Mr. Stoner’s compensation is not included in this table because he resigned from the Company in October 2012 and therefore did not receive the annual compensation that he would have received if he worked the full year. Please see page 29 of this Proxy Statement for a description of the amounts paid to Mr. Stoner in connection with his resignation.

 

  (2) Expressed as the aggregate grant date value of stock options, restricted stock units and performance shares (target), as determined using the assumptions found in footnote 11 to the consolidated financial statement contained in the Company’s Form 10-K for the year ended December 31, 2012.

 

  (3) Although Mr. Randich became President of MasterBrand Cabinets, Inc. in October 2012, all of his 2012 incentive compensation is based on the results of Therma-Tru Corp.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

Results of the 2012 Say-On-Pay Vote

In our first annual stockholder advisory vote on NEO compensation (commonly referred to as “Say-on-Pay”), the Company’s 2011 executive pay program received overwhelming support (of the votes cast on the proposal, 95.09% in favor) from our stockholders. Even with this strong endorsement of the Company’s pay practices, the Compensation Committee believes that it is essential to regularly review the executive compensation program. As a result of this review in 2012, the Compensation Committee made the changes described immediately below to further align management’s interests with those of stockholders.

Overview of 2012 NEO Compensation

The following chart summarizes key actions taken by the Compensation Committee in 2012:

 

SUMMARY OF KEY COMMITTEE ACTIONS IN 2012
   
COMPENSATION CHANGE     RATIONALE FOR THE CHANGE
   

Changed the metrics used to determine annual cash incentives, which were previously based upon OI and working capital efficiency (WCE).

 

    

 

EPS and ROIC are measures of the Company’s profitability and the success of its business strategies.

NEO

 

  

2012 Metrics and Weight

 

  

 

For the Operating Company Presidents, OI performance for each of their respective companies now contributes to 75% of annual cash incentive. Basing a larger portion of annual incentives on OI further aligns management’s interests with those of stockholders, since operating company OI contributes directly to EPS of the Company, which in turn contributes to stockholder value. The remaining 25% of the Operating Company Presidents’ annual cash incentive is now based upon an operating company’s RONTA instead of ROIC. RONTA is a better performance incentive than ROIC for the Operating Company Presidents, as ROIC is difficult to calculate on an operating company basis. RONTA is more appropriate than WCE for a company on the front end of an improving market that anticipates growth.

 

Messrs.

   EPS      75%     

Klein &

Wyatt

   ROIC      25%     

Operating

Company

Presidents

  

OI*

 

RONTA*

    

 

 

75%

 

25%

  

 

  

 
                  
Eliminated long-term cash incentive programs in favor of using equity-based performance share awards (PSAs) with three-year cumulative goals.       

The addition of PSAs to the mix of equity awards highlights the importance of both improving performance and increasing share value over the long-term. It also further aligns management’s interests with those of stockholders.

 

Changed the mix of long-term incentive awards-stock options, restricted stock units (RSUs) and PSAs-to place greater emphasis on whole share awards (RSUs and PSAs).

 

     

 

The change focuses executives on long-term corporate performance. The new mix also balances performance (stock options and PSAs) and retention (RSUs) objectives.

 

Changed the performance goals for Operating Company Presidents’ long-term incentives to use the same metrics and goals as those used for corporate officers.        

The change highlights the need for the Operating Company Presidents to balance their focus between the performance of their individual operating company and the performance of the Company as a whole.

• Operating Company Presidents previously received long-term incentive compensation in cash based solely upon the performance of their respective companies.

 

      

 

 

  * Calculated for each Operating Company President’s respective company. Mr. Heppner’s annual cash incentive award is calculated based on the weighted performance results for Master Lock Company LLC (75%) and Waterloo Industries, Inc. (25%).

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

Maintaining Best Practices Regarding Executive Compensation

The Compensation Committee maintains policies and procedures for itself and for certain of the Company’s executives, including the NEOs, many of which it believes represent best practices in corporate governance.

 

Committee Practices

 

Independence of Committee members

 

Committee members satisfy the New York Stock Exchange independence standards.

 

Independent Compensation Consultant

 

The Compensation Committee reviewed independence criteria and determined that the Committee’s compensation consultant (Meridian Compensation Partners) is independent, has not performed services for management in the past and is prohibited from doing so for so long as it serves as the Committee’s consultant. The Committee has sole authority to retain, supervise and terminate the compensation consultant.

 

Annual risk assessment

 

The Compensation Committee annually assesses the level of risk associated with the Company’s executive compensation program to ensure that its plans and awards are designed and working in a way to not encourage excessive risk taking.

 

Executive Compensation Practices

 

Stock Ownership Guidelines

 

The Company maintains the following stock ownership guidelines for certain officers, including NEOs:

 

  Officer Level    Stock Ownership Level as a
Multiple of  Annual Base Salary
 

CEO

   6
 

Operating Company Presidents

   3
 

SVPs

   3
 

VPs

   1
 

 

Officers have five years to acquire the requisite amount of stock. All of the NEOs have satisfied the stock ownership guidelines.

 

Anti-Hedging Policy

 

The CEO, Senior Vice Presidents and Vice Presidents of the Company and the Presidents of each of our operating companies are prohibited from hedging the risk of owning Company common stock or from trading in derivatives of Company common stock.

 

Clawback Policy

 

The Company has the right to seek to recoup all or part of annual cash incentives or PSAs that relate to a performance period beginning after September 26, 2011 if there is a: (1) significant or material restatement of the Company’s financial statements covering any of the three fiscal years preceding the grant or payment, or (2) a restatement of the Company’s financial statements for any such year which results from fraud or willful misconduct committed by an award holder.

 

The Company has the right to seek to recoup all or part of an executives’ other equity awards pursuant to the terms and conditions of the awards.

 

“Double triggers” in change in control agreements  

The NEOs and other executive officers cannot receive change in control benefits unless their employment is terminated without cause (or by the executive for good reason) within a specified period following a change in control.

 

No tax gross ups on change in control benefits  

The NEOs and other executive officers are not entitled to tax gross ups in the event that their change in control benefits are subject to the “golden parachute” excise tax under the Code.

 

Minimal executive perquisites

 

As described later in the CD&A, the Company provides very minimal perquisites to the NEOs.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

PROCESS FOR AWARDING NEO COMPENSATION

Philosophy of the Executive Compensation Program

We strongly believe that executive compensation should be closely tied to Company performance. Our executive compensation programs are designed to reward NEOs for the achievement of both short-term and long-term strategic and operational goals and the creation of stockholder value, while at the same time avoiding incentives that encourage unnecessary or excessive risk taking.

 

 

COMPENSATION PHILOSOPHY

 

 

 

DESIGN APPROACH

 

 

 

EXAMPLES

 

Create and reinforce a pay-for-performance culture   Create strong line-of-sight to metrics so participants can directly impact operating company and corporate performance through their individual performance.  

• CEO’s and CFO’s annual and long-term incentives were tied to corporate performance;

 

• Operating Company Presidents’ annual incentives were tied to their individual operating company performance, while long-term incentives were tied to corporate performance;

 

• Performance-based variable compensation comprised, on average, more than 75% of total direct compensation for the current NEOs.

 

Align management’s interests with those of stockholders   Deliver a significant amount of total compensation through equity.  

• Replaced long-term cash programs with equity awards;

 

• Maintain stock ownership guidelines for senior officers, including the NEOs.

 

Attract, retain and motivate superior talent through competitive compensation   Establish competitive levels of compensation and ensure an optimized mix of long-term incentive vehicles to support business strategy.  

• The Committee annually reviews compensation levels and practices among the Company’s competitors to ensure that our programs are in line with the market.

 

• Adopted a balanced mix of equity vehicles to enhance pay-for-performance (stock options and PSAs) and retention (RSUs) objectives.

 

Provide incentive compensation that promotes desired behaviors without encouraging excessive risk   Balance incentive compensation between short- and long-term performance through careful selection of performance metrics.  

• Adopted new performance metrics to enhance line-of-sight to individual operating company and corporate performance;

 

• Assessed and determined that the risks associated with executive incentive plans do not encourage excessive risk-taking.

 

Maintaining a Competitive Compensation Program

The Compensation Committee adopted a benchmarking comparison group (the “2012 Survey Group”) for purposes of reviewing and approving 2012 compensation. Meridian Compensation Partners, which served as the outside compensation consultant to the Compensation Committee, provided information and suggestions as to the composition of the 2012 Survey Group. The 2012 Survey Group consisted of 18 consumer products companies with median 2011 revenue of $3.8 billion compared to the Company’s 2011 revenue of $3.3 billion. The Company believes that it competes with these companies for executive talent. The 2012 Survey Group consists of the following companies, and was the same survey group used for evaluating 2011 post-Spin-off compensation decisions:

 

Armstrong World Industries

  Kohler Co.      Pella Corporation

Andersen Corporation

  Leggett & Platt Incorporated      Stanley Black & Decker, Inc.

A. O. Smith Corporation

  Lennox International Inc.      The Sherwin Williams Company

Cooper Industries plc

  Masco Corporation      USG Corporation

Fastenal Company

  Mohawk Industries, Inc.      Valspar Corporation

Jarden Corporation

  Newell Rubbermaid Inc.      Watsco, Inc.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

The Compensation Committee compared the base salaries, target annual cash incentive, total long-term incentives and total direct compensation for the Company’s NEOs to the regressed 50th percentile of the benchmark data to determine whether the Company’s compensation practices fell in line with market data. The Compensation Committee does not believe that it is appropriate to establish compensation levels based solely on market practices. Rather, the Compensation Committee believes that compensation decisions are complex and require a deliberate review of Company performance, peer compensation levels and individual performance. Accordingly, the Compensation Committee may determine that with respect to one or more individuals that it is appropriate for total compensation or any particular element of compensation to meet, exceed or fall below the 50th percentile of the benchmark data. The factors that may influence the amount of compensation awarded may include market competition for a particular position, an individual’s possession of a unique skill or knowledge set, proven leadership capabilities, tenure with the Company and other business experience. Throughout the CD&A, the benchmarking data used by the Compensation Committee are referred to as “market data.”

Evaluating NEO Performance

The Compensation Committee, in conjunction with the entire Board, conducts a formal evaluation of the Company’s CEO each year relative to his performance against strategic goals established at the beginning of the year. The CEO in turn reviews and evaluates each of the other NEOs relative to their performance against strategic goals established at the beginning of the year. The CEO then presents his evaluations to the Compensation Committee.

TYPES AND AMOUNTS OF 2012 NEO COMPENSATION

Summary of Elements of Executive Compensation

The Company provided various types of compensation to the NEOs in 2012, some of which were fixed and some of which were variable and dependent upon the performance of an individual operating company and/or the Company as a whole.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

The following chart summarizes the elements of total compensation provided to the NEOs in 2012. Further details regarding each of the elements are provided in the discussion that follows the chart.

 

 

CATEGORY

 

 

SPECIFIC AWARD

 

 

TERMS

 

Cash Compensation   Base Salary  

Reviewed annually and adjusted depending on individual performance, market data, internal pay equity and Company and/or operating company performance.

 

  Annual Incentive  

Cash payment determined based upon achievement of pre-established performance goals.

 

Target payment for each NEO expressed as a percentage of base salary. Actual payouts of annual incentives can range from 0% to 200% of target, based upon the achievement of performance goals.

 

Performance goals for corporate officers were based upon total Company performance. Performance goals for Operating Company Presidents were based solely on performance of their own operating company.

 

         

Equity Compensation

 

Awarded under the Fortune Brands Home & Security, Inc. 2011 Long-Term Incentive Plan

  RSUs  

Time-vested awards paid in shares of Company common stock. For certain NEOs, vesting is also subject to a threshold EPS performance goal.

 

The RSUs vest in three equal annual installments.

 

  Stock Options  

Options were granted at fair market value, become exercisable in three equal annual installments and expire ten years after the grant date.

 

  PSAs  

Equity awards that pay out in shares of Company stock if specified performance goals for cumulative EPS (weighted 75%) and average ROIC (weighted 25%) for the period of January 1, 2012 through December 31, 2014 are met.

 

The PSAs vest three years after grant, subject to achievement of performance goals.

 

         
Retirement   Defined Contribution and Supplemental Defined Contribution  

A portion of the retirement benefits are provided under the Company’s tax-qualified defined contribution plan.

 

Messrs. Klein and Wyatt receive a profit sharing award that is provided to all eligible employees of the Company’s corporate office. Mr. Randich was eligible to receive a profit sharing award. Any portion of profit sharing benefits that cannot be contributed to the tax-qualified defined contribution plan as a result of IRS limits are contributed to a non-qualified supplemental retirement plan.

 

  Pension and Supplemental Pension*  

A portion of the retirement benefits are provided under various tax-qualified defined benefit pension plans maintained by the operating companies.

 

Only Messrs. Klein, Heppner, Lingafelter and Stoner accrued pension benefits in 2012. Any portion of pension benefits that cannot be accrued under the tax-qualified defined benefit pension plan as a result of IRS limits are accrued in the non-qualified supplemental retirement plan.

 

         
Severance and Change in Control Agreements      

Provide benefits following termination under specified circumstances.

 

Benefits include cash severance and continued benefits coverage. Amounts increase for terminations within a certain period following a change in control.

 

Benefits conditioned on the NEO signing a release of legal claims and non-solicitation/non-competition agreement.

 

         
Perquisites   Minimal  

Limited personal use of Company aircraft for the CEO.

 

Relocation expenses for moving a primary residence made at the Company’s request.

 

Annual executive physicals.

 

  * Because the pension plan for Company employees was closed to new participants prior to his hire date, Mr. Wyatt is not eligible for pension benefits.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

Compensation Provided to NEOs in 2012

Base Salary

In setting base salary levels, the Compensation Committee (together with Mr. Klein for NEOs other than himself) considered competitive market data in addition to other factors, such as retention, individual performance, internal pay equity and tenure with the Company. In 2012, each of the NEOs received annual base salary increases ranging from 2%-3%. Mr. Randich received an additional base salary increase of 10% in October 2012 when he was promoted to President of MasterBrand Cabinets, Inc. This additional increase in Mr. Randich’s base salary was made to reflect the increased responsibilities associated with his position as President of the Company’s largest segment and to bring his salary more in line with market data for his new position.

In the remainder of this section of this CD&A, please note that amounts awarded to Mr. Randich are based upon the performance of Therma-Tru Corp., the company at which Mr. Randich served as President prior to becoming President of MasterBrand Cabinets, Inc. in the fourth quarter.

Annual Cash Incentive

The Compensation Committee established minimum, target and maximum performance goals for each NEO’s annual cash incentive. Targets for annual cash incentives are expressed as a percentage of base salary. The amount of annual cash incentive actually paid to the NEOs depended upon the achievement of pre-established performance goals, described below. If the performance goals were not met, a NEO could still receive an annual cash incentive, but the amount would be less than the target value. However, no cash incentive would have been paid unless the Company exceeded the minimum pre-established performance goal.

The minimum annual cash incentive for any NEO was 0% of target, and the maximum was 200% of target. The target levels were competitive compared to market data:

 

Named Executive Officer

  

Target Incentive as
% of Base Salary

Christopher J. Klein

   110%

E. Lee Wyatt, Jr.

   85%

John N. Heppner

   60%

David B. Lingafelter

   60%

David M. Randich

   60%

Gregory J. Stoner

   60%

Performance goals for officers of the Company were set differently than those for the Operating Company Presidents. For Messrs. Klein and Wyatt, annual cash incentives were based on goals for the Company’s 2012 EPS and ROIC, with EPS weighted 75% and ROIC weighted 25%. EPS and ROIC were selected as performance measures because they focus executives on both maximizing stockholder value (EPS) and encourage the Company’s operational efficiency (ROIC). The target EPS goal was $0.69 per share, and the target ROIC goal was 4.9% for both Mr. Klein and Mr. Wyatt. These targets represent increases of 15% for EPS (calculated before charges and gains) and 16.6% for ROIC (calculated before charges and gains) over the Company’s EPS and ROIC results for 2011. Based upon the Company’s 2012 EPS and ROIC results, Mr. Klein received an annual cash incentive of $2,024,000 and Mr. Wyatt received an annual cash incentive of $1,127,100, each at 200% of target.

Performance goals for the annual cash incentives for the Operating Company Presidents were based upon the OI (weighted 75%) and RONTA (weighted 25%) results for their respective companies. OI serves as a measure of profitability for each operating company, and RONTA serves as a substitute for ROIC, which is difficult to calculate on an operating company basis.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

With respect to the Operating Company Presidents, the following table sets forth the target OI and RONTA performance goals, actual performance results and the amounts paid for the 2012 annual cash incentive awards:

 

2012 Weighted OI and RONTA Results for Operating Company Presidents’ Annual Cash Incentive     
          Operating Company Performance      2012 Cash Incentive  
Named Executive Officer   

Performance
Measures

  

Target

($ in millions)

    

Actual
Performance

    

Amount Paid

    

% of

Target

 

John N. Heppner(1)

                        

Master Lock Company, LLC

   OI      $52.0         $55.2             
   RONTA      38.9%         43.2%         $445,808         158.4

Waterloo Industries, Inc.

   OI

RONTA

    

 

$14.0

15.0%

  

  

    

 

$16.1

17.3%

  

  

                 

David B. Lingafelter

   OI      $143.5         $168.8         $556,800         200
   RONTA      75.0%         95.2%                     

David M. Randich(2)

   OI      $4.0         $5.6         $307,464         111.4
   RONTA      3.6%         5%                     

Gregory J. Stoner(3)

   OI      $33.0         $40.1         $281,514         114.2
   RONTA      8.9%         12.2%         

 

  (1) Mr. Heppner’s annual cash incentive was based on the weighted performance results of Master Lock (75%) and Waterloo (25%).

 

  (2) Mr. Randich’s annual cash incentive was based solely on performance results of Therma-Tru Corp.

 

  (3) Mr. Stoner’s annual cash incentive was pro-rated through his date of resignation.

Long-Term Incentive Awards

The Compensation Committee believes that equity awards both align management’s interests with those of stockholders and reinforce a pay-for-performance culture.

In 2012, the Compensation Committee increased the weighting of equity-based compensation within total compensation. Total equity-based compensation now represents, on average, 57.1% of 2012 NEO compensation (excluding Mr. Stoner) to provide for a greater alignment of management’s interests with stockholders.

The NEOs received three types of equity awards under the Fortune Brands Home & Security, Inc. 2011 Long Term Incentive Plan (the “LTIP”) in 2012: stock options, RSUs and PSAs. Each type of equity award comprised one-third of each NEO’s total equity-based award in 2012. The values of each of the NEO’s 2012 equity-based awards were (expressed as the aggregate grant date value of stock options, PSAs and RSUs, assuming target payouts for PSAs):

 

Christopher J. Klein      $3,300,000   
E. Lee Wyatt. Jr.      $1,500,000   
John N. Heppner      $915,000   
David B. Lingafelter      $800,000   
David M. Randich      $650,000   

The value of the 2012 equity-based awards granted to Mr. Stoner have been excluded as such equity was forfeited.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

The following chart shows the significant role that equity plays in the Company’s executive compensation program:

 

CEO Compensation    Other NEO Compensation
LOGO    LOGO

The chart above reflects compensation granted by the Compensation Committee in 2012. Included in Performance Based Variable Compensation is all compensation that is impacted by the Company’s financial performance or stock price performance and includes annual incentive awards, stock options, performance share awards and restricted stock units.

As stated above, one-third of the total equity awarded to the NEOs was granted in the form of PSAs. The PSAs will only be paid out to the NEOs and other recipients if the Company achieves specified goals for diluted EPS and ROIC during the three-year performance period beginning on January 1, 2012 and ending on December 31, 2014. No PSAs will be paid unless at least the minimum established goals are achieved.

The EPS and ROIC goals are challenging to require superior performance at both the target and maximum payout levels. The Compensation Committee based the performance goals on EPS and ROIC because it believes that the combined use of diluted EPS and ROIC are the most comprehensive factors for driving sustainable growth and returns. Although the annual cash incentives for Messrs. Klein and Wyatt also use EPS and ROIC goals, the annual incentive employs a one-year goal, while the PSAs focus on cumulative performance over three years, which provides a strong incentive for sustained results over the long term.

The following chart shows the percentage of PSAs awarded that will be paid out in shares of Company common stock at the end of the 2012-2014 performance period, depending on the extent to which the performance goals have been achieved:

 

Percentage of PSAs Paid Based on the % of EPS and ROIC Goals Achieved
        Average ROIC
        Minimum              Target   Maximum        

Diluted

Cumulative

EPS

  Minimum   0    25   50
  Target   75    100   125
  Maximum   150    175   200

Any payouts under the 2012-2014 PSAs will not occur until early in 2015, following the Compensation Committee’s certification of performance results.

One-third of the total equity awarded to the NEOs in 2012 was granted in the form of RSUs. The RSUs awarded in 2012 vest in three equal annual installments on the anniversary date of the grant, assuming the NEO remains employed through the vesting dates. Certain NEOs that were awarded RSUs in 2012 had a threshold EPS goal of $0.10 per share in 2012, which was intended to allow the RSUs to qualify as “performance-based compensation” under the Code.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

Retirement Benefits

The Company maintains a tax-qualified defined contribution plan that allows tax deferred contributions for certain eligible employees, including all of the NEOs. Each operating company provides a matching contribution to eligible employees, except for Therma-Tru, which provides a qualified non-elective contribution to its eligible employees. In addition, Fortune Brands Home & Security and Therma-Tru provide profit sharing contributions to eligible employees. In 2012, the NEOs received contributions to their accounts under the tax-qualified defined contribution plan sponsored by Home & Security. In 2012, Messrs. Klein, Wyatt and Randich were eligible to receive profit sharing benefits.

In addition, Messrs. Klein and Wyatt received supplemental profit sharing benefits under a non-qualified supplemental retirement plan sponsored by Home & Security. Mr. Randich received supplemental qualified non-elective and supplemental profit sharing benefits under the supplemental retirement plan sponsored by Therma-Tru. The contributions and credits are reported in the 2012 Summary Compensation Table on page 32 of this Proxy Statement.

Each operating company that employs a NEO, except for Therma-Tru, maintains a tax-qualified defined benefit plan that provides pension benefits to certain eligible employees, including Messrs. Klein, Heppner and Lingafelter. The Company and each operating company that provides a tax-qualified defined benefit pension plan provides non-qualified supplemental pension benefits under the respective company’s non-qualified supplemental retirement plan. Except for Messrs. Wyatt and Randich, all of the NEOs accrued pension benefits under both tax-qualified defined benefit pension plans and non-qualified supplemental retirement plans in 2012. The pension plans are sponsored by the operating companies and the supplemental retirement plans are sponsored by the Company and the operating companies. These benefits are reported in the 2012 Summary Compensation Table on page 32 of this Proxy Statement and in the Pension Benefits Table on page 39 of this Proxy Statement.

Severance and Change in Control Agreements

The Company previously entered into Severance and Change in Control Agreements with each of the NEOs. The severance benefits under the Severance and Change in Control Agreements consist of:

 

   

a multiple (described below) of the NEO’s base salary, target annual cash incentive, and any profit sharing allocation and tax-qualified defined contribution plan matching contribution for the year prior to the year in which the termination takes place;

 

   

an additional number of months (equal to the severance multiple described below) of coverage under life, health, accident and medical plans; and

 

   

an amount equal to the award the executive would have received under the Fortune Brands Home & Security, Inc. Annual Executive Incentive Compensation Plan based upon actual Company performance for the calendar year in which the termination date occurs, pro-rated for the portion of the calendar year during which the executive was employed by the Company.

All of the change in control agreements that the Company has with each of the NEOs contain “double triggers,” which means that there must be both a change in control of the Company and a qualifying termination of employment before any enhanced change in control benefits are paid. If Mr. Klein experiences a qualifying termination of employment other than within 24 months following a change in control, his multiple for severance benefits will be 24 months. If Mr. Klein experiences a qualifying termination of employment within 24 months following a change in control, his multiple for severance benefits will be 36 months. The multiples for Messrs. Wyatt, Heppner, Lingafelter and Randich will be 18 months for qualifying terminations occurring other than within 24 months following a change in control and 24 months for qualifying terminations occurring within 24 months following a change in control. (For information on the severance benefits paid to Mr. Stoner, see page 29 of this Proxy Statement.) A qualifying termination of employment is one that is initiated by the Company without “cause” or by the NEO with “good reason,” as such terms are defined in the agreements.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

These agreements require the executive to sign a release of legal claims against the Company to receive any severance payments. The agreements provide that severance benefits may be reduced to the extent necessary to avoid the imposition of an excise tax under Internal Revenue Code Section 280G (but only if the reduced amount would be greater than the net after-tax amount of severance benefits, taking into account payment of the excise tax by the executive). The agreements also contain various restrictive covenants, including a 12-month non-competition restriction for terminations that do not occur within 24 months following a change in control, a 12-month non-solicitation provision and a provision prohibiting the executive and the Company from making disparaging statements about the other either during or after the executive’s employment.

Payments to Mr. Stoner in Connection with his Resignation

Pursuant to the terms of his Severance and Change in Control Agreement (as described above), Mr. Stoner will receive $1,204,538 in exchange for his signing of a release of legal claims against the Company, as well as his compliance with non-solicitation and non-competition restrictions which extend for a period of 12 months. In addition, he received a pro-rated portion of his 2012 annual incentive award in the amount of $281,514. At the time of his resignation, the Company and Mr. Stoner entered into a Non-Competition and Release Agreement pursuant to which Mr. Stoner will receive $2,417,000 in exchange for an additional non-competition restriction with an expanded market scope which extends for a period of 24 months from the date his employment terminated.

Mr. Stoner forfeited all outstanding but unvested equity awards, and he did not receive a payout of the 2010-2012 cash-based long-term incentive awards (discussed below). Mr. Stoner’s vested stock options expired three months from the date his employment ended.

Perquisites

In 2012, the Compensation Committee permitted Mr. Klein’s use of Company aircraft for personal travel up to 35 flight hours per year. Mr. Klein reimbursed the Company for any personal use of Company aircraft, equivalent in amount to the cost of a first class ticket for each passenger on such flights.

Because the health of the Company’s executives is important, the Company made executive medical examinations available to certain executives, including each of the NEOs. The Company also provides tax reimbursements on certain relocation expenses incurred when the Company requires any employee, including any NEO, to relocate.

PAYOUT OF PREVIOUSLY-AWARDED INCENTIVE COMPENSATION

As noted earlier in this CD&A, the Compensation Committee decided to exclude future cash-based long-term incentive awards in the Company’s executive compensation program in 2012. No cash-based long-term incentive awards (“Cash LTIPs”) were granted in 2012. However, all of the NEOs (except Mr. Wyatt) held previously-awarded Cash LTIPS covering the performance period of January 1, 2010 to December 31, 2012, and still hold Cash LTIPs covering the period of January 1, 2011 through December 31, 2013. (Mr. Wyatt was not employed by the Company at the time these awards were granted.)

Under the 2010-2012 Cash LTIP Awards, Mr. Klein and the Operating Company Presidents each received a specified number of “units.” Each unit was assigned specified minimum ($0), target ($400) and maximum ($1,000) dollar values to be paid at the end of the three-year performance period based upon the attainment of the performance goals.

Mr. Klein’s Cash LTIP payout is based upon the combined performance of the operating companies, with each operating company’s performance being weighted to account for the relative size of the business. The Cash LTIP awards paid to the Operating Company Presidents were based upon the performance of each of their respective companies (with Mr. Randich being paid based upon the performance of Therma-Tru Corp.). Performance of the Operating Companies was measured in terms of their attainment of annual OI and RONTA goals for each of their respective companies. OI and RONTA results were equally weighted for the 2010 performance year, while OI was weighted 75% and RONTA was weighted 25% for 2011 and 2012.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

The table below sets forth target OI and RONTA performance goals and results for each of the Operating Companies, which were used to determine annual long-term cash incentives:

 

2010-2012 Cash LTIP Performance Goals and Weighting
 
      2010 Goals & Results
     

OI

(Weighted 50%)

  

RONTA

(Weighted 50%)

   Company
Weighting(1)
      Goals    Results    Goals    Results     

Master Brand Cabinets

   $1.0 MM    $33.5 MM    0.3%    8.6%    37%

Moen(2)

   $106.0 MM    $128.4 MM    60.1%    74.7%    29%

Master Lock(3)

   $27.0 MM    $44 MM    22.8%    44.3%    10%

Waterloo(3)

   $ 6.0 MM    $5 MM    6.2%    5.4%    6%

Therma-Tru(4)

   $ 0.0 MM    $9.7 MM    0.0%    8.9%    9%

Simonton

   $ 2.0 MM    $10 MM    3.6%    17.2%    9%

 

      2011 Goals & Results
     

OI

(Weighted 75%)

  

RONTA

(Weighted 25%)

   Company
Weighting(1)
      Goals    Results    Goals    Results     

Master Brand Cabinets

   $57.7 MM    $16.6 MM    15.1%    4.6%    39%

Moen(2)

   $133.7 MM    $131.4 MM    76.0%    73.3%    28%

Master Lock(3)

   $41.8 MM    $47.5 MM    37.5%    42.3%    10%

Waterloo(3)

   $11.0 MM    $10.8 MM    10.7%    10.6%    5%

Therma-Tru(4)

   $11.6 MM    $4.5 MM    10.2%    4.1%    9%

Simonton

   $ 5.7 MM    $-15.8 MM    11.7%    -35.7%    9%

 

      2012 Goals & Results
     

OI

(Weighted 75%)

  

RONTA

(Weighted 25%)

   Company
Weighting(1)
      Goals    Results    Goals    Results     

Master Brand Cabinets

   $ 33.0 MM    $40 MM    8.9%    12.1%    39%

Moen(2)

   $143.5 MM    $169.2 MM    75.0%    95.4%    28%

Master Lock(3)

   $52.0 MM    $55.2 MM    38.9%    43.2%    10%

Waterloo(3)

   $14.0 MM    $16.3 MM    15.0%    17.5%    5%

Therma-Tru(4)

   $ 4.0 MM    $6 MM    3.6%    5.4%    9%

Simonton

   -$ 3.7 MM    $-1.7 MM    -10.1%    -4%    9%

 

  (1) Mr. Klein’s 2010-2012 Cash LTIP was based on the weighted performance results of each operating company.

 

  (2) Mr. Lingafelter’s 2010-2012 Cash LTIP award was based on the performance of Moen Incorporated alone.

 

  (3) Mr. Heppner’s 2010-2012 Cash LTIP award was based on the combined weighted performance of Master Lock and Waterloo, with Master Lock’s performance counting for 75% of the payout and Waterloo’s performance counting for 25% of Mr. Heppner’s payout.

 

  (4) Mr. Randich’s 2010-2012 Cash LTIP award was based on the performance of Therma-Tru alone.

The OI and RONTA results reported above led to the following payouts:

 

Named Executive Officer   

Final

Unit Value

  

Total

Payout

Christopher J. Klein

   $565.5    $565,500

John N. Heppner

   $699.1    $419,430

David B. Lingafelter

   $710.8    $248,780

David M. Randich

   $543.7    $163,110

Gregory J. Stoner*

   $427.4    $0

*Mr. Stoner was not eligible to receive a payout with respect to the 2010-2012 Cash LTIP.

 

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COMPENSATION DISCUSSION AND ANALYSIS (CONTINUED)

 

 

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 and the Company’s Proxy Statement.

Compensation Committee

Ann F. Hackett, Chair

Richard A. Goldstein

A. D. David Mackay

John G. Morikis

Norman H. Wesley

 

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2012 EXECUTIVE COMPENSATION

 

 

 

2012 SUMMARY COMPENSATION TABLE

 

 

Name and Principal

Position

   Year    

Salary

($)

   

Bonus

($)

    Stock
Awards
($)(1)
    Option
Awards
($)(2)
   

Non-

Equity

Incentive

Plan

Compen-
sation

($)(3)

   

Change in
Pension Value
and

Nonqualified

Deferred

Compen-
sation

Earnings

($)(4)

   

All Other

Compen-

sation

($)(5)

    Total ($)  
      A     B     C     D     E     F     G     H     I  

Christopher J. Klein

     2012        916,667        0        2,200,000        1,100,000        2,589,500        421,000        145,083        7,372,250   

Chief Executive Officer

     2011        774,500        0        4,199,360        3,982,755        993,950        302,000        154,512        10,407,077   
       2010        700,000        0        1,283,261        480,470        958,650        119,657        112,957        3,654,996   

E. Lee Wyatt, Jr.*

     2012        660,833        0        1,000,000        500,000        1,127,100        0        118,634        3,406,567   

Senior Vice President and

Chief Financial Officer

     2011        369,583        652,500        4,000,000        1,000,000        0        0        107,148        6,129,231   

John N. Heppner

     2012        461,038        0        610,000        305,000        865,238        737,000        17,676        2,995,952   

Chief Executive Officer and President, Fortune Brands Storage & Security LLC

     2011        450,452        0        850,000        1,401,978        991,800        722,000        34, 244        4,450,474   
       2010        428,375        0        0        563,933        589,050        391,975        33,666        2,006,999   

David B. Lingafelter

     2012        424,080        0        533,333        266,667        805,580        601,000        10,412        2,641,072   

President, Moen Incorporated

     2011        420,353        0        850,000        1,325,550        544,440        350,000        92,414        3,582,757   
       2010        351,133        90,045        0        451,146        299,340        186,881        39,636        1,418,181   

David M. Randich**

     2012        421,000        0        433,333        216,667        470,574        0        33,196        1,574,770   

President, MasterBrand Cabinets, Inc.

                                                                        

Gregory J. Stoner***

     2012        441,988        0        583,333        291,667        281,514        117,000        329,077        2,044,579   

Former President,

MasterBrand Cabinets, Inc.

     2011        485,000        0        850,000        1,401,978        280,723        88,000        81,640        3,187,341   
       2010        451,154        165,000        0        563,933        472,390        51,602        35,345        1,739,424   
  * Mr. Wyatt first became an employee of the Company in June 2011.

 

  ** Effective October 8, 2012, Mr. Randich, who previously served as President of Therma-Tru Corp., was promoted to serve as President of MasterBrand Cabinets, Inc. Mr. Randich’s incentive compensation was based on 2012 Therma-Tru Corp. results.

 

  *** Effective October 8, 2012, Mr. Stoner no longer served as President of MasterBrand Cabinets, nor as an executive officer of the Company.

 

  (1) Stock Awards: The amounts listed in column D represent the aggregate grant date values calculated in accordance with FASB ASC Topic 718 for RSUs and PSAs granted in 2012. The amounts included in this column for the PSAs granted during 2012 are calculated based on the probable satisfaction of the performance conditions for such awards. Assuming the highest level of performance is achieved for these awards, the maximum grant date fair value of these awards is: $2,200,000 for Mr. Klein, $1,000,000 for Mr. Wyatt, $610,000 for Mr. Heppner, $533,333 for Mr. Lingafelter and $433,333 for Mr. Randich. For assumptions used in determining these values, see footnote 11 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (“Form 10-K”). Amounts listed in this column for 2012 include the normal annual equity awards as opposed to the amounts listed for 2011 which included the normal annual equity award in addition to a one-time equity grant made at the time of the Spin-off. The amounts listed for performance share awards and restricted stock units granted to Mr. Stoner in 2012 were forfeited due to his resignation from MasterBrand Cabinets.

 

  (2) Option Awards: The amounts listed in column E reflect the aggregate grant date values calculated in accordance with FASB ASC Topic 718 for stock options granted in 2012. For assumptions used in determining these values, see footnote 11 to the consolidated financial statements contained in Company’s Form 10-K for the year ended December 31, 2012. Amounts listed in this column for 2012 represent the normal annual equity awards as opposed to the amounts listed for 2011 which included the normal annual equity award in addition to a one-time equity grant made at the time of the Spin-off. The amount listed for stock options granted to Mr. Stoner in 2012 was forfeited due to his resignation from MasterBrand Cabinets.

 

  (3) Non-Equity Incentive Plans: Column F lists amounts earned as annual cash incentives in the amount of $2,024,000 for Mr. Klein and $1,127,100 for Mr. Wyatt under the Fortune Brands Home & Security annual cash incentive plan. Column F also lists amounts earned under the annual cash incentive plans maintained by Master Lock, Moen, Therma-Tru and MasterBrand Cabinets, respectively, in the amount of $445,808 for Mr. Heppner; $556,800 for Mr. Lingafelter; $307,464 for Mr. Randich and $281,514 for Mr. Stoner. The annual cash incentive paid to Mr. Stoner was pro-rated through his date of resignation. In addition, column F includes the value of the Cash LTIP awards paid to Mr. Klein in the amount of $565,500; Mr. Heppner in the amount of $419,430; Mr. Lingafelter in the amount of $248,780; and Mr. Randich in the amount of $163,110 for the 2010-2012 performance period. Mr. Stoner forfeited the value of the Cash LTIP payout as a result of his resignation from MasterBrand Cabinets.

 

  (4) Increase in Actuarial Value of Pension Benefits: Column G includes an estimate of the increases in actuarial value of certain NEOs’ tax qualified and non-qualified defined benefit pension plan benefits. The narrative and footnotes following the Pension Benefits table on page 39 provide additional detail about the pension plans in which the NEOs participate.

 

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2012 EXECUTIVE COMPENSATION (CONTINUED)

 

 

  (5) Perquisites and All Other Compensation:

Defined Contribution Benefits and Nonqualified Plan Earnings: The amount in column H includes: (a) matching contributions made to Fortune Brands Home & Security’s tax-qualified defined contribution plan by Fortune Brands Home & Security, Master Lock, Moen, Therma-Tru and MasterBrand Cabinets, (b) profit sharing and qualified non-elective contributions made to Fortune Brands Home & Security’s tax-qualified defined contribution plan by Fortune Brands Home & Security, Master Lock, Moen, Therma-Tru and MasterBrand Cabinets, and (c) profit sharing contributions made to the Fortune Brands Home & Security supplemental retirement plan and profit sharing and qualified non-elective contributions made to the Therma-Tru supplemental retirement plan. We describe these benefits below.

 

  (a) Matching Contributions to the Defined Contribution Plan. Matching contributions for 2012 to Fortune Brands Home & Security tax-qualified defined contribution plan made by Fortune Brands Home & Security, Master Lock, Moen and MasterBrand Cabinets were: by Home & Security, $11,250 for Messrs. Klein and Wyatt; by Master Lock, $7,500 for Mr. Heppner; by Moen, $7,500 for Mr. Lingafelter; and by MasterBrand Cabinets, $11,069 for Mr. Stoner.

 

  (b) Profit Sharing and Non-Qualified Elective Contributions to the Defined Contribution Plan. Profit sharing contributions for 2012 to Fortune Brands Home & Security tax-qualified defined contribution plan were made by Fortune Brands Home & Security in the amount of $17,099 for Messrs. Klein and Wyatt. Profit sharing and non-qualified elective contributions for 2012 to Fortune Brands Home & Security tax-qualified defined contribution plan were made by Therma-Tru in the amount of $15,000 for Mr. Randich.

 

  (c) Profit Sharing and Non-Qualified Contributions to the Supplemental Plans. The following contributions were made to the Company’s non-qualified supplemental retirement plan for 2012: $102,049 for Mr. Klein and $72,250 for Mr. Wyatt. For Mr. Randich, a contribution to the Therma-Tru non-qualified supplemental retirement plan in the amount of $13,832 (qualified non-elective and profit sharing contributions) was made. These contributions would have been made under the Company’s tax qualified defined contribution plan but for the limitations on contributions imposed by the Code. These amounts were credited to executives’ accounts in early 2013.

Premiums for Life Insurance: The amounts set forth in column H include the dollar value of all life insurance premiums paid by the applicable employer in 2012. These amounts were: $2,640 for Mr. Klein; $6,387 for Mr. Wyatt; $5,731 for Mr. Heppner; $674 for Mr. Lingafelter; $420 for Mr. Randich; and $690 for Mr. Stoner.

Other: In 2012, Mr. Wyatt received $6,551 in relocation expenses ($2,601 of which represented reimbursement for taxes). Certain executives received executive physicals. Mr. Stoner received $74 as a tax reimbursement in connection with incidental use of Company aircraft. In 2012, Mr. Stoner received a credit for the purchase of company product in the amount of $14,177. In 2012, Mr. Stoner received a payment in the amount of $302,125 in connection with his additional non-competition agreement. See pages 29, 42 and 43 for additional information regarding all severance amounts owed to Mr. Stoner.

 

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2012 EXECUTIVE COMPENSATION (CONTINUED)

 

 

2012 GRANTS OF PLAN-BASED AWARDS  

   Name and

   Grant Date

 

 

Estimated Future Payouts Under
Non-Equity Incentive Plan Awards

    Estimated Future Payouts
Under Equity Incentive Plan
Awards
    All Other
Stock
Awards:
Number
of Shares
of Stock
or Units (#)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
    Grant
Date
Value of
Stock and
Option
Awards
($)(1)
 
  Threshold
($)
   

Target

($)

    Maximum
($)
    Threshold
(#)
   

Target

(#)

    Maximum
(#)
         

Christopher J. Klein

                                                                               

02/21/2012(2)

    0        1,012,000        2,024,000                                                           

02/21/2012(3)

                                                            189,700       19.46        1,100,000   

02/21/2012(4)

                                                    56,500                        1,100,000   

02/21/2012(5)

                0        56,500        113,000                    1,100,000   

E. Lee Wyatt, Jr.

                                                                               

02/21/2012(2)

    0        563,550        1,127,100                                                           

02/21/2012(3)

                                                            86,200        19.46       500,000   

02/21/2012(4)

                                                    25,700                        500,000   

02/21/2012(5)

                            0        25,700        51,400                                500,000   

John N. Heppner

                                                                               

02/21/2012(2)

    0        281,400        562,800                                                           

02/21/2012(3)

                                                            52,600        19.46        305,000   

02/21/2012(4)

                                                    15,700                        305,000   

02/21/2012(5)

                            0        15,700        31,400                                305,000   

David B. Lingafelter

                                                                               

02/21/2012(2)

    0        278,400        556,800                                                           

02/21/2012(3)

                                                            46,000        19.46        266,667   

02/21/2012(4)

                                                    13,700                        266,667   

02/21/2012(5)

                0        13,700        27,400                    266,667   

David M. Randich

                                                                               

02/21/2012(2)

    0        276,000        552,000                                                           

02/21/2012(3)

                                                            37,400        19.46        216,667   

02/21/2012(4)

                                                    11,100                        216,667   

02/21/2012(5)

                            0        11,100        22,200                                216,667   

Gregory J. Stoner(6)

                                                                               

02/21/2012(2)

    0        297,000        594,000                                                           

02/21/2012(3)

                                                            50,300        19.46        291,667   

02/21/2012(4)

                                                    15,000                        291,667   

02/21/2012(5)

                            0        15,000        30,000                                291,667   

 

  (1) The grant date fair value of stock option awards is based on the Black-Scholes value of $5.80 for the February 21, 2012 grant. The grant date fair value of performance shares and restricted stock units is determined based upon $19.47, the average of the high and low prices of the Company’s stock on the grant date (February 21, 2012). Grant date fair values are computed in accordance with FASB ASC Topic 718. For assumptions used in determining these values, see footnote 11 to the consolidated financial statements contained in Company’s Form 10-K for the year ended December 31, 2012.

 

  (2) Amounts in this row reflect the range of potential payments under the Fortune Brands Home & Security, Inc. Annual Executive Incentive Compensation Plan. The target future payout for Messrs. Klein, Wyatt, Heppner, Lingafelter, Randich and Stoner is based on target awards of 110%, 85%, 60%, 60%, 60%, and 60%, respectively, of base salary as of December 31, 2012. Mr. Stoner was entitled to a pro-rated portion of his annual incentive plan through the date of his resignation.

 

  (3) This row reflects the number of stock options and the value of the stock options granted on February 21, 2012.

 

  (4) The amounts in this row reflect the number of restricted stock units that were awarded and will vest in three equal annual installments on the anniversary of the date of grant, subject to continued employment and for certain NEOs, the achievement of an EPS goal for 2012 of $.10 (diluted, but before gains or charges).

 

  (5) The amounts in this row reflect the range of potential payouts for performance shares that were awarded for the 2012-2014 performance cycles.

 

  (6) Mr. Stoner forfeited the stock options, performance share awards and restricted stock units granted to him in 2012 as a result of his resignation from MasterBrand Cabinets. He was still entitled to a pro-rated portion of his annual incentive plan through the date of his resignation.

 

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2012 EXECUTIVE COMPENSATION (CONTINUED)

 

 

Non-Equity Incentive Plans

Annual Cash Incentive

Each of the NEOs received an award under a cash-based, pay-for-performance annual incentive plan maintained by Fortune Brands Home & Security. Under the awards, each NEO was eligible to receive an incentive if the performance goal established for the year was met or exceeded, unless employment ended prior to the end of the year for reasons other than death, disability or retirement, in which case no incentive was paid. If employment ended as a result of death, disability or retirement, a participant would have been paid a pro-rated annual incentive if and when incentives were otherwise paid to participants. In 2012, only Mr. Heppner was eligible for retirement. Mr. Stoner received a pro-rated annual incentive award pursuant to the terms of his Severance and Change in Control Agreement. A more detailed discussion of each of these incentives can be found on pages 25 and 26 of this Proxy Statement.

Cash LTIP

Each of Messrs. Klein, Heppner, Lingafelter and Randich received a payment under their 2010-2012 Cash LTIP awards. Mr. Stoner forfeited payment of the 2010-2012 Cash LTIP award when he resigned from MasterBrand Cabinets in October 2012. Mr. Wyatt was not eligible for a Cash LTIP payment for 2010-2012. The Compensation Committee eliminated Cash LTIP awards beginning in 2012. These awards are discussed in greater detail on pages 29 and 30 of this Proxy Statement.

Equity Incentive Plan

The Company maintains a Long-Term Incentive Plan designed to reward individuals with equity in the Company. The Compensation Committee provides a mix of long-term incentive awards to the NEOs (and other executives), including stock options, restricted stock units and performance share awards. In 2012, the Compensation Committee awarded the NEOs with an equal mix of each of the following types of awards:

Stock Options. Each NEO received a grant of stock options under the Company’s Long-Term Incentive Plan. Stock options granted in 2012 vest in three equal annual installments, assuming the NEO remains employed through each vesting date and expire ten years after the grant date.

Restricted Stock Units. Each NEO received a grant of RSUs under the Company’s Long-Term Incentive Plan. RSUs are time vested awards that are paid in shares of the Company’s common stock. RSUs granted in 2012 vest in three equal annual installments, assuming the NEO remains employed through each vesting date. Certain NEOs that were awarded RSUs in 2012 had an EPS goal of $.10 in 2012, which was intended to allow the RSUs to qualify as “performance-based compensation” under the Code. The Compensation Committee certified attainment of this EPS goal in February 2013.

Performance Share Awards. Each NEO received a grant of PSAs under the Company’s Long-Term Incentive Plan. PSAs are long-term equity awards that are paid in shares of the Company’s common stock if certain performance goals are met during a three-year performance period. The performance goals for the 2012 PSAs are based on EPS (weighted 75%) and average ROIC (weighted 25%) for the period of January 1, 2012 through December 31, 2014. The amount of the payout can range from 0-200% of the target, based on the achievement of the goals determined by the Compensation Committee.

 

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Table of Contents

 

2012 EXECUTIVE COMPENSATION (CONTINUED)

 

 

OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR-END   
    Option Awards(1)     Stock Awards  
Name   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(1)
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(2)
    Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
  Option
Exercise
Price ($)
    Option
Expiration
Date
   

Number
of

Shares

of

Stock
Held

that

Have

Not
Vested
(#) (3)

   

Market

Value of
Shares or
Units of

Stock

Held that
Have Not
Vested ($) (4)

    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#) (5)
    Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested ($)(6)
 

Christopher J. Klein

                                        451,117        $13,181,639        56,500        $1,650,930   
      0        189,700            19.46        2/21/2022                                   
      0        785,700            12.30        10/04/2021                                   
      59,947        119,883            13.757        2/22/2021                                   
      77,001        63,517            9.7622        2/22/2017                                   
      82,616        0            9.608        9/30/2016                                   
      95,484        0            12.7443        9/29/2015                                   
      44,230        0            18.096        9/24/2014                                   
      59,773        0            15.40        9/28/2014                                   

E. Lee Wyatt, Jr.

                                        214,466        $6,266,697        25,700        $750,954   
      0        86,200            19.46        2/21/2022                                   
      0        238,100            12.30        10/4/2021                                   

John N. Heppner

                                        85,700        $2,504,154        15,700        $458,754   
      0        52,600            19.46        2/21/2022                                   
      0        202,400            12.30        10/4/2021                                   
      48,464        96,921            13.757        2/22/2021                                   
      34,621        74,554            9.7622        2/22/2017                                   
      15,819        0            9.608        9/30/2016                                   
      26,101        0            18.096        9/24/2014                                   
      23,728        0            16.6295        9/26/2013                                   

David B. Lingafelter

                                        83,700        $2,445,714        13,700        $400,314   
      0        46,000            19.46        2/21/2022                                   
      0        202,400            12.30        10/4/2021                                   
      41,754        83,500            13.757        2/22/2021                                   
      72,299        59,644            9.7622        2/22/2017                                   
      84,954        0            9.608        9/30/2016                                   
      27,524        0            12.7443        9/29/2015                                   
      1,167        0            18.096        9/24/2014                                   
      1,272        0            16.6295        9/26/2013                                   
      9,961        0            15.40        9/28/2014                                   

David M. Randich

                                        72,800        $2,127,216        11,100        $324,342   
      0        37,400            19.46        2/21/2022                                   
      0        178,600            12.30        10/4/2021                                   
      0        59,644            13.757        2/22/2021                                   
      0        44,730            9.7622        2/22/2017                                   

Gregory J. Stoner(7)

    0        0            0        N/A        0        0        0        0   

 

  (1) Each outstanding stock option granted that is currently vested and exercisable is listed in this column. These stock option grants vested ratably on the first three anniversaries of the grant date.

 

36


Table of Contents

 

2012 EXECUTIVE COMPENSATION (CONTINUED)

 

 

  (2) Each outstanding stock option that is not yet vested and exercisable is listed in this column. Stock options granted on October 4, 2011 (and expiring October 4, 2021) were a one-time grant awarded in connection with the Spin-off of the Company. The charts below reflect the vesting schedule for each outstanding stock option grant awarded to the NEOs (assuming continued employment):

 

Options Vesting in 2013

(Dates Refer to Grant Date)

 
Name   02/22/2010     02/22/2011     02/22/2012     10/04/2011     Total Number of
Options Vesting
in 2013
 

Christopher J. Klein

    63,517         59,944        63,234        261,900        448,595     

E. Lee Wyatt, Jr.

    N/A         N/A        28,734        79,368        108,102     

John N. Heppner

    74,554         48,460        17,534        67,468        208,016     

David B. Lingafelter

    59,644         41,750        15,334        67,468        184,196     

David M. Randich

    44,730         29,824        12,468        59,534        146,556     

 

Options Vesting in 2014

(Dates Refer to Grant Date)

 
Name   02/22/2011     10/04/2011     02/22/2012    

Total Number

of Options
Vesting in 2014

 

Christopher J. Klein

    59,939          261,900        63,233        385,072   

E. Lee Wyatt, Jr.

    N/A          79,366        28,733        108,099   

John N. Heppner

    48,461          67,466        17,533        133,460   

David B. Lingafelter

    41,750          67,466        15,333        124,549   

David M. Randich

    29,820          59,533        12,466        101,819   

 

Options Vesting in 2015

(Dates Refer to Grant Date)

 
Name   10/04/2011     02/22/2012    

Total Number
of Options

Vesting in 2015

 

Christopher J. Klein

    261,900          63,233          325,133     

E. Lee Wyatt, Jr.

    79,366          28,733          108,099     

John N. Heppner

    67,466          17,533          84,999     

David B. Lingafelter

    67,466          15,333          82,799     

David M. Randich

    59,533          12,466          71,999     

 

  (3) Each outstanding RSU that is time-vested and that had not yet vested as of December 31, 2012 is listed in this column. RSUs granted on October 4, 2011 were a one-time grant awarded in connection with the Spin-off of the Company. The chart below reflects the vesting schedule for each outstanding RSU grant awarded to the NEOs (assuming continued employment):

 

RSUs Vesting in 2013

(Dates Refer to Grant Date)

 
Name   02/22/2010     07/27/2011     10/04/2011     02/21/2012    

Total Number
of RSUs

Vesting in 2013

 

Christopher J. Klein

    57,259        N/A        90,534        18,834        166,627   

E. Lee Wyatt, Jr.

    N/A        106,466        27,434        8,568        142,468   

John N. Heppner

    N/A        N/A        23,334        5,234        28,568   

David B. Lingafelter

    N/A        N/A        23,334        4,568        27,902   

David M. Randich

    N/A        N/A        20,568        3,700        24,268   

 

RSUs Vesting in 2014

(Dates Refer to Grant Date)

 
Name   02/22/2011     10/04/2011     02/21/2012    

Total Number of
RSUs

Vesting in 2014

 

Christopher J. Klein

    65,758        90,533        18,833        175,124   

E. Lee Wyatt, Jr.

    N/A        27,433        8,566        35,999   

John N. Heppner

    N/A        23,333        5,233        28,566   

David B. Lingafelter

    N/A