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

Filed by the Registrant  ☒                                             Filed by a Party other than the Registrant  ☐

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Leggett & Platt, Incorporated

(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

PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this proxy statement. It does not contain all the information that you should consider—please read the entire proxy statement before voting. These materials were first sent to our shareholders on March 26, 2019.

2019 Annual Meeting of Shareholders

Business Highlights

Board Nominees

All of Leggett’s directors are elected for a one-year term by a majority of shares present and entitled to vote at the Annual Meeting. The 2019 director nominees are:

Robert E. Brunner Independent

R. Ted Enloe, III Independent Chair

Manuel A. Fernandez Independent

Karl G. Glassman CEO & President

Retired Executive VP Illinois Tool Works

Managing General Partner Balquita Partners, Ltd.

Managing Director SI Ventures

CEO & President Leggett & Platt, Incorporated

Joseph W. McClanathan Independent

Judy C. Odom Independent

Srikanth Padmanabhan Independent

Phoebe A. Wood Independent

Retired President & CEO – Household Products Division Energizer Holdings, Inc.

Retired Chair & CEO Software Spectrum

Vice President Cummins, Inc.

Retired Vice Chair & CFO Brown-Forman Corp.

		Robert E. Brunner		R. Ted Enloe, III		Manuel A. Fernandez		Karl G. Glassman		Joseph W. McClanathan		Judy C. Odom		Srikanth Padmanabhan		Phoebe A. Wood
Independent Director
L&P Director since		2009		1969		2014		2002		2005		2002		2018		2005
Age		61		80		72		60		66		66		54		65
L&P Committee Memberships
Audit												Chair
Compensation																Chair
Nominating & Corporate Governance										Chair
Other Public Company Boards		2		1		2		0		1		1		0		3
EXPERIENCE AND QUALIFICATIONS
Financial/Accounting
Global Business
R&D/Innovation/Technology
Manufacturing/Operations
Corporate Governance
Strategic Planning
HR/Compensation
Risk Management
IT/Cybersecurity
Leggett Industry Experience

Diversity – Our Nominating & Corporate Governance Committee recognizes the value of cultivating a Board with a diverse mix of opinions, perspectives, skills, experiences, and backgrounds. A diverse board enables more balanced, wide-ranging discussion in the boardroom, which, we believe, enhances the decision-making processes. The matrix above reflects some aspects of the Board’s diversity. In addition, four of our eight director nominees (50%) are women or racial/ethnic minorities.

Executive Compensation

L&P seeks to align our executives’ and shareholders’ interests through pay-for-performance. In 2018, 84% of our CEO’s target compensation was performance-based and 64% was delivered in equity-based awards, excluding the one-time transition award discussed below.

Our compensation structure strives to strike an appropriate balance between short-term and longer-term compensation that reflects the short- and longer-term interests of the business. We believe this structure helps us attract, retain and motivate high-performing executives who will achieve outstanding results for our shareholders.

Key Components of Our Executive Officers’ 2018 Compensation Program

Changes in 2018

Since 2013, our long-term incentive (LTI) awards have consisted of (i) the two-year Profitable Growth Incentive (PGI) with vesting based upon a combination of revenue growth and EBITDA margin and (ii) the three-year Performance Stock Units (PSU) with vesting based upon relative TSR. In 2018, our LTI awards underwent the following changes to better align our compensation programs with the Company’s long-term strategy:

Shifting a significant portion of our executives’ LTI from a two-year to a three-year performance period in 2018 created a gap in their realizable pay opportunity for 2020 (when the 2018 PGI would have been paid, if earned, had it not been eliminated). As a result, the former PGI participants were granted a one-time transition PSU award based on EBIT CAGR over a two-year performance period to fill the gap. This transition award created a one-time spike in the grant date value of 2018 equity-based awards reported in the Summary Compensation Table. However, as illustrated below, with the transition award the realizable pay opportunity remains steady from 2018 to 2021:

Key Features of Our Executive Officer Compensation Program

CORPORATE GOVERNANCE AND BOARD MATTERS

Leggett & Platt has a long-standing commitment to sound corporate governance principles and practices. The Board of Directors has adopted Corporate Governance Guidelines that establish the roles and responsibilities of the Board and management. The Board has also adopted a Code of Business Conduct and Ethics applicable to all Company employees, officers and directors, as well as a separate Financial Code of Ethics applicable to the Company’s CEO, CFO, and principal accounting officer. These documents can be found at www.leggett-search.com/governance.

Director Independence

Board Leadership Structure

Communication with the Board

Shareholders and all other interested parties wanting to contact our Board of Directors may e-mail the Board Chair, Mr. Enloe, at boardchair@leggett.com. They can also write to Leggett & Platt Board Chair, P.O. Box 637, Carthage, MO 64836. The Corporate Secretary’s office reviews this correspondence and periodically sends Mr. Enloe all communications except items unrelated to Board functions. In his discretion, Mr. Enloe may forward communications to the full Board or to any of the other independent directors for further consideration.

In 2018, we engaged with shareholders on a variety of issues, including board refreshment and director evaluations, with an independent director participating in those discussions, as appropriate.

Board and Committee Composition and Meetings

The Board held six meetings in 2018, and its committees met the number of times listed in the table below. All directors attended at least 75% of the Board meetings and their respective committee meetings. Directors are expected to attend the Company’s annual meeting of shareholders, and all of them attended the 2018 annual meeting.

The Board has a standing Audit Committee, Compensation Committee, and Nominating & Corporate Governance (N&CG) Committee. These committees consist entirely of independent directors, and each operates under a written charter adopted by the Board. The Audit, Compensation, and N&CG Committee charters are posted on our website at www.leggett-search.com/governance.

Board and Committee Evaluations

The Board and each of its Committees conduct an annual self-evaluation of their practices and charter responsibilities. In addition, the Board periodically conducts director peer reviews of the qualifications and contributions of its individual members.

Board’s Oversight of Risk Management

Consideration of Director Nominees and Diversity

The Nominating & Corporate Governance Committee is responsible for identifying and evaluating qualified candidates for election to the Board of Directors. The Committee’s procedure and the Company’s bylaws can be found at www.leggett-search.com/governance. Following its evaluation, the N&CG Committee recommends to the full Board a slate of director candidates for inclusion in the Company’s proxy statement and proxy card.

Incumbent Directors. In the case of incumbent directors, the N&CG Committee reviews each director’s overall service during his or her current term, including the number of meetings attended, level of participation, quality of performance and any transactions between the director and the Company.

New Director Candidates. In the case of new director candidates, the N&CG Committee first determines whether the nominee will be independent under NYSE rules, then identifies any special needs of the Board. The N&CG Committee will consider individuals recommended by Board members, Company management, shareholders and, if it deems appropriate, a professional search firm. In 2018, the Company retained Diversified Search to assist with identifying and evaluating potential director candidates, including Mr. Padmanabhan.

The N&CG Committee seeks to identify and recruit the best available candidates, who should have the following minimum qualifications:

Board Diversity. The N&CG Committee recognizes the value of cultivating a Board with a diverse mix of opinions, perspectives, skills, experiences, and backgrounds. A diverse board enables more balanced, wide-ranging discussion in the boardroom, which, we believe, enhances the decision-making processes. Having diverse representation and a variety of viewpoints is also important to our shareholders and other stakeholders.

As such, the N&CG Committee considers director candidates from a wide variety of backgrounds, without discrimination based on race, ethnicity, color, ancestry, national origin, religion, sex, sexual orientation, gender identity, age, disability, or any other status protected by law.

All nominations to the Board will be based upon merit and experience relevant to the Board’s current and anticipated needs, as well as Leggett’s businesses. Subject to this overarching principle, the N&CG Committee will have regard for the need to consider director candidates to maintain and strengthen the Board’s diversity.

Director Recommendations from Shareholders. The N&CG Committee does not intend to alter its evaluation process, including the minimum criteria set forth above, for candidates recommended by a shareholder. Shareholders who wish to recommend candidates for the N&CG Committee’s consideration must submit a written recommendation to the Secretary of the Company at 1 Leggett Road, Carthage, MO 64836. Recommendations must be sent by certified or registered mail and received by December 15^th for the N&CG Committee’s consideration for the following year’s annual meeting of shareholders. Recommendations must include the following:

Director Nominations for Inclusion in Leggett’s Proxy Materials (Proxy Access). In 2017, the Board approved a proxy access bylaw, which permits a shareholder, or group of up to 20 shareholders, owning at least 3% of our outstanding shares continuously for at least three years, to nominate and include in Leggett’s proxy materials up to the greater of two nominees or 20% of the Board, provided the shareholders and nominees satisfy the requirements specified in our bylaws. Notice of proxy access nominees for the 2020 annual meeting must be received no earlier than January 8, 2020 and no later than February 7, 2020.

Notice of Other Director Nominees. For shareholders intending to nominate a director candidate for election at the 2020 annual meeting outside of the Company’s nomination process, our bylaws require that the Company receive notice of the nomination no earlier than January 8, 2020 and no later than February 7, 2020. This notice must provide the information specified in Section 2.2 of the bylaws.

Transactions with Related Persons

According to our Corporate Governance Guidelines, the N&CG Committee reviews and approves or ratifies transactions in which a related person has a direct or indirect material interest, the Company or a subsidiary is a participant, and the amount involved exceeds $120,000. If the transaction with a related person concerns compensation, the Compensation Committee conducts the review.

The Company’s executive officers and directors are expected to notify the Company’s Corporate Secretary of any current or proposed transaction that may be a related person transaction. The Corporate Secretary will determine if it is a related person transaction and, if so, will include it for consideration at the next meeting of the appropriate Committee. Approval should be obtained in advance of a related person transaction whenever practicable. If it becomes necessary to approve a related person transaction between meetings, the Chair of the appropriate Committee is authorized to act on behalf of the Committee. The Chair will provide a report on the matter to the full Committee at its next meeting.

The full policy for reviewing transactions with related persons, including categories of pre-approved transactions, is found in our Corporate Governance Guidelines available on our website at www.leggett-search.com/governance.

Each of the following transactions was approved in accordance with our Corporate Governance Guidelines:

Director Compensation

Our non-management directors receive an annual retainer, consisting of a mix of cash and equity, as set forth below. Our management directors (Mr. Glassman and Mr. Flanigan) do not receive additional compensation for their Board service.

Director Compensation in 2018

Our non-management directors received the following compensation in 2018:

Only one director held outstanding stock options as of December 31, 2018: Mr. Enloe’s 10,174 options granted in lieu of cash compensation under our Deferred Compensation Program.

All of our non-management directors held unvested stock or stock units as of December 31, 2018 as set forth below. The restricted stock and RSUs will vest on May 15, 2019.

In recommending the slate of director nominees, our Board has chosen individuals of character and integrity, with a commitment to the long-term growth and profitability of the Company. We believe each of the nominees brings significant business or public experience relevant and beneficial to the Board and the Company, as well as a work ethic and disposition that foster the collegiality necessary for the Board and its committees to function efficiently and best represent the interests of our shareholders.

Additional information concerning the directors is found in the Proxy Summary at page 2.

The Board recommends that you vote FOR the election of each of the director nominees.

The Audit Committee regularly evaluates activities to assure continuing auditor independence, including whether there should be a regular rotation of the independent registered public accounting firm. As with all matters, the members of the Audit Committee and the Board perform assessments in the best interests of the Company and our investors and believe that the continued retention of PwC meets this standard.

Although shareholder ratification of the Audit Committee’s selection of PwC is not required by the Company’s bylaws or otherwise, the Board is requesting ratification as a matter of good corporate practice. If our shareholders fail to ratify the selection, it will be considered a direction to the Audit Committee to consider a different firm. Even if this selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change is in the best interest of the Company and our shareholders.

PwC representatives are expected to be present at the annual meeting. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate shareholder questions.

The Board recommends that you vote FOR the ratification of PwC

as the independent registered public accounting firm.

Audit and Non-Audit Fees

The Audit Committee is directly responsible for the compensation, retention, performance and oversight of the independent external audit firm, directly involved in the selection of the lead engagement partner, and responsible for the audit fee negotiations associated with retaining PwC. The fees billed or expected to be billed by PwC for professional services rendered in fiscal years 2018 and 2017 are shown below.

Pre-Approval Procedures for Audit and Non-Audit Services

The Audit Committee has established a procedure for pre-approving the services performed by the Company’s auditors. All services provided by PwC in 2018 were approved in accordance with the adopted procedures. There were no services provided or fees paid in 2018 for which the pre-approval requirement was waived.

The procedure provides standing pre-approval for:

Audit Services: rendering an opinion on the Company’s consolidated financial statements and the effectiveness of internal control over financial reporting; quarterly reviews of the Company’s financial statements; statutory audits, where appropriate; comfort and debt covenant letters; and services in connection with regulatory filings.

Audit-Related Services: consultation on new or proposed transactions, statutory requirements, or accounting principles; reports related to contracts, agreements, arbitration, or government filings; continuing professional education; audits of employee benefit plans and subsidiaries; and due diligence and audits related to acquisitions and joint ventures.

Tax Services: preparation and review of Company and related entity income, sales, payroll, property, and other tax returns and tax filings and permissible tax audit assistance; preparation or review of expatriate and similar employee tax returns and tax filings; tax consulting and advice related to compliance with applicable tax laws; tax planning strategies and implementation; and tax due diligence related to acquisitions and joint ventures.

Any other audit, audit-related, or tax services provided by the Company’s auditors require specific Audit Committee pre-approval. The Audit Committee must also specifically approve in advance all permissible Non-Audit Services to be performed by the Company’s auditors. Management provides quarterly reports to the Audit Committee concerning any fees paid to the auditors for all services. The Audit Committee has determined that the provision of the approved Non-Audit Services by PwC in 2018 is compatible with maintaining PwC’s independence.

Audit Committee Report

The Audit Committee is composed of six non-management directors who are independent as required by SEC and NYSE rules. The Audit Committee operates under a written charter adopted by the Board which is posted on the Company’s website at www.leggett-search.com/governance.

Management is responsible for the Company’s financial statements and financial reporting process, including the system of internal controls. PwC, our independent registered public accounting firm, is responsible for expressing an opinion on the conformity of the audited consolidated financial statements with accounting principles generally accepted in the United States.

The Audit Committee is responsible for monitoring, overseeing and evaluating these processes, providing recommendations to the Board regarding the independence of and risk assessment procedures used by our independent registered public accounting firm, selecting and retaining our independent registered public accounting firm, and overseeing compliance with various laws and regulations.

At its meetings, the Audit Committee reviewed and discussed the Company’s audited financial statements with management and PwC. The Audit Committee also discussed with PwC all items required by Public Company Accounting Oversight Board Auditing Standard 1301—Communications with Audit Committees.

The Audit Committee received the written disclosures and letter from PwC required by applicable requirements of the Public Company Accounting Oversight Board regarding PwC’s communications with the Audit Committee concerning independence and has discussed PwC’s independence with them.

The Audit Committee has relied on management’s representation that the financial statements have been prepared in conformity with accounting principles generally accepted in the United States and on the opinion of PwC included in their report on the Company’s financial statements.

Based on review and discussions with management and PwC referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s 2018 Annual Report on Form 10-K.

Since Say-on-Pay was implemented in 2011, our shareholders have supported the compensation of our named executive officers with over 90% of the vote (with 95% support in 2018).

Our Compensation Committee is committed to creating an executive compensation program that enables us to attract and retain a superior management team that has targeted incentives to build long-term value for our shareholders. The Company’s compensation package uses a mix of cash and equity-based awards to align executive compensation with our annual and long-term performance. These programs reflect the Committee’s philosophy that executive compensation should provide greater rewards for superior performance, as well as accountability for underperformance. At the same time, we believe our programs do not encourage excessive risk-taking by management. The Board believes that our philosophy and practices have resulted in executive compensation decisions that are appropriate and that have benefited the Company over time.

For these reasons, the Board requests our shareholders approve the compensation paid to the Company’s named executive officers as described in this proxy statement, including the Compensation Discussion and Analysis, the executive compensation tables and the related footnotes and narrative accompanying the tables.

Because your vote is advisory, it will not be binding upon the Board; however, the Compensation Committee and the Board has considered and will continue to consider the outcome of the vote when making decisions for future executive compensation arrangements.

The Board recommends that you vote FOR the Company’s named executive officer compensation package.

Discretionary Vote on Other Matters

We are not aware of any business to be acted upon at the annual meeting other than the three items described in this proxy statement. Your signed proxy, however, will entitle the persons named as proxy holders to vote in their discretion if another matter is properly presented at the meeting. If one of the director nominees is not available as a candidate for director, the proxy holders will vote your proxy for such other candidate as the Board may nominate.

EXECUTIVE COMPENSATION AND RELATED MATTERS

Compensation Discussion & Analysis

Our Compensation Committee, consisting of six independent directors, is committed to creating and overseeing an executive compensation program that enables us to attract and retain a superior management team that has targeted incentives to build long-term value for our shareholders. To meet these objectives, the Committee has implemented a compensation package that:

This Compensation Discussion and Analysis describes our executive compensation program and the decisions affecting the compensation of our Named Executive Officers (NEOs):

Executive Summary

This section provides an overview of our NEOs’ compensation structure, Leggett’s pay practices, and the Committee’s compensation risk management. Additional details regarding the NEOs’ pay packages, the Committee’s annual review of the executive officers’ compensation, and our equity pay practices are covered in the sections that follow.

Structuring the Mix of Compensation

The Committee uses its judgment to determine the appropriate percentage of variable and fixed compensation, the use of short-term and long-term performance periods, and the split between cash and equity-based compensation. The ultimate payment and value of the variable elements depends on actual performance and could result in no payout if threshold performance levels are not achieved. The following table shows the key attributes of our executive compensation programs used to drive performance and build long-term shareholder value, following the changes implemented in 2018.

Incentive Payouts in 2018

Our executives’ 2018 annual incentive payouts under the Key Officers Incentive Plan (KOIP) tracked the Company’s operational results in 2018, in which we generated incentive cash flow of $421 million (versus a target of $400 million, resulting in a 114.8% payout) and 41.2% return on capital employed (versus a target of 45%, resulting in a 73.1% payout). Each of the NEOs also had individual performance goals (IPGs) which accounted for 20% of their target annual incentive payout. The Key Officers Incentive Plan, including the calculations and targets for adjusted cash flow and return on capital employed (ROCE), is described on page 25.

With respect to our executives’ long-term incentive (LTI) awards which vested at the end of 2018, the combination of 7.3% revenue growth and 14.6% EBITDA margin over the two-year performance period for the 2017 Profitable Growth Incentive (PGI) awards resulted in a 186.3% payout for Corporate participants. The PGI program, including the calculations and targets for revenue growth and EBITDA margin, is described on page 29.

Leggett’s cumulative TSR from 2016-2018 was -6.5%, which placed us in the 22nd percentile of the peer group, below the vesting threshold, and resulted in no payout for the three-year PSUs granted in 2016. The pre-2018 Performance Stock Units, including the calculation of relative TSR and the vesting schedule, is described on page 29.

CEO Incentive Compensation Vesting in 2018

Changes in 2018

Since 2013, our LTI awards have been entirely performance-based, consisting of (i) two-year PGI awards based on revenue growth and EBITDA margin and (ii) three-year PSU awards based on relative TSR. In 2018, our LTI program underwent the following changes to better align our compensation programs with the Company’s long-term strategy:

Shifting a significant portion of our executives’ LTI from a two-year to a three-year performance period in 2018 created a gap in their realizable pay opportunity for 2020 (when the 2018 PGI would have been paid, if earned, had it not been eliminated). As a result, the former PGI participants were granted a one-time transition PSU award based on EBIT CAGR over a two-year performance period to fill the gap. This transition award created a spike in the grant date value of 2018 equity-based awards reported in the Summary Compensation Table (see page 35). However, as illustrated below, with the transition award the realizable pay opportunity remains steady from 2018 to 2021:

Following the 2018 restructuring of our LTI program, the compensation mix of our CEO and the other NEOs remained heavily weighted to performance-based compensation, with a majority of their pay package being equity-based through the PSUs.

* Excludes the one-time, transition PSU award with a two-year performance period.

Sound Pay Practices

The Company is committed to executive compensation practices that align the interests of our executives and our shareholders:

Additional Investment in Leggett Stock

In addition to having pay packages that are heavily weighted to Leggett equity-based awards, for many years our NEOs have voluntarily deferred substantial portions of their cash compensation into Company stock through the Executive Stock Unit (ESU) Program and the Deferred Compensation Program. Through participation in these programs, particularly the ESU Program, in which Company equity is held until the executive leaves the Company, our NEOs are further invested in the long-term success of the Company.

Managing Compensation Risk

The Committee regularly reviews whether our executive compensation policies and practices (as well as those that apply to our employees generally) are appropriate and whether they create risks or misalignments that are reasonably likely to have a material adverse effect on the Company.

We believe that our compensation programs align our executives’ incentives for risk taking with the long-term best interests of our shareholders. We mitigate risk by allocating incentive compensation across multiple components. This structure reduces the incentive to take excessive risk because it:

Additional safeguards against undue compensation risk include stock ownership guidelines, caps on incentive payouts, and clawbacks for performance-based compensation.

Impact of 2018 Say-on-Pay Vote

At our annual meeting of shareholders held on May 15, 2018, 95% of the votes cast on the Say-on-Pay proposal approved the compensation of our NEOs. The Committee believes that this shareholder vote strongly endorses the Company’s compensation philosophy and programs. The Committee took this support into account as one of many factors it considered in connection with the discharge of its responsibilities (as described in this Compensation Discussion and Analysis) in exercising its judgment in establishing and overseeing our executive compensation arrangements throughout the year.

Our Compensation Components and Programs

Base Salary

Base salary is the only fixed portion of our NEOs’ compensation package. Salary levels are intended to reflect specific responsibilities, performance and experience, while taking into account market compensation levels for comparable positions. Although base salary makes up less than one-fourth of our NEOs’ aggregate compensation, it’s the foundation for the total package with the variable compensation components set as percentages of base salary:

The Committee reviews and determines the NEOs’ base salaries (along with the rest of their compensation packages) during the annual review, which is discussed on page 32. In connection with the November 2017 review relating to the executive officers’ 2018 compensation, the Committee raised Mr. Glassman’s base salary by 4.3%, Mr. Flanigan’s by 4.0%, and Mr. Davis’ and Mr. Dolloff’s by 2.4% each. Mr. Douglas’ 2018 base salary was increased by 15.2% as a result of taking on additional responsibilities. The NEOs’ annual incentive target percentages remained unchanged for 2018.

Annual Incentive

Our NEOs earn their annual incentive, a cash bonus paid under the Key Officers Incentive Plan, based on achieving certain performance targets for the year.

Our executive officers are divided into two groups under the KOIP for 2018, depending upon their areas of responsibility: (i) corporate participants (Glassman, Flanigan and Douglas), whose performance criteria and payouts are based on the Company’s overall results, and (ii) profit center participants (Davis and Dolloff) whose performance targets are set for the operations under their control. The NEOs also have individual performance goals (IPGs) as part of their annual incentive.

Each NEO has a target incentive amount—the amount received for achieving exactly 100% of all performance goals. The target incentive amount is the officer’s base salary multiplied by his target incentive percentage. At the end of the year, the target incentive amount is multiplied by the payout percentages for the various performance metrics (each with its own weighting) to determine the annual incentive payout.

Performance Metrics. The Committee chose ROCE⁽¹⁾ as the primary incentive target with a 60% weighting to improve earnings and maximize returns on key assets by carefully managing working capital and fixed asset investments. The annual incentive is also based upon cash flow⁽²⁾ with a 20% weighting, which is critical to fund the Company’s dividend, capital expenditures and ongoing operations. Profit center participants are also subject to an adjustment ranging from a potential 5% increase for exceptional safety performance to a 20% deduction for their operations’ failure to achieve safety, audit and environmental standards.

For profit center participants (Davis and Dolloff): the same formula is used, except (i) EBITDA is adjusted for currency effects and (ii) change in working capital excludes balance sheet items not directly related to ongoing activities.

ROCE and cash flow calculations are adjusted for all items of gain, loss or expense (i) from non-cash impairments; (ii) related to loss contingencies identified in the Company’s 2017 10-K; (iii) related to the disposal of a segment of a business; or (iv) related to a change in accounting principle. Financial results from acquisitions are excluded from calculations in the year of acquisition. Financial results from businesses divested during the year are included, but targets relating to the divested businesses will be prorated to reflect only that portion of the year prior to the divestiture. Financial results from businesses classified as discontinued operations are included in the calculations. Financial results exclude (i) certain currency and hedging-related gains and losses, (ii) gains and losses from asset disposals, and (iii) items that are outside the scope of the Company’s core, on-going business activities.

Individual Performance Goals. In addition to the financial metrics described above, the annual incentive includes IPGs at a 20% weighting that are tailored to each executive’s responsibilities and aligned with the Company’s strategic goals. The Committee approved the 2018 IPGs covering the following areas of responsibility, with achievement based upon the performance scale detailed in the tables below:

Targets and Payout Schedules. Upon selecting the metrics and IPGs, the Committee established performance achievement targets and payout schedules. In setting the payout schedules, the Committee evaluated various payout scenarios before selecting one that struck a balance between accountability to shareholders and motivation for participants. The payout for each portion of the annual incentive is capped at 150%.

2018 Corporate Payout Schedule

2018 Profit Center Payout Schedule

Mr. Davis’ target for a 100% payout was 33.9% ROCE (33.5% actual) and $169.1 million free cash flow ($166.5 million actual) for the Residential Products Segment and 24.0% ROCE (48.8% actual) and $44.3 million free cash flow ($68.7 million actual) for the Industrial Products Segment. His annual incentive opportunity was apportioned between Residential Products (85%) and Industrial Products (15%) based on their relative 2017 EBITDA.

The following table provides the details of the 2018 annual incentive payouts for our NEOs:

Equity-Based Awards

We grant performance stock units to our NEOs and other senior managers to tie their pay to the Company’s performance and shareholder returns. The payouts from these equity-based awards reflect our philosophy that executive compensation should provide greater rewards for superior performance, as well as accountability for underperformance.

2018 Three-Year Performance Stock Units. As discussed above, 2018 was a year of transition for our LTI programs. For the previous five years, we granted two-year PGI awards with vesting based upon a combination of revenue growth and EBITDA margin, and three-year PSU awards with vesting based upon relative TSR. Each of the NEOs had their award percentages for these two programs aggregated in 2018 and received a combined PSU award with 50% continuing to vest based upon relative TSR and 50% now vesting based on EBIT CAGR. The Committee believes that the new PSU awards streamline our LTI program while balancing operational performance (EBIT CAGR) and external results (relative TSR).

The Committee reviewed the combined award percentages in the context of the benchmarking data and the other considerations described on page 32 and made the following adjustments to the NEOs: Mr. Glassman’s combined PSU award percentage was increased from 352% to 400% of base salary, Mr. Flanigan’s award percentage was increased from 245% to 250%, Mr. Davis’ and Mr. Dolloff’s award percentages were both increased from 194% to 250%, and Mr. Douglas’ award percentage was increased from 151% to 155%.

The PSU grants are determined by multiplying the executive’s base salary by the PSU award percentage approved by the Committee (see the table on page 24). The vesting schedules for the three-year PSU awards granted in 2018 are as follows:

2018 Two-Year Transition Performance Stock Units. In connection with the decision to move a significant portion of the long-term incentive opportunity from a two-year to a three-year performance period by eliminating PGI awards in 2018, the Committee also granted each executive officer a one-time transition PSU award in 2018 based upon EBIT CAGR only (see the vesting schedule above) over a two-year performance period. This transition PSU award was set at 50% of the executive officers’ 2018 PSU award percentages described above. This transition award creates a one-time spike in the grant date value of 2018 equity-based awards reported in the Summary Compensation Table, but the realizable pay opportunity remains steady from 2018 to 2021 as the transition from two-year to three-year vesting takes place (see the chart at page 22).

When the 2018 PSUs vest, we anticipate that they will be paid out 50% in Company stock and 50% in cash, although the Company reserves the right to pay up to 100% in cash.

Pre-2018 Awards: Performance Stock Units and Profitable Growth Incentive. Prior to 2018, the three-year PSUs were based solely on Leggett’s relative TSR with the following vesting schedule:

The performance period for the 2016 PSU awards ended on December 31, 2018, with Leggett’s TSR for that three-year period below the 25^th percentile, resulting in no payout. Our TSR ranks in the 21^st percentile for the 2017 PSU awards with one year remaining in the performance period. These PSUs will be paid out 65% in Company stock and 35% in cash, although the Company reserves the right to pay up to 100% in cash.

Through 2017, the NEOs’ compensation package included the Profitable Growth Incentive, a performance-based equity program with a two-year performance period and payouts based on a matrix of revenue growth and EBITDA margin. The threshold achievement for revenue growth was the projected GDP growth of our primary geographic markets, and the EBITDA margin scale was based upon the Company’s prior three-year average. The PGI payout scale was intended to reward growth at or above GDP while maintaining or improving historical margins.

For the PGI awards granted in 2017, the payout schedule for our corporate participants (Glassman, Flanigan and Douglas) was: